Apple Hopes to Entice Customers With Cheaper, Smaller Iphone

Apple is preparing to slash the price of its iPhone handset in an attempt to convince millions more customers to get on board.

The iPod-maker is due to launch an improved version of its much-vaunted touchscreen mobile phone today. Although the announcement is being closely guarded, sources have confirmed a number of details to the Guardian.

The handset will offer faster connections to the internet, using the 3G phone networks prevalent across Britain, and will be smaller than the current model.

The second-generation iPhone will go on sale immediately in the US, with British customers due to get their hands on it next month. It will also be available to pre-pay customers. And crucially, the handset will be offered at lower prices - or even for free. Those who sign up for a contract costing £75 a month will be offered the handset for no extra charge, breaking with Apple's earlier attempts to avoid the large subsidies common in the rest of the industry. Elsewhere, the gadget is likely to be subsidized to lower the price, which could drop from £269 to as little as £100.

While the iPhone has proved a hit in America, where the majority of its sales have taken place, it has managed only a moderate level of success in Europe. Many customers have complained about the lack of higher-speed 3G connections, and it has been hampered by a general impression of high price.

Apple will be attempting to shift those perceptions in San Francisco today, where chief executive Steve Jobs will take the stage to lay out his plans. He will also be hoping that the new iPhone will give a fillip to the sales figures. A study by the industry analyst IDC last week claimed the iPhone's share of the American smart phone market fell from 26% at Christmas to just over 19% in the first three months of 2008.