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iPhone 3G not instilling fear in Apple's music foes

Competitors don't think that Apple's iPhone, even an upgraded version, can repeat iPod's success with only one carrier.

LOS ANGELES--Apple's upgraded iPhonedidn't inspire fear in at least two of the biggest subscription music sites--even before they learned that the device wouldn't let people download music via the new 3G network.

"I'm not trembling," Anu Kirk, Rhapsody's director of product management, said Monday at the iHollywood conference. "I'm sure they are going to sell a lot of second-generation iPhones. It's a fantastic product but they can't take over the United States with just one carrier."

Kirk was speaking on a panel discussing the mobile music category and specifically about cell phones as music players. The discussion took place as Apple CEO Steve Jobs was introducing the new iPhone 3G at the Worldwide Developers Conference in San Francisco.

Kirk doesn't think the iPhone 3G can duplicate iPod's success, at least not with just AT&T as the phone's only carrier. Any debate about the iPhone's dominance over music apparently has to wait.

The mobile version of the iTunes music store will remain accessible only over the phone's Wi-Fi connection, according to CNET's Donald Bell, who wrote cited Apple's iPhone 3G product page. Bell wrote that "it does seem like Apple has missed an obvious opportunity to allow users more ways to purchase music."

Rhapsody and Napster already enable many iPhone competitors to download music over 3G. This had to come as welcome news to those companies as rumors swirl in the music industry that Apple is considering whether to launch a subscription service.

In March, the Financial Times reported that Apple is considering an all-you-can-eat plan in which users would receive free access to iTunes "in exchange for paying a premium for its iPod and iPhone devices. Sources told CNET that the music labels would agree if Apple shared revenue on device sales. So far, nothing has come of it.

And nothing will--or at least that's what Kirk thinks anyway. His suspicion is that Apple won't enter the subscription business because it conflicts with the company's prime goal of selling hardware.

"Apple's model is to get you to buy a bigger device every 18 months or two years," Kirk said. "You fill up your iPod, you go, 'Oh, I'm going to buy the new iPod with twice as much memory.' In a subscription world, the size of your device matters a lot less cause you can swap out the content. In a world like that the consumer has a lot less incentive to buy a bigger device."

Subscriptions aside, is Apple choosing to ignore cell phones as music players at this point? It wouldn't be missing out on much.

The U.S. consumer has largely ignored their phones as music machines. Kirk noted that the sector is hobbled by the lack of memory in most phones to store music and the high costs. These often include paying for cell phone and data-service plans on top of the music.

Not what you would call a good deal.