It is thought that the iPhone 3GS could be dropped off when the iPhone 5 is launched on the 12th of September. MacRumors adds that this would leave a space for the iPhone 4 to become available free on contract, a point which is at the moment taken by the 3GS.
8GB iPhone 4S may join iPhone 5 launch; iPhone 4 free on contract (rumor)
It is also suggested that Apple may offer an 8GB version of their iPhone 4S which would be in the middle when it comes to price.
This would mean that the 8GB iPhone 4 would be classed as an entry level handset and given away on £20 contracts, which the 3GS is at the moment. It is thought that when the iPhone 5 is released it will be offered in 16GB, 32GB and 64GB versions.
It would not come as a shock if Apple decided to get rid of the 3GS as this would keep things as they always have, with three devices and the cheapest of these being offered free on contract. However it is thought that those who are contract free would miss the 3GS as Apple sells the device without contract for $375 in the US. Another possibility is that Apple may choose to keep the handset and this would see the price drop on it.