Well, it is competing in terms of fullfilling a job for people aka entertaining them during short dull moments, but it isn't competing in terms of how it achieves this. DSi is still a gaming platofrm, iPods are still music-players ,cell-phones are communication devices and books are ... only for Tim.
The idea is to expand the consumer-base to have a DSi in everyone's pocket to do all that entertainment stuff (trough a game-esque way) while they still have a cellphone in their other pocket for communicating with other people (which is wat Shigsy actually said). This aptly called a Blue Ocean Strategy where you go look for new customers instead of battling for the existing ones.

It just happens that all those devices (iPods, DSi's and cellphones) are doing a Blue Ocean expansion, but also are not competing with each other directly in their core-function.