Apple expected to offer free iPhone 3GS with the launch of iPhone 5 this fall

There have been lot of thoughts around how Apple can use iPhones to penetrate the Android dominated market. While many have offered a cheaper iPhone as the solution, nobody till yesterday asked "why not free". Mike Abramsky of RBC Capital said, "psychologically a $0 iPhone provides a compelling offer". The analyst believes that throwing in a free iPhone 3GS would not only add $7 billion of revenue and $1.82 of EPS to the company’s income statement but also help it maintain its gross margin of 47% to 48% on the iPhone taking in consideration the sheer demand for the device.

He further suggested that Apple iPhone 3GS can be rolled out with a carrier contract for free or a unsubsidized price of $399 ( Rs  20,000) with the launch of iPhone 5 in September.

In India we recently saw the Apple iPhone 3GS  price slashed to Rs 19,990. Earlier released through operators like Vodafone and Airtel in June 2009, the price cut directly pegs Apple iPhone 3GS with popular Android devices like Google Nexus S LCD which retail at about the same price range of Rs 20,000. Come September, we will not be surprised to see another price cut in the Apple 3GS in India.

Apple iPhone 3GS is powered by a 600Mhz processor and is supported by Apple's iOS version 4.3. Equipped with a 3.5-inch capacitive touchscreen, iPhone 3GS comes with good connectivity features such as 3G, Wi-Fi, GPS with A-GPS support, EDGE/GPRS and Bluetooth 2.1 with A2DP and includes a 3.15 megapixel camera with autofocus capabilities. At the moment it seems Airtel and Aircel will be offering the iPhone 3GS 8GB, but it is likely that others will follow the suit.

Mike Abramsky of RBC Capital believes that Apple will be launching a cheaper iPhone option in the near future as well. The roll out of this smaller, prepaid iPhone version could be as soon as next year. Definitely not this year though as Abramsky points out to "avoid iPhone 5 cannibalization, and as its design may deeply leverage iCloud services for convenience and affordability.” RBC is also expecting to see a cost cutting in the recently launched iPhone 4 to $99 ( Rs 4,950) or $499 ( Rs 24,000) unsubsidized. Hopefully we will see this goodwill trickle down to India as well.

The successor to the iPhone 4, iPhone 5 continues to make headlines, be it through rumors or speculations. The highly anticipated next device is expected to come equipped with a A5 processor and a powerful chipset on the lines of the new iPad 2. Powered by a iOS 5 operating system, the iphone5 is said to pack in improved messaging and photo-sharing options along with support for all the Apple mobile devices.

The device is expected to strap in a 8-megapixel and sport a higher resolution screen. Taking a cue from the recent launch of iPhone 4 which took nearly 12 months to hit the Indian shores, we don't expect to see iPhone 5 till next year. But then hearing all the "cheaper iPhone" news we may not see a iPhone 5 at all, rather a lower-end iPhone, with less technological capabilities.

But then again with Apple you don't know what to expect: Whether it be a iPhone 4S or iPhone 5 or iPhone 4S and iPhone 5 or a cheaper iPhone?