Apple has reportedly agreed to let Telecom Italia Mobile sell an unlocked iPhone without a mandatory two-year contract.

Franco Bernabe, chief executive for TIM, apparently persuaded Apple CEO Steve Jobs to deviate from Apple's usual business model of having an exclusive carrier sell the iPhone with a two-year service contract, and split the revenue with Apple. The Italian newspaper La Repubblica reported.

Instead, TIM will offer Apple's upcoming 3G iPhone, expected by analysts later this year, without a mandatory service contract, a move that'll probably be more palatable to Italians, who are among the biggest users of prepaid service plans. In addition, the phone will be unlocked, meaning it can be used with other carriers.

TIM, however, will have exclusive rights to sell the iPhone for the first six months following its release, the newspaper said. As a tradeoff, the iPhone will be more expensive in Italy than in other countries.

Carriers in Europe have recently slashed iPhone prices, fueling speculation that the service providers are trying to drain inventories in preparation for a faster 3G iPhone, which some analysts have said is likely to ship in June.

Last week, wireless carrier O2 and Carphone Warehouse, both in the United Kingdom, dropped the price of the 8-GB iPhone by nearly $200. In Germany, T-Mobile, owned by Deutsche Telekom, dropped prices this month by 75% to about $158. The lower prices require the most expensive service plan.

The iPhone currently uses an EDGE radio, a digital mobile phone technology for increased data transmission rates over a cellular network. EDGE, however, is considered a 2.75-generation technology, versus a 3G technology, such as HSDPA, which is used in Europe.

There has been speculation that the iPhone isn't selling as well as expected in Europe because of its slower data speeds and higher price. Rival smartphones with similar capacities as the 8-GB iPhone, such as Nokia's N95 and Sony Ericsson's W960i, are available at no charge with service contracts.

Apple has said it expects to sell at least 10 million iPhones by the end of the year.