UPDATE 1-Nokia to start music service with UK launch

(Adds more details, background)

By Tarmo Virki

HELSINKI, Sept 2 (Reuters) - Mobile phone maker Nokia (NOK1V.HE) said on Tuesday it would launch its "Comes with Music" package with an offering in Britain, signing a deal with Carphone Warehouse (CPW.L) to sell the first model.

A source familiar with the deal told Reuters the phone would go on sale next month.

The free music package is a cornerstone of the cellphone maker's push into the services business, but also sets a trend for other gadget makers, like Apple (AAPL.O), to follow.

Nokia says its "Comes with Music" package will differ from other market offerings because it will allow users to keep all the music they have downloaded during the 12 months.

Universal (VIV.PA), Sony BMG (6758.T) [BERT.UL] and Warner Music Group (WMG.N) have signed deals with Nokia to offer their tracks on the service, bringing the world's three largest labels on board.

Meanwhile Carphone will get exclusive rights for unsubsidised Nokia 5310 XpressMusic "Comes with Music" edition sales in Britain, the Finnish company said in a statement.

Nokia has not unveiled sales numbers for the almost year-old 5310 model, one of its first mid-tier music phones, but it said that in the January-March quarter it sold more than 4 million units of its 5310 and 5610 models combined.

Nokia, which plans to roll out further details about its music service on Oct. 2, said Carphone would start taking British pre-orders on Tuesday, but declined to say when sales would start or offer any pricing information.

The ailing music industry is struggling to find ways to make up for falling CD sales and the digital music market totalled just $2.9 billion in 2007.

Nokia sold 146 million music phones last year, and if all of those had included the "Comes with Music" bundle, just an extra $20 per phone would make Nokia's service bigger than the total market.

With its iconic touch-screen model, Apple's iPhone shocked the handset industry last year, but due to high prices it has not captured a mass following in Europe.

Now, Nokia has stolen the spotlight from Apple in the digital music world, analysts say.

Record labels are looking to Nokia and others to challenge the dominance of Apple's iTunes as they have struggled to negotiate with the American group on a level footing when it comes to issues such as pricing. (Reporting by Tarmo Virki; Editing by Greg Mahlich)