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"In a crowded market filled with phones that look the same and do the same things, I challenged the team to deliver a different kind of mobile experience," said Steve Ballmer, Microsoft's chief executive. "We believe Windows Phone 7 Series is a phone that truly reflects the speed of people's lives and their need to connect to other people."

The Redmond, Wash.-based company made the announcement on the eve of the industry's largest annual gathering, the Mobile World Congress in Barcelona, Spain, ending months of speculation about what it had in store.

The company said Windows Phone 7 has a completely new "dynamic screen," allowing users to install favorite icons and six "hubs" that combine services by themes, such as a "people" hub that groups emails, text messages and updates from social networks and a "games" hub that connects to an Xbox Live account and lets players battle online.

"It is a total break from what we were doing before," said Nicolas Petit, Microsoft's mobile division director in France. "It's a major new step in our strategy."

While global smartphone shipments rose 30 percent, with analysts expecting sales to surpass 46 percent this year, strong competition from rivals Apple's iPhone, Research in Motion's BlackBerry, Nokia's Symbian and newcomer Google's Android platforms have eroded the company's market share to 7.9 percent in the third quarter, compared to 11.1 percent in the same period a year ago.

Microsoft allowed handset makers to haphazardly change the Windows Mobile's interface so freely that it deteriorated the user experience since no two worked the same way. Meanwhile, Apple tied its hardware and software tightly to ensure more uniform, and better, usability.

"We were too flexible, at the expense of end-user focus," said Joe Belfiore, Windows Mobile's corporate vice president.

The software overhaul, a year later than expected, now comes as Microsoft is trying to win back consumers. The company is hoping to reverse its downward slide by establishing a set of requirements for its smartphones, such as permanent keys for the "home," "search" and "back" functions, a high-resolution touch screen display similar to the one found on the iPhone and a 5.0-megapixel camera with flash on the back of the device.

Microsoft said the first handsets with the new software will be in stores by Christmas. Windows Mobile partners include carriers AT&T, Orange and Deutsche Telekom and handset makers HTC, LG, Samsung and Sony Ericsson.