Aug. 23 (Bloomberg) -- Nokia Oyj, the world's largest mobile-phone company, said India surpassed the U.S. in the first half of the year to become its second-largest market by sales after China.

``We expect the full year to continue to be strong,'' Chief Executive Officer Olli-Pekka Kallasvuo told reporters in New Delhi today. ``We are expanding our presence and operations in India, not for the local market alone. We want to strengthen our global presence by exploiting the skills found here.''

Nokia accounts for more than half the handsets sold in India, a nation of 190 million users. The South Asian country added a record 7.34 million subscribers in June, faster than China's 7.05 million. Mobile-phone companies expect to sell as many as 93 million handsets in India by March-end, according to the Indian Cellular Association, an industry group.

Nokia increased its global market share for the fourth straight quarter to 36.9 percent on new, pricier models, according to a report by researcher Gartner Inc. Less than 18 percent of the 1.1 billion Indians use mobile phones, an opportunity Nokia and rivals Motorola Inc., Samsung Electronics Co. and LG Electronics Inc. are racing to tap.

``Telecommunications has been one of the most visible success stories of the Indian government,'' said Vinod Bansal, director at New Delhi-based Veni Madhav Securities, some of whose clients own shares in Indian wireless companies. ``There's a lot of room to grow because these services are based mainly in cities. It's no longer a question of costs because prices of both calls and handsets have fallen.''

U.S. Sales

Nokia sold more than 60 million phones from the factory it built in the southern Indian city of Chennai in March last year, shipping about half to markets abroad.

The company's sales in the quarter ended June 30 in India, where it employs more than 9,000 people, exceeded its revenue from the U.S. The company gained market share in all regions of the world in the second quarter, except North America, according to Gartner.

The Espoo, Finland-based company will add factory capacity and hire more employees in India, said Kallasvuo, who is visiting the country to meet retailers and review operations. He didn't give specific numbers.

Nokia Siemens Networks, the world's third-biggest maker of telecommunications equipment, will set up a center for global clients in India and invest $100 million in the nation over the next three years, Kallasvuo said. Nokia's equipment venture with Siemens AG has won two large contracts from Bharti Airtel Ltd. India's biggest mobile-phone company, and Idea Cellular Ltd.

New Delhi-based Bharti awarded a $900 million order on July 3 to the joint venture to bolster its wireless and fixed-line phone networks. Nokia Siemens also won a two-year contract from Idea Cellular worth $500 million.

Battery Replacement

Nokia is in the process of replacing about 300,000 mobile- phone batteries in India, part of a global recall of as many as 46 million BL-5C units.

Almost 100 batteries made by Matsushita Electric Industrial Co. for Nokia phones overheated, prompting Nokia to issue an advisory on Aug. 14. Kallasvuo declined to give a cost estimate, saying the recall would not erode its market share in India.

``You have some negative reaction to a situation like this, but many feel our brand is even stronger,'' said Kallasvuo, who has worked for 27 years in Nokia. ``We feel Matsushita as a supplier is responsible to us for what they deliver.''

Indian carriers such as Bharti Airtel and Vodafone Essar Ltd. plan to spend at least $10 billion in the year to March 31, to increase their network coverage in Asia's fourth-largest economy.

Rural Users

India beat its target for rural telephone usage almost three years before schedule after cutting call rates to as low as 2 U.S. cents a minute. Falling handset costs, to as low as 750 rupees ($18), have also boosted penetration in India.

Phone ownership in more than 600,000 villages, where two- thirds of Indians live, stood at 6.5 percent on June 30 against a target of 4 percent by 2010. Telephone penetration in New Delhi, India's capital and its largest telecommunications market, stands at almost 91 percent.

Networks running on both the global system for mobile communications platform and the code division-multiple access technology are expected to cover 90 percent of the population within the next 18 months, compared with 65 percent at present.

To contact the reporter on this story: Shailendra Bhatnagar in New Delhi at sbhatnagar3@bloomberg.net.

Last Updated: August 23, 2007 08:15 EDT