The 3G iPhone is only $199, and I haven't actually looked for 1st Gen iPhones prices, but I don't expect them to be much cheaper.

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It's $199 and $299 with a 2 year contract. And when you total out the amount you pay with the contract, it ends up being a lot more.

Consider that by itself, it's priced at $599 and $699. So no, it's not that cheap. It's the plan that's subsidizing most the cost of the phone.

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And since AT&T charge an extra $10/month for 3G data than they did with the original iPhone, you actually end up paying more over the 2-year period than before... even though you seem to be getting the hardware for cheaper [xx(] ]'>

Comparatively, we've got a pretty sweet deal with O2 in the UK. The plans come in at the same prices as before and the handset is down from £269/£329 to £99/£159 with the cheaper contracts and free if you take out one of the more expensive ones!