Amazon smartphone 4-5 inches and already in testing tip manufacturers

Amazon is currently testing prototype smartphones, with mass production potentially starting late in 2012 or early next year, with a screen size of 4-5 inches according to insiders. The online retailer is working with component suppliers on the hardware, sources at those suppliers confirmed to the WSJ, echoing reports last week that a smaller version of the Kindle Fire tablet was in the pipeline.

Exact specifications of the Amazon phone are unclear, and it's unclear if the company has settled on a hardware design. A screen size falling in the range of 4- to 5-inches would put it up against the Galaxy S III and One X in terms of size, though if Amazon follows its strategy with the 7-inch Kindle Fire tablet, it might price the smartphone significantly cheaper.

That's because Amazon views hardware as a means to an end, rather than the end-goal itself, using dedicated devices like the Kindle line-up to sell more content such as ebooks, music, video and apps. A Kindle phone could effectively be subsidized by the prospect of future content sales, therefore, undercutting Samsung, Apple, and other rivals.

How that would work with traditional carrier subsidies remains to be seen. Amazon has existing relationships with some carriers, who provide the 3G connectivity in the cellularly-enabled Kindle ereaders, but prefers to keep their names behind the scenes and emphasize the "free data" aspect of the deal.

The retailer could decide to offer the Amazon smartphone SIM-free and unlocked, following Google's attempts to do the same and bypass carriers with the original Nexus One, or it could use the heft of its Amazon Wireless cellphone arm to negotiate exclusive tariff packages with one or more carriers.