From what I gather and this is pure speculation... the phone is not subsidized. The major reason why the phone was so expensive in the first place was because of the revenue sharing that AT&T and Apple took part in. I'm thinking that you be able to upgrade to the new iPhone no matter how much longer your contract is because on the old iPhone the iPhone was the only ANYTIME upgrade that AT&T offered. It signed you a new 2yr agreement and removed the old contract. I think that as we get closer to launch we will see more information on whether that is true or not.