Many cellular service providers will offer customers a free cell phone for signing up for service for a set period of time or for renewing a cellular service contract for a specific period of time.
Many cellular service providers will offer a free cell phone for a one year service agreement but a more expensive phone, which has all the bells and whistles, will be free with a two year agreement. When you sign the agreement you are agreeing to keep service with that particular cellular service provider for that specific time frame.
If you break the contract, you are required by the contract, which is a legal binding agreement, to pay a break fee that has been specified in the contract. The break fee could range from $100 to $300 or even more depending on your location, the cellular service provider, your service plan and the kind of phone.
Cellular service companies do have to purchase the phones from the manufacturer. The actual price for the phone is based on its technological advances, so the more advanced the phone and the more bells and whistles it has the more it will cost. However, phones are expensive pieces of equipment.
The cellular service company is making their profit from your cellular service contract. They make money from the fees you pay for making and receiving calls, text messages, photo messages and using the Internet through your phone. Therefore, if you don’t finish your contract, they must recoup their loss for the phone they gave you by charging the early termination fee.
Any optional services and accessories also improve the amount of profit the cellular service company makes from the customer, so the contract may specify a minimum service plan in order to get a free phone. To get a particular phone at no charge, you may have to get a minimum price plan and not be able to downgrade during the duration of the contract.
Contracts and their specifications vary from location to location, the cellular service provider, the length of the contract and the kind of phone involved.