Starting March 26, existing AT&T customers will be able to buy the 8GB iPhone for US$599 and the 16GB iPhone for $699, AT&T said. The news follows days of rumors that the commitment-free phones might hit store shelves soon.

The price works out to be more expensive than buying a subsidized iPhone with a two-year contract, paying the subscription for a month, canceling the plan and paying the early termination fee. Including the activation fee, that would come to $476 for the 8GB iPhone.

"This is simply another way AT&T customers can experience iPhone 3G on the nation's fastest 3G network," AT&T said in a statement.

Existing AT&T customers -- the only people who can buy the contract-less phones -- are eligible to buy an iPhone at a subsidized price based on the amount of time left on their contract and their payment history. In many cases, they will be better off waiting until they become eligible for a subsidized iPhone with a two-year contract.

People who buy the phone without a contract will have the same service plan options as contract iPhone users, except they won't have to commit to using the service for two years. The cheapest option is $70 a month, including voice and data access.