Apple working on smaller, cheaper iPhones?

Anonymous industry sources told Bloomberg that Apple is developing new iPhone models to combat Google's Android platform. One version would be cheaper and smaller than the most recent iPhone, enabling the company to go after a much wider piece of the smartphone market. The reporter heard that this device would have a low price mainly because it will use a processor, display and other components similar to those used in the current iPhone model, rather than pricier, more advanced parts that will be in the next iPhone.

Apple has considered selling the new iPhone for about $200, without obligating users to sign a two-year service contract, said the person who has seen it. Android phones sell for a range of prices at AT&T Inc., Verizon Wireless and other carriers, and typically come with agreements that include a fee for broken contracts. The iPhone 4, sold in the U.S. by AT&T and Verizon Wireless, costs $200 to $300 when subsidized by a contract.

While Apple has aimed to unveil the device near mid-year, the introduction may be delayed or scrapped, the person said. Few Apple employees know the details of the project, the person said. Apple often works on products that don’t get released.

The prototype was about one-third smaller than the iPhone 4, and it had no “home” button, said the person, who saw it last year.

The sources also revealed Apple is working on a dual-mode phone that would enable users to work with the world's two main wireless standard (GSM and CDMA). Part of this strategy would include universal SIM, a technology which would let iPhone users pick from a variety of GSM networks without having to switch SIM cards that associate a phone with a network:

The new features could also give Apple an advantage over mobile carriers in influencing customers. The device would be affordable without a carrier subsidy, so buyers wouldn’t need to agree to terms, such as termination fees, that carriers demand in exchange for lowering the cost of the phone.