They might be a hindrance in the USA but not in most of the world, where pre-pay and rolling one-month contracts are common. It means there's a big market for good cheap phones among people who won't or can't pay $700 or $900 for an iPhone 5, and still want this year's model.

The South Korean government banned contracts for being anti-competitive, which gave a big boost to Samsung and LG. Now Chinese firms like Lenovo, Huawei and ZTE are benefiting as well.

This is why Apple has no real choice about doing a cheap iPhone. Contracts mean it can dominate the US market while making huge margins, but the rest of the world is going Android.