You mean regarding the mobile phones or the whole GSM/Mobile equipment?
For mobile phones I think that they could become great again if the would focus on building mobile phones that have same characteristics as their most famous ones: long lasting battery and quality mobile phone body (hard/impossible to break).
I don't know the details of their agreement with Microsoft but it looks like they are not allowed to compete in the mobile devices market directly, so they concentrated on the infrastructure instead.
I had no idea they even had such a deal. Also, they do make phones right now so I don't how they're not competing.