The cellular carriers are competing by using different technologies to market their version of the cellular services. For example, AT&T uses a protocol called GSM, while Sprint uses CDMA. Technology is quickly changing, but for the most part, CDMA phones are permanently tied to the carrier from which they were purchased. GSM phones however, are the type that have a removable card that can be swapped out to switch carriers to another GSM compatible carrier. A few carriers are crossover carriers, meaning they support to some extent both GSM and CDMA phones.
The reason a company is offering you a free phone to switch from your existing carrier is that they know that the phone you have is likely not compatible with their network, and that the free phone you are about to receive from them is not compatible with your current carrier either. Thus the free phone will be permanently tied to their service, a strong incentive for you to remain loyal to them. This may not however be a big issue for a prepaid service. The phone was free and thus effectively dispensable. The data on the phone can be backed up (synced) to an Internet-based email account before you disconnect it, and when you get a new phone on a new carrier, you simply reconnect to that same email account and presto, all your apps and contacts are back.
Another common error in shopping for a phone, is that the marketeers are not just trying to sell you a phone, they are pushing camera sales. A smart phone is not in the same paradigm as a traditional landline phone, which only permitted talking to people. Smart phones are camera-video_recorder-stereo-phone-and-more all built into one small device. Some of the features are incidental to the device (a speaker phone for example), while many features being pushed are non-essential (a camera isn’t needed to talk on a phone). Thus the difference in price is all about the non-essential features you may or may not need. If it is a phone at all, it will do the basic–it will allow you to make and receive calls.
So the next time you buy a phone with a carrier, just remember, you are effectively buying a disposable device that is locked to that carrier. If you buy a more expensive smart phone with spicy features, realize you bought a camera more than you bought a phone and someday you may want to switch phone carriers and find out that your smart camera is not compatible with the phone carrier you want. And yes, you can continue to use your smart camera without phone service, if that is what you want to do, but you willneed to periodically connect your device to a computer to extract the images since it will no longer be automatically backing all that stuff up to the Internet via a cellular connection.