When Apple rolled out its new iPhone 4S on Oct. 4, AT&T slashed the price of the 3GS model to free - when it's purchased with a contract. The decision put Apple into the free-phone market will help the 3GS account for as much as 20 percent of iPhone sales this quarter.
Apple and AT&T sold millions of iPhone 3GS, priced at $99, after the intro of the iPhone 4 last year. In the quarter ending in September, half of AT&T's iPhone sales were 3GS models.
The new iPhone 4S retails for between $199 and $399. The iPhone 4 sells for $99. iPhone sales for Apple reached $11 billion last quarter. Apple received $381 per phone, compared to $620 it gets for the iPhone 4S.