Nokia's "Comes with Music" bundle of phone and music service could help the music industry make up for falling CD sales, while challenging dominance of Apple's iTunes in the digital music market.

The package will differ from other bundles on the market as users can keep all the music they have downloaded during the 12 month subscription period.

Carphone, the exclusive retailer for the first model, said the phone was expected to go on sale on Oct 17.

A Nokia spokesman declined to comment.

Nokia has signed deals with the top three music labels—Universal, Sony BMG BERT.UL and Warner Music Group—to offer their tracks on the service.

Having the world's three largest labels on board is set to help Nokia attract smaller music companies and challenge the dominant pay-per-track sales model for digital music.

"'Comes with Music' and other bundled services, should they succeed, offer a lifeline to the music labels which have seen revenues decline sharply in the digital age," David MacQueen, analyst at researchers Strategy Analytics, said in a statement.

Strategy Analytics said its consumer survey showed clear latent demand for bundles like "Comes with Music", with 84 percent of respondents willing to pay for such service.

"Comes with Music" is a key part of Nokia's push to expand its offering to services, beyond maturing cellphone market.

While last year Apple grabbed most of the headlines in mobile world with iPhone, now analysts say Nokia has stolen the spotlight from Apple in the digital music world with the "Comes with Music" package.

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.

Nokia's Carphone deal is for prepaid sales of its first "Comes with Music" model, but getting the new lineup to carriers portfolios is likely to prove more challenging as many telecom operators already run their own music stores and create additional revenue and profit from those.

Nokia's head of new services business, Niklas Savander, told Reuters last week the firm was confident its phones with free access to music also will be sold by telecom operators, with the timing now up to the carriers.

Deals with operators are usually more beneficial to phone makers as operators subsidize phones to boost demand and win new clients, hoping to win the subsidy back in monthly bills.

(By Tarmo Virki; Reporting by Tarmo Virki; editing by Carol Bishopric)