To get a credit, customers have to show that their trade-in iPhone works by powering it on. Customers also have to be in wireless carrier contracts when they leave the store, Apple employees said.
The thing that you have to understand is that the mobile or cellphone business is a mass, even a mess, of various subsidies from one group to another. Apple demands, and gets, a subsidy from the airtime providers. They agree to sell the handset to the consumer for less than they are paying Apple for it: they make this up from the monthly charges over the life of the contract.
However, a retailer also gets a subsidy or a commission from the airtime provider. Clearly they must: who would sell phones and airtime if they didn't make any money out of doing so? Quite how much the retailer makes is closely guarded: for it's most unlikely to be the same for all retail chains. But there will indeed be such payments. And what Apple is doing here is preferentially moving that commission payment on the upgrade of a new iPhone from other retailers to Apple itself.
For, note that second sentence in the quote again: in order to get the credit for the old phone applied to the new one the customer must sign a new airtime provision contract. This means that Apple is now earning, in its store, that commission on that new airtime contract.
Quite how much this is I'm not sure. It wouldn't surprise me at all to learn that it's 10% or so of the total contract price (slightly higher than some of the pre-pay airtime commissions available and I would definitely welcome a reader telling us all what the true number is). And do note that a 24 month contract does become a fairly respectable sum when the total value of the contract is totted up: a $100 a month plan (sure, top end, but so are iPhones) is a $2,400 sale in total airtime.
Apple will make some marginal airtime sales that it would not have made without this trade-in program as a result. For to cash in on that value of your old iPhone you must--must--be buying your new airtime contract through Apple. But there's another effect on the company's finances as well. Without knowing the true commission rate we cannot be sure but at first glance the program looks like a drain on Apple's cashflow (not that they've a problem in this area but still). They must reduce the price of their handset sale and then carry the risk of any price changes before that handset can be resold, either in the US or abroad. But now when we consider this commission from the sale of the new airtime contract it looks a little different. Certainly I would expect on an old phone being traded in to a top end new airtime contract the commission will be larger than the credit given for the old phone.
So the program could in fact be cashflow positive for Apple: which is really a very clever trick indeed.
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