According to those in the know, Terry Myerson was in charge of the Surface Phone. Myerson, who looks after Windows, Windows Phone and the Xbox operating systems, led Microsoft in the production of various prototypes of the device. The prototypes were apparently created just in case Nokia decided to switch sides or back off from the deal with Microsoft. With Nokia controlling 80% of the platform, Microsoft could have been in trouble had the Finnish based handset manufacturer decided to give Android a go. And Nokia was getting increasingly upset with Redmond's desire to push the low end of the market.
Nokia was said to be ready to fork Android, similar to what Amazon did with its tablets, and release a low spec'd Android handset in 2014. But once the deal closes and Nokia's handset business belongs to Microsoft, we don't expect anymore attempts at a Nokia built Android handset or a Microsoft Surface Phone.
source: TheVerge via SlashGear