Such phones typically do have a contract that requires you to pre-pay a balance from which all fees are collected (and typically has no monthly fee). The point

Such phones typically do have a contract that requires you to pre-pay a balance from which all fees are collected (and typically has no monthly fee). The point is that the carrier also subsidizes the cost of the phone and hopes to recoup it through the fees. But since there are no guaranteed payments, the subsidy amount is usually low and the phones accordingly cheap.