Another reputable news outlet, the New York Times, has reported that Apple is looking to build a cheaper version of the iPhone 5, one that will allow users to control it using voice commands.
But the news website pours cold water on rumours that the phone will be smaller; one of their sources said that the bill of material for a smaller iPhone 5 would not be necessarily cheaper than the normal sized one (otherwise smaller laptops would be cheaper than bog standard ones).
Furthermore, a smaller iPhone 5 would be more difficult to operate, not be cheaper to manufacture and may require developers to rewrite their apps, something that Apple would like to avoid.
Sources from within the company however said that making multiple iPhone models doesn't make financial sense and that Apple would stick with the process of dropping the price of old handsets when introducing newer ones.
The problem is that the competition is not standing still; the ZTE Blade (Orange San Francisco) has roughly the same specifications as the Apple iPhone 3GS but costs way less. The fact that the iPhone 3GS is two years old already doesn't make things any simpler.