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At only $199, is it more cost effective to buy an iPhone and just use it as an iPod as opposed to actually buying the more expensive iPod touch or classic? The latest iPhone has brought a significant price reduction to the iPhone, and the smartphone market. As an iPod touch owner, I’m pretty annoyed that I paid £269 (around $500) for a 16GB iPod Touch, when an iPhone fully featured with 3G and GPS with the same capacity is $299. However, this is the way technology progresses—as components and production becomes cheaper, so does the device.

So, the question remains: Is the new iPhone a better deal than an iPod Touch? Yes, if you are judging purely by handset device. But the iPhone brings in an extra cost: the contract. Every month, you will have to pay AT&T, O2, or whoever your network provider is, whether you use the minutes or not. The iPod Touch has no monthly plan; once you’ve paid for it, you’ve paid for it. However, if you do end up purchasing another mobile phone on a similar price plan to the iPhone as well as an iPod Touch, you may find the costs being higher than an iPhone.

If you use your phone on a regular basis, or want to take advantage of 3G data speeds wherever you are, buy the new iPhone. If you’re like me—a pay as you go customer who doesn’t need over 100 minutes a month—the iPod Touch may still be a better deal for you, especially now that it comes in 32GB.

Product [3G iPhone]