"In the traditional sense"? How about the exact definition of what a contract is. You are entering into an agreement that has specified terms that you need to uphold for a length of time. If you don't uphold those terms, you have to pay for the phone they give you, and you lose the excess trade in credit you are being afforded. You are in a 3 year contract.
Not to mention, anyone who is not on a multiple line deal that decreases their monthly service costs, are also paying $40+ more a month for the same service they can buy for half the price on prepaid. You aren't getting a deal. You are paying more in the end, and you are indebted to them for 3 years.
So, the “punishment” for breaking the “contract” is… paying for the phone? (And not even the whole phone, just the portion remaining.)
Considering I paid full price for my last iPhone… that sounds pretty good.
According to Apple, my trade-in phone is worth $200. So, purchasing through Apple, this iPhone would cost me $500. Whereas AT&T is willing to give me $700, so the phone costs me $0.
And all I have to do is keep the same phone plan I had anyway? Again, doesn’t seem like much of a problem.
For people who already had a qualifying phone plan, there’s literally no downside (as long as they stay with AT&T long enough to at least recoup the trade-in credit they would have gotten from Apple). But to each their own.