Microsoft Corp. has struggled for the past two years in the mobile-phone market. But CEO Steve Ballmer says his company finally has a compelling story.

On Oct. 11, Microsoft and its partners plan to announce the initial wave of handsets that will use Windows Phone 7, a thoroughly overhauled version of the company's cellphone operating system. Mr. Ballmer believes the software will compete more effectively against Apple Inc.'s iPhone and Google Inc.'s Android operating system.

Microsoft...