Phones ARE heavily subsidized. You keep asking for proof, but you won’t get any. That’s because the deals struck between the cell phone carrier and the phone maker are confidential deals. The cellphone maker doesn’t want it’s competitors, nor its other customers to know the discount it gave to Verizon, and the carrier doesn’t want its customers or competitors to know how much they paid. Asking for proof isn’t practical.

Next point, you are right that even the most advanced smartphone has a bill of materials (BOM) that is sub $200. However, that is just the cost of parts. Do you go to Pizza Hut and complain that the BOM for your pizza is only $2, yet they charge you $17?

Of course, phone makers hire staff, do market research, plan the products, design the products, do the engineering, write the software, strike the partnerships, and market the products. There are fixed and variable costs in all these activities that are not part of the BOM. Also, the market for a leading-edge smartphones is NOT a commodity market, therefore Price is not = MC (like we so often discuss with digital media). Handset vendors with a premium, special product can command a higher price.

That brings me to the next part. What does the carrier pay for the phone? As I said, the actual price is secret, but let’s just guess that for an iPhone it’s above $450. Why to they pay that much? Because they have to. If they want the iphone, that’s what they pay.

Consumers aren’t all eager to pay that much for the phone, so ATT choose to subsidize it down to $199 to help people get over the hump of initial outlay. They have no problem doing this, because the 24 month contract pays them back tidily.

You compare phones to laptops. You’re right, it’s odd that a Netbook can sell for $250 with XP, and be more powerful than a phone that costs ATT $450. But as many others have said, miniturization costs a LOT. Remember when the average laptop was $1000, but Sony had tiny Vaios, IBM had the Thinkpad X series, Toshiba had tiny Portege’s, and OQO offered a handheld XP machine. The prices for these miniature computers that were less powerful than a $1k laptop? $2000.
(proof that minaturization costs: http://www.mobiletechreview.com/notebooks/OQO-model-01.htm)

There is no need for a conspiracy theory here, nor is there need for proof. It’s pretty standard business. Cutting edge products, great products, and miniature products command a premium. ATT has to pay that premium price. That’s the real market price of an iPhone.