AT&T offers new option of iPhone without contract

Two new models of iPhones go on sale July 11 for $199 and $299, depending on the amount of memory, with two-year AT&T contracts. The contract-free versions will cost $599 and $699 and will be sold sometime "in the future," AT&T said.

The phones sold under contract are subsidized by AT&T, which expects to make the money back through monthly service fees over the life of the contract.

Without a contract, users can cancel service without incurring an early termination fee. But both contract and contract-free phones will be "locked" to work only on AT&T's network, and the monthly service plans available will be the same, said AT&T spokesman Michael Coe. The plans add a $30 monthly charge for data like e-mail and Web surfing on top of a calling plan.

As previously announced, the cheapest monthly calling plan for the iPhone will cost $70 per month, before taxes and fees that can add $10 per month. That plan includes 450 minutes of calls and unlimited e-mail and Web browsing.

AT&T is working on providing a prepaid plan, Coe said. A prepaid option was available to buyers of the first iPhone who failed a credit check.

The new iPhones will have faster data access and more accurate navigation capabilities. The cheaper model will have 8 gigabytes for internal memory, half that of the more expensive model.

The first version of the iPhone was sold in the U.S. without a contract, but AT&T would activate it only with a two-year contract. Many phones ended up being "unlocked" from AT&T's network and shipped overseas.

Also Tuesday, AT&T revealed that the iPhones will go on sale at 8 a.m. local time on July 11. Last year's iPhone launch, which happened in the evening, had Apple devotees camping outside stores in anticipation.