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New iPhone 3G will boost used iPhone market

As owners dump first-gen iPhones, look for sub-$100 prices

June 11, 2008 12:00 PM ET

Computerworld - One of the side effects of the arrival of Apple Inc.'s iPhone 3G will be a flood of original iPhones on the used market, according to a company that specializes in refurbishing Apple's electronics. And that's going to push down prices of the older phones.

The move also spells an end to most of the "gray" market in unlocked, or hacked, iPhones, argued Aaron Vronko, service manager at Rapid Repair, a Kalamazoo, Mich.-based company that buys and repairs used iPods, iPhones and Zunes.

"There's going to be a large push on the used market," he said. "A lot of the early adopters for the original iPhone are going to be the same people who want to be the early adopters for the second generation." And many of those people will want to fund part of their iPhone 3G purchase by selling their now-unnecessary iPhones.

"Even if you only get $50, that brings down the price of a new phone to $150 or so," Vronko said.

The price for a fully-functional used iPhone will fall from last week's price of around $200 to the $75-to-$90 range, Vronko said. Apple CEO Steve Jobs unveiled the new iPhone 3G on Monday and announced it would go on sale in 22 countries, including the U.S., on July 11.

Some people must not have gotten the lower-price memo, however. As of Wednesday, sellers on eBay were still asking for hundreds of dollars for first-generation iPhones, with at least one "Buy It Now" price set at $999, a price that Vronko said was way out of line.

Apple itself may be a source for used iPhones, said Vronko, who noted that the company has a habit of selling off inventory of older versions of its hardware on its online store. "Apple has to get rid of its inventory as well," said Vronko, who acknowledged that it had stopped selling new iPhones several weeks ago. "They sort of quietly up the sales on their refurbished site after something, like an iPod, has been replaced with a newer model."

The discounts are often as high as 40% to 50% off the original price, he said. "You just have to know to hunt in the right spot," said Vronko.

The new iPhone will also put a crimp in the gray market of iPhone unlocking, exporting and reselling, said Vronko. Almost since its introduction, the iPhone has been unlocked using software hacks so that it could make calls on networks other than those Apple designated, such as that of AT&T Inc. in the U.S.

Demand for the device in countries where Apple has not yet started selling its iPhone -- along with the unlock hacks -- created a vibrant market for iPhones, which were often purchased in the U.S., then unlocked and exported to China, among other countries. Some estimates have pegged the percentage of unlocked iPhones as high as 25% of all units sold.

The business is going to end, Vronko said, because Apple, at least in the U.S., will require users to activate the new iPhone 3G in stores, rather than online via iTunes. That will let Apple and its carrier partners enforce the service contract requirement. Together with the greatly expanded list of markets that Apple has targeted for this year -- more than 70 all told -- that means the bottom will drop out of unlocking.

"It's certainly going to take a major chunk out of the gray market," said Vronko. "People that have been working the iPhone gray market will just have to come up with some other creative way to make money."

The gray market had already been slowing, said Vronko, who added that Rapid Repair has been in contact with several major players in that market. One reason: European countries such as Germany and France, once lucrative to unlocked phones, went legit.

China, however, may remain an active market for unauthorized iPhones. It was one of the most popular destinations for unlocked and used iPhones, and Apple has not yet announced whether it will sell its new model there.

Vronko said that Rapid Repair will soon launch a buy-back program in which it will set prices for working used iPhones. "We'll clean them up and sell them as refurbished," he said.

Current owners shouldn't have trouble unloading their older iPhones, he said, even as larger numbers hit the resale market. "People will find buyers not just because of the lower prices, but also because the iPhone has more offline uses than the typical cell phone," Vronko said. "And due to its brand and the ubiquity of the brand, the iPhone has the ability to create a strong secondary market."

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