Update Note 28 Sept 2009: Orange UK has announced it'll offer the iPhone later this year, and Vodafone is set to offer it in early 2010. This increased competition should finally push down iPhone prices. Thus, if at all possible, hold off buying until the new prices are released. This note will be updated in due course.

With 2009 iPhone contracts, if you sign up for a longer 24 month contract you can shave a fair bit off the amount you need to pay upfront for the handset.

On the surface this looks a good deal, but for most people it won’t be. The first thing to note is it doesn’t make the monthly plan any cheaper and as that’s already high, locking yourself in for a long time when mobile phone tariffs (elsewhere) tend to drop not rise isn’t a good bet. The amount saved by going longer is easily dwarfed by the cost of the extra six months alone.

Add to that the fact that in 18 months time, if you’re an iPhone type wanting the latest gizmo, by grabbing a new contract you may be able to get a new souped up version at the same or lower contract price, and it really isn’t worth it. For all the info below we’ve looked only at 18 month contracts.

Like all providers, O2 operates a number of tariff levels; in this case, if you buy a cheaper contract, you'll pay more for the phone, whereas if you plump for a higher monthly cost you can get it cheaper. Yet there’s a little term and condition here you can use to your advantage..

You needn't stay on that tariff for the 18-month contract; O2 lets you downgrade after 9.

Admittedly you can only drop down one tariff level, but still that makes a big difference and therefore the aim is take a more expensive tariff for 9 months so you save on the handset cost, then downgrade after nine months to save on monthly tariff.

The table below shows (in red) that it's around £10 cheaper overall to take out the £44.02/month tariff and then switch down to £34.26 at the 9 month mark. And for the first nine months you’ll get all those extra minutes thrown in too.

Monthly	Included mins (1)	Included texts	Phone cost	Cost after 9 months	Cost over 18 months
£29.38	75	125	£96.89	£361.31	£625.73
£34.26	600	500	£96.89	£405.23	£713.57
£44.05	1200	500	FREE	£396.45	£792.90
£73.41	3000	500	FREE	£660.69	£1321.38
(1) All iPhone tariffs also include unlimited 3G data (subject to fair usage policy) and unlimited wireless access at The Cloud hotspots.

Monthly	Included mins (1)	Included texts	Phone cost	Cost after 9 months	Cost over 18 months
£29.38	75	125	£184.98	£449.40	£713.82
£34.26	600	500	£184.98	£493.32	£801.66
£44.05	1200	500	£87.11	£483.56	£880.01
£73.41	3000	500	FREE	£660.69	£1321.38
(1) All iPhone tariffs also include unlimited 3G data (subject to fair usage policy) and unlimited wireless access at The Cloud hotspots.

Monthly	Included mins (1)	Included texts	Phone cost	Cost after 9 months	Cost over 18 months
£29.38	75	125	£274.23	£538.65	£803.07
£34.26	600	500	£274.23	£582.57	£890.91
£44.05	1200	500	£175.19	£571.64	£968.09
£73.41	3000	500	Free	£660.69	£1321.38
(1) All iPhone tariffs also include unlimited 3G data (subject to fair usage policy) and unlimited wireless access at The Cloud hotspots.

Over 9 months the extra monthly cost of the contract is offset by the reduced cost of the handset. You'll save between £9-£11, before cashback (see below), and get double the minutes.

While the overall cost after downgrading still doesn't beat taking out the base level £29.38 contract from the start, the latter only offers a miserly 75 mins/125 texts per month, and light users will find the iPhone an uneconomical option in the first place.

It's a nice loophole, but O2 may well be calling your bluff; it hopes you'll take out the £45 contract then forget to downgrade in time.

So, set some reminders.

The iPhone's calendar's a good place to start; skip 8 months ahead and write your future self a note about arranging the downgrade. To be doubly sure, use our Tart Alert. Just tell it when the 9 months'll be up, and it'll text you a reminder 6 weeks in advance, giving you plenty of time to make the switch.

Order an iPhone 3G S (16 or 32GB) from Mobiles.co.uk, via cashback site and you can get cashback on top. Quidco* offers £60, but takes the first £5 you earn each year as an admin fee, so the cashback will amount to £55 off for new users. Topcashback*, on the other hand, is completely free, yet can only offer £55 in the first place.

It's worth noting that the transaction will track at 1p for a couple of weeks, before being updated to £40, and then £60 a week later. You should get the money within a month after this. Added to the £10 overall saving from taking a more expensive contract then downgrading, this amounts to £70 off.

Unfortunately this cash is never guaranteed, as sometimes cashback sites don't 'track' deals in progress, but with headline deals like this it usually works. To find out more about how these sites can pay you, and how you can make the most of them, read the full Cashback Sites guide.

Apple's now released the third version of the iPhone operating system. It's be free to download for iPhone owners (any generation, though features vary - the update should appear when you sync the phone with iTunes), and it costs £5.99 for iPod Touch owners (from the iTunes store).

As well as adding support for MMS picture messaging to the iPhone, a basic feature conspicuously absent from previous versions, there's a voice memo application, cut & paste support, and a quick advanced search function called spotlight, as seen in Mac OSX. One of the most useful new features for many is 'Internet Tethering', which put simply, allows you to use your iPhone as a laptop modem, though sadly O2 will charge you extra for the privilege (no surprise there then...).

