O2 has confirmed to Pocket-lint that UK consumers will not be able to pick up a £99 iPhone 3G without a contract.

The company explains: "Because we are now subsidising the device, people will have to take out a contract in store or online before they receive the device. They will still need to connect to iTunes to complete the activation process though".

This is a blow for anyone hoping to pick up a cheap device and unlock it to work on another network.

The Pay & Go option is obviously there for customers who do not want to commit themselves to an 18-month contract term, although pricing for this option for the UK is still to be decided, O2 has informed us.

In a good news/bad news scenario we've also learned that O2's policy for current iPhone customers who want to upgrade to the 3G model could be described as a good deal.

For existing contract customers, as long as they sign up for a further 18-month contract period, they can get an iPhone 3G for free if they pick one of the larger tariffs or for the subsidised special prices if they opt for a cheaper contract.

The 8GB model will cost £99 on a new £30 per month tariff and the existing £35 per month tariff. Consumers choosing either the £45 or £75 per month tariffs will get the 8GB iPhone 3G for free.

The 16GB iPhone 3G will cost £159 on the £30 and £35 tariffs, £59 on the £45 tariff and it will be free on the £75 tariff.

Pay & Go pricing will be announced in the coming weeks, and we will bring you this, and all other iPhone 3G news, as we have it.