The iPhone is popular and AT&T is not. What’s the real price tag on Apple’s new iPhone? Can current iPhone 3G AT&T customers upgrade at a reduced price? The backlash on AT&T’s iPhone upgrade price is growing. From Ad Age:

Many consumers aren’t aware that the handsets they buy to go with their service plans are subsidized by the carrier, who hopes to recover that cost by locking subscribers into two-year contracts. The $199 is the subsidized price paid by current 3G iPhone users; AT&T has to pay Apple a subsidy north of $350 for each iPhone it sells…

Reading the fine print is a lost art. This solution makes sense:

For current iPhone users who can’t wait until their contracts expire to get the new handset, AT&T could also simply extend their contracts by a year to allow it to recover any residual subsidy costs.