T-Mobile's Galaxy Note II Costs $369

The rate plans will determine how much profit the company is making off your service each month. If, let's say as an example, AT&T is making $20 more a month per smartphone than T-Mobile, then they're making a whole $480 more over the course of the contract than T-Mobile. Then they can return a portion of that extra profit to the customer by giving them a larger phone subsidy.

I'm not saying I disagree, it is a messed up system. But without it, who would own phones? The iPhone 5 starts at $649, you're getting a $450 subsidy there! Most good Android phones are over $400. People demand less expensive phones, and the two options available are for the manufacturers to cut costs and produce shoddy phones (like we see on MetroPCS or other prepaid carriers), or two-year contracts and phones sold by carriers. An alternative solution would be something like Simple Mobile, the company that just sells SIM cards for phones you already own. It's a pity a major company couldn't get set up like that, but the fact remains that without low-cost phones, it's hard to entice customers. In the end, it is a customer-driven business.