Are Nokia and Microsoft getting ready to tango with a Windows Phone 7 alliance? That possibility has been on the cards, according to the buzz, before a German bank analyst, in a 31 January letter, encouraged the companies to port Microsoft's mobile software onto Nokia smartphones.

In a letter addressed to CEOs of both companies, Adnaan Ahmad said: "You get access to their WP7 intellectual property (IPR) scot-free and access to the US market where your share has dived to the low single-digit level, and in doing so cut your bloated handset business R&D budget."

The letter came after Nokia CEO Stephen Elop's 27 January earnings-call statement that Nokia "must build, catalyse or join a competitive ecosystem."

Nokia is hosting an event on 11 February to reveal its strategy. "We are very clearly ensuring that it will give us the opportunity to reopen markets such as the US and some others," Elop added, "where we have not recently been present."

Microsoft and Nokia already have a software partnership going from August 2009, when the two companies announced that mobile versions of Microsoft Office would come preloaded on Nokia smartphones. Nokia also started working on optimising Microsoft Exchange ActiveSync for its devices at the time, to allow for more streamlined access to e-mail and personal information.

Even as Microsoft and Nokia continued to work together on that front, at the same time continuing to compete via their respective smartphone platforms, a changeover in the companies' executive suites threatened to spin the relationship in unexpected ways.

In September 2010, Microsoft Business Division president Stephen Elop stepped down and took over the reins at Nokia.

This led to a new question: Would Elop, in his new role, try to further the relationship between the two companies, or would he try to increase competition, given his intimate knowledge of the workings at Microsoft.
 
Elop came in at Nokia as a potential change agent, even as research firm IDC projected that the company's share of the mobile market would continue to fall through 2014.

One analyst says a Nokia and Microsoft alliance on Windows Phone 7 offers some advantages.

According to him, the hardware competition was fierce and companies like Samsung and LG had made enormous gains on the device side by being agnostic and opportunistic. He added that Nokia's quest to "leverage smartphone device economics," would eventually mean "coming to terms with Android and Windows Phone 7."

Other analysts have doubts over the potential benefits, which they see as minimal. They say desktop operating systems are hard to do translate to the phone.

However, irrespective of Nokia's final decision, it would likely have a significant effect on the company's fortunes moving forward. Both Nokia and Microsoft find themselves increasingly pitted against the growing family of Google Android devices and Apple's iPhone, which have proven themselves to be fierce competitors.

According to analysts, Microsoft's Windows Phone 7, launched in the US in November, is intended to help the company recoup its falling share of the market.