Used Cell Phone, Anyone?

Apple is just the latest in a growing number of companies warming to the idea of selling refurbished mobile phones in the U.S.

by Olga Kharif

Haven't yet purchased a $599 iPhone? You're in luck. You can now buy the gadget directly from Apple for $100 less—that is, if you don't mind getting used goods.

Apple (AAPL) on Aug. 19 began selling refurbished versions of the music-playing mobile phone, which originally hit store shelves June 29. The consumer electronics maker joins a small but growing number of mobile-phone suppliers that are certifying, providing warranty support for, and selling used handsets in the U.S.

Growing Business

While Apple already sells refurbished Macintosh computers and iPod music players in the U.S., cell-phone makers and wireless carriers in general have been reluctant to offer used goods in this country. Until recently, used phone collectors have mainly shipped those goods to refurbishers overseas.

It's difficult to say exactly how many refurbished phones are sold in the U.S., but even a number in the low millions would be small, compared with the 143 million mobile phones sold last year in the U.S. Still, the numbers are rising fast. CollectiveGood, which collects and forwards some 150,000 phones to refurbishers each year, reports that two-thirds of the devices return to the U.S., while the rest go to less developed countries. A year ago, the opposite was true. "That's a very major shift," says Seth Heine, chief executive of CollectiveGood, which also operates RIPMobile.com. To meet rising demand, the company has launched a new site, GreenPhone.com, offering as much as $300 in cash for high-end models for the U.S. market.

Cell-phone refurbisher Cellucom Group, based in Hilliard, Ohio, says its monthly production doubled in the past year, to 100,000 phones a month. The company, which sells its wares in the U.S., employs 140 technicians in Ohio, but plans to more than double its staff there to 300 people by 2010, says Charlie Taylor, director of carrier relations at Cellucom. It's also about to open another plant, where used phones are repaired and tested, in North Dakota.

Price Point

The companies are responding to growing demand from U.S. carriers big and small. The country's largest wireless service provider, AT&T (T), prominently features a refurbished phones section on its Web site, and sells 71 models, including Research In Motion's (RIMM) popular BlackBerry Pearl and the Samsung BlackJack music phone, that have been revamped. The company won't say how many refurbished phones it sells.

Virgin Mobile USA and more than a dozen other carriers that resell wireless services from AT&T, Verizon Wireless, and Sprint Nextel (S) currently offer refurbished handsets to customers. Smaller rural wireless service providers are jumping on the used phones bandwagon. And insurance companies increasingly buy refurbished phones to offer to consumers who lose or damage insured handsets.

What's driving the demand? It's due in part to an increase in the prices for new phones. In the past several years, mobile phones' capabilities have expanded to include cameras, music players, and e-mail access. At the same time, their average selling prices jumped to $72 recently, according to Ross Rubin, an analyst at consultancy NPD Group. A few years ago, that price hovered around $50. Refurbished phones offer a way for carriers to placate users who can't afford pricier models.

Legislative Boost

Refurbished phones also present a way for carriers to get more consumers signed up for expensive data plans. They may offer consumers high-end devices at prices that are 10% to 50% lower than those for new models; but these models, such as the BlackBerrys and the iPhone, still require the same expensive service plans to function. (AT&T says it doesn't plan to sell refurbished iPhones.)