Apple's Chief Operating Officer, Tim Cook, recently spoke with Bernstein Research analyst Toni Sacconaghi about Apple's possible plans to introduce cheaper or prepaid iPhones. While Sacconaghi didn't give any exact quotes, he paraphrased a few of Cook's thoughts.
"Tim stopped short of explicitly stating that Apple would pursue a lower price iPhone," Sacconaghi said, but Cook said Apple is "working hard to 'figure out' the prepaid market." According to Sacconaghi, Cook and Apple want to dispel the impression that Apple's products are "just for the rich." Cook also called China "a classic prepaid market," which certainly indicates Apple is interested in pursuing that market.
The use of prepaid SIM cards for iPhones isn't new in some parts of the world -- such deals are common in a number of countries in Europe -- but you do pay handsomely for the iPhone if you choose this route.
Perhaps rumors about smaller iPhones aren't correct, and instead Apple will find a way to make a same-sized model with cheaper parts. Or perhaps earlier models will be sold on the prepaid market instead of, as in the past, with regular contracts.