If a consumer who pays, say, €50-€70 per months could simply change his sim card, they'd be left with a monthly bill of €20 and another carrier would earn the remaining €30-€50.
You agree to a monthly fee of $XX for a period of YY months. In return you'll get the phone for "free" and NN "free" minutes of talk time and MM "free" SMS etc. Once you've committed to the contract then you have to pay up whether or not you use the phone and/or sim (operator couldn't care less) until contract period is up.