The iPhone 3G may not be exactly what you could call a cheap cellphone, but there has been some speculation whether the phone could be a cheap iPod if you were able to cancel the AT&T service contract, avoid the early termination penalty by canceling the contract within 30 days after purchase and keep the phone, as it was the case with the first-gen, non-subsidized iPhone.

We actually have been chasing this story for several days and it is quite surprising to see how many different answers you can get from AT&T about its contract cancellation policy.

AT&T’s terms of use state that customers

"may terminate [the service agreement] this Agreement within thirty (30) days after activating service without paying [a $175] Early Termination Fee. You will pay for service fees and charges incurred through the termination date, but AT&T will refund your activation fee, if any, if you terminate within three (3) days of activating the service. Also, you may have to return any handsets and accessories purchased with this Agreement. If you terminate after the 30th day but before expiration of the Agreement’s Service Commitment, you will pay AT&T an Early Termination Fee for each wireless telephone number associated with the service."

The phrase "handsets and accessories purchased with this Agreement" wasn’t clear enough to us and we therefore decided to call AT&T sales to find out. To our surprise, AT&T online sales told us that customers will actually be able to keep the iPhone 3G, if the contract is canceled between day 4 and 30 of the service agreement, which would make the iPhone 3G a $235 ($199 + $36 activation fee) iPod touch, which is $54 below the price of the 8 GB iPod touch. However, we were told this would apply only to iPhones that are purchased through AT&T stores.

So we visited our nearest AT&T store to get a confirmation. There we were told that you won’t be able to keep the iPhone 3G if you cancel the contract early. Conclusively, you will also only be able to cancel a contract at a store and not over the phone. AT&T’s PR department wasn’t sure about the policy at first, but ended up confirming that the phone will have to be returned, if the contract is canceled within 30 days.

However, you can keep the iPhone if you cancel the contract beginning on day 31 and pay the $175 penalty - and this may actually not be the nicest, but the cheapest way to purchase an iPhone 3G if you intend to jailbreak the device anyway. In that case, that iPhone would cost you $199 + $36 activation + $175 penalty + service charges for the first month, which should be about $100, including taxes and depending on where you live. The total cost comes to an estimated $510 versus the $599 AT&T said it will sell the 8 GB iPhone 3G for.

And, interestingly enough, all those who want to jailbreak their iPhone 3G will pay less money than what they paid for the first $499/$599 iPhones - and about $75 more than what had to be paid for the $399 iPhone.