Although few have seen or used the gadget, it could draw consumer attention to other pricier, high-end handsets, executives at the Reuters Global Technology, Media and Telecoms Summit said this week.
"One of the great advantages of iPhone for us is that it will heat up the music [phone] market," said Denny Strigl, chief operating officer at Verizon Communications Inc. (VZ )
"We're already seeing an interest in music on cell phones we didn't see just a quarter ago, and the gearing up the industry is doing in preparation for it," he said.
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AT&T Inc. (T) will be the only U.S. carrier to sell the device for at least two years. It will compete with phones made by Nokia (NOK), Sony Ericsson, Motorola (MOT), LG Electronics, Samsung and Palm (PALM), and carried by Sprint (S) and Verizon.
While so-called smartphones, which marry music and other media features with data and talk features, have been around for years, their sales remain a fraction of the overall market. Typically, they are larger and cost more than average phones.
"We were one of the first to get into the music business, one-and-a-half years ago, and it has been very difficult to get traction," Strigl said, adding that Verizon will launch new multimedia phones to take on the iPhone.
At $500 to $600, the iPhone's price tag has been called spectacularly high, possibly opening the door for handset makers with similar models.
Still, Apple, whose iPod music device and iTunes service dominate the market, expects to sell 10 million of the phones in 2008.
"They [Apple] will bring some things to the table that we have to be responsive to, but we have been investing in this area for some time," Nokia (NOK) Chief Financial Officer Rick Simonson said. "We are leading in multimedia convergence."
Consumers juggling multiple devices — such as a phone, digital music player and personal information assistant — may warm to combined devices, overlooking their steep price tag.
"People are not uncomfortable plopping down a couple of hundred bucks for a music player or an iPod (and) $100 for a voice phone or a PDA," said AT&T's group president for operations support, John Stankey. "If you think about what a customer invests to solve a problem ... I might suggest that the price isn't as substantial as it might look."
Still, Sling Media Chief Executive Blake Krikorian said the touch-screen iPhone, which has only one button, may not convert users for whom text-based wireless communication is key.
"I need a keyboard — I still think e-mail is the 'killer app' and [iPhone] ain't that. For that demographic I don't see it happening," said Krikorian.
Regardless of the iPhone's success, convergent devices are poised to grow in popularity, Sony Ericsson President Miles Flint said.
"The phone is capable of doing many other things," he said. "People want to have any content, any time, any where on their device and that is leading to the phone being a mobile Internet gateway entry point. the trend is clear."