Why Apple's iPhone contract-free plan won't mean an 'iPhone nano'

May 21, 2012 9:40 AM EDT

I'm filing iPhone nano speculation back into the "seeking a unicorn" pile for the present, as it looks like Apple [AAPL] intends offering the iPhone 3GS as its low price feature phone competitor, at least in emerging markets. And I'm not expecting Hell to freeze over in the smartphone wars when Tim Cook meets Samsung in court this week, either.

[ABOVE: Ford asked Imagination to make a scene to launch the Ford B-Max at the Geneva Motor Show. They did, rolling out 18 performers each armed with iPads.]

The iPhone nano is dodo

I've written so much about this fabled product, to the point I'm not certain these days if it's a personal wish fulfillment fantasy or a clear strategic objective. I still see products such as the Pebble as signs along the way to a small-size, low-cost iPhone derivative device, but it seems the company isn't inclined to dilute the power of the iPhone brand with such a device, at least, not just yet.

Jeffries analyst Peter Misek this week is telling clients that he's heard Apple's agreeing deals to continue to offer the iPhone 3GS contract-free in emerging markets while expanding availability of the device in pre-paid markets worldwide.

The other strand to Apple's plan to widen its addressable market for iPhones in the face of stiff competition from the Android menace is a big price cut on 3GS models, which will be sold contract-free at more or less the same price as iPhone 4S phones under contract (c.$300).

Chasing big numbers

Such plans make sense, particularly in light of Apple CEO Tim Cook's observations concerning the prepaid and postpaid mobile market uttered at a Goldman Sachs event in February, when he said: "For example, in most of the developed markets, the carrier owns most of the distribution themselves, but in the emerging markets, the retailer has a significant portion of the distribution. And so, the whole go-to market has to be changed significantly as you go in there."

He also observed that while Apple has prices in the subsidized markets covered, it doesn't make for big sales in the contract-free markets which are popular in developing economies. He noted that with mobile phone sales achieving half a billion in 2012 there's scope for further growth for Apple in the mobile industry.

Reading between the lines this suggested company plans to address the contract-free markets.

Apple will be hoping that offering an iPhone contract-free at a relatively affordable price into emerging markets, and widening distribution of a contract-free alternative in developed markets will boost iPhone sales.

Is Apple feeling it?

There's been much volatility surrounding Apple stock in recent weeks. This has been accompanied by rumors of depressed iPhone sales, reflecting expectation of the new model and the continued economic meltdown afflicting most developed markets. Apple has weathered the latter storm well, but competitors won't want to see it stagger. After all, if Apple's feeling the pinch, then they will be feeling it far worse.

With this as the backdrop, it's inevitable Apple will focus on widening its market. This makes a play to offer iPhones at good prices unlocked makes sense.

Also this week, Apple and Samsung are meeting in a court-directed mediation regarding Cupertino's claims Samsung has imitated its products. The courts have instructed the company's top brass to meet to try to resolve this case. I don't expect this to bear fruit, for reasons set out in this previous op-ed. Apple is still telling Google to: "Switch off your photocopiers". I've seen no evidence the company's opinion has changed.

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