Copying a few pages from the playbook of Apple Inc's iPhone strategy, which brings many of the powers of the Internet to mobile phones, is no way to beat the computer interloper at its game.

But that's exactly what many of the world's biggest handsets makers are trying to do with new copycat phones and services that ape key features of the iPhone.

At Mobile World Congress in Barcelona, the world's biggest annual trade show for the wireless industry, Apple is everywhere and nowhere. The company avoids such events, preferring to unveil products at its own venues.

The handset business will produce more than a billion phones this year, but is suffering a crisis of confidence brought on by sharply changing business models that has only been exaggerated by the global economic slump.

Imagination is expensive in a year such as this, said Richard Windsor, a technology analyst at the conference who is with Nomura Securities in London.

The giants of the phone industry -- Nokia, Samsung Electronics Co Ltd, LG Electronics Inc, Sony Ericsson and HTC Corp -- are humbling themselves to copy a company whose phones account for only 1 percent of handsets.

A year ago, phone makers with quick-acting design teams came out with the first touchscreen iPhone look-alikes. This year, they are going further by seeking to duplicate the iPhone's user interface software.

Privately, an executive with a major European telecommunications operator complains: Everybody is trying to catch the iPhone. They are pushing things out to market that just aren't ready for prime-time.

Analysts say the clones often perform slowly and are less intuitive for users than the iPhone.

Case in point: South Korean phone maker LG Electronics introduced an entry-level smartphone using Microsoft Corp's Windows Mobile operating system and a new iPhone-like look called 3D S-Class User Interface.

The most obvious difference with the iPhone is that LG's GM730 gives users three-dimensional views of its features and applications, which appear like cubes rather than pages, as they do on the iPhone.

But a demonstration of the iPhone wannabe reveals a characteristic flaw familiar to personal computer users. LG's logo and then the Windows brand hang on the screen as 5, 10, 15, eventually 30 seconds pass. The phone is booting up, just like a computer, but unlike many of the faster phones.

iCLONES

Apple has sought to scare away competitors by threatening legal action to defend the hundreds of patented ideas it has rolled into the iPhone. How rivals can work around such patents remains a big question.

The proliferation of me-too products is a trap because products must take shortcuts or sacrifice profit margins to undercut Apple on price. That digs equipment makers into a deeper hole because smartphones have been faster growing and more profitable than other handsets.

And Apple isn't sitting still. Some Wall Street analysts say the Silicon Valley-based company is gearing up to offer a slimmed down $99 iPhone for consumers -- or $299 without carrier subsidies -- by June.

A lower-price iPhone would likely run on slower networks, contain less memory and have lower touchscreen and camera resolution, one RBC Capital analyst predicts.

Apple, which enjoys estimated margins of 55 percent that are nearly twice the industry average on their current line-up of phones, will need to accept margins around 40 percent if it markets a $99 phone. But that's still well above the 30 percent industry average.

The phone industry is envious of Apple's AppStore, which lets iPhone users download thousands of small software programs

to personalize the way they play games, listen to music or find directions.

Letting users decide what software they add to phones marks an upending of long-standing industry practices of tightly controlling device features, based on what handset makers and their key customers, the operators, thought best.

The roll-call of companies announcing their own software stores this week include Nokia, Microsoft, LG and France Telecom SA's Orange mobile network. Samsung and BlackBerry maker Research in Motion Ltd had previously announced stores of their own.

Orange said its own store will feature only Orange-approved products when it opens in May. Selected outside software developers will be invited in the future, it promised.

Comfortable old habits of control die hard.

-- At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.

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(Editing by Andre Grenon)

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