Tossers Lose: The Market for Used Smartphones Is Booming

Despite the catchy ads suggesting that everyone worth knowing has the latest iPhone or Android, research shows that very few people can actually afford them. Not only are the devices themselves expensive, but the people who use them tend to spend a lot via their telecom companies' plans employing all those wondrous features.

Apple, in particular, has been under pressure to introduce a less expensive version of the iPhone in order to grab market share and profits in parts of the world where usage, population is growing. But as the following article explains, an alternative approach may be emerging.

The value of the used mobile phone market in the US alone is estimated to reach $5 billion within two years. The used market benefits consumers, manufacturers and telecoms. It encourages individuals to trade up by offering incentives which take into account the replacement value of the old phone. At the same time, it makes newer, cooler technology available to those who might not otherwise be able to afford it. Tossing old phones, therefore, no longer makes sense.

The used car market has been cited as an example of the value that this may generate, though presumably without the invidious comparisons to sleazy sales people and dishonest come-ons. The fact is, however, that new phones, like new cars, begin to depreciate the moment they are sold, so capturing some value makes economic and societal sense. JL

Thomas Gryta reports in the Wall Street Journal:

Carriers were long happy to let customers drop their old phones in desk drawers or pass them down to their kids. But the market for previously owned iPhones and Androids is booming, producing high and predictable resale values that carriers are starting to exploit.

Big Bucks for Your Old Phone

That shift underlies a spate of recently announced plans from T-Mobile US Inc., ATT Inc. and Verizon Wireless that offer users more frequent upgrades. Instead of insisting subscribers pay off their phones in full before becoming eligible for newer models, carriers are now confident they can milk enough value from trade-ins to let upgrades happen more frequently.

"Many of the phones could have a $200 or $250 value," AT&T Chief Financial Officer John Stephens said on a call with analysts last week. "That's what makes this project work."

What this might mean for consumers and device makers isn't yet clear. The new trade-in plans from AT&T and Verizon Wireless have been panned by some smartphone market observers as too costly. And the strong demand for used phones is a sign that many consumers are finding older devices are good enough as the pace of innovation from device makers like Apple Inc. and Samsung Electronics Co. slows.

Still, the emergence of new efforts to capture the value of used phones ultimately could leave the smartphone market more like the auto business, where trade-ins fuel sales of newer models.

For years, the main market for used American smartphones has been overseas. While some are sold on eBay or to wholesalers, resellers like Brightstar Corp. packed the majority of them into boxes and shipped them overseas, generally to locations in Asia, Africa or Latin America.

In Hong Kong, Brightstar has its own auction warehouse where hundreds of people gather to bid on bunches of used phones every day, said Brightstar Chief Executive Marcelo Claure. The company has tried to convert to an electronic format, but buyers like to inspect the phones before putting a bid in an envelope. Tens of thousands of used phones are sold at the facility every day, he said.

Do This First

Your phone isn't just a phone, it's a detailed record of your life. So whether you are trading in to help pay for an upgrade or looking to ditch that dinosaur in your sock drawer, take these three steps first.

"Most of the world cannot afford a new iPhone or a new Galaxy," said Mr. Claure, whose company expects to process more than 25 million used phones this year. "But once the phone is one day old, it becomes cheaper."

U.S. carriers have left the business of trading in their customers' phones to resellers like Brightstar and Gazelle Inc., which estimates the U.S. used phone market could be worth $5 billion a year by 2015.

The market is fast growing but is still small compared with the annual market for new phones U.S., which Strategy Analytics puts at $57 billion.

Many consumers simply aren't aware of the value of their device, said Israel Ganot, Gazelle's chief executive. That in part is because carriers have masked the price of smartphones by selling them at subsidized prices to subscribers who sign long-term contracts.

A base model of the iPhone 4, launched more than three years ago at $200 with a contract, can now be sold to Gazelle for $130. Many U.S. carriers now offer the same phone free with a contract.

Michael Graham, of Lee's Summit, Mo., said he exchanged four smartphones to AT&T last year when his family switched from Sprint. He has previously sold his used phones on eBay, learning about the cost of secondhand devices after his 12-year-old daughter dropped her flip phone in the sink a few years back.

"I always keep in mind when I buy a phone, that I'm probably going to be reselling that phone down the line," said Mr. Graham, who works for a local food company.

Carriers have stayed out of the market, because they generally have little incentive to encourage upgrades to new smartphones. Every time a customer trades up, the carrier has to pay another profit-sapping subsidy.

Both AT&T and Verizon recently extended the waiting period before subscribers become eligible for new phones, and carriers have been imposing fees for trading up.

They shifted gears this month with plans that replace subsidies with monthly payments to cover the cost of new phones. The plans let users trade up after six or 12 months depending on certain conditions.

AT&T said it would refurbish the trade-ins and either resell them to customers as discounted devices or use them as replacement devices through insurance programs. Verizon and T-Mobile declined to provide details.

Sprint Corp., the other national carrier, wouldn't say whether it is planning a similar upgrade plan, but does already offer a trade-in program used in four out of every 10 transactions in Sprint stores, spokeswoman Marci VerBrugge-Rhind said.

AT&T and Verizon had similar programs before they launched their new upgrade plans. They may get more use as subscribers get more familiar with the value of their aging phones.

"It is going to be part of regular behavior, having consumers upgrade by trading in their old device," Gazelle's Mr. Ganot said.