Stories about cell phone unlocking and resales have hit the news recently. TracFone sued numerous resellers who (legally) bought inexpensive subsidized units, unlocked them and sold them overseas. In the iPhone world, the story differs. Rather than leveraging subsidized prices, the way the TracFone defendants did, iPhone resellers added value on top of the unsubsidized units. They bought the phones, unlocked them and sold them for a profit.

The story gets more interesting with the current generation "no commitment" iPhones. The latest 3G "no commitment" iPhone pricing appears to include an extra $200 profit margin on top of the $200 subsidy.

TUAW reader Adam Jenkins offers proof. In Massachusetts, purchasers pay tax on the full unsubsidized phone price, regardless of carrier subsidies. The 5% sales tax for his new 16GB 3G iPhone came to $24.95. Clearly, Apple and the State of Massachusetts believe the unsubsidized 16GB price is $499, not the $699 "no commitment" price. That extra $200 offers a nice cushion on top of the unsubsidized sale, providing pure profit.

What's the opposite story of resellers taking advantage of cell phone subsidies? Seems to be the 3G iPhone.

In case you were up most of last night (like I was) and weren't reading that last line correctly, let me say that again: there is a four hundred freaking dollar premium for non-contract phones.

Follow the jump for more thoughts about this development.

If true, this is terrific news for anyone who wants to hack their iPhone and not be bound to an AT&T contract. It's also fabulous news for anyone who wants to upgrade to a new iPhone but doesn't live in a 3G-serviced area.

If historical prices are any indicator, off-contract phones could sell for a few hundred dollars above the subsidized price. At the very least, according to this memo, you can sign up for a contract, get the iPhone and cancel after 30 days, paying the early termination fee. After that, the iPhone is yours free and clear. I am not a big fan of this option as I do not like signing contracts that I do not intend to keep. Regardless, this is (a) legal; and (b) in compliance with contract terms.

Thanks, Ethan Hixson.

TUAW reader Rawheadz writes: "The money quote is that you DON'T have to return the phone after the 30-day return period, so long as you pay the early termination fee; so, essentially, the "unsubsidized" price for the iPhone 3G is going to be $199 + the ETF." To which I add, plus one or two months of service.

Other readers clarify that "non-qualified upgrades" refer to existing non-iPhone customers who have not yet finished their equipment terms and would be expected to pay a penalty for equipment changes.

Although I wonder if it would be cheaper just to buy a foreign iPhone, I'm still hoping that Apple sells them in-box unactivated at their store. And there's got to be some sort of developer solution that doesn't involve contracts for each development unit.

Here's some math from TUAW reader Mike:

$199    for iPhone 3G
$ 36    to activate
$ 80    approximate, one month service plus taxes
$170    Early Termination Fee

Steve Ballmer might go on about the iPhone being heavily subsidized, but today's Mobile Magazine reveals that the iPhone might be cheaper to build than you think. According to their estimates, the 4GB iPhone costs $245.83 to manufacture, about half of the five hundred dollar asking price. Add another $35 to step up to 8GB onboard. "Of course," they add, "These figures don't include R&D, advertising, and Steve Jobs' expense account." If right, this dramatically undercuts the notion that Cingular is massively subsidizing the iPhone in order to bring the price into line with consumer expectations. It also brings the possibility of a phone-less (albeit pretty expensive) G6 iPod into greater likelihood.

I'm not big on equipment and manufacturing costing. For all I know, they are pulling these numbers out of thin air (John Gruber at Daring Fireball seems to think so, linking to Apple Insider), but it's certainly an interesting place to continue discussing the "subsidies" controversy.