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Thursday, February 10, 2011, 01:10 pm PT (04:10 pm ET)

Apple working on smaller, $200 contract-free iPhone to combat Android - report

Apple is working on a new design and form factor for the iPhone that would allow for a less expensive, contract-free model to take on the competing Google Android platform and bypass wireless carrier contracts, according to Bloomberg.

In a report filed Thursday afternoon, authors Peter Burrows and Greg Bensinger cited anonymous sources in revealing that Apple has allegedly developed a prototype iPhone model that is cheaper and one-third smaller than the current-generation iPhone 4. The report claimed that Apple Chief Executive Steve Jobs "aims to narrow the price gap that has made phones running Android more popular than iPhones" with the new handset targeted for launch in mid-2011.

"Apple has considered selling the new iPhone for about $200, without obligating users to sign a two-year service contract, said the person who has seen it," the report states. It also noted it's possible the project could be delayed or scrapped entirely, as "Apple often works on products that do not later get released."

Bloomberg pinpointed the announcement of the Verizon iPhone announcement in a report filed in June 2010, accurately revealing that the product would become available in early 2011.

Apple's alleged plans, reported on Thursday, would be dependent upon "Universal SIM" technology, which would allow users to switch between GSM networks without having to switch out a SIM card for connectivity to a wireless network.

The Universal SIM would not only cut costs, but would apparently "give Apple an advantage over mobile carriers in influencing customers," Bloomberg's report states. Because the alleged new iPhone model would be available without a carrier subsidy, customers could bypass the terms associated with a two-year contract and phone subsidies, like early termination fees.

"Apple has also worked on redesigned iPhone software that would let customers choose a network and configure their device on their own, without relying on a store clerk or representative of a carrier, according to the person," the report states. To the same end, it also said Apple is working on a dual-mode world phone that would be compatible with both GSM and CDMA networks.

Rumors of an embedded SIM option in future iPhones are not new, surfacing in late 2010 and suggesting that Apple is looking to bypass carriers and contracts, allowing users to select their wireless provider directly from the phone. But it was also rumored that Apple was forced to abandon those plans after carriers allegedly threatened to stop offering subsidies for the iPhone.