Ultimately, I think there is room for only one electronic device in each consumer's pockets. At some point, the two will be merged and a whole new market segment will be opened up to apple. That segment is comprised of the people who need a phone and would like iPod functionality but aren't willing to be encumbered by an additional device.
But the technology and interface design doesn't seem to be quite there yet. So in the mean time, I would expect stand-alone iPods and phones to coexist.
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