There were reports of an "iPhone Nano" way back when the iPhone 3G was going to be announced (can you believe this thing was ever NOT running 3G?), but thanks to a new report from Bloomberg, the idea is cropping up again... with a few twists.

The iPhone's little brother would be about two thirds the size of the iPhone 4 and is already being prototyped, according to Bloomberg's source. But the big news about the phone is that Apple wants to sell it for only $200... unsubsidized. That's right: You would be able to buy this phone contract free, and for the same price that current gen iPhones go for when attached to a 2-year slave agreement with AT&T or Verizon.

Google tried to buck the wireless system with its first Nexus phone back in 2009, but their unsubsidized price point was the typical wallet-busting five bills and change. The new Nexus S is only sold on contract with T-Mobile.

Apple, by contrast, has recently had some small successes liberating its mobile products from the tryanny of service partners and contract agreements. The version of the iPad that is sold off-contract is by far the most popular, and yesterday's launch of the iPhone on Verizon was a significant first step to giving the iOS-faithful more choice.

If Apple wants to win the cellphone wars, it makes sense that they would finally diversify their mobile line. There are limits to what one phone can do, after all... even the iPhone.

[Bloomberg]