An anonymous source reported to Wall Street Journal that Apple is working on a cheaper version of iPhone—smaller in size and with a reduced memory space. The price of the new device is expected to be around $200 (versus the current price of about $800).

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By doing so Apple is said to target the wider audience as it plans to introduce the device that will compete with cheaper handhelds working on the basis of Google Android OS as well as a plethora of other smartphones of the price-range mentioned above.

According to the rumours, the new iPhone 5 will feature a larger 4-inch screen, whereas iPhone4’s one is only 3.5-inch.  No exact information has been provided on the timing as well as place of launch of the new device.

However, according to the anonymous source, to compensate for the lower memory capacity of the new device, Apple is now looking into revamping its MobileMe service. At the moment this online storage service allowing users to save digital data like contacts, photos, videos, notes, etc. and synchronise an iPhone with different devices, is available for $99. Apple is considering turning it into a ‘locker’ of digital memorabilia and providing MobileMe to its users free of charge.

Steve Jobs, who is currently on medical leave, as well as a spokeswoman for Apple, refused to provide any comments. A spokeswoman for Apple added: «We don’t comment on rumours or speculation.»