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In the UK everyone I know gets it on 18/24 month contract, no/little up front cost, then £30 a month or whatever for unlimited texts, some call time, some internet. Contract ends, you sell the phone on eBay or just chuck it away.
As such, the idea of paying $500 up front for a phone sounds pretty mad - though you could say, depending on how much of the contract you actually use, the carriers get more cash this way, I'm not sure on their margins.
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