NOKIA TO RELEASE ITS FIRST ANDROID PHONE

whose mobile-device business will soon be bought by Microsoft, plans to introduce this month a smartphone powered by a version of Google's Android mobile software, according to people familiar with the matter.

Nokia engineers had been developing the Android phone before Microsoft struck the €5.4 billion ($7.4 billion) deal last September to buy Nokia's handset business and license the Finnish company's patents. It hasn't been clear before now whether Nokia would move ahead with the Android phone, expected to be introduced at the Mobile World Congress industry trade show starting Feb. 24.

The decision to release the Android phone underscores how badly Microsoft and Nokia each miscalculated in the mobile market. For technical reasons, Microsoft's Windows Phone operating system doesn't yet work on the low-cost smartphones that have become big sources of growth, particularly in emerging markets.

Nokia was once the king of cellphones in emerging markets. But it has lost ground because it was slow to respond to Android's popularity in many countries. In India, where Nokia's Symbian-powered phones held a big share of cellphone sales just a few years ago, Android was installed on 93% of new smartphones shipped there last year, according to estimates from research firm IDC.

"Android has the entry-level smartphone market almost all to itself," said Neil Mawston, an analyst at research firm Strategy Analytics. "Microsoft's missteps in the low-end smartphone market are costing it and Nokia huge amounts of lost volume."

At least for now, Microsoft appears willing to outsource part of its phone lineup to Android to boost volumes and support its handset manufacturing operation. Higher sales would help cover the high cost of competing in a smartphone industry dominated by Google, Apple Inc. and Samsung Electronics Co. , according to people familiar with the matter.

At the same time, Microsoft will focus attention on Windows Phone devices to better compete with pricier smartphones such as Apple's iPhones or Samsung's Galaxy devices.

It isn't clear whether the Android phone strategy is a stopgap measure while Microsoft refashions its Windows Phone operating software to work on lower-priced smartphones.

The Nokia phones will differ from most other Android smartphones, and won't access some Google-developed features or Android apps from the Google Play storefront, said the people familiar with the matter.

Instead, the phone will come installed with digital services created by Nokia and Microsoft, including mapping service Here and streaming music service MixRadio, as well as a Nokia application store.

The strategy echoes the approach of Amazon.com Inc., AMZN -0.06% which has used a modified version of Android for Kindle tablets that don't accept Android apps.

Some mobile-phone companies in emerging markets also sell Android phones that don't connect to the Google Play app store. Google backs Android, but the software can be modified and distributed by phone makers and developers.

Google declined to comment.

One reason for the Nokia acquisition, Microsoft executives have said, was to improve its chances of hooking consumers in emerging markets.

When those phone buyers move up into pricier smartphones with more features, Microsoft executives have said they want to ensure the company is in a position to grab a slice of those upwardly mobile consumers.

Phones with low prices "are often the first connection with technology that people in many places in the world have with any kind of communications or information technology device," Steve Ballmer, then Microsoft's CEO, said in a conference call in September. "We look at that as an excellent feeder system."

Microsoft said last fall that it needed to sell 50 million Lumia phones to break even on the business. Last month, Nokia said it sold 30 million of its Lumia Windows phones in all of 2013.