New rumours suggest a change of internals rather than size.
We were always a bit skeptical of the claims that Apple's rumoured "iPhone Nano" was going to undergo a screen size reduction (what with all the apps having to be resized to fit), and it seems we aren't alone, with the New York Times debunking the rumour via some unnamed Apple associates today.
In an exclusive report, the NYT quizzed "people briefed on Apple's plans who requested anonymity" on the rumours, to be told that Apple had no plans to release a pint-sized iPhone, because it would be fiddly to operate and, in the end, not necessarily any cheaper.
However, the mystery insider did say that, while the size would remain the same, the internals could be changed to offer a cheaper alternative to the cutting edge iPhone of the moment. This, speculates the NYT, would make it easier for Apple to compete with budget-priced Android phones in countries where handsets are not subsidised by monthly contracts - where would-be iPhone owners have to shell out full price for the handset up front.
There's still nothing concrete to suggest that Apple is planning on developing a so-called iPhone Nano at all, but we can't shake this feeling that, whatever the threat from the Android Army, releasing a second, pared-down iPhone would fly in the face of Jobs' comments about Android being too "fragmented". Especially when if you want a cheaper, less cutting edge iPhone, you can always pick up one of the older models.
Link: New York Times