What price would Apple choose for a genuinely cheaper phone? There are four brackets worth looking at:

$100-$150 – this is where budget Chinese manufacturers are starting to deliver usable dual-core 3G Android phones $150-$200 – the upper end of what is possible to sell to the unsubsidised prepay market - which is half the planet $200-$400 – almost certainly out of reach without subsidies but a solid mid-range smartphone price range Over $400 – similar price to the existing discounted two- year-old model, but with more up-to-date technology, possibly higher margins and probably an easier marketing sell than the ‘old’ phone

The first of these price points requires too many product experience compromises from Apple, while the leaks we've seen so far seem to show a device that would not be priced $200 or under, ruling out most prepay.

So, the decision is where to sit in the mid-range. The interesting dynamic in this is the tension between the USA and China.

The US contract phone pricing structure today effectively puts a lower limit on the viable price for a contract smartphone. The ($450) iPhone 4 and similar high-mid range Android phones are sold as 'free' on contract'; phones whose list price is actually much lower are sold at the same price. A $200 phone is sold to consumers at the same price as a $400 phone - and hence is very uncompetitive.

One effect of this is that the iPhone 4 and 4S made up a quarter of Verizon Wireless contract smartphone sales in Q4 2012 and Q1 2013, a much higher share than they appear to have elsewhere. In the USA they're as cheap as any contract phone on the market - everywhere else they're cheaper than the iPhone 5 but still relatively expensive. The Android ASP, after all, is $250-300. Everywhere else $200 and $300 Android massively outsells $400-$600 iPhone: in the USA much of that price advantage is removed.

So, a $300 or $250 iPhone is a tough sell in the USA. But a $450 iPhone is a tough sell in China. Xiaomi, after all, just announced a very compelling new phone, the M3, at $330, and that may not be staying in China.