Q: Why can't I connect my iPhone to another phone using Bluetooth

Because iPhone is not designed to work that way.

There is no problem. That functionality you seek is not supported.

So why is it there?

So you could connect speakers, keyboards, headsets, car audio systems, etc.

For Bluetooth headphones, earbuds, connecting to automobile Bluetooth phone systems, keyboards etc, but not to another phone

Why is what there? Bluetooth has many other functions besides phone to phone connections That's why it's there.

If you read the Bluetooth iPhone specs you will read that it supports certain stacks/procedures. Iphone to iPhone (or phone) bluetooth connection is not supported.

http://support.apple.com/kb/HT3647

If you feel this feature is a must then tell Apple:

www.apple.com/feedback

Here is your answer

iOS: Supported Bluetooth profiles