The RAZR had reigned as the top-selling consumer handset for the past 12 quarters. The report by the market researcher is based on more than 150,000 online consumer surveys each month, projected to represent all U.S. consumers 18 years and older.

'A Watershed Shift'

Ross Rubin, NPD's director of industry analysis, said "the displacement of the RAZR by the iPhone 3G represents a watershed shift in handset design from fashion to fashionable functionality." In the third quarter, he noted, four of the five best-selling handsets were "optimized for messaging and other advanced Internet features."

Based on unit sales in the third quarter, the top five handsets, in order, were the iPhone 3G, all models of the RAZR V3, all models of the RIM Blackberry Curve, the LG Rumor, and the LG enV2.

The emphasis on "fashionable functionality" is reflected in the key motivations of U.S. consumers in making their selection. According to the NPD report, the need for a camera was cited by 43 percent of the respondents, and the need to send and receive text messages by 36 percent.

Rubin noted what he called a "growing data divide" in cellular handsets. Some users are justifying their investment in data plans because they see the need for wireless access to the Internet, while other consumers are more "voice-centric" and see little need for data plans.

RAZR's Descent

Mobile phones are also seeing some features becoming more common. For instance, 30 percent of handsets sold in the third quarter had a QWERTY keyboard, resulting in the greatest year-over-year increase yet in sales for devices with that feature. A year ago, only 11 percent had QWERTY keyboards.

Similarly, 83 percent of handsets purchased this year have Bluetooth, versus 72 percent last year, and 68 percent were music-enabled, compared to 49 percent last year.

Avi Greengart, an analyst with industry research firm Current Analysis, noted that "the RAZR has been declining in popularity for literally years," while the recent launch of the iPhone's 3G version gave the device "a pop" in sales.

In recent years, he noted, the RAZR was popular because it was a "formerly premium phone that sold for almost nothing," and it was available from "nearly every carrier."

But even with the robust competition among the handsets, the report noted that the handset market is being buffeted by the declining economy. It pointed out that handset purchases by adult consumers declined 15 percent in the third quarter compared to a year ago, and revenue fell 10 percent even though the average selling price rose six percent.