By Tarmo Virki

HELSINKI, Dec 17 (Reuters) - The European Commission is planning to start taxing a number of high-end cellphones, a move which would mean higher prices for consumers, the wireless industry said.
The EU Commission last week sent member states a formal proposal to reclassify some phones as "multi-functional devices", which would trigger a 14-percent tax on phones with TV receivers and 3.7 percent on navigation-enabled phones.
The new taxes would put additional pressure on the already ailing industry. Handset sales in Europe have dropped since the start of 2008 as consumers delay purchases due to the slowing economy, and the market is expected to fall further next year.
"European companies would face a further costly blow to their operations in the EU, at a time when many are struggling to maintain profitability, given the economic crisis," trade lobby EICTA, which represents all top cellphone vendors and many other global technology firms, said in a statement.
The EU Commission said it had put the proposal forward in an attempt to unify taxation across the 27-country bloc after Germany and Netherlands said they would introduce similar charges.
Europe's top cellphone vendors, Nokia and Sony Ericsson, who together make almost every second phone sold in the world, are strongly against the tax.
"These new duties would inevitably lead to a high increase in consumer pricing at a time where we are all struggling to keep prices as low as possible," said Simone Bresi-Ando, a spokeswoman for Sony Ericsson, the world's third-largest cellphone maker behind Nokia and Samsung Electronics.
A spokesman for Nokia said: "There is a danger that this proposal would put the latest technology out of the reach of European consumers as it would simply push up the price of sophisticated mobile phones. This is in nobody's interest."
Analysts said the EU's plan would be unwise.
"Especially in the current market this will put even more strain on sales," said Gartner analyst Carolina Milanesi.
"Replacement markets like Europe rely on new technology -- if we are now adding tax to it this will make consumers think twice before upgrading," she said.
Shares in Nokia and Ericsson dipped on the news, and by 1233 GMT, Nokia was down 0.6 percent at 11.37 euros, while Ericsson shares were down 0.8 percent.

GPS, MOBILE TV IN CROSSHAIRS
In the proposal, seen by Reuters, the Commission aims to allow duties to be imposed on handsets with the most advanced features, including high-quality cameras and full qwerty keyboards.
"While only a small number of sophisticated mobile phones in the industry would be affected today, due to rapid technological advances, the number ... would likely rise significantly in the coming months and years," the Nokia spokesman said.
While GPS chips are currently used mostly in top-end cellphones, Nokia and others are increasingly looking to use them in mass-market phones.
"We estimate the planned taxes would increase the average price of a navigation-enabled or TV-enabled cellphone by between 5 euros and 40 euros in 2009," said Neil Mawston from Strategy Analytics.
"We currently forecast total mobile phone shipments to decline 9 percent in Western Europe during 2009 and the industry needs to offer lower, not higher, prices to consumers," he said.
For mobile TV -- which so far has been launched in just a few countries, mostly in response to the high cost of the phones needed to show it -- an additional 14 percent tax would be another major blow.
On Dec. 10, the same day the Commission's customs unit released its internal document on the duty-hike plan, its telecoms unit issued guidelines to member states on launching mobile television and boosting its uptake by consumers.
EU Telecoms Commissioner Viviane Reding has been one of the most active mobile TV lobbyists.
The Commission's plan will be discussed next February within the Customs Code Committee, which can also decide on the matter.
Maria Assimakopoulou, spokeswoman for EU Tax Commissioner Laszlo Kovacs, said no decision was imminent as the Commission is only starting discussions with member states.
"These discussions will not be concluded for at least another 6 months," Assimakopoulou told Reuters.
With French President Nicolas Sarkozy pushing the EU towards more trade protection, member states seem set for another bruising battle at a time when Europe is frantically trying to stimulate economies to mitigate recession.
European jobs are also at stake as mobile phone makers rely on duty-free transport of their products.
"There is a risk that some more protectionist states could support the commission's plan," said Mark MacGann, director general of trade body EICTA.
"This plan would make the cost of production much more expensive -- we think this will drive more jobs overseas."
While mobile industry has grown faster in countries of cheap labour there are still handset manufacturing plants in the EU -- in countries like Finland, Britain, Hungary, Romania and Estonia. (Additional reporting by Huw Jones in Brussels, Victoria Klesty in Stockholm; Editing by Victoria Bryan and Simon Jessop) Keywords: MOBILE EU/ Keywords: MOBILE EU/

(tarmo.virki@thomsonreuters.com, +358-9-680 50 235, Reuters messaging: tarmo.virki.reuters.com@reuters.net)

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