Back in the day (and it's still not as uncommon as it should be) you always paid $X and got a "free!" phone with your plan.
The reality, of course, was that part of the monthly cost was a subsidy for the cost of the phone. The universal ripoff of that system is that when the phone is paid off (your 2-year contract is up for a new phone), the price doesn't go down. So cellular carriers almost universally screwed people who didn't upgrade their phone as soon as they were eligible. Basically every month you kept your phone past the eligible upgrade date, you were giving ~$20-30 to your provider for nothing in return.