Bloomberg is reporting that, according to unnamed sources, Apple is working on a smaller iPhone model (iPhone Nano, anyone?) to help close the pricing gap between lower end Android devices and Apple’s flagship iPhone product. The move would let consumers pick up an iPhone Nano for around $200 non-subsidized and without a carrier contract:

One version would be cheaper and smaller than the most recent iPhone [...] Apple has considered selling the new iPhone for about $200, without obligating users to sign a two-year service contract.

We previously speculated that Apple would do well by releasing a smaller iPhone to help fend off the never-ending flow of cheap Android smartphones. Apple would be able to sell the device without a contract because the costs to build it would be very low compared to the current iPhone 4 or future iPhone 5. The sources told Bloomberg that Apple is aiming to unveil the device around mid-year, but that plans could still be scrapped depending on how things play out.

Another interesting tidbit was that Apple is working on a technology called Universal SIM which would let users jump from network to network without switching out their SIM card. The SIM would be compatible with both GSM and CDMA networks and would work well in a contract-free iPhone Nano, giving more freedom of choice between networks for the user.

So how about it, would you be interested in picking up a contract-free iPhone Nano now that we know Apple is actually working on one? Let us know in the comments!

[Bloomberg]

Apple Insider is reporting that some US-based Apple Stores are, following a similar to move by AT&T, starting to sell unsubsidized and off-contract iPhones. Pricing is $599 for the 8GB model and $699 for the 16GB, but in this case there seems to be no restriction on the quantities purchased.

While Apple Insider suggests these units could be unlocked, we’re not aware of any official policy or method in place to do so — unless they’re referring to Jailbreaking and running the yellowsn0w software.

Speculation as to why Apple and AT&T are now more fully embracing the off-contract model, of course, centers around their desire to clear inventory prior to an anticipated (by the Internet) hardware revision sometime this summer, perhaps introduced at WWDC in June as the iPhone 3G was last year.

Anyone rushing out to get their off-contract iPhone 3G while supplies last?

Hot on the heels of O2 in the UK offering FREE iPhones, and T-Mobile in Germany offering ONE Euro-buck iPhones, AT&T waddles up to the plate to remind these upstart old-worlders how a carrier is supposed to behave:

The company is treating the iPhone 3G pretty much just like any other phone in that people who are ineligible for upgrades have to pay the full, unsubsidized price for the phone. [...] AT&T hasn’t specified what the unsubsidized price is.

Based on European conversions, however, let’s expect that to push $700+

How do you know if you’re eligible? AT&T continues to rock it old-school with nigh-impenetrable explanations.

UPDATE:

Anthony sent us in a note about his conversation with an AT&T rep who confirmed/added the following: Eligible upgrades get you the sweetheart deal within your existing contract, if not you may get the price, but with contract extension.

Hey AT&T, murky much? How about just posting a nice, clear, concise breakdown of the process per subscriber situation? Not Telco enough?

Check out the read link for the deets.

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