I can not agree with you in 100% regarding some thoughts, but you got good point of view…

Once consumers begin to understand these abstractions and incorporate this into their thinking (or a tool that does this for them becomes popular) the ringtone market will be an odd footnote in the history of digital music.

The ringtone market exists because cell-phone makers and service providers find these abstractions profitable, but devices (such as the iPhone) with good interfaces will make these abstractions more transparent and consumers will revolt.

I agree with many of your points as to abstraction but as others have commented you may be committing a logical fallacy. There are many factors that cause the price of ringtones to be so high.

1. Quantity
People buy fewer ringtones than singles. Their yearly expenditure is much less than it is on CD and MP3/AAC tracks.

2. Closed Market
Since the carriers tightly control the network and devices there is little competition.

3. More Agents
In iTunes there are two primary agents. The label and Apple. It’s a two way split. In the ringtone economy there are three or more. The content provider (Jamster), the carrier, and the label. Imagine if Apple had to pay Comcast every time I downloaded a track.

4. Other Options
Apple has to compete against all the major CD retailers and the smaller (in market share) MP3 retailers. As well as the ‘free’ option of P2P networks. Most users don’t want to spend the time to rip their CD/MP3 to a ringtone for the savings.

5. Social Status
The ringtone is more closely related to social status than the music on your iPhone. It’s a way of outwardly sharing your social context.

And of course there are other reasons for the arbitrage profits being made in ringtones. It’s one more example of why you can never achieve a perfect free market.

Stay After Class …

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