Apple may soon offer iPhone 3GS for free

The iPhone isn’t just for the rich and famous anymore.

AT&T and Apple have ingeniously decided to keep the last-generation iPhone 3GS model in production and market it to low-budget consumers who still want to experience everything Apple’s mobile software has to offer.

It also provides AT&T with a competitive advantage, since its new iPhone competitor Verizon only has the ability to sell the iPhone 4 and above.

Currently, AT&T Store locations sell the iPhone 3GS for around $50 to customers who sign up for a new two-year service agreement. That’s already low enough for impulse buyers, but RBC Capital Markets analyst Mike Abramsky thinks the deal will get even sweeter.

“While a $49 iPhone is already available (AT&T), psychologically a $0 iPhone provides a compelling offer. Proprietary 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%),” Abramsky noted.

The report comes shortly after rumors of a new low-end iPhone appear to have been quashed. Earlier this month there was speculation that Apple may be preparing to launch a brand new iPhone model that caters specifically to the casual consumer market, but to many that just didn’t make sense because AT&T’s iPhone 3GS is already serving that market, and the iPhone brand is all about introducing the latest and greatest technology.

Apple does plan to support the 3GS at least through to the next major update to the iPhone platform, iOS 5. Some features, however, are only available on the newer iPhone models.