Offering a trade-in program could boost sales of the more profitable iPhone 5, as users due for an upgrade could potentially get the newest model without putting any money down. It would also facilitate early upgrades by providing a “mini-subsidy” to people who like to get the latest and greatest phone every year.
Apple would also benefit by making iPhones available at a lower price in developing countries. The company could conceivably earn a profit while selling a refurbished iPhone 4S abroad for $299 (or even a little less). That would still be significantly more than the price of budget Android phones, but it would be a lot more appealing to consumers than Apple’s current entry-level offerings, which can cost $500 or more unsubsidized.
Narrowing the gap between iPhone and Android-based competitors by a little bit could have a big impact on sales. Moreover, if these customers have a good experience with the iPhone, they will be likely to stay within the iOS ecosystem.
The real deal?
Apple hasn’t confirmed reports that it will introduce this trade-in program. Even if the reports are accurate, it’s possible that only some iPhone users will be able to benefit from it. The AT&T and T MOBILE US INC (NYSE:TMUS) networks use the global GSM cellular standard, so the iPhones designed for their networks should work in most foreign countries. By contrast, Verizon Communications Inc. (NYSE:VZ) and Sprint Nextel Corporation (NYSE:S) use CDMA technology that’s rare outside of the United States.
Since GSM is an open standard, it should be fairly straightforward to resell AT&T Inc. (NYSE:T) and T MOBILE US INC (NYSE:TMUS) iPhones in developing countries. By contrast, a Verizon Communications Inc. (NYSE:VZ) or Sprint Nextel Corporation (NYSE:S) iPhone generally wouldn’t work abroad. Replacing the modem would probably be prohibitively expensive, since a trade-in price of $199 would be very similar to the cost of building a new iPhone 4 or iPhone 4S. If Apple unveils a trade-in program that’s valid only for AT&T Inc. (NYSE:T) and T MOBILE US INC (NYSE:TMUS) iPhones, it could give those two carriers a leg up over Verizon and Sprint Nextel Corporation (NYSE:S) going forward. Customers would begin to reap tangible benefits from using carriers that adhere to a global standard.
We’ll probably learn for sure at its Worldwide Developer Conference next week whether Apple is planning an iPhone trade-in program. As a shareholder, I’m hoping that this report is true, as the trade-in program would provide a good way to increase Apple’s presence in emerging markets without suffering a big margin hit. It could also boost sales in the U.S. and other mature markets. What do you think? Tell me in the comment box below.
The article Will Apple’s iPhone Trade-In Program Work? originally appeared on Fool.com is written by Adam Levine-Weinberg.
Fool contributor Adam Levine-Weinberg owns shares of Apple. The Motley Fool recommends and owns shares of Apple.
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