The iPhone 3G had dropped down to only $50 with a contract when the iPhone 4 came out, so it only makes sense that the iPhone 3GS will do the same. An analyst supports the claim saying that the 3GS will be free.
As its entry-level iPhone strategy, Apple is expected to cut iPhone 3GS to $0 (on contract, $399 unsubsidized) in conjunction with iPhone 5 launch (we continue to expect it in September). This approach is intended to target mid-market smartphone buyers and counter Android’s mid-market expansion. We expect iPhone 5 to launch at $199/$299 ($599/$699 unsubsidized), and Apple to drop iPhone 4 pricing to $99 ($499 unsubsidized).