If Nokia isn’t careful, it will botch the launch of its first NFC smartphone.

It has already missed some key opportunities to promote the new C7 handset as not only its first smartphone packing NFC but the world's first rollout of an NFC smartphone model from any handset maker. As NFC Times reported Monday, Nokia this week began shipping the C7 with NFC chips inside.

The problem is, each phone needs a software upgrade for the NFC features to work.

Nokia won’t say exactly what the problem with the software is, when it would be solved, or why the phone maker couldn’t fix it before the C7 started shipping. But Nokia decided not to delay the phone's launch on Monday while waiting to get the NFC software right. The C7 is one of the models considered vital to turning around Nokia’s troubled smartphone division.

The Finnish phone maker instead was going to keep the presence of the NFC chips in the C7 quiet while it presumably worked on fixes that could be downloaded over the air to the handsets. But that caused it to miss the chance to tout NFC along with the C7’s other headline features–it’s sleek design, large touch-screen display and built-in support for social networking applications.

It missed a chance Monday when the phone model started shipping and one earlier, at its Nokia World conference last month, where it first announced the C7, along with two sibling models also supporting the new Symbian^3 operating system, as well as the previously announced flagship N8.

That publicity could have helped Nokia re-establish its NFC leadership among handset makers and steal a beat on rivals developing NFC phones on Google’s Android platform, as well as on Apple, which is believed to be working on an NFC-enabled iPhone for launch next year. Nokia co-founded the NFC Forum trade group in 2004, but many have questioned the phone maker's commitment to NFC in recent years. It has been criticized for putting out unattractive mid-tier NFC phone models in the past.

Card Emulation Missing
Yet, even after it delivers the software upgrades, Nokia faces another problem with the C7. The phone does not support card emulation. That would mean no support for payment applications at the point of sale, no secure ticketing at transit or entertainment venue gates and no access control at offices or apartment complexes with digital door keys.

A source familiar with Nokia’s thinking told me the phone maker doesn’t believe card emulation is absolutely necessary for its NFC phones, at least not its first Symbian models. A broad infrastructure of payment terminals just isn’t there yet, "so why support payment on the phones?" goes the thinking.

Nokia apparently believes the C7’s default support for NFC tag-reading and peer-to-peer communication is enough.

But while NFC reader and P2P modes can support some compelling applications, including those tied in with the phone’s social-networking theme, payment is where the money is.

Mobile operators, which will be ordering most of the phones Nokia delivers in developed markets, believe they can make money with NFC payment, either earning merchant transaction fees directly or charging fees from banks and other payment service providers.

That’s especially true in the United States, where carriers keep tight control of the phone market and where three major telcos have formed a joint venture to launch their own NFC-based mobile payment scheme. The U.S. telcos are looking for NFC phones. And while Nokia has been keen to shore up its weak market share in the United States, an NFC phone that can’t support payment would not help that effort.

U.S.-based analyst Nick Holland, no fan of card emulation by itself, was perplexed when told of Nokia’s apparent decision to forego card emulation in the C7.

"Given that most of the immediate use cases are around the mobile wallet, with tags and P2P coming later, it seems a weird decision to handicap the device," he told me.

Of course, the expectation is that operators or service providers that want the C7 to act like payment cards–and are willing to pay for it, including the cost of secure elements to store the payment applications–can order up card emulation from Nokia. That includes support for the single-wire protocol standard that would enable telcos to load applications onto SIM cards they issue. 

But without built-in support for card emulation, it likely would require a big order to encourage Nokia to produce the phones. Read: Only big telcos need inquire about the possibility of putting payment on the C7.

Nokia declines to comment on whether or not the C7 will support payment and ticketing applications.

For telcos and service providers starved for attractive NFC phones, the high-end C7 is still an exciting proposition. And the handset maker has promised more NFC-based Symbian devices.

Yet, Nokia could now be taking advantage of the undivided attention of the NFC community hungry for new NFC phones. But with competing NFC smartphones expected to start hitting the market by the first quarter of 2011, Nokia’s failure to communicate its NFC intentions for the C7 means it will probably miss that opportunity.