Edible Apple

Most of the attention surrounding Apple’s upcoming iPhone event is naturally centered on what new iPhone models Apple will be announcing.

But one of the seemingly many surprises Apple will unveil tomorrow has to do with the iPhone 3GS, Apple’s now aging smartphone that was released almost 2.5 years ago.

RBC Capital Markets analyst Mike Abramsky issued a new research note to clients today outlining his belief that Apple will make the iPhone 3GS a free device with contract. If accurate, this would be the first time Apple’s iconic device will be offered at no-cost and marks a concerted effort from Apple to get the iPhone into as many hands as possible.

We expect Apple to reduce the price of the prior iPhone 4 to $99 subsidized ($499 unsubsidized) and the iPhone 3GS to $0 subsidized ($399 unsubsidized, see 11/06/29 note for more detail and rationale); the prior iPhone 4 may be available only with 8GB memory.

Google likes to brag about how many Android activations it sees on a daily basis – ~500,000 last we heard. This is an impressive number no doubt, but depending on how you look at it, it’s slightly misleading to the extent that many of these activations are from phone models that were acquired as part of “free with contract” deals. As such, one could argue that these user’s may be Android users today, but weren’t lured to the platform by any specific features aside from the prospect of getting a phone for free.

Recently, we detailed a survey indicating that smartphone retention rates were highest amongst iPhone users. Consequently, it would behoove Apple to get the iPhone into as many hands as possible and flood the market with free models, low cost models, and premium models. Whereas Android can compete against the iPhone with free, the dynamics of the smartphone market will be fundamentally altered if Apple begins giving away the iPhone 3GS for free.

You might remember that Tim Cook previously called the iPhone the mother of all halos while explaining that Apple doesn’t want the iPhone to be just for the rich. As such, a free 3GS with contract makes a whole lot of sense.

Lastly, it’s been rumored that Apple’s iPhone 4 will be available in an 8GB capacity and at a discounted rate.

via MacRumors