eli5 phone companies: How do they make money when you upgrade and trade-in your phone?

Question

If I upgrade my phone and it costs $500 (billed spread over 3 years) and I trade-in my old phone and get $500 credit, spread over 3 years, how is the phone company making any money? What am I missing?

In: 3

Answer 1

They keep you locked into a contract with them for 3 more years making money from you using their services.

A guaranteed customer and subscription and thus income for 3 years is worth much more then a phone.