In the U.S., subsidized phones are the norm: for post-paid, long-term contract use, getting a low up-front price on a phone is one of the few upsides. New submitter Apptopia writes "After T Mobile mostly did away with subsidized phone plans, the other major carriers (Verizon, AT&T, Sprint) are paying attention. Carriers lose money with phone subsidies for high-end smartphones (particularly Apple's iPhone). If they do away with the subsidy, you will have to pay full retail price for phones, but your monthly bill will be lower."
If people had a better idea what they were paying for, though, manufacturers might fight harder on price. There are lots of well-reviewed, multi-band, unlocked phones on Amazon and DealExtreme from lesser-known companies, and Nokia's new Asha 501
(though limited in many ways, including availability, having just launched in India) shows that the "smartphone" label can apply even to a sub- $100 phone.