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Apple loyalists across the globe are anxiously awaiting the release of the newest iteration of the iPhone. The latest and greatest gem from the tech giant is rumored to be called the iPhone 5 or the iPhone 4S, depending on who you talk to, and is expected to sport the new iOS 5 operating system along with a faster A6 processor and a host of new hardware features. At the same time Apple is working to cram even more bells and whistles into their beloved smartphone, the company is scaling back the iPhone 4 in order to make it more accessible and affordable.

Apple is said to be developing a version of the iPhone 4 with reduced memory and less expensive materials. The idea is to create an iPhone on the cheap. Apple made a similar move with the roll out of the original iPhone 4, introducing an 8 gigabyte iPhone 3GS at a significantly reduced price at the same time.

What is different this go-around is that they appear to be working toward reducing the overall cost of the phone, allowing the company to offer the iPhone 4 on a pay-as-you-go basis. Overall, it appears Apple’s goal is to bring the iPhone to the masses with the added ability to purchase a less expensive model smartphone without being tied to a monthly contract and data plan.

Currently, the 16 gigabyte iPhone 4 is available for $199 with a 2-year contract from both Verizon and AT&T. The 32 gigabyte version will run you $299. As things stand right now, in order to purchase an unlocked iPhone and avoid contractual data fees you’ll need to shell out $649 or $749 depending on the amount memory you want.

What is the reason for the huge price difference? Wireless carriers are able to offer iPhones at reduced retail prices because they subsidize their costs through the monthly contract and data service plans.

By using cheaper materials and reduced memory, Apple will significantly reduce the cost of production. This will enable the company to offer the iPhone 4 at a much lower price out of the box without a contract.

Rumors abound that the cost of a new, contract-free iPhone 4 will likely be in the ballpark of $200 or less. It is believed this will be much more palatable than the nearly $700 for the current version. If Apple sticks to its past practices, a retooled iPhone 4 will likely also be available for around $49 with a contract, making it a viable option for consumers who have shied away from the $199 price tag.

A pay-as-you-go iPhone 4 also makes it possible for Apple to break into a more worldwide market, as countries such as Pakistan prepare to make the leap from 2G to 3G. Unlike the $49 iPhone 3GS, which is only available on the AT&T network, the cheaper iPhone 4 can be expected to be available with CDMA technology, making it compatible with Verizon’s network, significantly increasing Apple’s footprint.

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