Verizon's handset trade-in program: How does it change the AT&T iPhone equation?

Verizon Wireless' move to launch a trade-in program for handsets could encourage AT&T customers to jump ship and may just change the buying calculus for smartphone buyers.

Verizon Wireless' move to launch a trade-in program for handsets could encourage AT&T customers to jump ship and may just change the buying calculus for smartphone buyers.

One of the more overlooked items during Verizon's earnings conference call and investor meeting was the carrier's soon-to-be-announced trade-in program. Verizon CFO Fran Shammo said:

You will hear more about this in the coming days, but we are launching a trading program. We have entered into an agreement with a third party, where we will be taking trade-ins from anyone who wants to bring us a trade-in phone. They will be getting a credit from the third-party participant, and then we will welcome them into any device that they choose on the Verizon Wireless network.

I immediately thought of how this trade-in effort could alter the picture for folks looking to swap handsets more frequently. The smartphone buying process may become more like the auto market. The pace of smartphone innovation is moving way too quickly for two-year contracts. But U.S. customers love their carrier subsidies.

Barclays Capital analyst James Ratcliffe tried to handicap how the trade-in program changes the picture.

He writes:

Verizon's launch of a new handset trade-in program could help to mitigate some of the switching cost for current AT&T customers or (to a much lesser extent) the upgrade cost for existing Verizon smartphone customers. Currently, a customer who purchased an iPhone 4 at AT&T at the launch last July could get $212 for the phone, leaving a net switching cost (after buying the Verizon iPhone and paying the AT&T ETF) of $243. The trade-in is of less benefit to a customer with an 18-month-old iPhone 3GS, who would still face a $175 ETF, but only get $116 for his phone, leaving a net switching cost of $260.

Another thing to ponder is that the aftermarket for AT&T iPhones is better (and that makes switching to Verizon easier). AT&T iPhones run on GSM, a global standard, and can be sold overseas. Simply put, it's easier to unload a GSM phone---the iPhone has 2x the value of the Verizon Droid X on eBay. International demand props up prices.

Here's a look at Ratcliffe's handset trade-in math:

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