In a move that puts further distance between itself and its two floundering rivals, Nokia has slashed the price of its mobile phones by up to ten percent. The biggest fall in price has been made on its music and media phones (specifically, the Nokia 5310, 5610 and N81 8GB), putting particular pressure on Sony Ericsson's Walkman range and Motorola's ROKR range.

Nokia holds a commanding lead in the mobile phone market with 41% market share, and makes a healthy profit. In contrast, two of the big five mobile phone firms are floundering. Motorola has already announced it's spinning off its loss-making mobile phone division as the huge losses it's been making are dragging the entire company down. More recently, Sony announced that its profits were also being hit by its mobile phone division, Sony Ericsson.

Sony Ericsson made just $6 million in the April - June quarter, a massive 97% drop from the same period last year, when it posted a $220 million profit. The company announced it is shedding some 2,000 jobs to help stem the losses, but it may only be a matter of time before Sony decides to go down the Motorola route and spin off its mobile phone company from the main parent group (although this will be more difficult to achieve than it was for Motorola, due to Ericsson's stake in the joint partnership).

For us consumers, though, all this is good news isn't it? Price cuts, cheaper phones - where's the harm in that? Find out after the jump.

Short term, cheap phones

In the short term, we consumers get much cheaper phones, which can't be bad! LG has already announced that market conditions are set to get so tough that it predicts prices will need to be slashed by 25% in the next two years, and the latest price reduction by Nokia just confirms this.

With Nokia signalling a price-war, the other manufacturers will have no choice but to follow suit. Equally, with many people strapped for cash by the rising price of living, expensive mobile phones may be the last thing on people's minds, and so all the manufacturers may have to reduce prices, just to get people to keep buying their products.

Long term, less innovation

In the long term, however, things may not be so great. Nokia may be dominant right now, but a price war that only it can win may prove too much for Motorola and Sony Ericsson. If they fail, or refocus towards the budget end of the market where R&D costs are much cheaper, then Nokia will find itself in an even more dominant position as it grabs yet more market share.

However, it's the strong competition from the remaining four manufacturers that keeps it honest and keeps the whole mobile phone market innovating so quickly. If Nokia were to lose some of its competition, there would be no need for it to develop new products quite so quickly, resulting in a market similar to the US one, where phones are not exactly what you call advanced.

Apple and Google Android to the rescue?

The Korean manufacturers LG and Samsung will still be able to compete, as both companies have healthy profits, a huge conglomerate behind them with deep pockets, and the Korean Won is weak compared to the dollar, helping them export their phones at lower prices in US markets without hurting them at home.

But three mobile phone manufacturers will not be enough to maintain the pace of competition that we currently have. Let's hope that Motorola and Sony Ericsson survive their current problems, and that Apple and Google Android are also able to join the market in respectable numbers, and thus help maintain the ferocious pace of competition that amkes the mobile phone world so exciting.

[Source: Reuters]