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Rumor: Apple Prototyping A 2.3” iPhone At $200 Without Contract? Customers To Choose Own Network?

With the tech world still suffocating from iPad 2 rumors and John Gruber’s predictive iPad 3 lineup bomb, Bloomberg reports this afternoon that Apple may be planning to rekindle their iPhone line with new models to better compete with Android. What’s in the mix? A rumored Apple iPhone prototype is said to be a third smaller than the current iPhone 4, meaning it would be on par with HP’s Veer at approximately 2.3 inches diagonally. How do you undercut the competition? By finally offering American consumers the option to purchase a $200 smartphone without an obligatory contract.

Apple can sell it at a low price mainly because the smartphone will use a processor, display and other components similar to those used in the current model, rather than pricier, more advanced parts that will be in the next iPhone, the person said. Component prices typically drop over time.

Whether or not you care to dig into the gigahertz war in smartphone processor technology, the current hardware for the iPhone 4 would still be relevant for the next year, despite Android handsets launching with dual-core processor. iOS, being extremely efficient would fly with a 1GHz processor pushing pixels on a 2.3 inch display. With the same great camera, the baby iPhone would be an excellent edition to Apple’s lineup when paired with larger display of an iPad. (Personally, I don’t think these smaller displays are just for tweens.) The phone would be free if purchased on contract.

In edition to news of a smaller iPhone, Apple is reportedly working on improving network capabilities for future iPhones. WiFi is a big concern for Cuptertino, as it’s reported that Apple will be improving how the iPhone could remain connected to multiple networks. Also rumored is something called universal SIM, a technology Apple is working on to combine GSM and CDMA that lets an iPhone user toggle between the two. At first this could mean that Apple is working on making their own solution for a Verizon world-phone, but this clearly isn’t the case. Apple can better enforce their no-contract policy if the phone gives customers the right to choose their network. In that choice, customers, not store representatives, would be rumored to choose their own network and plan on the phone.

This is a rather large bucket of rumors we’ve received this afternoon, but Bloomberg feels rather confident in their leak. The only thing this sets up is disappointment if Apple doesn’t do these things this Summer, as they all sound incredibly intriguing.

[Bloomberg via MacRumors]

Editors note: banner used are faux iPhones sourced from this article.

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