Is pre-paid and mid-market the future for the iPhone?


Analysts have begun their traditional pre-release Apple hardware predictions for the next generation of iPhone. It may have started a little later this year, but that only makes it all the more interesting, as we eagerly await Apple’s first iPhone refresh that will take substantially more than a year to arrive.

If Deutsche Bank analyst Chris Whitmore (via Fortune ) is right, the next iPhone(s) may well be worth the wait. Whitmore says the bank’s clients should expect two iPhones this fall, one a true next-generation iPhone 5 device, and the other an “iPhone 4S” that would basically resemble the iPhone 4 in most regards, but would be sold unlocked for use with pre-paid service for $349. Whitmore points out that this would be a smart move for Apple if the company wants to continue growing in emerging markets like Africa, Asia and Latin American, where pre-paid contracts make up the vast majority of all cellular service.

Whitmore doesn’t cite any specific sources for his prediction, and a lower-cost iPhone has long been a popular theme among Apple watchers and analysts, but this year is the first time Apple has given any indication it could have designs in that direction. Apple COO Tim Cook said in an interview with Bernstein analyst Toni Saccognaghi that Apple was indeed interested in producing cheaper hardware for customers who might have tighter budgets than the average current iPhone buyer. Apple also recently started selling the iPhone 4 unlocked in the U.S., indicating it’s at least interested in appealing more to the contract-wary customer.

Apple is already doing well in key emerging markets, like China, where it saw 250 percent growth during the company’s second quarter. That doesn’t mean it couldn’t stand to do better by embracing a sales model in keeping with what smartphone shoppers in international markets are more familiar with. Choice is still a primary driver of smartphone sales, which is why Android’s multi-vendor licensing model has proven so successful. Pre-paid is also on the rise as a service option even in the U.S., which means Apple could capitalize both at home and abroad with a device aimed at that growing category of users.

Morgan Stanley analyst Katy Huberty made some predictions about the next iPhone over the weekend, reporting production of a new model should begin in the last half of August, with the intent to ship devices in late September. Such a timeline would make sense if Apple were revamping the annual iPod refresh, and instead making the iPhone the star of the show.

If Apple does have two iPhone hardware choices on offer come fall, one with more features but a higher price and tied to a contract, and one with older tech but a lower cost of entry and fewer strings attached, which would you opt for?

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