This is a rumor that has always baffled me, and maybe somebody can help me understand this. The reason i don't get it, is because every year, there is ALREADY a cheap (free) iPhone option with lesser guts than the current model. Why would they release a separate cheap iPhone when they already offer 2 different cheap iPhones each year? Currently you can get the iPhone 5 for $199, the 4S for $99, and the 4 for free. What's the need for another cheap iPhone? Just seems like it'd be a total waste of time/money for Apple to put in the research and development of an additional iPhone that has absolutely no need of existing. So yes, they ARE working on a cheap iPhone for the next launch, it's called the 4S, but it'll have 8GB of storage.