Report: Apple To Offer Free 3GS iPhone

Mike Abramsky with RBC Capital Markets stated in a research note Wednesday that Apple will give away the older iPhone 3GS, originally released in 2009, to customers who sign a new two-year service contract. Abramasky wrote that the move is expected to help Apple win consumers who are on a budget and desire a lower-cost alternative to the forthcoming iPhone 5, which is expected to be released later this year.

Abramsky predicted the move will also increase the iPhone's market share against the growing threat of Android-based smartphones. Despite the iPhone's popularity, Google's Android OS has made inroads in the mobile market thanks to its availability to a number of different smartphone manufacturers such as Motorola, Samsung and HTC.

An iPhone 3GS at no cost would also counter free phone offers for other platforms; both AT&T and Verizon Wireless have a number of similar free-phone offers with two-year contracts for manufacturers such as LG, Palm, and HTC. However, most of these free devices are lower-end models.

While a free iPhone 3GS would potentially boost Apple's market share, it should also benefit AT&T Wireless as well.

Currently, AT&T is the only provider of the iPhone 3GS -- Verizon Wireless offers the iPhone 4 only -- and is currently selling the 8GB version of the iPhone 3GS for $49. A free 3GS model could significantly boost AT&T's subscriber base; Abramsky cited proprietary survey data that suggested 14 percent of respondents were likely to purchase a new two-year contract with AT&T along with a free iPhone 3GS.