MacWorld UK reports that O2 is gearing up to offer Britons sweet deals on the 3G iPhone.

According to MacWorld UK's sources, O2 will offer the iPhone for £100 ($196 ) with an 18 month contract.  But it doesn't stop there, they also report that current iPhone owners could upgrade to the 3G iPhone for free and new customers who sign up for the most expensive tariff, (That's the UK word for phone plan. Ain't it cute?) will get the next-generation iPhone for free.

The iPhone is also poised to take over the world of "pay-as-you-go" phones, if the sources are to believed.

If this information is true, we hope AT&T follows O2's lead and subsidizes the 3G iPhone here in the Colonies. Dare to dream.