They've got to recoup the cost of the handset somehow. Let's simplistically assume it's a £180 handset (which you got for "free") therefore £10 of the monthly cost goes towards this, the rest covers the network costs.
Depends who you are with but with the Carphone Warehouse you can get them to text you the date when your contract is due to expire and they're meant to contact you on or around that date to offer you an upgrade, however in saying that I know my contract expired on the 7th of January and they haven't contacted me yet.
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