Motorola's iTunes Phone on the Rocks

"It's a losing game for the carriers," says Snyder. The iPod and MP3 crowd uses PCs to download music, and they won't be inclined to pay the phone company for tunes they already own, says Snyder.

"The carriers hate that answer because it means they don't get any part of the multimedia phone pie, just as they haven't gotten squat with imaging," says Snyder.

The Motorola rep said the company continues to working with its carrier customers, and industry observers say they expect Motorola's iTunes phone to be available to customers as early as this summer.

Sprint(FON Quote) and Verizon Wireless -- a joint venture between Verizon (VZ Quote) and Vodafone (VOD Quote) -- did not return calls or reply to emails for comment.

Just as Internet service providers found it hard to charge for services beyond Internet access, the wireless shops are likely to discover that they have a very limited piece of the business, say analysts.

"Operators have to resign themselves at some level to the fact that the handset is a good customer retention tool," says Yankee's Jackson.

But analysts say it's ultimately the phone buyers that push the buttons and if they want cell phones that hold eight hours of their music, they'll get it.

"Consumers will end up demanding it," says Jackson. "The question is, when do the carriers stop resisting?"