[throwawaykf07]

Of course he knew carriers subsidized phones. In fact he called it out in his infamous statement dismissing the iPhone. Here's the exact quote (emphasis mine)

"There's no chance that the iPhone is going to get any significant market share. No chance. It's a $500 subsidized item."

The iPhone was too expensive even when subsidized. I've said this before and will say it again: Jobs' real genius, besides making a smartphone that actually fun to use, was getting carriers to subsidize it to below $200 (up front, of course; they made it up on the mandatory data plans). Turned out that is the price point that people will actually consider buying a smartphone for personal use, and it created a whole new market which had not really existed previously: the consumer smartphone market.