Apple Prepping $99 iPhone 3GS To Battle Competition?Apple Prepping $99 iPhone 3GS To Battle Competition?

Right now, AT&T offers the iPhone 3G 8GB for $99, and the iPhone 3GS 16GB and 32GB for $199 and $299, respectively. Despite word from Apple's own Phil Schiller that the company's lineup is set for holiday sales, reports of a $99 iPhone 3GS 8GB model have hit the 'net.In case anyone forgot, last week was sort of important for Verizon Wireless. It introduced not one, but two, new Android phones -- its first. Verizon has pitched the Motorola Droid head-to-head with Apple's iPhone from day one. (Here's a slew of attack ads proving as much.) The Droid costs $199 after rebates with a new contract.

Verizon also bowed the HTC Eris, which offers many of the features of the Droid. It has a better user interface and is lighter and thinner, but loses the keyboard and dazzling display of the Droid. It sells for $99 after rebates with contract.

Why bring these price points up? Word has it that Apple and AT&T are prepping a $99 iPhone 3GS with 8GB of storage. What's the big deal, you ask, AT&T already has a $99 iPhone, right? Well, the iPhone 3GS offers several serious improvements over the iPhone 3G that may make it an even more enticing pick.

First, it bumps up the processor -- remember, the "S" is for "speed". It also has a 3.2 megapixel camera instead of a 2 megapixel camera, and it offers video capture as well, which the iPhone 3G doesn't. It also has a compass and voice command feature that the iPhone 3G can't use. Those features make not match the Droid or Eris' 5 megapixel cameras, but the speedy performance of the iPhone 3GS is real.

Introducing an even more capable model at the same $99 price point could be just what potential Verizon customers need to convince them to skip the Droid and Eris and go with the iPhone instead.

Will it happen? Apple and AT&T are mum on the subject.

[via Boy Genius Report]