Industry sources believe Apple is already working on more affordable versions of the iPhone:
American technology Research analyst Shaw Wu states in a note that Apple's purported move is simply a result of market pressure. "Apple needs to round out its iPhone product line at lower price points (similar to iPod) if it expects to replicate the success of its iPod with sales of 100 million units." Wu claims he has been told of "lower cost iPhone prototypes for release at unspecified future dates" by unspecified market sources.
It's not clear exactly what corners Apple will cut to make less expensive iPhones. However, an iSuppli report released a few months ago suggests the iPhone's display and flash memory are its most expensive components. A smaller screen and a move to 1GB or 2GB of storage capacity might therefore be in the works.