The iPhone nano is looking more and more likely, as a report has just been posted by the WSJ suggesting that a less-expensive iPhone will launch in an attempt to increase sales of smartphones, due to growing competition.

According to "people familiar with the matter", the new iPhone nano will apparently be around half the size of the current iPhone 4, and would allow carriers to subsidize a good portion of the retail price, thus allowing for a much more competitively priced phone.

Along with the new device there is also talk of Apple updating its MobileMe online storage service. This revamp may involve making the service free, which currently costs $99 to use. Although the storing of personal data would mean an initial loss for Apple in the short term, the closed nature of the service could mean that Apple benefits in the long term - as the data will be stored in the cloud, freeing up memory on the new mini Apple device.

Social networking and music should also be key features incorporated in the new service.

This news also suggests that Apple is taking no chances with its smartphone future, and maybe it's taking the news of the Nokia and Microsoft teamup a little more seriously than previously expected.

The new mini iPhone and updated MobileMe service should be launched sometime in the summer.

Update: More info regarding iPhone nano cloud-based handset here.