Rumors that Nokia (NYSE: NOK) will slash the cost of its cell phones by up to 20 percent to grab market share from the languishing Motorola (NYSE: MOT) and re-enter the Korean market have handset makers Samsung and LG (SEO: 066570) seriously spooked. LG told Reuters it was “carefully watching” what Nokia was doing, and said today, it may be forced to follow the Finnish handset giant, if it did actually reduce its prices. According to Dow Jones, LG Electronics vice chairman and CEO Nam Yong told reporters that unless it could turn out products that “differentiated” themselves from Nokia, price competition was “inevitable.”

Yong vowed, however, to try to create “competitive products” rather than compete on “cheap prices”—as LG, along with Samsung—are only too aware of how that scenario can end. When Motorola’s Razr first came out, it was priced as a premium handset, but the company slashed its price thinking it could boost market share. The Razr not only became a commodity, its descent hastened the number of look-a-likes that Samsung and LG were quick to churn out. LG recently overtook Sony (NYSE: SNE) Ericsson (NSDQ: ERIC) as the world’s fourth-largest handset maker. Yong added that the company would continue to target the “premium market,” and would only move to the low-end handset market once it had built a “presence” in the segment.

• LG And Samsung’s “Breakneck Pace” Too Much For Motorola?