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I prefer to read on my phone over any other format. I can hold it and turn pages with one hand, and since only one paragraph fits on a page, I never lose my place even if I am distracted. I read MUCH faster on my phone than when reading from a paper book.
My current phone is bigger, but I read many books on my Iphone 3, with a screen size of only 3.5 inches, so I think the experience would be similar with these small phones.
And I am not alone, e-reader apps have always been among the most popular.