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Your modern cellular phone contains a mobile broadband modem, and thus it always seemed a bit peculiar that a separate piece of hardware, like a MiFi cellular router or USB modem stick, was required to connect a computer or other device to a cell data network when your phone was so handy.

Carriers and handset makers finally managed to assemble the right hardware and service plans to bring mobile hot spots into being on a large scale in 2010. Modern Android phones (2.2 or later), the Palm Plus version of its handsets, and other smartphones all sprouted an option to pass a mobile broadband signal to other nearby devices over the phone’s Wi-Fi radio.

This has finally arrived for the iPhone. The Personal Hotspot feature first appeared in early February on the Verizon Wireless version of the iPhone 4. It arrived Wednesday via the iOS 4.3 for the GSM flavor of iPhone 3GS and 4 for AT&T’s network.

The feature is unavailable for the original iPhone (which can’t run iOS 4 at all) and the iPhone 3G model, which cannot be upgraded from iOS 4.2 to 4.3. (If you want to compare this feature with other options, I previously wrote about how to bring connectivity for multiple devices while traveling, Practical Mac, Dec. 17.) The Personal Hotspot feature encompasses the previous tethering option. Tethering lets you connect your phone via USB to a computer to act as an external modem. You may also connect via Bluetooth to a computer or other device that supports a standard Bluetooth modem profile.

The new feature adds Wi-Fi to the mix. The phone creates a Wi-Fi base station that looks to any computer or mobile device just as any dedicated hardware wireless router would. Apple requires a password and the use of WPA2 Personal, the strongest encryption method available for connecting over Wi-Fi. (Computers manufactured before 2003 will not be able to connect to the hot spot unless they have a newer internal or external Wi-Fi card. This includes some old Windows XP laptop models and early iBooks.)

What you can connect depends on your carrier. Both AT&T (GSM) and Verizon Wireless models of the iPhone let up to five devices connect at once to your handset. You can mix and match among USB, Bluetooth, and Wi-Fi.

However, AT&T allows no more than three devices to connect via Wi-Fi, while Verizon permits up to five Wi-Fi connections. In practice, this is unlikely to inconvenience most people.

When any device is connected through any means, a blue bar shows in every view on your iPhone to indicate that the phone is acting as a broadband relay. The total count of connected devices is also shown.

The service carries a separate fee, naturally, as carriers charge for every possible feature they can justify.

While AT&T offers two tiers of regular data usage for data consumed directly by apps on the phone, only the higher tier qualifies to have the mobile hot spot added. The lower DataPlus tier (200 MB for $15 per month) can’t be used. Instead, you have to subscribe to DataPro, which includes up to 2 GB of data for $25 per month.

However, AT&T recently revised its mobile hot spot service across all smartphones to be more competitive with Verizon Wireless’s plans. It still adds $20 per month to your bill on top of the existing DataPro plan, but AT&T now also includes 2 GB in additional usage. They pool this 2 GB with the DataPro plan for a total of 4 GB per month for combined on-phone and tethering/hot spot use.

Additional gigabytes are $10 each, and are likewise available to either kind of data usage.

A useful, not-well-known tip: You can use AT&T’s website or free myWireless app to switch DataPlus and DataPro plans, and turn Personal Hotspot on and off. Via the website, an AT&T spokesperson confirmed, you can opt to change your plan retroactively for the month, or pay pro rata costs (and pro rata data allotments) for the remainder of the billing period, or until you switch plans within the same billing period again. This flexibility makes it easy to switch on the hot spot as you need it.

Verizon’s deal comes out smelling a bit worse after AT&T’s revision. Verizon Wireless offers only a $30-per-month unmetered data plan for its model of the iPhone 4. Adding the hot-spot option is also $20 per month, which includes its own 2 GB pool of data separate from the unmetered on-phone usage. Additional gigabytes are a whopping $20 each.

Subscribers to Verizon Wireless must call the customer-service line to turn the feature on and off. Service is available only on a full-month basis, with no pro rata or retroactive charges. You need to call again to disable the feature.

If you like the notion of having a hot spot you can carry with you, this new feature is a boon for remaining connected. AT&T’s current deal has financial advantages for anyone who expects to use an iPhone heavily as a modem; Verizon’s is more sensible for those who will use the phone’s apps more extensively.