This news clearly shows an intention by Apple to change the iPhone's value curve in the future. Since its introduction to the market, the iPhone's value curve has been quite stable: very high on design, very high on functionality, very high on performance, very high on available applications and software, medium on size, low on price (since the price is higher than that of other smartphones), and low on versatility (because it can only be used with certain wireless carriers).
The new plan will change the following components of the iPhone's value curve: the size dimension will go from medium to high (since the device will be smaller), versatility will go from low to high (since it should now be able to operate on any wireless network), price will go from low to medium (the article says the new price will be $200, about the same as other smartphones), and performance will go from very high to medium (the new iPhone will use the same components as the current iPhone; since the iPhone will not be improving performance while competitors' will, its value for performance will decrease). Overall, three dimensions will significantly improve, while one dimension will significantly decrease.
As with any value curve shift, the success of this plan will depend on whether customers value the increasing dimensions more than they value the decreasing dimensions. The article mentions one reason for the new plan being to target large untapped markets in China and India, the wireless networks of which the current iPhone software cannot support and the customers of which cannot afford the iPhone's current price. For this reason alone, the plan should be successful. Furthermore, the new iPhone value curve should be much more attractive to many American consumers than the current value curve (in particular, American customers seem very sensitive to price). As the only dimension decreasing with this plan is performance, customers sensitive to performance are likely the only customers who would prefer the old value curve. The article mentions that Apple is also developing a newer, higher-performance iPhone that should satisfy these customers. So, all in all, based on this value curve proposition, this new plan looks to be a surefire win for Apple.
