Trying to dump the remaining stock, and in preparation for the iPhone 5 release this sprng, AT&T is going to sell the iPhone 3GS for $49 starting Friday, as a price war heats up in the increasingly crowded smartphone sector.

The phone is currently available on AT&T's website for $99, while the iPhone 4, released in June, sells for $299.

The latest offer is available to both new and certain existing customers and requires a two-year wireless-service contract of at least $39.99 a month, plus $15 data plan. AT&T and Apple want any stragglers to at least upgrade tothe 3GS in the near future.

AT&T added a record number of iPhone subscribers in the third quarter but paid a heavy price to do so. While the activations require AT&T to pay Apple high subsidies that cut into its near-term profit, they also lock in new and existing customers to a two-year contract.

AT&T isn't the first company to discount the iPhone, with retailers such as Wal-Mart Inc. and Radio Shack Corp. offering inticing promotions.