Cell phone subscribers switching from other carriers to AT&T, the iPhone's exclusive service provider, increased in the two months surrounding the release of the 3G version on July 11, according to Nielsen Mobile. Customers defecting to AT&T nearly doubled between June and July and then increased another 15% in August.

At the same time, would-be iPhone rivals that launched this summer--such as the Samsung Instinct and the LG Dare--have not delivered similar gains for Sprint and Verizon Wireless, suggesting that heightened competition has not diminished consumer appetite for the iPhone.

"Competition to the iPhone in the past several months has been technically strong, and reviews have put more than a few devices ahead of the iPhone on different characteristics," said Nic Covey, director of insights for Nielsen Mobile. "Still, the competition hasn't been able to come close from a buzz and trendiness perspective."

Sales of both the original and 3G iphone combined have hit the 10 million mark, according to Fortune's Apple 2.0 blog. That means Apple has reached its stated goal of selling 10 million phones by the end of 2008--three months early.

The hottest markets for the iPhone 3G have been in New York and San Francisco, according to Nielsen. Over the last two months, the number of mobile subscribers switching to AT&T for the iPhone increased 183% and 137%, respectively, compared to an industry average of 113% over the same period.

Through the first six months of 2008, BlackBerry-maker Research in Motion (RIM) maintained its dominance of the smartphone category with a 31% market share, according to Nielsen. But since the third quarter of 2007, Apple's share has grown to 12% from 5% in the third quarter of 2007.

That puts it fourth behind RIM, Taiwan-based manufacturer HTC, with 20.6%, and Palm, at 16.9%. More than 26 million U.S. mobile subscribers use a smartphone, which accounts for 16% of new mobile device sales.

But the iPhone could face more serious threats from the upcoming launches of T-Mobile's G1, in partnership with Google, and BlackBerry's first touchscreen phone. Based on heavy pre-orders, T-Mobile said it has already tripled the number of Gphones available for the Oct. 22 launch date.

T-Mobile reportedly expects to sell 500,000 of the devices powered by Google's Android operating system in the fourth quarter, and may order up to 2 million more in the near future.

In a recent report, technology research firm Current Analysis suggested that the Gphone could challenge the iPhone in making it easier for developers to create applications for the device. "Apple prefers more control over the end-user experience, and Google is promising unfettered innovation," wrote Avi Greengart, research director for mobile devices at Current Analysis.

Nielsen's Covey agreed that the iPhone will face its most serious test in the coming months. "For Apple, the G1 for personal-use and the BlackBerry devices for corporate-use pose notable challenges as we enter the holiday season," he said.

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