There is no incentive for major phone makers to make phones cheaper with the subsidy system. The phone maker can charge their $700 a phone to the carrier and they know they will pay it because customers will go where the best phones are (in general). If carriers were out of the loop with phone subsidies, true competition would ensue and drive prices down. For now, if you were a phone maker, why in the would you stop taking the enormous profits that carriers are forced to pay you.
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