By Josh Ong

Published: 08:00 PM EST (05:00 PM PST)

In contrast to published reports suggesting Apple plans to release a smaller version of the iPhone this summer, sources have told The New York Times that Apple is not developing a smaller handset, though the company has looked into a cheaper version of the device.

Earlier reports claimed Apple had already developed a prototype version of a smaller, cheaper iPhone. According to Bloomberg, the prototype was one-third smaller than the current-generation iPhone 4. The Wall Street Journal cited sources who described the device as "about half the size of iPhone 4."

However, the Times is now claiming that "Apple is not currently developing a smaller iPhone, according to people briefed on Apple's plans who requested anonymity because the plans are confidential."

According to one source, Apple engineers are hard at work finishing the next-generation iPhone, "which is likely to be similar in size to the current iPhone 4."

Another source also confirmed that Apple is not currently planning a smaller iPhone partly because "a smaller device would not necessarily be much cheaper to manufacture and because it would be more difficult to operate." Also, Apple wants to avoid forcing developers to rewrite their apps, said the source, who is in direct contact with Apple.

The Times cited a senior Apple executive who said during a private meeting that making multiple iPhone models wouldn't make sense for the company, though the executive did note that the iPhone maker will continue its practice of offering older models at a discounted price.

The report did, however, corroborate details from prior reports regarding the next iPhone. Earlier this week, the Journal asserted that Apple was working on enhanced MobileMe services and improved "voice navigation."

A person with knowledge of Apple's plans told the Times that Apple hopes to improve operation of the device through voice commands because some users dislike using a virtual keyboard.

Another source said the Cupertino, Calif., company is building a "more versatile" free version of MobileMe that would allow users to sync files without using a cable. “The goal is that your photos and other media content will eventually just sync across all your Apple devices without people having to do anything,” the person said. One recent report has suggested that Apple will use MobileMe as "the brain" of a new cloud service that hosts files on users' individual machines.

As physical storage on the iPhone becomes less critical, Apple could reduce storage in the device, thereby lowering costs. “Although the innards of the phone, including memory size or camera quality, could change to offer a less expensive model, the size of the device would not vary,” said a person, who has worked on multiple versions of the iPhone.

According to the Times' sources, rumors that a smaller iPhone carries the code name N97 are false. "Several people with knowledge of Apple’s plans said that N97 was the code name for the Verizon iPhone 4, which was introduced this month," the report read.

According to analysts, a cheaper iPhone, especially one that does not require carrier subsidies, is critical to Apple's continued growth overseas. “If they are going to be a player in the global market they have to have a prepaid option,” said Piper Jaffray analyst Gene Munster. Sanford C. Bernstein & Company analyst A. M. Sacconaghi Jr., said that a more affordable iPhone could drive as much as a sixfold increase in sales for Apple.