A U.K. newspaper citing an unnamed industry source says that Apple is planning to launch a "Nano" version of the iPhone right before Christmas. The phone will be offered by U.K. operator O2, which currently has exclusive rights to the iPhone in the U.K.

The source says that the Nano version would be offered as a prepaid phone because the current iPhone 3G (which retails for about $300 in the U.K.) is too expensive for that market segment.

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