The rivalry between the most talked-about smartphones of the season - iPhone and G1- starts from the very basics of the two devices. In a recent report released by iSupply Corp., G1 appears to be 10 percent cheaper to make than the iPhone, with an estimated Bill-of-Materials (BOM) cost of only $143.89, compared to the iPhone, which costs and estimated $160 to make.

This difference transposes into a $20 difference between the two phones in terms of retail price, $199 for the iPhone for AT&T subscribers and $179 for the G1 for T-Mobile subscribers (the difference stands if we don’t take into consideration Wal-Mart’s G1 offer for the holiday season of $148,88).

As Tina Teng, senior analyst Wireless Communications for iSupply pointed out, “the G1’s differentiation resides in its use of the Android operating system, which has won praise for its ease of use, but whose major advantage is its integration with Google Internet services and its capability to accommodate the flood of free applications that are becoming available.”

For HTC’s G1, a phone that combines voice communications with e-mail, Internet access, camera and music playback capabilities, and comes with both a touch-screen and a QWERTY keyboard, the most expensive piece is the baseband, which costs an estimated $28.49, accounting for almost 20 percent of the total BOM.

Furthermore, the second most expensive piece of equipment is the display (3.2-inch TFT-LCD flat touch-screen with HVGA resolution, at 320 x 480 megapixels), which was estimated at $19.67, accounting for 13.7 percent of the BOM.

According to the data provided by iSupply, the 3-megapixel camera accounts for 8.4 percent of the BOM ($12.13), while the Radio Frequency (RF)/Power Amplifier (PA) which supports the high-speed 3.5G network connection costs $9.84, 6.8 percent of the total BOM.

The BOM price only includes the component and material costs for the smartphone, but not other expenses, such as software, research and development, manufacturing and accessories.

The competition between the two phones continues to be a hot topic, especially since Apple’s iPhone 3G proved to be a hit from Day 1. On the one hand, users are divided between QWERTY keyboard enthusiasts, and touch-screen enthusiasts; G1 has both of them, while the iPhone only offers a touch-screen.

On the other hand, while the iPhone supports multi-touch glass touch-screen, G1 comes with projective touch technology alone, iSupply pointed out. Both phones have Wi-Fi capabilities, allowing users to take advantage of the increasing number of hot-spots offered by carriers.

While there are good sides and not so good sides to both of them, G1 has one major asset that many users are glad to take advantage of: the availability of free open source applications. As Teng explained, there are at least five or six new applications to download every day, which will eventually cause the G1 to form its own software community, much like the Linux applications in the wired world or the Sun OS has for workstations. “This will produce a rich suite of free software for a variety of purposes that anyone can access.”