Last week Bloomberg reported that Apple is working on a somewhat smaller and cheaper iPhone targeted at somewhat less demanding consumers.
The Wall Street Journal has joined in and it claims sources close to Apple have all but confirmed the existence of the new baby iPhone. One of them apparently saw a prototype in late 2010 and said that it was roughly half the size of a regular iPhone 4. The new phone is reportedly codenamed N97, much like another smartphone from a certain Finish phone maker.
According to the WSJ, the new phone will be made available to carriers at half the price of a regular iPhone. This would allow carriers to offer it practically free of charge with a lengthy data plan and it should help Apple fight off cheaper Android phones, which have already started selling at rather ridiculous prices. In addition, a cheaper iPhone would also help Apple penetrate emerging markets. It would probably make sense to offer a carrier free version for such markets.
Apple is planning to introduce the iPhone 4 this summer, but it is unclear if and when the cheaper baby iPhone will appear on the market.