On the other hand, good news from Apple

Miguel Helft and Nick Bilton have an article in The New York Times about an even cheaper iPhone:

Apple has been exploring ways to broaden the appeal of the iPhone by making the popular device less expensive and allowing users to control it with voice commands. But, contrary to published reports, Apple is not currently developing a smaller iPhone, according to people briefed on Apple’s plans who requested anonymity because the plans are confidential.
Apple’s engineers are currently focused on finishing the next version of the iPhone, which is likely to be similar in size to the current iPhone 4, said one of the people. The person said Apple was not planning to introduce a smaller iPhone any time soon. Analysts expect the new iPhone to be ready this summer.
Another person who is in direct contact with Apple also said that the company would not make a smaller iPhone at this time, in part because a smaller device would not necessarily be much cheaper to manufacture and because it would be more difficult to operate.
More important, a phone with a smaller screen would force many developers to rewrite their apps, which Apple wants to avoid, the person said.
Steven P. Jobs, Apple’s chief executive, appeared to reinforce that last point recently, when he praised the iPhone’s uniformity, contrasting it with phones based on Google’s Android software, which come in many formats. “We think Android is very, very fragmented and getting more fragmented by the day,” Mr. Jobs told financial analysts in October. “We think this is a huge strength of our approach compared to Google’s.”
Another senior Apple executive said during a private meeting recently that it did not make sense for the company to make multiple iPhone models, noting that Apple would stick with its practice of dropping the price of older models when it introduced a new one. The iPhone 3GS is now available for $49 with a two-year contract that helps subsidize the price of the device in the United States.
As part of its effort to find new customers for the iPhone, Apple plans to make it easier to operate the device through voice commands, removing an obstacle for people who do not like using a virtual keyboard, said another person with knowledge of Apple’s plans.
Apple is also considering changing internal components of the device to bring costs down. “Although the innards of the phone, including memory size or camera quality, could change to offer a less-expensive model, the size of the device would not vary,” said the person, who has worked on multiple versions of the device.
Another person with knowledge of Apple’s plans said that the company was actively building a more versatile version of its MobileMe service, which allows users to store music, photos, and files online and have them accessible on all their devices.
The current version of MobileMe, which costs $100 a year, has failed to catch on with consumers. Rivals like Google and others offer similar services free. The new version of MobileMe is expected to be free and would allow users to synch their files without using a cable.
“The goal is that your photos and other media content will eventually just sync across all your Apple devices without people having to do anything,” the person said. If more iPhone users stored files online, Apple could make cheaper devices with less storage. Flash storage is one of the iPhone’s most expensive components.
Apple has dominated the high end of the smartphone market, but the company is facing increasing competition from devices running Google’s Android, which collectively outsell the iPhone. Analysts said it would make sense for Apple to introduce a cheaper iPhone, especially in overseas markets where carriers do not subsidize handsets. Unsubsidized handsets are often called “prepaid”.
“If they are going to be a player in the global market, they have to have a prepaid option,” said Gene Munster, an analyst with Piper Jaffray. But Mr. Munster said that, to be successful, a prepaid iPhone would have to be able to run the more than 300,000 apps available in the App Store.
A. M. Sacconaghi Jr., an analyst with Sanford C. Bernstein & Company, said that a low-priced iPhone could help Apple expand its unit sales of the device sixfold.
In recent days, some published reports, citing anonymous sources, said that Apple was building a smaller iPhone. One report gave the code name of the project as N97. Several people with knowledge of Apple’s plans said that N97 was the code name for the Verizon iPhone 4, which was introduced this month.

Rico says he heartily votes for MobileMe to be free; a great service, and free is always better...