"AT&T customers who want to upgrade from another phone or replace an iPhone 3G, the price with a new two-year agreement is $499 (8GB), $599 (16GB), or $699 (32GB)."

http://www.apple.com/iphone/buy

AT&T is building up so much ill-will for their terrible network, god help them should they ever lose iphone exclusivity.

Wow. The fee to early-cancel is (at least for my iPhone 3G) only $125. So it's cheaper to cancel-and-rebuy ($125 + new-with-contract-cost) than upgrade ($400 + new-with-contract-cost).

There does not appear to be a waiting period for rebuying, at least according to the rep I just spoke with. In fact, while I did not specifically ask about the 3gs, she seemed to imply the optimal path might be (1) add a new line (qualifies for new pricing); (2) cancel old line (paying the early-cancel fee).

I assume if you take that path, you'd end up with a new number, which is kind of annoying.

If you add the line then transfer the number to the new phone and cancel the original line it might work.

If the juggle is possible at all, there should be a way to keep the number, too. The local number portability rules and processes are now fairly well-established; you could even park your number at a landline or pay-as-you-go account for a short while if a direct swap was disallowed.

Do you know if you'd lose access to the apps you'd purchased if you did that?

Not sure, and the path remains a untested hypothetical. If they're really trying to charge other 3G->3GS upgrades $400, there might be additional roadblocks thrown up.

I thought all purchased apps were linked to the ITunes account, rather than carrier account... so I would again expect there's a way to carry them forward, but I may be overly optimistic.

You are correct - apps are linked with your iTunes account, not your AT&T account. I was able to transfer paid apps from my iPod touch to my iPhone when I upgraded without a problem.

It's confirmed. Presumably 2G customers qualify for upgrades to the 3GS though.

edit: It is now confirmed that 2G users qualify for upgrades to the 3GS at the subsidized prices.

Yep; I just did it and was charged $299 for the new 32GB phone. (I have the first generation iPhone. I guess I should also note that I bought it the first day it was available back in '07, so my original 2 year contract is near expiring. Not sure what the case would be for someone who bought a phone in, say, Dec 07.)

The $299 is only half of the cost, you also get to pay an extra $360 over the 2 year contract in higher monthly fees compared to the original iPhone.

I think I'll hold on to my original and hope for a new carrier in 2010. The features are great, but AT&T's call handling is not acceptable, I don't need to extend that contract.