In all there are said to be over 100 new features in the software, see below for more on the iPhone 3G S hardware.

While the new iPhone clearly improves on last year's, there's not really enough extra to warrant iPhone 3G users ditching and switching. Those that are desperate for the new version regardless aren't likely to be cheered by O2's upgrade offer, which allows customers that continually spend £80/month to upgrade six months before the end of their contract, those that continually spend £50/month get it three months before, and those that spend £35/month get it one, yep one, month before.

Otherwise, the only option is to pay off the rest of the 3G's contract, then get shackled to another 18-month contract and pay outright for the new one on top. Cheers O2!

If this still doesn't faze you, i.e. you're totally committed to getting a 3G S, then the only way to take some of the edge off the cost is by selling your iPhone 3G. Carphone Warehouse has hit the headlines with its offer to give £170 cashback for an 8GB iPhone 3G, or £180 for a 16GB, which sounds reasonably promising until you realise that even 6 months' line rental at £34.26 amounts to £205...

Really the Carphone offer's just clever marketing; it's selling its phone recycling service as a cashback offer. Other mobile recyclers will pay more anyway: at the time of writing, a quick look at our Mobile Recycling Checker showed that Mobile Phone Buyer will pay £211 for a 16GB iPhone, and Mopay will pay £210...

Yet if you're prepared to put in the legwork eBay's still the place to go to maximise returns for an 'old' iPhone 3G (or 2G for that matter). Read the eBay Selling Guide first for some top tips.

While you might struggle to tell the old and new phones apart from looking at them, a fair bit's changed under the hood since last year's model. The 'S' appended to the new iPhone stands for speed, alluding to its significantly faster processor. While at the time of writing Apple hasn't released official specs, it did note the 3G S'll open apps 'twice as fast' as the 3G.

The real boon is likely to be in graphics processing though; speculation has it the 3G S is capable of unparalleled mobile 3D gaming, with 3x better graphics than its already capable predecessor. Expect to see 3G S-only games appear in the app store over the next few months, as developers get to grips with the new platform.

So, aside from a faster processor and better graphics, what else do you get for the cash?

• More Storage: Probably least surprising amongst the upgrades is the availability of a 32GB model, though it comes at a cost. The base level iPhone 3G S is now 16GB, and the 8GB version's an iPhone 3G (ie, not 'S').
  
  
• Faster downloads: The 3G S supports HSDPA (high speed data packet access) downloading, which allows for download speeds of up to 7.2 Mbps where the network supports it (the 3G is capable of half that). Yet currently coverage is limited to major cities, and even then, you'll be very lucky to get even half the advertised speeds (coverage map - to be taken with a pinch of salt). Nonetheless, coupled with the iPhone's internet tethering support, this is good news for those that travel with laptops.
  
  
• Better camera: The camera's gone from 2 to 3 megapixels (quite possibly 3.2), which still puts it a long way behind competitors' more camera-centric offerings; Sony-Ericsson, for example, recently trotted out its 'Satio' phone, which has a 12.1-megapixel camera, flash, and higher quality lenses... The 3G S is also capable of taking video at 30fps, VGA (640x480) resolution - the same quality as offered by budget digital cameras capable of bursts of video - plus it offers on-board editing capabilities, so you can chop up and arrange your own videos.
  
  Unfortunately iPhone 3G users won't get any of this video functionality, which is a bit of a shame as it's certainly possible to shoot video on the 3G; those with unlocked iPhones have been doing so for a while using the Cycorder app (though only at max 15fps).
  
  
• Built-in compass: Well, it's a 'magnetometer' actually, and it isn't there for nostalgia purposes; it means, first of all, that when you use Google Maps it knows which way you're facing, which in turn means you can get proper turn-by-turn directions. What's more, the compass will be open to developers, so there'll undoubtedly be all manner of madcap applications based on it, and some useful ones too if we're lucky.
  
  
• Voice control: You can tell the 3G S to dial a number, call a friend, or even make a playlist based on what you're listening to using its new voice control functionality. Voice control's hardly new in the mobile world, but it'll be interesting to see if it really takes off following Apple's implementation.
  
  
• Longer Battery Life: Apparently, the 3G S offers up to 12 hours 2G talktime, and 9 Hrs Wi-Fi browsing, compared to 10 and 6 respectively on the standard 3G. Audio playback is now rated at 30hrs as opposed to 24, and video is rated at 10 rather than 7. As ever though, battery life in real day to day use is unlikely to get close to these dizzy heights, and will degrade over time regardless.
  
  
• Nike+ support, new headphone control... Other upgrades aren't spectacular. A useful in-line remote control on the headphones makes it easy to change tracks and volume on the go, and there's built-in Nike+ support for those that don't find the iPhone an unwieldy running companion, and buy Nike's sensor. Oh, and apparently a water and oil-proof finish, though it looks exactly the same as the 3G's to me.

The major selling point of iPhones has always been the easy-to-use, intuitive software. There are now over 15,000 apps on offer in Apple's app store, and there's nary a purpose or whim that isn't catered for. Yet you don't need a 3G S iPhone to get them. While as mentioned above, 3GS-only apps are likely to start appearing, they're unlikely to be the ones you use most, so it's still a decent option to buy last year's model off eBay and get a cheaper monthly contract (O2's SIMplicity costs £19.58/month and comes with 600 Mins, 1200 texts, and unlimited data).