Fortune reports that AT&T is preparing to subsidize the next generation iPhone.

Apple is expected to reveal the latest iPhone at the WWDC keynote, June 9. The new device is expected replace the EDGE powered internet access, with the much faster, 3G network.

Fortune expects 8GB and 16GB iPhones with 3G to be announced, while many believe the 8GB iPhone will be phased out, and Apple will introduce 16GB and 32GB iPhones at the current $399 and $499 price.

Customers would need to sign a two-year contract with the carrier in order to take advantage of the new lower price. The new, subsidized, $199 price point should help Apple achieve its 10 million iPhone goal. Customers would need to purchase the subsidized iPhone directly from AT&T. Apple is not expected to offer the discount through its retail outlets or online.

Apple and AT&T declined to comment.