Apparently there is no smaller iPhone model in the works (the cheaper phones would essentially be discounted n – 1 models, where n is the current release; e.g., the iPhone 3GS is already on sale from AT&T for $49), but perhaps a more robustly useful MobileMe
Another person with knowledge of Apple’s plans said that the company was actively building a more versatile version of its MobileMe service, which allows users to store music, photos and files online and have them accessible on all their devices.
The current version of MobileMe, which costs $100 a year, has failed to catch on with consumers. Rivals like Google and others offer similar services free.
The new version of MobileMe is expected to be free and would allow users to synch their files without using a cable.
“The goal is that your photos and other media content will eventually just sync across all your Apple devices without people having to do anything,” the person said. If more iPhone users stored files online, Apple could make cheaper devices with less storage. Flash storage is one of the iPhone’s most expensive components.