The new 3G iPhone will be sold under the traditional cellphone hardware model: the carrier foots a ~$200 subsidy in return for a contractual obligation from the customer to stay for 2 years.  This effectively throttles the rate at which users will buy new devices at 2 years.  2 years may be an ok rate rate for traditional cellphone producers, but the iPhone is also an iPod, a device which I suspect has a large segment of users with replacement cycles of less than a year.

One could argue that it’s a penetration play, but each iPhone sale cannibalizes one iPod sale, and could also simultaneously shift someone from a < 2 year replacement cycle to a > 2 year replacement cycle.  The economics don’t seem to work out…or am I just missing something?