Apple 2.0

Covering the business that Steve Jobs built

For most iPhone owners, trading up to the 5C is 'free'

September 14, 2013: 12:15 PM ET

That's because there's more than $99 of unlocked value in a used iPhone 4 or 4S.

Click to enlarge.

Click to enlarge.

FORTUNE -- Lost in Wall Street's garment rending (and short selling) over the surprisingly high wholesale price of the iPhone 5C -- $549, too high to sell in quantity in most developing markets -- is the fact that Apple (AAPL) had already telegraphed its plan to sell a different set of phones in India, Brazil, Indonesia, etc.

It's called the Apple Recycle Program, and as I understand the deal, it works like this:

  • You walk into an Apple store with your current iPhone.
  • A staffer checks it out and quotes a price.
  • If you are agreeable, the old phone gets wiped clean on the spot and you take home the new iPhone of your choice.
  • If the old phone is worth more than the subsidized price of the new phone (i.e. after you sign a new two-year contract) you get store credit for the balance.
  • Apple refurbishes the old phone, installs the most current version of IOS it can comfortably handle, and ships it off for resale in a country currently underserved by Apple's higher-priced models. In India, for example, nearly everybody buys their mobile phones pre-paid (i.e., without subsidies).
iPhone 5C. Photo: PED

iPhone 5C. Photo: PED

We don't yet know how many iPhones Apple will acquire this way or what it will charge for them. But we may get to watch the devices pour in on the supply side if, as expected, a million or more customers show up next week ready to trade in their old iPhones for one of this year's new models.

My wife may be one those customers, having pre-ordered an iPhone 5C to replace her off-contract iPhone 4.

Figuring that the three-year-old iPhone 4 and the two-year-old 4S represent the sweet spot of this year's trade-in market, I did some comparison shopping to build the chart above.

As you can see, my wife can get a better price elsewhere, but for convenience sake she'll probably take Apple's trade-in deal.

She'll get a 'free' iPhone 5C, nearly $36 in store credit, and a new two-year contract with AT&T (T) that will set us back a couple thousand dollars before we're done.

It would be fun to know on what shore the old iPhone washes up, but the Find My iPhone app doesn't work on a phone that's been wiped clean.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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