[maxerickson]

The phone-sized early termination fees put the lie to it being any sort of subsidy.

(for "subsidy" to be a reasonable description of the flow of funds, the phone company would probably have to be losing money on the most expensive phones; of course they aren't. They provide the phone up front with a minimal payment, but they have structured the monthly fees to more than cover their costs for doing this.)

[vonmoltke]

Except they charge me the same rate if I already have my device as the person in the long-term contract, just without the early termination fee. If they have structured the locked-in person's contract to cover hardware costs then they have structured mine for that as well, despite the fact that I didn't get hardware from them. Therefore, I am paying part of the hardware costs for the people who buy phones from the provider; i.e. I am subsidizing them.

Furthermore, early termination fees are constant for all contracts. The person who got the $150 phone has the same termination fee as the person who got the $600 phone. Thus again, someone is subsidizing someone else.

[maxerickson]

I'm pretty sure that people using paid for hardware are just more profitable than people that are still paying for hardware. But they make income on all the people.

And the fees aren't necessarily the same for cheaper phones:

https://www.verizonwireless.com/landingpages/return-policy/