There’s a lot of unhappiness out there over the pricing of the new iPhone 3G S. The phone, which has some substantial upgrades over the 3G model introduced last year, is not available at the $299 price (for the 32GB phone) for current 3G owners. Instead, they will have to pay an extra $200 to get the new phone (which I reviewed earlier.)

The reason is subsidies and contracts. AT&T, the U.S. carrier for the iPhone, only makes money on it with a tw0-year contract. If AT&T sold the iPhone 3G S for the $299 price to current owners with a year to go left on their contracts, it would lose money on each phone it sold.

I’m not saying it’s right or wrong; I’m only explaining the rationale behind AT&T’s decision. There’s substantial anger over this policy in the iPhone community, especially since Apple changed the rules; original iPhone owners were allowed to upgrade as soon as the 3G came out, and still received the subsidy price. AT&T has made a business decision, and customers will just have to live with it — or switch. There are viable alternatives out there, like the Palm Pre and the Android.

It should be noted, however, that the older iPhones are being sold at significant discounts; so if you can live without video recording and 8GB of storage, you can get an iPhone 3G for as little at $99. That’s a great bargain for the gadget that I’ve called the greatest of all time.