Contract-free phones do exist. But if you want a brand new expensive phone without paying full price and without a contract, it better be your birthday because otherwise I don't see who's going to pay the difference.

>>> I think if Apple launched a "budget" phone it would destroy much of the Android market.

Not likely. Apple core customers would shun it because it's not fancy enough, and Android core customers would shun it because it's Apple-built jail and because they want the apps they're used to. It's like saying if Windows were a bit cheaper Linux wouldn't exist. Not likely.