There are rumors that Apple would be launching a cheaper iPhone this year. However, the latest rumor at the moment is it is going to
grant 3G functionality to iPod Touch. But it would be closer to iPad 3G than iPhone, as it would only get data capability. iPod Touch had long been touted as iPhone without a phone and now it's getting closer to being iPhone. The MP3 Player/ PDA has cult following in teen section, thanks to its low pricing and features. The addition of 3G will only go to increase its popularity.
iPod Touch have been receiving constant touch-ups. Last year, the media player got built-in mic and camera, so addition of 3G data function seems like an evolutionary step. Currently, iPod Touch can connect to internet via Wi-Fi and thus is a cheap substitute of iPhone for younger people. Though 3G won't bring voice-over function for iPod Touch, but this problem can be easily solved by using third party app such as Skype.
Apart from the users, even the carrier companies are expected to be positive about the development. Pretty sure, they are not going to mind an additional revenue stream. However, things are easier said than done. In an interview with CNET, iSuppli analyst Wayne Lam stated that providing 3G connectivity is not a minor issue and requires substantial re-designing and also adds a good chunk to the manufacturing costs. According to Lam, 3G module in the second generation iPad costs about $28. However, even at this price point, adding 3G capability to iPod Touch seems like a sane idea. Even with inflated price, iPod Touch would be a good substitute for iPhone.