I'm selling my iphone 3G since I really don't use it. Its less than one year old and in perfect condition. It is totally libre "free" with no service contract attached. I paid 800 euros but will sell it for 500.
The best thing to do would be to go to Movistar and ask them all about the phone and the contracts and the libres. they are the ones who supply the phones and contracts for iphone in spain. They don't like "libre" iphones much because they get a huge profit from the sale of both, the phone and the contract, but if you have a card from them, you just put it in and it all would work perfectly. I just put my vodafone card in the iphone and it works just fine. I decided though that it would have been better to use Movistar but I already had the contract with vodafone. I think the coverage is better with Movistar for the iphone. I get my email just fine at any WiFi spot and at home and can download itunes and everything else..it works like a small computer. Let me know if you have any more questions... For me, its just too fancy and I prefer something smaller and simpler. I'm 62 and I don't need to be on itube all the time or check my email on the bus..
The phone is still for sale, but since a new version just came out, I've lowered the price for this phone to 200 euros. Its super fair and very inexpensive. It is "libre". You can just put any telephone chip in it and it works fine. I would suppose it would work better with Movistar since they have the contract on iphone. I spoke with them and they have no special requirements. you can make a contract with them and use the phone or you can use it with any other company. I was using it with vodafone. I hope that answers all your questions. the phone is in perfect condition and works fine... Best, Sandi