As my company's telecom manager, I probably have a somewhat unique perspective on these issues. The article is spot on in that people, in general, do not realize that the real cost of smartphones is $500+, they've been brainwashed to believe that the subsidized price is the price and that cell service costs $80-100 a month.
This worked fine until someone came up with a better model because people want high end devices, but if you look at the number of people that can afford to spend $200 on a phone vs those that could afford to spend $600 I think you'd agree that without some sort of subsidy or financing for these high end devices that Apple's stock price would not have done nearly as well as it did after the iPhone was released.
T-Mobile says they did away with contracts, but that's not what they did at all. They just disassociated the subsidy of the phone from the wireless service, so on AT&T or Verizon you buy a phone for $200 then you pay $100/mo for two years, total cost $2600. On T-Mobile you finance the phone and pay $25/mo toward the phone and $50/mo for wireless service, total cost $1800, savings of $400 a year over the AT&T / Verizon model. This works because T-Mobile will subsidize your ETF to get you to switch over from AT&T or Verizon, so they're racking up subscribers like crazy.
What will be interesting is to see how the game plays out. There will eventually be a tipping point where AT&T and Verizon realize they can't continue hemorrhaging customers so they'll step up and play ball cost-wise. The whole notion of competition in a free market increasing customer choice and driving down price really is a great thing.
Personally, I'm surprised someone hasn't stepped up to take the T-Mobile idea to the next logical level. Why hasn't a financial institution stepped up to be in the market for financing phones, so the cost of the device is totally separate from the cost of your wireless service? To make the requisite car analogy, you don't go to a car dealer and sign a contract with them to finance your vehicle. Well, you can, at a buy here pay here type of place, but in general for new car sales the financing of the car is totally separate from the entity that sells it to you.
Why aren't cell phones handled this way? There's plenty of money to be made for someone to finance phones. The whole idea of phones being locked to a certain carrier needs to go away as well. You have Verizon iPhones and AT&T iPhones and if you have one for one network, it won't work on the other network, even if it's unlocked. That's silly. Verizon phones can speak GSM (otherwise they wouldn't work outside the USA), so why isn't there a single version that will work with any carrier?