Apple iPhone 3GS to be free on contract following iPhone 5 launch, analyst says

Apple is set to finally hit the $0 on-contract mark with its entry-level iPhone 3GS once it launches the next-generation iPhone 5 later this year. In a note to investors on Wednesday, RBC Capital Markets General Manager Mike Abramsky claims Apple is expected to finally offer the phone for free in an effort to aggressively attack mid-market smartphone buyers and counter Android’s momentum. Abramsky sees this move more than doubling Apple’s global addressable market to 150 million smartphones, up from 64 million, and it will drastically accelerate Apple’s growth outside North America. In the U.S., this of course begs the question, how will Verizon Wireless stay competitive with AT&T? Apple does not currently offer a CDMA iPhone 3GS, so the carrier would be unable to match AT&T with mid-market customers. Add to that AT&T’s attractive $15 data plan option versus Verizon’s minimum $30 plan, and subscribers looking for an iPhone on a budget will really only have one place to look. Abramsky currently has an Outperform rating on Apple stock with a price target of $450.

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