Smartphones are deceptively affordable. If you buy an iPhone 5s unlocked, it will cost you $649 upfront for a 16GB model, yet if you bundle that same phone with an AT&T contract, it will cost you just $199 upfront. The rest of the balance is subsidized by your carrier upfront, and paid off over the next 24 months in monthly installments.
It’s a decent system that results in massive profits for carriers, but at the cost of an upfront payment to Apple. Go figure, though, AT&T would rather just rake in massive profits without that upfront payment… which is why CEO Randall Stephenson is now saying the are “unsustainable.”