Apple seen selling iPhone 3GS free with subsidy, $399 without contract

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Though the iPhone 3GS was first released in 2009, one analyst has said Apple will continue to sell its third-generation handset after the "iPhone 5" is announced, offering it for free with a service contract or for $399 unsubsidized.

Ahead of Tuesday's iPhone event, analyst Mike Abramsky with RBC Capital Markets said he expects Apple to introduce a refreshed iPhone this week, likely to be branded either "iPhone 5" or "iPhone 4S." He doesn't expect Apple to introduce a second, cheaper iPhone model, but instead reduce the prices of its existing lineup.

To that end, he sees the iPhone 4 dropping to $99 subsidized, and $499 without a service contract. But he also believes Apple will retain the iPhone 3GS in its lineup, offering it for free with a two-year carrier agreement, or $399 contract-free.

That would be a change from years past, as Apple has traditionally discontinued its two-year-old iPhone model. With the release of the iPhone 4 in 2010, the iPhone 3GS was dropped to $99 with a contract, and in January the price was further reduced to $49.

Industry-watchers have been forecasting for Apple to introduce a new entry-level iPhone for years, allowing the company address a huge global prepaid wireless market, particularly in China. That led to speculation that Apple would release two iPhone models this year — one low-end offering, and a full-fledged fifth-generation handset.

But even prior to its note issued to investors on Monday, Abramsky has expressed skepticism about a new, low-cost iPhone from Apple. Back in August, the RBC analyst said the primary requirement for Apple to launch a low-end iPhone would be to provide an "innovative, category-killer experience."

The same analyst also said in June that Apple is "expected" to offer the iPhone 3GS for free once the iPhone 5 launches. He sees the approach helping Apple with mid-market buyers, and would counter the growth of Google's Android platform.

While the continued availability of the iPhone 3GS would be a surprise, the real focus of this week's event, scheduled to begin at 10 a.m. Pacific, 1 p.m. Eastern on Tuesday, is the new fifth-generation iPhone. Aligning with most rumors, Abramsky believes the new iPhone will feature the A5 processor, an 8-megapixel camera, support for high-speed HSPA+ networks, and a new high-end capacity of 64GB.

Abramsky said Apple may choose to brand HSPA+ as "4G," as U.S. carriers T-Mobile and AT&T have opted to do, even though it is not "true" 4G long-term evolution. He also believes the new iPhone will offer voice recognition technology stemming from the company's acquisition of Siri.