This new phone you just got; was it "new" as in purchased from AT&T as a subsidized unit, or is it just "new" to you, purchased elsewhere? If you just got a subsidzed phone, I don't think you're "upgrade eligible" in AT&T's eyes (meaning you wouldn't qualify for the $199/$299 pricing).
An iPhone 3G without a contract could cost you around $750.00. That's how much I sold mine on ebay for 😀