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iPhone Will Soon Be Free, Says Analyst

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Earlier this week, Deutsche Bank analyst Chris Whitmore predicted not just one, but two iPhone releases in September. Whitmore believed that it was time that Apple capitalized on the pre-paid mobile market -- which is much more lucrative abroad -- with an inexpensive, toned-down model.

"With Nokia and RIMM struggling, the time is right for Apple to aggressively penetrate the mid range smart-phone market," he said. "It's time for a mid-range iPhone."

It was a bold prediction, but Mike Abramsky of RBC Capital may have gone bolder: a free iPhone model.

Rather than envisioning Apple's upcoming iPhone 5 to debut with a cheaper sidekick, Abramsky believes that the company will slash the price of its iPhone 3GS to free with a carrier contract -- $399 unsubsidized. He also expects that Cupertino -- as it's wont to do upon new releases -- will lower the price of the iPhone 4 to $99.

"While a $49 iPhone is already available (AT&T), psychologically a $0 iPhone provides a compelling offer," Abramsky wrote.

To prove his point, Abramsky referenced a survey conducted earlier this month which asked 1,500 respondents if they would purchase an iPhone 3GS for free if it meant signing up with AT&T for two years. "Survey data suggests 14% are very/somewhat likely to buy the iPhone 3GS for free with 2-year contract, exceeding buying interest for the iPad (13%) and original iPhone (9%)," he wrote.

While that may not seem like a lot, Abramsky estimated that a free iPhone 3GS would add $7 billion of revenue and $1.82 of EPS -- that is, if the free model eats away at other iPhone sales by 10%.

He concluded, "We continue to expect Apple to launch a smaller, pre-pay iPhone -– but more likely in 2012, both to avoid iPhone 5 cannibalization, and as its design may deeply leverage iCloud services for convenience and affordability."

He makes a compelling argument. After all, it's only been three months since analyst Kevin Kelly foresaw free Amazon Kindles by the fall. Why not an iPhone?

But if they do become free, let's hope the Asian girl offering her virginity for one had the sense to follow marketing trends and wait a while.

(See also: Asian Girl Offers Virginity for iPhone 4 and Apple Will Release Two iPhones in September, Says Analyst)

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POSITION:  No positions in stocks mentioned.