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The same thing happened to me when I added my most recent line. Added to line with an iPhoone I owned already and when it was time to upgrade, I wasn't showing eligible online.

All it took was a quick phone call to AT&T explaining that that I did not get a subsidy when I activated the new line & I had used my own phone. They manually fixed my upgrade & I had no problems picking up a new iPhone in store the next day.

I'm glad you had luck, it seems to depend on the representative. I had the same issue and multiple customer service representatives said that I was no eligible for an upgrade. Only after I canceled the line and added a new one did they tell me that I should have been eligible for an upgrade. All three of my lines were out of contract and I was very close to switching to Verizon at the time.
 
There is a huge difference between a verbal exchange and the contract all carriers use. They only vary slightly. You may very well find you are locked in.

If you wish to be released, there is a provision. Smartphone early termination begins at $350.00. They will take payments with interest if you cannot pay in full at time of cancellation.

Good luck.

But here's the rub: He didn't buy a subsidized phone, and thus there should be no ETF. While he may be under contract, he should be allowed an upgrade without penalty.
 
I switched back to AT&T with my already owned iPhone 4 yesterday, and I didn't have any issues. I didn't activate it myself though. I brought it in-store and had the sales rep take care of everything. I checked online today just to be sure, and I can upgrade for the 2-year price anytime.
 
I switched back to AT&T with my already owned iPhone 4 yesterday, and I didn't have any issues. I didn't activate it myself though. I brought it in-store and had the sales rep take care of everything. I checked online today just to be sure, and I can upgrade for the 2-year price anytime.

Apparently this is only an issue with the 1st gen. iPhones as they can only be activated thru Apple via iTunes. Thats how the OP got hosed.
 
Just cancel and go up to AT&T and get them to set line up and activate. I did this with an old 3G and wasn't on contract.
 
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