Nokia paying Microsoft $60 per Windows Phone royalty

Potentially crippling cost of Nokia's Windows Phone licence revealed

Nokia is paying about $60 (£40) per phone to licence the Windows Phone operating system from software giant Microsoft.

The news is buried within the company's latest quarterly report in which it reveals that it is receiving quarterly payments of $250m (£160m) in "platform support payments" from Microsoft, and paying a little less in return in royalty payments.

"The total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitments," states the quarterly report.

The royalty payments from Nokia to Microsoft consist largely of a flat-rate fee, meaning that should sales of Nokia's Windows Phone smartphones take off, the per-unit cost of the licence ought to fall.

However, at current sales, Nokia is paying about £40 per phone for each licence. In the UK, that means that almost a quarter of the cost of an entry-level Nokia Lumia 610 is accounted for by the cost of the Microsoft Windows Phone licence.

That compares to the £70 price of an entry-level Android phone, such as the Samsung Galaxy Y or £100 for an HTC Desire C.

The price of Nokia's Windows Phone 7 Lumia phones have been slashed in the US market as a result of Microsoft's Windows Phone 8 pre-announcement, but they remain well above most Android phones in price.

The platform support payments that Microsoft is paying Nokia is intended to cover patents and other technology that Nokia is lending to Microsoft's Windows Phone development. The companies are pooling resources in a number of areas, such as mapping and online services.

Nokia is also tied into Microsoft on a long-term contract, restricting Nokia's ability to ditch the Redmond-based software giant and adopt any more popular or cheaper alternatives.

"In accordance with the contract terms, the platform support payments and annual minimum software royalty commitment payments continue for a corresponding period of time," states the report.