I wonder why Apple can't design one new phone per year at the same time they add a couple new features to their OS?
And this "market-leading user experience" you speak of is not true, they have been beat in that category. Not knowing whether or not you have a notification, not being able to add widgets, not being able to quickreply to texts without the horribly interrupting system they have now, and not being able to visit many websites on the net, all while cheapo phones from other manufacturers handle all those things just fine and have done so for years shows Apple has fallen behind.
Sure they lead in quality in terms of hardware, no cheap plastic (all stainless steel and glass), the OS is ridiculously locked down and it hinders the user experience.
We could go back & forth forever with our opinions. There's no hard scientific data to back up either of our positions. I'm fairly tech savvy, but definitely towards the bottom rung of "geekdom". It's my general impression that iOS is much easier to use compared to Android. iOS devices generally "just work" without need for customization or dorking around with systems controls. That type of simplicity is not for everyone, but it is what a lot of people want.
If you do want to mess around with iOS, the jailbreak community is very robust. I don't know how it compares to Android, but you can definitely customize your iOS device pretty heavily. But 90%+ of consumers have absolutely no interest in doing any of this.
For the past 3 yrs. Apple has done what exactly what you request:
"design one new phone per year at the same time they add a couple new features to their OS". This is the first time they've broken the pattern, probably because of iCloud integration into iOS 5. It's a major change and they don't want to mess it up like they did with Mobile Me.
You can complain that they're late with these upgrades, but by this time next month most of features and capabilities that the iPhone has been criticized for will be "fixed"...again to the satisfaction of 90%+ of consumers. There will always be something that 10% don't like about the iPhone: lack of Flash, "closed" system, etc. So the iPhone isn't for them. That's cool. They can go with Android, WP7, Blackberry, WebOS or even Symbian if that's what they want.
Since it seems to rile folks up, maybe I'll stop using terms like "market-leading" to describe the UX or features of iOS. The whole experience offered by the iPhone, iPod touch & iPad is what people are willing to pay the most money for, so it does "lead" by that measure.
The OP of this thread started with this sentence:
"Apple has to redesign the iPhone or else their butts will be kicked by Android." I don't think anyone doubts that Apple is upgrading the iPhone, but it might not be the kind of redesign the OP wants. Whatever the new iPhone looks like, there is zero chance that Android is going to "kick their butt" by any measure you want to use.
Who really cares? The title of this thread is "Competition". Competition is great for us as consumers. More choice of better devices. All of the major platforms are going to be around for at least 2-3 cell phone contracts. We can all "win" with whatever phone we pick.