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Will the iPhone Become the No. 1 Smartphone?

iPhone
Nokia currently rules the roost when it comes to worldwide smartphone sales. But is Apple in a position to displace it?

That's the conclusions drawn by Generator Research, which claims in a new research report that Apple (NASDAQ: AAPL) has the business ingredients, and most importantly, the product strategy it needs to become the leader in the space.

While currently "embryonic," Apple's smartphone efforts could push Nokia (NYSE: NOK) out from the top spot in the worldwide smartphone shipments, Generator said. According to the research firm, the Apple iPhone accounted for about 5 percent of all smartphone devices shipped globally during the third quarter of 2008, compared to 40 percent for Nokia's smartphones.

But according to the report, released this week, Apple will begin shipping a range of mobile devices, giving it the upper hand by 2013 -- while Nokia's share will have declined to about 20 percent.

"They [Apple] have a proven track record at making things simple and they are uniquely positioned to become the dominant force given their manufacturing, distribution, software, hardware and infrastructure," Andrew Sheehy, Generator's research chief, told InternetNews.com.

The news comes as smartphone adoption continues to spike thanks to users' increasing reliance on greater mobile connectivity in the workplace and on the home front. Wireless carriers are ramping up product portfolios while handset makers are battling to push out the latest and greatest feature-rich devices.

The report also projects that Apple will drive carriers toward greater support for new and innovative third-party applications running on their networks.

Generator said Apple could provide software developers with greater access to the iPhone via APIs, while convincing wireless carriers to allow even more interactive functions on their networks. One potential application could enable new messaging capabilities between iPhones, Sheehy said.

"I envision services where iPhone users will be able to text, over the network, during a game to ask them to join the game without having to leave the game or interrupt play," he said.

The result of such offerings, Sheehy said, will be services for which users would pay big bucks, and a competitive aspect few other smartphone players can offer.

But it won't be easy to convince carriers to relinquish more control when it comes to what runs on their networks. Carriers remain protective of their networks due to security and proprietary network technologies. And while the U.S.'s largest carrier, Verizon Wireless, has agreed to open the 700MHz spectrum it acquired during last year's FCC spectrum auction, few in the business have shown a willingness for openness across their core mobile phone networks.

Sheehy, though, believes that will change once carriers realize the revenue benefit.

"They'll be rewarded with greater service revenues and won't have to do the work they're doing now to provide competitive services," he explained.

A major player such as Apple, he added, is the compelling partner to make it happen. "The iPhone proposition can make that happen," he said, citing the financial gains AT&T (NYSE: T) is receiving as the iPhone's exclusive U.S. carrier.

[cob:Special_Report]AT&T reported third-quarter revenues of $31.3 billion, an increase of 4 percent versus the third quarter of 2007. The growth reflected a 15.4 percent increase in wireless revenue, which totaled $12.6 billion for third quarter.

During the quarter, the carrier also posted its largest-ever subscriber gain -- 1.7 million new customers, up nearly 40 percent from the third quarter of 2007. It said much of the increased customer base is due to 2.4 million iPhone 3G account activations during the quarter, 40 percent of which were new subscribers.

But Nokia, just like any other smartphone player, obviously won't sit idle waiting for Apple to dominate. The worldwide leader in mobile phone sales made a number of big strides in smartphones during the past twelve months. It recently launched its N97, which industry analysts said could be a very compelling iPhone competitor if and when it arrives on U.S. shores.

The N97 not only offers features both iPhone 3G fans and BlackBerry consumer users enjoy -- a touchscreen display, full QWERTY keyboard and hefty video and music support -- but it expands on those capabilities with an "always on" browser and advanced social networking and messaging services.

The 3G device, which will retail for approximately $700 U.S., is only slated to be available in Europe in mid-2009. Nokia has not revealed plans for a stateside launch.