They may not want to admit it, but Nintendo is losing ground in the handheld gaming market to the iPhone. While iPhone users have access to 3G Internet wherever they go, the DS only has WiFi access. This greatly limits its usefulness as an online gaming platform, and also makes downloading games and other apps online a much less attractive proposition. Mobile gaming should be just that; mobile. Being confined to your home or a WiFi hotspot in order to game online is a serious hindrance.

While Nintendo has yet to admit that the iPhone is their #1 handheld gaming competitor, they seem to be taking action to defend against it anyway. According to Financial Times (via Electronista) the gaming giant is considering adding free 3G access to their next handheld. Satoru Iwata, the company president, stated on Friday that Nintendo is considering adding an extra up front charge to their next handheld, in exchange for free lifetime 3G access.

"Only people who can pay thousands of yen a month can be iPhone customers," said Iwata.

He has a point. Expense is the chief limiting factor of the iPhone as a handheld gaming device. Buying an iPhone and paying for a data plan represents a substantial cash investment. Parents might be willing to buy little Jimmy a new DS for Christmas, but they're probably not going to buy him an iPhone and pay thousands of dollars for a 2-year data/talking plan.

If the new Nintendo handheld has a browser to go along with its 3G, it could become popular as much more than a gaming device. Many people (myself included) would pick up anything with free 3G access and a web browser just to use as a dirt-cheap MID. Of course, the prospect of millions of net addicts free-loading off of Nintendo's 3G could be what gets this idea killed.

Iwata was careful to say that free 3G was only one of the ideas his team was looking at to lift them out of their current slump. Still, I've got my fingers crossed for a handheld with free 3G next year. It never hurts to dream.