Report: Apple making cheaper iPhone to fight Google

Apple is reportedly working on a new line of iPhones, specifically tailored to take on cheaper phones using Google's Android.

(Credit: Verizon)

Citing a source who has seen the prototype, Bloomberg reports that one iPhone model would be "cheaper and smaller than the most recent iPhone." The new model is described as being one-third smaller than current models.

The phone is not the only thing getting smaller -- Apple is looking to drop the price and customer commitment too.

Bloomberg says that Apple wants to sell the new model for $200 without requiring the user sign a contract. Typically, wireless carriers require customers sign a two-year or sometimes a three-year contract in order to get a discount on a phone.

Reiterating rumors that have been around for some time, the report also says that Apple is working on a dual-mode iPhone that would work with GSM and CDMA networks.

Verizon Wireless began selling the iPhone 4 today. Analysts are predicting that the carrier could sell about 8 million iPhones in 2011.