Apple to "iPod" the iPhone?

Apple is working on the first of a new line of less-expensive iPhones and an overhaul of software services for the devices, people familiar with the matter said, moving to accelerate sales of its smartphones amid growing competition. In a sense, those moves would mean Apple is pursuing an "iPod" strategy, to a certain extent, creating a line of iPhones with various capabilities.

One of the people, who saw a prototype of the phone late last year, said it is intended for sale alongside Apple's existing line. The new device would be about half the size of the iPhone 4, which is the current model.

The new phone—one of its code names is N97—would be available to carriers at about half the price of the main iPhones. That would allow carriers to subsidize most or all of the retail price, putting the iPhone in the same mass-market price range as rival smartphones, the person said. Apple currently sells iPhones to carriers for $625 each on average. With carrier subsidies, consumers can buy iPhones for as little as $199 with a two-year contract.

Apple Works on Line of Less-Expensive iPhones - WSJ.com (subscription required)