Will the iPhone cannibalize iPod sales? Or vice versa?

Yesterday, Steve Jobs introduced the iPhone. It is clearly the next generation of iPod. It's the full-screen video iPod we've waited for. It's the full-color fully-designed interface we've waited for. It's the fully-connected wifi and bluetooth device we've waited for. And that doesn't even mention the built in speakers and microphone.

So why does it have to be an iPhone? Surely there's a huge market out there who wants all these features but who doesn't want the Cingular piece of the action. Of course, many of you will rightly point out that one can purchase the iPhone, maybe even use the iPhone to good effect, without using the phone itself. The included two year contract is a bit of a stumbling block, especially if monthly charges (which I'm still really unclear about) apply.

So why not offer a phone-less iPod? It doesn't have to wait for FCC approval except insofar as any Bluetooth or WiFi device might need some paperwork done. Why not sell a basic "true fullscreen video iPod" at the $299 price point that removing the phone hardware might allow, to the large market of iPod upgraders who'd jump on buying one like a starving Georgia Tech student on barbeque?

My guess is that introducing a phone-less iPod would cannibalize early sales of the iPhone. Of all the goodies introduced about the phone, it's the phone component that's the least glamorous. Sure, a lot of us would pay a premium to carry fewer gadgets in our pockets. Combining the iPod and the phone and a lot of the PocketPC features makes sense--and I tell you as a PocketPC user, that the iPhone does not score too well on the PocketPC range of capabilities--but it also takes a lot of choice out of the equation for those of us under existing phone contracts who are looking for a better iPod and not necessarily an iPhone.

So when do we see an actual G6 iPod sans the phone connectivity? Your guess is as good as mine.