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iphone 4Contradicting several recent reports that Apple is planning a smaller iPhone, the New York Times is now reporting that, while Apple is looking for ways to make the iPhone cheaper, it is not pursuing a smaller version of the device.

The paper’s sources say that Apple engineers are too busy finishing up the iPhone 5, which is expected to debut this summer, to be worrying about an iPhone Mini. One source says that an iPhone Mini wouldn’t be cheaper to manufacture and could adversely affect apps written for the existing iPhone’s 3.5-inch screen.

Instead, Apple will continue to make the previous iPhone generations a low-cost alternative to the newest model. This time around, Apple may also change some internal hardware to drive down the price of older models, according to the NYT’s source. Such a move would still allow Apple to compete with increasingly cheap Android devices.

Apple currently offers the 8 gigabyte iPhone 3GS for $49 with a two-year contract. That model, the third in the iPhone’s lineage, could potentially be offered for free with a contract following the release of the iPhone 5. The iPhone 4 could drop in price by half to $99.

The NYT’s source confirms previous reports that Apple will likely make its MobileMe service, which currently costs $99 a year, completely free. The service could serve as a digital file locker for users to stream their music, pictures, and potentially even video. There’s also been speculation that Apple is aiming for an iPhone that can only stream media, but we think that’s crazy.

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