When Apple announces the next-gen iPhone later this month, the current iPhone 4  (or a version of it) will continue to be sold as a more affordable alternative. This is a safe assumption as the iPhone 3G continued to be sold alongside the iPhone 3GS, and the 3GS is still available for purchase today – fifteen months after the iPhone 4′s release – as a budget option. 

Accepting that this model will continue, the question is: how will the iPhone 4 change when it shifts from Apple’s flagship product to a lower-priced alternative?

Of course, one option is status quo, minus the premium price.  Carriers could continue to sell the 16GB iPhone 4 as-is for, say, $99 on contract, to offer a more attractive entry price to would-be iPhone owners or legacy iPhone users who haven’t yet upgraded.  This is certainly possible, but given current market realities and Apple’s history of bold action, a more significant change seems warranted.

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A recent meeting between Toni Sacconaghi of Bernstein Research and Apple COO Tim Cook confirmed that Apple is seriously considering more affordable iPhone models. Summarizing the meeting, Sacconaghi also stated that Apple is working to “’figure out’ the prepaid market.”

A prepaid iPhone?  This would be a very interesting move for Apple, bypassing the wireless carriers’ contracts, service requirements and credit checks, and selling iPhones directly to consumers for an unsubsidized, one-time fee.

Prepaid phones are sold at relatively low cost to customers without a contract.  Users then pay by the minute, purchase airtime in chunks, or pay a flat monthly fee (usually $45-$60 per month) for unlimited voice, text and data.  There are several prepaid brands including Boost Mobile (Sprint), Straight Talk (Tracfone & Wal-Mart), and carrier-branded services from AT&T, Verizon and T-Mobile.  At present, prepaid phones are usually older models which can be sold unsubsidized at affordable prices ($25-$100).

While there are a handful of smartphones now available as prepaid devices – most notably the Android-powered T-Mobile Comet – the vast majority are so-called dumb phones that do little more than make calls and offer text messaging. 

If Apple were to add an iPhone to the prepaid mix, this market would change quickly.

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