Latest iPhone is great except for its dependency on AT&T;

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Just three years ago, Apple wasn't in the mobile-phone business at all. Since then, its game-changing iPhone has become the most influential smartphone in the world. This week, the company rolled out the fourth generation of the device, called the iPhone 4.

While attractive, capable new smartphones emerge regularly from competitors, a new iPhone deserves special attention for two reasons. First, the device lies at the center of a huge ecosystem of 225,000 apps, plus popular related gadgets like Apple's iPod Touch connected media player and iPad tablet, which collectively are approaching 100 million units sold. Second, the iPhone's multitouch, gesture-based interface; elegant Web browser; sophisticated music and video playback; and other features have been emulated on many competing devices, so what Apple does affects the whole industry.

I tested the iPhone 4 for more than a week. In both hardware and software, it is a major leap over its already-excellent predecessor, the iPhone 3GS.

It has some downsides and limitations—most important, the overwhelmed AT&T network in the United States, which, in my tests, the new phone handled sometimes better and, unfortunately, sometimes worse than its predecessor. I'll get into that below. But, overall, Apple has delivered a big, well-designed update that, in my view, keeps it in the lead in the smartphone wars.

The iPhone 4 is a dramatic redesign. It manages to pack a radically sharper screen; a second, front-facing camera; a larger battery; a better rear camera with flash; and a faster processor into a body that is 24 percent thinner, a bit narrower, and retains the same length and weight as its predecessor's. In fact, Apple claims that the iPhone 4 is the world's thinnest smartphone and sports the world's highest-resolution smartphone screen.

With the front-facing camera, and clever new software called FaceTime, Apple has brought simple, high-quality video calling to mobile phones, albeit, for now, only over Wi-Fi and only among iPhone 4 owners. In multiple tests, this feature worked very well for me and is a classic example of the value of having one company do integrated hardware and software.

In addition, the iPhone now includes an updated operating system—which also can be installed free on the prior model—that introduces catch-up software features such as limited multitasking (the ability to run apps simultaneously); folders for grouping related apps; and, for email, a unified inbox for multiple accounts and the ability to present messages as threaded conversations. This software is called iOS4.

The iPhone 4 will cost the same as the iPhone 3GS: $199 for a model with 16 gigabytes of memory and $299 for 32 gigabytes, with a two-year contract from AT&T. The 3GS model will drop to $99 with a two-year contract and 8 gigabytes of memory.

Physically, the iPhone 4 is attractive and feels great in the hand. Even the back is now clad in glass, which Apple claims is a superstrong variety 30 times tougher than plastic. I dropped it several times from a few feet onto a hard surface with no problem.

Although it is the same weight as its predecessor, the iPhone 4 feels denser and tighter—more like a fine possession than a disposable gadget. It still looks like an iPhone, but it manages to make the 3GS appear bulbous by comparison.

While its 3.5-inch screen, once considered huge, is now smaller than those on some other smartphones, the high resolution packs in a lot of material and makes text appear almost like ink on fine paper. The software is simply richer looking and smoother to use than on competing phones I've tested, with fewer confusing menus and settings, and far more apps.

Apple claims longer battery life for most functions—seven hours of talk time, for instance, versus five hours on the earlier model. I didn't perform a precise battery test, but, even in heavy use, the iPhone 4's battery never reached the red zone on a single day of my tests.

The new rear camera is another big plus. My test pictures came out sharp and clear, even in low light and close-up situations. It isn't the best cellphone camera I've tested, but it is a big improvement.

Video calling is one of this device's best features. As noted, it currently requires an iPhone 4 and Wi-Fi connection on both ends, though Apple says it is making the technology free to others and hopes to have millions of compatible devices. There is no setup and nothing to learn. You just press a FaceTime button, and if the other person accepts the invitation to talk face to face, his or her image appears.

You can tap an icon on the screen to swap the front camera for the rear one, so you can show your caller around the room, or include other people near you who are behind the phone.

After years of complaints, Apple finally has brought multitasking to the iPhone. But it has done so in a limited way that won't please everyone. On the iPhone 4, multitasking doesn't mean every app can work fully in the background. To prevent a disastrous drain on battery life, Apple has allowed only certain apps to fully multitask. These include streaming audio services like Pandora, which keep playing music from the Web while you do other things, and voice-prompted navigation apps, which keep working while you're on a call. Others that fully work in the background include Internet calling apps, and those that perform long downloads.

But some logical candidates, such as Twitter and Facebook, merely pause in place when you switch away from them. You can get back to them quickly, and they update more rapidly than before, but they don't constantly update in the background. They only wake up in the background if you have set them to notify you of an update, and then only for a limited time. Apple says constant fetching of hundreds of social-networking updates in the background would kill the battery too quickly.

Because iPhone users can easily accumulate hundreds of apps, it can become difficult to organize them. So the new iPhone OS now allows you to group them into folders. For instance, I grabbed the icon for The Wall Street Journal app, dragged it on top of the one for the Washington Post app, and a folder was instantly created called "News," based on the apps' built-in categories. You can change the name to anything you like, or alter or disassemble the folders.

The most important downside of the iPhone 4 is that, in the United States, it's shackled to AT&T, which not only still operates a network that has trouble connecting and maintaining calls in many cities, but now has abandoned unlimited, flat-rate data plans. Apple needs a second network.

In my tests, network reception was a mixed bag. Compared with the previous model, the new iPhone dropped marginally fewer calls made in my car, both in Washington and in Boston, and was much louder and clearer over my car's built-in Bluetooth speaker-phone.

Yet, in some places where the signal was relatively weak, the iPhone 4 showed no bars, or fewer bars than its predecessor. Apple says that this is a bug it plans to fix, and that it has to do with the way the bars are presented, not the actual ability to make a call. And, in fact, in nearly all of these cases, the iPhone 4 was able to place calls despite the lack of bars.

However, on at least six occasions during my tests, the new iPhone was either reporting "no service" or searching for a network while the old one, held in my other hand, was showing at least a couple of bars. Just as with its predecessors, I can't recommend this new iPhone for voice calling for people who experience poor AT&T reception, unless they are willing to carry a second phone on a network that works better for them.

For everyone else, however, I'd say that Apple has built a beautiful smartphone that works well, adds impressive new features and is still, overall, the best device in its class.