It makes no more sense to invest in releasing a new "dumb phone" as it does for Apple to invest in DVD technology. Whether or not DVD players are still being sold is completely unrelated to whether its a smart idea to invest millions of dollars in R&D into a technology that is inevitably going to decline (and likely very rapidly). Do you see any commericals for 0 dollar phones? No, you don't. That suggests that consumer trends are pointing to convergence devices. If that is so (and trust me, it is), why would Apple spend time and money releasing something that no one is actually interested in? You guys say you want a simple phone, but I don't really believe it (and I'm sure you don't either, if you actually think about it). If you did, you'd just go buy yourself a RAZR or whatever else was hot about 3 years ago.
As to your misunderstanding of the iTunes Store, Apple already merely breaks even with the iTunes Store based on its current pricing model which is basically non-negotiable in its current form, so they're not going to pick up your data costs at all. Which means that a nano iPhone (even if it was somehow cheaper) would still end up costing the end user more (at least in terms of downloading audio). Imagine trying to market that. "Access to the largest music store in the world, where you pay 2x as much as everyone else."
Of course, it's all trivial, because you still didn't answer my question. Why would people pay the Apple premium for a phone that isn't anything special at all? The iPhone is unique, but you guys are basically arguing that Apple make a new RAZR. Something sleek, small, but overly simplified and without a lot of smart phone functionality. Great, but now add the x% extra that it'll cost you because there is an Apple logo on it. Where is the appeal now? I must be completely blind because I see absolutely no market for a nano iPhone at all. Besides the fact that it'll just canibalize Apple's regular iPhone sales, and it'll create a notable degree of brand confusion, I don't see why anyone would buy an Apple branded phone that has the same functionality as 0 dollar phones (and the nano would NOT be a 0 dollar phone). The UI would be a total bitch (assuming it was a touch screen). The keyboard is already small enough - any smaller and it would be more difficult to type with (and more people would bitch for physical keyboard). Put a physical keyboard on, and you screw up every single App Store App, you have to completely reconfigure the UI, and you basically negate all the R&D Apple spent making a great touch screen device (to be used primarily for TYPING).
Sorry, I guess I'm completely blind, because this just screams stupid investment from every angle.
Edit: and I'm not to worried about it. The proof that Apple doesn't care about this market lies with the fact that we still don't have copy paste. Apple actually loses customers based on that fact, but they don't really seem to care, so to my mind they probably don't really care that they're losing customers to people buying 0 dollar phones. Kind of like they're losing customers to people buying really cheap computers. Doesn't seem to bother them a bit.
You're confusing increasing smartphone market share (which I'm not denying), with market domination. Yes, smartphone use is increasing. But there will always be a market for simple, cheaper, handsets. There are plenty of people out there that neither need nor want a smartphone, with its added complexity and fees. Many people are looking for basic communication, or a cell phone to use in emergencies, and don't need a fancy smartphone.
So while smartphone use is increasing, I do not believe it will completely erase dumbphones anytime in the near future. And a dumbphone made by Apple, a company renowned for its ease-of-use, would do well in this market. The same sort of people that want a dumbphone want something simple to operate, so Apple could do very well here. Chances are these people might even be familiar with the iPod already, so they know the interface (if a NanoPhone is iPod Nano-based). As to your comments on UI: I'm talking about an Nano-based phone, not simply a miniature iPhone. A mini-iPhone would be idiotic imo, but a Nano-based phone would be very clever.
You keep asking why people would pay the Apple premium. Apparently you still fail to understand how subsidization works. Do you pay an "Apple premium" for the iPhone? No. In fact, it's very aggressively priced with subsidization. I don't know why you think a subsidized NanoPhone would not be aggressively priced.
And how on Earth would an iPhone Nano create brand confusion? Are iPod buyers confused because Apple offers the Shuffle, the Nano, the Classic, and the Touch? Are Honda buyers confused by the presence of the Fit, the Civic, the Accord, and the S2000?
Companies offer different products to suit different consumers' needs. That's just basic business sense. There is no "one size fits all" approach, and the iPhone, while a fantastic product, does not meet the needs of every consumer on the planet. Right now, those consumers that don't fit the mould are going to competitors like Nokia or LG for handsets. An iPhone Nano would capture that market segment. Yes, there might be some overlap between iPhone Nano and iPhone buyers, but there's also overlap between BB Pearl and Curve buyers, or Bold and Storm buyers, etc. The point is, a larger product pool pulls in more consumers, and Apple's net profits are higher.
By your logic, Apple would offer exactly one computer, with different sized harddrives. In reality, though, they offer three distinct models, each with a myriad of available configurations, to appeal to a broader base of consumers. Don't want or need a Mac Pro? Buy an iMac.
I'm sure that by selling a 24" iMac Apple looses some buyers that might otherwise buy a Mac Pro, and by selling a Mini they loose some buyers that might otherwise buy an iMac. But on net they sell more computers, and those Mini buyers might eventually upgrade to an iMac.
Offering more than one handset would be in Apple's best interest, imo.
Now, that does not mean Apple
will do it. They are known to ignore certain markets, e.g., the headless iMac market. No one denies they could sell plenty of Mac Towers, but they have their reasons for not catering to those consumers. The same might end up being true of the iPhone Nano. They might well decide not to offer such a product.
But that's entirely different from a market for one not existing. I think it's incredibly foolish to pretend a market does not exist for this device - it's clearly there.