A free, fully subsidized iPhone 3GS? That's according to analyst Mike Abramsky of RBC Capital Markets (via AppleInsider). This makes great sense for Apple. Whether the company chooses to go that route, who knows.
What we do know is that Apple wants that iPhone in people's as many people's hands as they can get it. That's partly why they have kept the 3GS around for so long but continued to lower the price (It's currently $50 on a contract). They are even supporting it with iOS 5 for now. If Apple can offer the handset for free, that's a shoe-in for many potential smartphone shoppers. The phone is still good (unlike the original iPhone 3G, which became a nightmare to use with iOS4). Again, it may not compare to much of what's currently in the market, but "free with 2-year contract" is enough to sway many users. Example: When I was in high school and my mom decided it was time to get me a cell phone (believe it or not, I did NOT want a cell back then), she was not about to spend $100 – $200 on a phone on top of the contract. She just needed something I could use in an emergency or so that she could reach me.