Investigating iPhone 16 Trade-In Offers

Last week, Apple unveiled the iPhone 16 series, the first to launch with Apple Intelligence features. In a move that many in the industry will mark as a milestone in the era of the AI smartphone, these AI capabilities are available in all four smartphone models — customers can read our analysis of the launch here.

Perhaps the question I’ve been asked the most since the event is: will new features like Apple Intelligence be enough to get people to upgrade their phones? This is hugely significant for the entire technology industry. Replacement cycles are lengthening as people hold onto their devices for longer, meaning that each time a consumer looks to buy a new smartphone, it could be another four or five years before the device returns to the market (see Pulse: Connected Consumer).

As a result, competition is intense, reflected in the current battle to entice consumers to upgrade to the iPhone 16. Interestingly, Apple has kept the base price of the new iPhone series flat for the fourth year in a row. Given inflation, this essentially means the iPhone is at least $100 cheaper in real terms compared with 2022, reflecting the softening demand for replacements of flagship smartphones.

Here in the US, a critical arena is the telecom operator landscape. All the major carriers — AT&T, T-Mobile and Verizon — are battling to attract customers to purchase the iPhone 16 on their network. The nature of this competition is reflected in the trade-in offers that all three carriers are running in advance of the iPhone 16 launch tomorrow.

The question of trade-in has become ever more pressing in recent years as more and more of the market is tuned into the residual values that older devices hold in the second-hand market, as well as the environmental importance. It’s something that has become a staple of Apple’s own keynotes — it reminds consumers about the high residual value of an iPhone, positioning this as an investment rather than a purchase. At a time when the major carriers are vying for custom, this is a place where consumers’ existing devices hold the most value.

At this point, AT&T, T-Mobile and Verizon are essentially offering the iPhone 16 Pro for free (or, in their words, “on us”) thanks to huge incentives to trade in an old device — and commit to a high-value contract. All three carriers offer $1,000 in credit in trade-in for an iPhone 12 or newer as long as it’s in working condition. This is a staggering offer given that in our most recent quarterly tracker, we estimate the sell-out value of the iPhone 12 in the organized secondary market at $281.

So, why inflate the value so much? The first major reason is that, in a saturated market, all three of the carriers want to lock people into their premium-tier contracts to provide value in the longer term. It’s also worth noting that the $1,000 credit comes as a discount on the monthly bill — it’s not as though customers see the cash upfront.

AT&T’s deal is conditional on consumers signing up for a 36-month contract with an unlimited voice and data plan, starting at $76 per month. T-Mobile takes a similar approach, with people able to opt for $1,000 credit when trading in against a two-year plan on the Go5G Next tariff ($110 per month), or a lower amount of credit if selecting a lower-cost contract. Meanwhile, Verizon is aiming to tempt customers onto its Unlimited Ultimate plan at $110 per month for three years in exchange for the same $1,000 in credit.

The second reason for this approach returns to the market dynamics I referenced earlier: slowing replacement cycles means it’s even harder for carriers to catch new customers who are approaching the end-of-life on an existing device and need an upgrade. As such, tempting offers — such as a “free” iPhone 16 Pro — could be the move to pull people in. Furthermore, these trade-in offers are crucial to Apple given the size of the US market for iPhone sales. We have little doubt that Apple is heavily incentivizing carriers to make such attractive offers.

Another force at play is that consumers are increasingly aware that carriers aren’t the only companies where they can trade in their devices. They can also sell directly to Apple, deal with an established technology trade-in website or take matters into their own hands and sell through the “unorganized” peer-to-peer market. For customers willing to shop around, there might be even better deals through trade-in programmes elsewhere and a SIM-only contract.

At CCS Insight, we’ll be watching this closely for several reasons. We’re keen to see how well the iPhone 16 range performs for any indication that customers are truly excited to get their hands on AI-capable devices.

Another factor is the knock-on effect on the second-hand device market. We recently published our quarterly tracking data for 2Q24, looking at the trade-in and sell-out of second-hand smartphones, smartwatches and tablets — as detailed in our press release here. The most significant consequence of a wave of US iPhone trade-ins would be the supply this would generate for the organized secondary market, where acquiring enough volumes of devices like the iPhone 12 and newer remains a huge challenge. This could be a huge boon for the market in regions like Europe, which is heavily dependent on imported second-hand devices, as my colleague Simon Bryant explains here.

Demand for the iPhone 16 series has huge implications for both the primary and secondary smartphone markets. There’s undoubtedly intense competition between carriers, retailers and Apple itself as players seek to generate profit from the demand for the latest devices. And the downstream effects on the second-hand market, although unpredictable, are also hugely important. It’s an area we’ll be watching closely as it unfolds.