Apple normally works on a number of prototypes at any time and it is not surprising to hear that there is a smaller iPhone handset (possibly the iPhone 5 Mini) in the pipeline.
The prototype, whose existence was revealed by Bloomberg, is thought to be cheaper (with prices starting at around $200 SIM free) and 33 per cent smaller than the current iPhone 4.
Crucially, removing the home button means that Apple may reduce the size of the phone without hampering the size of the screen itself which may remain at 3.5-inch and maintaining the same retina display.
According to Bloomberg, the rest of the components would still be the same with the current iPhone 4 including the Apple A4 processor, the screen. We expect it to be based on the new Verizon iPhone 4 with a Qualcomm baseband processor.
The introduction of a new iPhone 5 mini would follow the same "downward" trend of the iPod family and will allow Apple to explore new markets where the iPhone has been considered to be a luxury including BRIC countries and emerging ones.