Not happening.
Apple doesn't feel threatened and there's no reason to feel that way. Everyone wants their device, every carrier wants their device. The reason why Android handsets get discounted down to free isn't because the carrier is providing more of a subsidy but because the carrier is eating the customer price because they can't move them. Apple isn't going to race to the bottom on price.
There's also no good reason to develop a new model when the 3GS is already $49. All you do is keep the 3GS around at free, iPhone 4 at $99, iPhone 5 at $199 when June rolls around. Done. The 3GS will still be a capable device then.
The 3GS is an obsolete device. Apple wants to market a current low priced device. Not a passed discounted hand me down device like the 3GS. Just like the whole 'wait until the summer for iPhone 5' argument. People want what is current. The iPhone 3GS or a discounted iPhone 4 when iPhone 5 is released doesn't offer that. This makes perfect sense and I am surprised it didn't happen sooner. Apple is in the game to make money. Not just to please fanboys.