Apple’s supposed small, new iPhone is a smart idea—mostly because of its price

This is big.
This is big.
Image: AP Photo/Marcio Jose Sanchez
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Apple is reportedly preparing to release an entirely new iPhone. It’s not the iPhone 7, though. It’s said to be a smaller, cheaper device with a 4-inch screen—a phone size that Apple hasn’t done for a new model since the iPhone 5S in 2013.

The phone, supposedly to be called the “iPhone 5SE,” will reportedly look somewhat like a cross between the iPhone 5S and 6, according to 9to5Mac’s Mark Gurman, citing sources. It will also reportedly support newer features, such as Apple Pay and Live Photos, which the iPhone 5S can’t do.

Rumors have been swirling about such a new, small iPhone for months, and have caused much debate.

High profile Apple analyst Gene Munster of Piper Jaffray went as far as panning the idea, saying a hypothetical iPhone “6C” wouldn’t change Apple’s profits. That’s because no matter “whether the device is real or not,” he wouldn’t expect “Apple to sell significantly more iPhone 6C devices than the typical low-end model (currently the 5S).”

Munster also said the size isn’t something consumers want, and quoted research from his own firm suggesting that just 20% of 1,000 US consumers surveyed were interested in a new 4-inch device.

Munster may have missed the mark, however. The US is hardly the only iPhone market. And the fact remains that Apple’s newest phones are simply too expensive for most people. Even when the iPhone 6S launched in the UK last year, 25% of those surveyed by the Mirror newspaper said its price was too high for them to buy one.

Also, in many markets, pay-as-you-go phone plans, where phones are sold for full price, are much more popular than they are in the US, where iPhones are mostly sold on installment plans or subsidized by mobile operators. Apple previously experimented with a budget iPhone targeted at this sort of market, along with lower average income nations like China. This was the iPhone 5C, and popular perceptions that it was a sales flop are simply false: The 5C topped sales charts in the UK in the months before the iPhone 6 went on sale in 2014, for example.

During Apple’s first-quarter earnings call this week, CEO Tim Cook paid special attention to emerging markets. He noted he was “very excited” about India, and CFO Luca Maestri remarked India saw 76% year-over-year growth in iPhone sales, while China sales also grew 18%. Cook also highlighted that the iPhone 5S “continues to do quite well” in the market.

To capitalize on these prospects, Apple could easily sell a smaller, somewhat-upgraded iPhone around the iPhone 5S off-contract price of $450 or perhaps a bit less. (On the call, Cook reiterated that Apple isn’t in the business of making cheap things just to make cheap things, so don’t expect any radical changes in pricing.) This could potentially rival modern, mid-range Android phones, while also increasing the reach of Apple Pay, which is expanding slowly around the world, and other more modern Apple services.

Lastly, when it comes to questions of size, it emerged during the call that some 60% of iPhone users still use smaller devices first released before 2014. Munster’s suggestion that users prefer a bigger phone seems off target—or at least that phone size isn’t the only priority. Plenty of teens in France, China, Portugal, and elsewhere begging their parents for a new iPhone may get one of these smaller models in 2016 because of low price alone.