Well this fucking blows
New and qualifying (those not currently bound by a contract) customers get the competitive 3G S prices — $199 for the 16-gigabyte model, or $299 for the 32-gigabyte version. But an AT&T subscriber who wants to upgrade their iPhone 3G but is still under contract would have to pay $399 and $499, respectively. Consumers who want the phones without a contract, tack on an additional $200, bringing the price to $599 for the 16-gigabyte version and $699 for the 32-gigabyte model.
Source: Los Angeles Times