They force you to pay for a new phone with a 2 year service plan whether you get one or not. So everyone gets their "free phone" (that they are already obligated to pay for), and they are also stuck with the same service provider for the next 2 years.
At least with T-mobile you can switch to another carrier. You can even sell your phone on ebay to try to recoup some of the costs if you don't want it anymore.
You do realize that you can buy unlocked GSM phones, purchase a SIM card from AT&T (and formerly T-Mobile) and use it without having to pay several hundred dollars up-front right? I've done that many times over the years. Ditto for purchasing a used or new CDMA device. You just call up the carrier and say you want to activate a device. You don't have to "pay for a new phone with a 2 year service plan whether you get one or not" as you say...
Disc space -- the final frontier!