The Apple iPhone 3GS
An analyst says Apple may soon offer free iPhone's, but the model will be the two-year old iPhone3GS model and customers will need to sign a two-year service contract to get the deal if it's offered. Reuters

Apple may team with AT&T to provide free iPhones to customers in the near future.

How good the deal is will be the customer's point of view, however, since if the deal is done as one analyst predicts it will hinge upon a two-year contract and involve Apple's two-year-old iPhone 3GS.

RBC's Mike Abramsky says Apple will cut the price of the iPhone 3GS to $0 to $50 when the company releases its iPhone 5 in September. AT&T customers will get the deal, valued at a retail price of $400, for the two-year-old iPhone model if they sign up for a two-year service contract with the mobile communications company, Abramsky said.

The analyst also said Apple may cut the price of its iPhone 4 to $99 with a similar two-year contract so they company has a full three tiers of pricing for its popular iPhone product when the iPhone 5 is released.

This approach, wrote Abramsky, is intended to target mid-market smartphone buyers and counter Android's mid-market expansion. He said the price cuts would expand Apple's market opportunity.

Analysts have argued in light of Google's smartphone strength with Android that the company should aggressively move down market in pricing to attract new customers.

Apple has a history of slashing prices on its older-model products when new products are released. For instance, the company cut the price of its original iPad, less than a year-and-a-half old, when it released the iPad 2 earlier this year. The price of the original iPad was reduced from $499 to $399.

The company is said to also be considering offering a low-end, contract-free iPhone model later this year.