Explain the 2 year contract someone?

I want to buy an iphone 5s. Apple's website shows it for $199 but thats the price for upgrading. I don't have a phone to upgrade so if i sign the contract do i just pay $199 and sign the contract or do i pay the full price? Someone explain to me how this works.

You would pay $199 with a 2 year contract.

Contracts: You get a discount on the phone but you have to pay for service for 2 years. If you cancel early they charge you a huge fee.

$199 is a subsidized carrier-locked price. For 2 years you are locked into that particular carrier, be it AT&T, Verizon, etc at their monthly rates. Hidden in the high monthly rates is the rest of the $749 cost of the phone (or whatever it is unlocked)

In the contract it will say if you terminate early you must cash-out of the remainder of the contract. IF you can afford an unlocked phone, likely you can pay-as-you-go for a non-contract plan and save some money, but not everyone has $700-900 for a phone today.