Rumors of a less expensive iPhone, in one form or another, certainly aren't new. Rumors follow want. We want iPhones. The less expensive iPhones are the more of them we can have, and the more often we can have them. We know that. Analysts know that. And Apple knows it too.
In 2007, the original iPhone was mass-market prohibitively, Ballmer-laugh-inducing-ly expensive. So, Apple and Steve Jobs adjusted the price down. In 2008, Apple changed course, worked out a subsidized model for the iPhone 3G, and the cost of entry became only $199.