Rumour Mill : next iPhone could be free with O2 contract

O2 could decide to heavily subsidise the next generation iPhone and give it free to new customers according to some underground gossiping/speculation reported by a few UK-based technology websites.

The Telefonica-owned mobile service provider has been impressed by the public reaction to a surprise £100 cut to the 8GB iPhone last month, a move that promptly emptied any remaining stocks online and instore.

O2 could possibly raise the price of its monthly 18-month contract or, like T-Mobile, introduce longer 24-month contracts which would reduce the cost of acquiring new customers.

Apple's exclusive partner in the US, AT&T, is also apparently considering giving away free or heavily subsidised iPhones in order to capture new customers.

It would be interesting to see whether O2 and AT&T extend any offer to their existing customers who are locked in long contracts.

This, combined with the fact that Apple will be selling the iPhone in more territories, almost certainly mean that Apple will smash the 10 million iPhone 2008 target it set itself last year.