Threatened or not, Apple is also trying to play a role in putting music on phones. It's developing an iPod phone with Motorola Inc. that the pair have started marketing to wireless operators. Motorola says it expects at least one carrier will begin selling the phone this summer. If that happens, the carrier would not build its own music store and instead send its customers to iTunes.

But Apple has had a rough start in working with wireless operators. Most major wireless companies, including Verizon Wireless and Sprint, have balked at carrying the iPod phone. That's a serious impediment because the operators essentially control distribution by subsidizing phones. Why the resistance? Operators want customers to download songs over the air, directly to handsets. But with the iPod phone, customers would download songs to a PC and then copy them to the phone. "It's hard for people in any industry to support something that cuts them out of potential future revenue streams," says Graeme Ferguson, director for global content development at Vodafone Group PLC, one of the world's largest wireless players. Apple declined to comment for this story.

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The two sides also have very different perspectives on how digital music stores should work. Verizon, Sprint, and Cingular are expected to charge about $2 for wireless downloads when they introduce their services, or twice the 99 cents per song on iTunes. They figure they can charge a premium for the convenience of getting songs anytime, even though customers most likely won't be able to listen to those songs anywhere but on their phones, at least initially. One knowledgeable source close to Apple says the operators are simply being unrealistic if they expect customers to pay $2 or $3 for a song, especially with restrictions. "If you can get something for a buck, why would you buy it for $3?" says the source. "Do they think people are that dumb?

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A run for the money
What will come out of all this is not just a battle of sharp words and elbows but also a new round of innovation in digital music. Apple and other MP3 player makers could add wireless technology to their devices or help develop a crop of music phones. As hundreds of millions of mobile devices around the world go musical, there will be an explosion in the possibilities for marketing, distributing, and listening to music. On Apr. 12, Capitol Records Inc. said it would release a hugely anticipated new single by the rock band Coldplay as a ringtone to Cingular wireless customers first, rather than on the radio. Virgin Mobile USA says it's exploring ways to couple wireless music downloads with news clips, lyrics, or even videos from the artist. "A lot of people are paying attention to this new frontier and what its potential can be," says Virgin Mobile CEO Daniel H. Schulman.

International wireless operators provide a sense of what's possible at the edge of this frontier. Korea's SK Telecom Co. offers a $5 a month music subscription that allows customers to download any of 700,000 songs to a phone, PC, or music player. That makes the subscription much more convenient than similar services in the U.S. because Korean customers can get any song they want, wherever and whenever they want it. Since the November launch, 300,000 people have signed up. "We are not yet making money, but we see a big potential for profits from music," says Shin Won Soo, a senior manager in charge of SK Telecom's music business, which is expected to go into the black with 800,000 subscribers. That conjures up the possibility that with music phones, consumers around the world could opt to pay a monthly fee for all the new music they desire, rather than buying individual CDs when they debut.

CONTINUED : The price advantage

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