So an AT&T customer shows up at an AT&T Store with a first-generation iPhone and a hand-me-down iPhone 3G—a common enough scenario this week given that quite a few people are giving up their 3G units for the iPhone 3GS. “I’d like to upgrade the old iPhone to the new one,” the customer says, handing over two phones. “Sure,” says AT&T, “we can do that. But you’ll have to sign a brand new two-year service agreement.” “Wait, what?” the customer asks, “you’re not giving me a phone, I’m bringing my own, so why do I have to commit to two years of service?” “Sorry,” says AT&T, “that’s Apple’s policy.”

Such was the case over the past day as we went through the process of attempting to transform a 2007 iPhone owner into an iPhone 3G user. We were familiar with the obvious upgrade charges—the fees, the $10 additional data charge, and the $5 additional charge for text messaging—and we were willing to pay them to AT&T for a year. The goal was to let the existing customer spend that year using a hand-me-down iPhone 3G, paying $200 extra ($900 total) for faster service, and then switch her over to the inevitable 2010 iPhone. But that plan wasn’t going to work if a two-year commitment was required, and it made almost as much sense to get a brand new iPhone 3G at full subsidy instead.

Interestingly, AT&T claimed that this mandatory contract policy only applies to Apple’s products, not to other self-supplied hardware, for whatever reason. Could the issue be subsidies? No; the old iPhone 3G’s subsidy had been paid off when we upgraded to a 3GS, paid the higher than normal price, the early upgrader fee, the activation fee, and signed a brand new two-year contract. So the iPhone 3G was free and clear, ready to be handed down or even sold.

Since it can’t be handed down, perhaps “sold” is the way to go. Given the choice between signing another two-year AT&T contract, or unlocking the phone and selling it to an overseas buyer for use on a different network, it’s tempting to go the latter route.

Readers, what have you done with your iPhone or iPhone 3G units after upgrading to 3GS? Have you sold them, handed them down, or just tossed them in a drawer? What has your service provider tried to do if you’ve tried the hand-me-down route? We’d like to know.

Jeremy Horwitz

Jeremy Horwitz was the Editor-in-Chief at iLounge. He has written over 5,000 articles and reviews for the website and is one of the most respected members of the Apple media. Horwitz has been following Apple since the release of the original iPod in 2001. He was one of the first reviewers to receive a pre-release unit of the device, and his review helped put iLounge on the map as a go-to source for Apple news.