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Apple Computer on Wednesday unveiled a much-anticipated Motorola cell phone that runs Apple's iTunes music software, as well as a sleek new music player that is thinner than a pencil.

The new music player, dubbed the "iPod nano," would replace the popular "iPod mini" and was seen to significantly raise the bar for competitors trying to topple Apple in the digital music player market.

The iPod nano features a colour display, stores up to 1,000 songs or 25,000 photos and sells for $249, the price of the original iPod mini. A $199 version of the iPod nano can store up to 500 songs. Steve Jobs, Apple's chief executive, said the iPod nano was one-third the size of the iPod mini and about one third the size of music players from rivals such as Singapore's Creative Technology.

"They just changed the rules of the game completely. Rival players are going to look big and clunky by comparison," said Van Baker, analyst at Gartner.

Gene Munster, analyst at Piper Jaffray, said the iPod nano would help Apple solidify its control of the digital music player market for the next several years. Players from rival manufacturers, which operate on Microsoft software, have failed to catch on in any significant manner.

"I think today Apple turned the corner. Nobody is going to come out with
anything as good as the nano in the next six months. Apple will almost double its installed base in that time and they'll have a lock on the market by then," he said.

Apple had sold almost 22m iPods as of the end of June and has captured 74 per cent of the US digital music player market.

The company's iTunes online music store has sold more than 500m songs and controls more than 80 per cent of the US market.

As expected, Apple also introduced a Motorola iTunes phone that holds 100 songs.

The phone will be available exclusively from Cingular Wireless, the largest US mobile carrier, for $249 with a two-year contract. Cingular customers will be able to transfer songs from their computers to their iTunes phone, but they cannot yet buy music over Cingular's network.

Cingular said that the company would introduce over-the-air downloads once it upgrades its wireless network later this year and into next year.But it was not clear whether Cingular would make the iTunes music store available over its network, or where it would launch its own revenue generating service.

Reports suggested that Motorola's iTunes phone was delayed because carriers were reluctant to allow Apple to gain a foothold in the mobile music market. A number of European carriers have already launched such services and several US carriers were expected to do so later this year.

A report by Informa Telecoms and Media published on Wednesday predicted that music-enabled handset sales would rise sharply worldwide over the next five years, from 76m units in 2005 to 478m in 2010.

"Launching this phone will enable Apple to target a much larger market," said Jerome Buvat, a Capgemini telecoms, media & entertainment consultant. "By the end of the year, there should be around 40m-50m music-enabled mobile phones in western Europe, whilst Apple has sold around 20m iPods since its launch."

Microsoft on Wednesday pointed out there were already "more than 70 music phones on the market today, from 41 device manufacturers, available through 68 mobile operators in 48 countries, based on Windows Mobile and Windows Media technology".

Apple shares hit an all-time high on Tuesday of $48.80 in anticipation of the announcement. Shares closed down 12 cents at $48.68 on Wednesday in New York.

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