Manufacturers and retailers often add arbitrary discounts and rebates on top of it, so if you're really lucky, you can get a brand new flagship phone for free. But the next person will have to pay $700 for it, even with the same contract, while the store across the street sells it for $400 because they're getting a big rebate from the carrier this week.
And most of the above are straightforward discounts and rebates, not something that is sneaked into the monthly plan like in the U.S. The price of the phone after the discount is divided by 24 or 30 and tacked onto the phone bill as a separate line item. You can pay it off anytime you want.
The government is trying to regulate the industry into making the pricing structure more transparent to customers, but the general consensus is that the government is failing.
Sounds fairly similar to the state of the US market (minus the competing part). Devices marketed as "flagships" sell for $600-800+ but carriers use heavy discounts to get people to sign long service contracts. Lots of people would rather spend $200 up front and sign a 2-year contract for $90/mo than spend $400-500 up front with a SIM and $30-45/mo prepaid service. Since you're in a contract, you only really have to think about it every two years and at that point, most find it easier to just re-up, drop another $200, and get whatever the current must-have device is.