The iPhone 3G is likely to lead to new headaches for the competition, eroding market share and slimmer margins, according to BusinessWeek on Monday.

The first generation iPhone made an impact in the industry and stole market share from rivals. Now that Apple has reduced the price of the iPhone 3G to as little as US$199, rivals are facing a whole new set of headaches.

Mobile phone makers had thought that they would make more money with customers accepting a $500 smartphone and have added expensive new features and hardware to their phones as a result. Just as they do so, Apple has lowered its own price dramatically.

While it’s true that carriers absorb the cost of subsidies with expensive monthly plans, they will still seek to recover some of that loss with slimmer margins from the manufacturers, wrote Olga Kharif. As a result, Apple’s competitors will face eroding earnings and market share as the momentum of a worldwide capable iPhone 3G grows.

In addition, Apple’s rivals will have to spend a lot more ad money to keep up with the lure and appeal of Apple’s smartphone, soon to be much more enterprise capable. Customers are likely to want the real thing, not just an imitation -- similar to the iPod market. "The thing is, it [rival products] won’t be the iPhone," said Neil Strother, an analyst with JupiterResearch. "You are not comparing apples to apples."

Finally, Apple has put in place a mechanism to rapidly create a next generation of native apps that will provide even more appeal and leverage the iPhone’s capabilities, such as location services. Apple’s rivals may be reaching for the aspirin bottle right now.