The report said, the prototype device is about one-third smaller than the iPhone 4, citing a person who had seen it. 

Apple has considered selling the new iPhone for $200 without a two-year wireless agreement, Bloomberg reported. 

 

Apple is aiming to reveal the device around the middle of this year, but the launch may be delayed or canceled altogether, the report said. 

Apple did not respond to a request for statement. The company often develops products it never brings to marketplace. 

According to this report, Apple is also working on a dual-mode phone that would be able to work with the world's two main wireless standards. 

AT&T, which carries the iPhone on its wireless network in the United States, declined to statement. 

Verizon Wireless, which besides carry the device, could not be reached for comment. Shares of Cupertino, California-based Apple blocked down 1 percent at $354.54 on the Nasdaq on Thursday.