How does the service agreement look to all U people? What is a cheap iPhone? Is it the difference between 2200 and 1800?
This is not really a budget phone but just a replacement for the still-using-DockConnector iPhone 4S that Apple will probably get rid of as soon as possible.
But then again, there are many countries with different and often cheaper contracts or a well established pay-as-you-go system (and also contracts with monthly fees).
Lemme tell you about Germany for a moment:
There are two big mobile service providers and two smaller ones, the big ones are Deutsche Telekom and Vodafone, the smaller ones (not necessarily in number of customers, but more like they get only a B for effort but are also often cheaper) are O2 and E-Plus (which has many different and even cheaper brands).
With Deutsche Telekom and Vodafone, it's kinda like in the US, you pay 200-300 Euro for your higher end phone and 40-50 Euros per month (which would be about 65$ including taxes) - there's no such thing as a family plan or something like that.
Minutes are plenty or fully included, traffic - well, they often include 1GB at full speed and unlimited after that but only at very slow speed.
E-Plus and their most successful brand Base usually doesn't include a phone in your contract, but you can get one if you pay slightly higher monthly fees (which still often results in the phone being cheaper than buying it right off the spot from a different source).
With Base, you pay (I'm using the cheapest contract they offer than can be regarded as smartphone-worthy) 15 Euros per month for 100 minutes and 200MB at full speed - which is slower (no LTE and also just a ****** network coverage overall) and unlimited after that at slow speed.
O2 is somewhere in between, but also offers one of the most interesting contracts, Netzclub.
With Netzclub, you get a free contract and pay 9c per Minute but you also get unlimited internet for free, with 100MB full speed + unlimited at slow speed after that.
So if you're using your smartphone not that often, and don't call very often, you can have a contract for 5-10 Euros per month as a pay-as-you-go-scheme, there are also some other companies offering contracts with monthly fees of 10 Euros with similar features as Netzclub + 100 included minutes.
So here you can have an iPhone 5 16GB for 1200 Euro per 2 years with lots of traffic and plenty of minutes - or you can pick up an iPhone 4 (and soon the plastic case one) for 399 Euro and use Netzclub or Base and pay 650-750 Euros per 2 years.
So if you buy a phone off-contract, price really makes a difference.
But if you got an expensive contract, taking the cheaper phone often really doesn't make any sense, like if you want the cheapest smartphone-worthy contract from Deutsche Telekom, you pay 18 Euro per month and 449 upfront for an iPhone 4S 16GB - or 499 for an iPhone 5 16GB...
Who in his right mind would choose the 4S in this case?