In my opinion, they still are in many respects. Sure, there are phones out there with higher MP cameras and perhaps a few other tricks that the iPhone doesn't do, but no one has near the complete package like the 3GS.
Again, Apple doesn't need to kill itself bringing a higher-tech device to stay ahead in this game, I don't think. They're already there, they just need to maintain. They brought smart, reasonable upgrades to the platform to keep it competitive for the next year or so and that's all they need to do well. I think they found a nice balance.
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