Because you don't get it for free. You instead are given a crippled version, that cost the operator the same amount of money (if not more, given the work needed in development to cripple it) as if it wasn't crippled, which the operator must claw back some somewhere.
Where do you think they get it? Government grants? The toothfairy? From special trees with money as leaves?
The two models are:
1. You get your phone for no money up front. The operator rolls the cost of the phone into the prices it charges. It also has to deal with the risk people will not use their service long enough to cover the costs, so the phones are crippled, and the customers are forced to sign absurdly long contracts. (THREE YEARS in some cases. THREE! What the hell are people thinking?) The available phones are limited to those the operator is willing to subsidize. Other phones are harder and more expensive to get, and those who buy them still end up paying for the subsidies given to others.
2. You pay full price for your phone. You get the phone. The actual phone. The phone as envisaged by its designer. You sign on to a mobile operator. The mobile operator has no compelling reason to force you to sign a long contract. The mobile operator does not have artificially high prices that reflect the fact it's having to pay you for phones. You have a choice of every phone ever made compatible with your network.
Those are the choices. Quite honestly, I'd rather the operators abolish "subsidies" and offer outright loans (they run credit checks on you anyway.) You'll get more choices, cheaper phone services, and better phones as a result. There is no downside.
Not true, My vodafone Nokia N90 came Nokia boxed unlocked to all networks, so did my SE T610, and a couple of others. The only one that actually came locked and "crippled"(just a couple of vodafone themes) was my qtec 910, which I unlocked with a code I bought from some guy on ebay. And I think the networks are bound by law to unlock our phone after some time. I know Voda does it for £15 or so.
About the monthly rental paying for the phone. Calls made on phones on contracts, are nearly 50-60% cheaper than they are on pre-pay, so I don't know where I'd be loosing money. I mean, honestly unless you actually own a a network, it couldn't be any cheaper. And now with 3G, some networks are offering unlimited internet for £5 a month, and the phones are coming with skype installed, so there you go, even cheaper. And Of course my phone is not totally free, but is far cheaper than having to buy any phone that is over £100 and a mothly fee of over £25 for a year or 18 months. In the UK they aren't tying us up for 2 years yet.
Besides, who do you think is going to get the phones cheaper, the customer buying 1, maybe 3 phones every 10 years, ot a network buying 1 phone for each potential customer every year and passing that saving on to you(because they want you to stay with them) and at least hear in Britain, the longest contract I'm yet to see is 18 months like I mentioned earlier.
And the operator IS compelled to sign you for a long period regardless of they having bought you a phone or not. Even if you join a Gym you are tied up in a contract. They want some reassurances before spending any admin costs. Hell, the only reason I've stayed with my network for nearly 5 years is for the free phone I get avey year and the decent roaming they have.