Sort of true - if you are on a plan, and you are going to have to pay the same amount regardless of whether you get a free phone, then the phone effectively is "no extra charge."

I agree with you - people should differentiate between "free" (as in air, I don't have to pay anything and I can have as much as I want) versus "no extra charge" (as in, I have to pay a bunch of money for something, but then can get (usually 1) of something without paying any more.