It seems there's a lot of confusion about iPhone 3G upgrades and activation. Here's what is known at the moment to try to clarify the confusion. All of this applies to the U.S. and AT&T only.

The iPhone 3G is a subsidized mobile phone, which means that AT&T is paying ~$200 to discount the phone down to its final price. $199 for 8GB or $299 for 16GB. The reason AT&T is subsidizing the phone is because they expect to make more than $200 over the lifetime of a 2 year contract. For the iPhone 3G, the contract includes $30/month for 3G data, and at least $39/month for the low end voice contract.

If you currently own:1st Generation iPhone

If you bought it on or after May 27th, you are eligible to receive a free upgrade to the iPhone 3G when it launches. You will also get a refund for the difference in the price.

If you bought it before May 27th, you may buy a new iPhone for $199 (8GB) or $299 (16GB) but will have to sign a new two year contract starting on the day you buy the new iPhone. This cancels and replaces your existing AT&T iPhone contract.

AT&T Mobile Phone (not iPhone)

AT&T generally allows individuals to take advantage of a subsidized phone once every 2 years. A new memo clarifies this point. If you are an AT&T customer, you must either have completed a 24 month contract or meet these requirements to be able to purchase the iPhone 3G for $199/$299 prices:

#1. Customer has had a standard calling plan plus data services costing at least $68.99 a month but no more than $98.99 a month, and who has been in contract (and not had a phone upgrade) for 21 months or more,
or
#2. Customer has had a standard calling plan plus data services costing $99 a month or more, and who has been in contract (and not upgraded) in the last 12 months.
or
#3. A customer with a calling plan and data services of less than $69 who is 21 to 23 months into contract may upgrade for a fee and a commitment of an additional two-year service contract extension.

No upgrade fee is assessed for any customers who are on a month-to-month agreement.

If you are not eligible, AT&T expects to announce the higher unsubsidized iPhone 3G price in the future. This price can be expected to be about $200 higher.

Alternatively, you can cancel your existing mobile phone contract and pay the $175 early termination fee, you will probably then be eligible for the $199/$299 iPhone 3G.

Non AT&T Mobile Phone

If you are under contract with another mobile phone provider, you may be subject to an early termination fee if you cancel your contract prematurely. You will need to contact your provider for those details, but you will be able to get the iPhone 3G from AT&T at the $199/$299 prices. If you would like to transfer your current mobile phone number to the iPhone 3G, you should not cancel your current service. Instead, you should initiate the phone number transfer from AT&T when you buy the iPhone 3G.

What If...

What if I want to buy an iPhone 3G and not use it on AT&T?

There are a number of issues regarding this. First, the iPhone 3G firmware has not been unlocked, despite reports. The final iPhone 3G firmware is said to be different than the current 2.0 betas. So, you may not be able to unlock it at all.

If you are able to unlock it, you won't be able to use the iPhone 3G on any other carrier in the U.S. T-Mobile doesn't support the same 3G network that the iPhone uses. So while you might be able to make phone calls on T-Mobile, you won't be able to use 3G data.

If you must have an iPhone 3G outside of an AT&T contract, here are the steps. Buy an iPhone at $199/$299. Wait 30 days. Pay one month of service. Cancel your account. Pay $175 early termination fee. There, you have an iPhone 3G without AT&T contract. If you cancel your account before one month of service, you will have to return the iPhone to AT&T.

Related Forum: iPhone

Popular Stories

iOS 17 on Phone Feature

Gurman: iOS 17 to Provide Several 'Most Requested Features'

Sunday March 26, 2023 6:05 am PDT by
Apple changed the strategy for iOS 17 later in its development process to add several new features, suggesting that the update may be more significant than previously thought, Bloomberg's Mark Gurman reports. In January, Gurman said that iOS 17 could be a less significant update than iPhone updates in previous years due to the company's intense focus on its long-awaited mixed-reality...
iOS 16

iOS 16.4 Will Add These 8 New Features to Your iPhone

Sunday March 26, 2023 8:06 am PDT by
Following nearly six weeks of beta testing, iOS 16.4 is expected to be released to the public as soon as this week. The software update includes a handful of new features and changes for the iPhone 8 and newer. To install an iOS update, open the Settings app on the iPhone, tap General → Software Update, and follow the on-screen instructions. Below, we have recapped eight new features and...
apple mixed reality headset concept by david lewis and marcus kane

Some Apple Employees Seriously Concerned About Mixed-Reality Headset as Announcement Draws Closer

Sunday March 26, 2023 8:25 am PDT by
Some Apple employees are concerned about the usefulness and price point of the company's upcoming mixed-reality headset, The New York Times reports. Apple headset concept by David Lewis and Marcus Kane Initial enthusiasm around the device at the company has apparently become skepticism, according to eight current and former Apple employees speaking to The New York Times. The change of tone...
iOS 16

Apple Releases iOS 16.4 With New Emoji, Safari Web Push Notifications, Beta Changes, Voice Isolation for Calls and More

Monday March 27, 2023 10:03 am PDT by
Apple today released iOS 16.4, the fourth major update to the iOS 16 operating system that initially came out last September. iOS 16.4 comes two months after the launch of iOS 16.3, an update that added Security Keys for Apple ID. iOS 16‌.4 and iPadOS 16.4 can be downloaded on eligible iPhones and iPads over-the-air by going to Settings > General > Software Update. It can take a few minutes...
Steve Jobs Theater dusk

Apple Reportedly Demoed Mixed-Reality Headset to Executives in the Steve Jobs Theater Last Week

Sunday March 26, 2023 5:53 am PDT by
Apple showcased its mixed-reality headset to the company's top 100 executives in the Steve Jobs Theater last week, according to Bloomberg's Mark Gurman. In the latest edition of his "Power On" newsletter, Gurman explained that the "momentous gathering" is a "key milestone" ahead of the headset's public announcement planned for June. The event was intended to rally Apple's top members of...
top stories 25mar2023

Top Stories: iPhone 15 Pro Design Leak, iOS 16.4 Coming Soon, and More

Saturday March 25, 2023 6:00 am PDT by
We're still almost six months away from the official unveiling of the iPhone 15 lineup, but it seems like every day we're learning more about what to expect from the next-generation models. Notably, this week gave us our clearest look yet at what appear to be some changes for the volume and mute control hardware. iOS 16.4 and associated releases are also right around the corner with some new ...
apple tv 4k red image

Apple Releases tvOS 16.4 for Apple TV 4K and Apple TV HD

Monday March 27, 2023 10:00 am PDT by
Apple today released tvOS 16.4, the fourth major point update to the tvOS 16 operating system that came out last September. Available for the Apple TV 4K and Apple TV HD, tvOS 16.4 comes two months following the release of tvOS 16.3. The tvOS 16.4 update can be downloaded over the air through the Settings app on the ‌‌‌‌Apple TV‌‌‌‌ by going to System > Software Update....