Have had the Note 2 for over three years. Dropped it and it broke, bought a used one for $100 bucks and kept on rolling. Several years ago, the texting, maps and phone quality reached a "plenty good" level. There hasn't been a major app breakthrough that makes anyone need to upgrade until a phone wears out/breaks. Screen on Note 2 is plenty big.
Also, companies used to subsidize the iPhone/Android with the contracts, and they've quit doing that. Getting hit with the up front price all at once, and not being able to hide it will kill a lot of sales, as will the fact that other companies will soon be/are making clones that provide "good enough" performance for a tenth or less of the price.
No carrier ever "subsidized" the purchase of the phones. They just hid the cost you paid 100% of in their contracts. The funny thing is that it was in the self-interest of the carriers to sell you, or even give you, a low-end phone because the monthly contract price goes on for 24 months, yet the cost factor included in that price for the phone is covered in just a few months. . . and the rest of the months after the phone is paid for is just pure gravy profit for the carriers!
The carriers would PREFER you purchase/take that free phone with few services that they make a lot of money on also because they don't have to service that phone with anything except phone calls.
The fact is, now you will know up front how much you're paying and when it will be paid off. . . and under many of the programs, you can trade your current phone for the next, latest and greatest phone without having to wait for the contract to expire or for the current one to be paid off. It will actually better for Apple and the other makers who like their brand to keep on top of the latest upgrade cycle. . . and still pay the same without waiting.
AT&T, Verizon, and several of the other carriers have already been doing this for a couple of years in parallel with their contracts and it was already the majority of sales for them. That's why they decided to drop the two year contract model.