Mr Toni Sacconaghi, an analyst with Sanford Bernstein, estimated Apple's profit would be between US$250 and US$450 per phone, compared to about US$500 for the previous model after adding in two years of monthly service payments.

As with any product moved from the high end to mass market, Apple hopes to make up the difference with volume.

Apple hopes that consumer gadgets like the iPhone and its popular iPod media players will help convert people into buyers of its highly lucrative Macintosh computers.

Demand for the cheaper iPhone 3G is expected to be highly elastic - economic speak for the ability of price cuts to drive sales significantly higher.

That dynamic was reflected in the views of analysts, many of whom raised their estimates on iPhone unit shipments for 2008.

Caris & Co lowered its fiscal- year estimate on Apple earnings to US$5.32 per share from US$5.35 per share, while Deutsche Bank kept its forecast of US$5.20 per share.

"We expect the move from a revenue-sharing payment model to a subsidy model with the carriers to be essentially revenue neutral to Apple, while the lower prices points will drive incremental iPhone units," Goldman Sachs analyst David Bailey said.

"The impact to revenue and earnings will not be resolved with precision near term, but our analysis suggests that the impact is small as the subsidies will roughly offset the loss of the revenue-share payments," he wrote in a research note.

Apple shares rose US$4.03, or 2.2 per cent, to close at US$185.64 on the Nasdaq on Monday.

The stock has climbed 55 per cent over the past three months as investors regain confidence that the company is not being hit by broader woes about the economy and consumer spending. --Reuters