This reminds me of the mobile phone contract market a few years ago. I was with Orange and after a couple of years I needed a new phone so I asked them for a free one like new customers would get. They refused, I moved to Vodaphone with my number and got a new phone on a 12 month contract. 12 months later I moved back to Orange with another new phone, same number.
I moved to 3 12 months after that with a new phone, but now at the end of every contract period, they call me and ask me to stay for another 12 months and offer me a free (good) phone, or I pay a bit towards an even better phone.
Long and short, I would say the ISP industry will go the same way, sort of. The margins are not there for ISP's, there isnt subsidised hardware (yet), but it can't be long before people wise up and realise they can register a domain for £2 a year with email facilities, and move ISP's every 12 to 18 months and take advantage of the offers at the time (new routers and cashback for example).
A lot of people dont want the hassle of moving over, or may not be technically savvy enough to do so, but it was the same with mobiles a few years ago. In a few years time when the more technical youngsters start getting their own broadband, they WILL be knowledable and want better deals.
It may be easier to get new customers with the promise of cash back and new hardware, but after a while the toll of losing customers because you didnt try to keep them must start hitting the profits. If you pay out £60 (router + cash back) over 12 months, that's £5 a month which may well be enough to erode most, if not all of the profit.
Anyway, just my take on it
FINALLY managed to get ADSL on 4th November 2003!!!!!!! HURRAR!!!!!!!!