Is Apple considering a low-cost/prepaid iPhone?

Recent reports indicate Apple may be out to tackle Android in the low-end smartphone market with an iPhone nano.

There have been rumors of a so-called iPhone nano for just about as long as their were rumors about a Verizon iPhone. Like the Verizon iPhone rumors, for years such rumors could be dismissed as wishful thinking. After all, Apple really hasn't chased the low end market in any of its product lines since Steve Jobs returned to the company in 1997.

The big argument in favor of an iPhone nano has always been that Apple introduced the iPod as a high-end device and later introduced lower end equivalents in the form of the iPod mini, which was eventually replaced by the iPod nano, and the iPod shuffle. In fact that strategy of diversifying the iPod is where the phrase iPhone nano came from in the first place.

Earlier this month, however, the NY Times published a piece that summarized unconfirmed reports that Apple might be out to create a low-cost iPhone. While that piece was largely centered on speculation, it did make one very good point: Apple already offers a lower-cost iPhone option in the form of the iPhone 3GS. They also previously offered the iPhone 3G as a lower cost option while the 3GS was the premiere iPhone model (though not with the level of subsidized pricing currently available for the iPhone 3GS with an AT&T contract).

Offering last year's iPhone for cheap is a different approach than making a current-year inexpensive alternative. Perhaps more important, it doesn't offer Apple any piece of the prepaid phone market.

Yesterday, Business Insider took an interesting reading of an interview by Tim Cook, Apple's COO who is handling day-to-day operations while Steve Jobs remains on medical leave. The interview doesn't confirm much, but it does indicate that Apple may have its eyes on the prepaid market.

That market is fairly large and growing in the U.S. (it's also very common paradigm abroad). It is a market that generally focused on the most basic of devices: traditional handsets rather than smartphones or limited feature phones. Sprint's two prepaid subsidiaries, Virgin Mobile USA and Boost Mobile, introduced prepaid smartphones last year with Android and BlackBerry devices. Overall, the strategy has been successful – in part because it is possible to source good low-cost Android phones.

In fact, very capable low-cost Android handsets like the LG Optimus have shown that there is a real market out there for low-cost and/or prepaid smartphones. That assessment is one reason that NY Times piece predicts Apple is interested in producing such a product, which is a perfectly reasonable assumption.

Exactly what a low-cost/prepaid iPhone would look like is anybody's guess. That said, Apple doesn't have an exclusive U.S. carrier relationship anymore. If it is creating such a device, it could theoretically sell it prepaid for use on any carrier. Apple could even adopt a simple unlocked GSM model approach for it, allowing its use with AT&T, T-Mobile, and virtual operators that rely on one of their networks like Walmart's Family Mobile service, which offers a BYOD approach for any unlocked GSM device and runs on T-Mobile's network.

Who knows, maybe this will be one of Apple's classic "one more thing" announcements tomorrow.

Ryan Faas writes about personal technology for ITworld. Learn more about Faas' published works and training and consulting services at Follow him on Twitter @ryanfaas.

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