When you purchase an iPhone AT&T subsidizes $400 in exchange for a 24-month contract. Amortized over 2-years means you’re paying an extra $16.67 per month. So when your contract is up you would expect your monthly amount to drop by $16.67 if you don’t upgrade your phone. But it doesn’t! It stays the same. This means you are wasting $16.67 every month you’re not in a contract subsidizing your iPhone!

Here’s a quick spreadsheet that compares the cost of the three options… staying with the original iPhone on the Edge plan, or upgrading to the 3G or 3GS.

This is certainly a no-brainer if you already have on iPhone 3G, you should definitely upgrade when your 2-year contract is up…this makes even more sense because you can sell your old iPhone an ebay for more than you bought it for with the subsidy. The only time you should hesitate is if you think you’ll want the next iPhone that’s coming out. Usually you will have to pay a fee to upgrade more often than every 2-years.

But we are on the original iPhone. To get a comparable plan means the price jumps by an extra $16/month which is a huge percentage increase.

What are your thoughts? Is it worth the extra monthly to upgrade from the original to the iPhone 3G or 3GS?