But is it really "disgusting" that a phone is cheaper to replace than repair because it is extremely cheap to begin with? Following that argument, they would solve the problem by raising the price of the new phone.
Then it breaks. And since the software is usually so crappy on it, there's no consistent way for them to have backed it up. Sometimes the contacts are on the SIM card--sometimes not. Sometimes they've backed up to the Google cloud; sometimes they didn't understand what that was, so they just hit "skip" when it asked them to set up that account.
So when that phone breaks, they've lost EVERYTHING. Now I know there are some folks on HN, because I've been around here long enough, who would say "They should just learn how to back it up!" And to that I would say, who is teaching them? Can you? These people are sometimes barely literate, often only with a high school education (or less.) We can't expect them to understand what a "Google cloud" is. And heck, even as technical people, many of us don't back up stuff properly, especially personal items.
So when that phone breaks, they've lost a lot. Personal photos of their kids. Important contacts. The calendar that reminded them where that job interview next week was.
Many of these same folks would be far better served buying a used iPhone 4S, which is $55 to fix when a screen breaks. But the difference between $50 for a Cricket HTC Desire and a $100 iPhone 4 could be a week or two--a week or two during which they cannot survive without their phone. That's why I say it's a disgusting market.
The part where I will disagree with you slightly is this wasn't just a problem of the barely literate, or even technical people overlooking backups. When we did user studies it was essentially everyone that came in - none of them had off-device backups, or knew how to share. The number of people for which "sharing photos" meant holding up the phone with a picture on the screen while the other person took a picture of the phone was depressing. The sharing UI was totally opaque to them. I see this on Instagram today, where people take pictures of the display on a DSLR in order to share the photos.
I apologize for the rant. I acknowledge this is a religious hobby-horse for me. At the aforementioned startup one of the stats that killed me was the average views of a picture once taken was essentially 0 - pictures go to SD cards to die. No better for phones. At the time Facebook was getting three or four Flickrs a week, and the stats were still pretty grim. We have to better serve customers, but I don't know what that looks like. Verizon offers a cloud-like service for contacts and photos (I have this on my Samsung U365 flip phone), but it's a pain to set up and unclear when it will cost you extra.
Bonus story: smart guy I worked with bought a really nice new camera, they default picture size was too big (too many pixels, too large files) to attach to emails, so he did the obvious thing: set the default resolution of the camera to something low enough to fit. WHY OH WHY BUY A 5 MEGAPIXEL CAMERA THEN SET THE DEFAULT RESOLUTION TO VGA? Because resizing everything was a PITA. Another unhappy customer experience. We (the industry) need to enable our customers, not frustrate them.