O2, which has exclusive rights to sell the iPhone in the UK, is believed to planning to give the eight gigabyte (GB) 3G iPhone away for free on £34.26 pay monthly tariffs from May.
At present the 8GB device costs £96.89 on the cheapest tariffs and is only free on £73.41 and £44.05-a-month contracts. The operator is also said to be planning to give away the 16GB on £44.05 per month contracts.
O2, who was contacted by the Telegraph, said that any pricing changes would have to be approved by Apple. The Telegraph speculated that the iPhone Nano will appear this summer.
O2 is also rumored to be the sole carrier of the Palm Pre, which its parent company, Telefonica, may have scored an exlusive agreement to distribute throughout Europe and Latin America.