The "cheap" iPhone isn't actually about being cheap at all: it's about retiring the 3.5-inch screen. Apple has a long-running love of standardization, and with good reason. The company built the iPad mini around a display size, aspect, and most importantly resolution that allowed the greatest parity - and the fewest developer headaches - with the existing, full-sized iPad, after all. It's not just in the name of control-freak tyranny, either: the iPad mini came out the gate with a full catalog of compatible apps, which is more than the Nexus 7 could claim.
Soon, Apple will announce a new iPhone, and the range of phones it has on sale will shift again. All signs point to it being the "iPhone 5S", though no matter the name, we're expecting the current iPhone 5 to slip down a tier and become the mid-range option. That would, if Apple was true to previous form, leave the iPhone 4S to take up the iPhone 4's position as the "entry-level" handset, free-with-agreement.
Thing is, the iPhone 4S has a 3.5-inch screen - a leftover of the old design - while the iPhone 5 and 5S are going to use the newer 4-inch Retina. The 4S is also not the cheapest to make, and there's a good reason Apple switched from the precarious glass casing of that generation to the sturdier metal of the iPhone 5.
[aquote]Full specifications are yet to leak, but a 4-inch display is a safe assumption[/aquote]
Is there a better reason to ditch the iPhone 4S altogether, and introduce a new design completely: one which can cherry-pick the key elements of the iPhone 5 but wrap them up in a chassis that's cheaper to make and thus cheaper to sell? Full specifications of the "low cost" iPhone are still yet to leak, but a 4-inch display is a safe assumption, meaning developers will be able to focus their efforts on a single, current resolution of 1136 x 640.
Price is important, of course. Apple figured that out back when it opted to keep the older iPhone around to create an instant tiered range, though not in the same way that Samsung or others might, by constantly developing multiple slightly differentiated models. Cheaper variations are also a mainstay of the iPod line-up: see, for instance, the cheaper iPod touch, which drops the camera and other elements to meet a price target.
It's even more essential when you consider the next big battleground in smartphones: the so-called developing markets. Countries like China are the target for most of the big names in mobile - Samsung wants a piece of the pie, Nokia is counting on them to buoy up Windows Phone, and ZTE and Huawei are already staking their claim with budget Android phones - and the requirement for something affordable means keeping costs to a minimum is essential.
It's a precarious line to walk. Apple has to deliver enough to make the new, affordable iPhone competitive with rivals, but also not so good as to eclipse any reason for users to upgrade to its more expensive versions. Still, the iPad mini has "cannibalized" full-sized iPad sales, but Apple is still sitting pretty in financial terms, and the entry-level iPhone is arguably more of a gateway drug for the premium models than the two tablets, which are relatively different propositions given their screen sizes.
Apple's strategy involves more than just making the cheapest phone possible. If the new, "cheap" iPhone plays just as nicely with the App Store (which remains a key differentiator for the brand) as its more expensive siblings; if it's as appealing to budget buyers in established markets as the iPhone 4 has been in this past generation, then it serves two purposes. Ticks the box for taking on developing markets as well as offering something different and - thanks to those candy colored shells we're expecting - eye-catching for more saturated markets.