Handset maker Nokia has received approval from the European Commission to acquire Navteq, a global provider of digital map data for location-based mobile services and vehicle navigation.

The parties expect to close the deal before the end of next week. Nokia said that Navteq will play a key role in its mobile Web services strategy, citing its customer base and the broadest geographical coverage of its map data and technology platform.

"It's clear that a major player like Nokia thinks location and services around that type of mapping application will be important and it's going to invest in that and carry it forward," said Neil Strother, Kirkland, WA-based analyst for JupiterResearch.

"Verizon, Sprint and TomTom all have GPS navigation systems, so there are competitors out there," he said. "But I don't think any other handset manufacturer has acquired a company like Navteq, so Nokia's staking its own ground in that way".

For example, the new iPhone 3G will have a GPS-based mapping feature, so this acquisition will help Nokia compete in that market space.

Navteq is a provider of digital map information for automotive navigation systems, mobile navigation devices and Internet-based mapping applications for both government agencies and private businesses.

The company creates the digital maps and their content that power navigation and location-based mobile services worldwide. It currently offers digital map coverage in 72 countries

Navteq claims to be the foundation for a growing category of wireless, location-based services. Nokia will take those mobile services and introduce them into the consumer market.

Navteq maps provide a representation of the detailed road network including up to 260 attributes such as turn restrictions, physical barriers and gates, one-way streets, restricted access and relative road heights.

The company's digital map data are updated often and enable door-to-door routing throughout Europe and North America. The mobile application contains millions of points of interest, letting consumers locate everything from restaurants and nightclubs to hospitals and gas stations.

According to industry research firm Strategy Analytics, more than 1 billion mobile devices are sold every year, but average selling prices are decreasing every year.

Despite consistent double-digit growth in shipments of mobile devices, manufacturers are not able to make the same amount per unit, because only a small percentage of handsets sold are highly profitable, high-end devices such as smartphones.

For this reason, manufacturers are increasingly looking for different means of revenue other than handsets. Players such as Nokia and Apple have based their business model primarily on hardware and are looking to expand to offer a mix of software and services as well.

"The key reason behind this acquisition is that there is a very bleak future for companies that depend only on hardware for their business, due to yearly decreases in ASPs for mobile devices," said Bonny Joy, analyst for Strategy Analytics, New York. "With Navteq's software, Nokia will be able to deliver location-based services.

"Almost all the major OEM brands from Apple to Nokia to Research In Motion are trying to diversify their business model, and software and services are the next step to build and differentiate revenue streams," he said. "There is less scope for differentiation in hardware-focused devices."

The Navteq acquisition will augment Nokia's Maps 2.0 solution to enable more comprehensive location-based mapping services.

"Nokia has been very active in bringing a bunch of new services to build a new solution that can target consumers in a more efficient and scalable manner," Mr. Joy said.

"This move gives Nokia flexibility in adding services," he said. "Apple and Research In Motion have GPS services, but with this acquisition, Nokia will be able to add more differentiating features."