Apple May Offer Older iPhone for Free in Fall: RBC

Apple is expected to offer an older version of its popular iPhone for free when it introduces the iPhone5 in September, according to a research note by RBC Capital.

The report joins the recent surge of speculation about the introduction of a lower-end iPhone, with less technological capability.

RBC said that Apple [AAPL 349.43,+6.17(+1.8%)] is expected to offer the iPhone 3GS for free, with a two-year contract. The phone will cost $399 with no contract.

“This approach is intended to target mid-market smartphone buyers and counter Android’s mid-market expansion,” according to the RBC research note.

RBC said it expects the iPhone 5 to launch between $199 and $299 under contract ($599 to $699 unsubsidized), and it anticipates the company will cut the cost of the iPhone 4 to $99, or $499 unsubsidized.

The introduction of a free iPhone wouldn't be such a radical move, since rival AT&T [T 31.20, -0.48 (-1.52%)] has already priced a 3GS phone at $49. However the 3GS iPhone would work only on GSM networks, so it wouldn't work on Verizon's [VZ 37.33,-0.47(-1.24%)] network.

And the relatively low $399 unsubsidized iPhone still wouldn't be enough to address markets such as India, where consumers demand far lower price points. The 3GS also lacks Apple's A4 and A5 chips, so continuing to sell it fragments Apple's platform somewhat.

Earlier this week, a Deutsche Bank analyst note suggested Apple would introduce a lower-end iPhone with a pre-paid voice plan option at a cost of about $349.

“With Nokia [NOK 6.32, -0.10(-1.56%)] and RIM [RIMM 28.92, -0.01(-0.03%)] struggling, the time is right for Apple to aggressively penetrate the mid range smart-phone market (i.e. $300 to $500 category),” said analyst Chris Whitmore, in a note. “Apple could further segment the market by offering an unlocked iPhone 4S with a pre-paid voice offering. We’d expect this product to look a lot like the low-end iPod touch with wireless connectivity built in.”