I believe this is only rumor . Iphone still has very strong need in the market. Don't forget T has exclusive contract with AAPL . They won't allow AAPL do that . Actually , the Iphone hardware cost is pretty low , specifically if AAPL can make a lot order. I think the simply version Iphone is the hardware doesn't change much but only provide specific software or make some feature optional , like for business purpose , no MP3 , integrated more powerful email client similar like blackberry.