The photo is NOT the rumored iPhone, all phones pictured above are just knockoff that were spotted in China.
People are just today getting their hands on the Verizon iPhone, but that hasn't stopped rumors about the next iPhone model from circulating around the internet. The latest rumor says that the next iPhone will be one-third smaller than the iPhone 4.
This is what Bloomberg's sources say, who claim to have seen the prototype sometime last year. Even then, the rumors say that the smaller iPhone may not be introduced this year when Apple rolls out their new updates, in that case making an entirely new model rather than the iPhone 5.
If that information is accurate, Apple may introduce the model for a much more appealing $200, without the contract.
It sounds very small for a device with a touchscreen, but anything's possible. Again, just because there are prototypes doesn't mean something will be released. We're sure Apple builds prototypes all the time.
We do know a bit about the iPhone 5, according to rumors. Still, there is no telling if the smaller phone mentioned above will be introduced as the next-generation iPhone.