Differences between an iPhone and iPod that I can think of: the 3G radio you mention Compass GPS Gyroscope (?) Camera (iPhone camera is far better) Larger

Differences between an iPhone and iPod that I can think of: the 3G radio you mention Compass GPS Gyroscope (?) Camera (iPhone camera is far better) Larger battery An Aerial :) Different manufacturing process (pressed steel back vs the iPhone design) Then there's the cost of development and certification (worldwide) for the phone side of things which has to be amortised across iPhone sales. Not saying it amounts to anywhere near $400 (or even a quarter of that), just that it amounts to something. There's probably a decent amount of "because we can" in the pricing too