Bottom line The smartphone is the primary consumer electronics device by revenues and units: over $400 billion in sales and 1.6 billion units expected to sell in 2016. Its second-hand market is a significant market in its own right and likely to grow over the coming years. The biggest potential implications are for handset vendors, who are likely to become more and more aware of the residual value of their devices. The forecast future value of their products is also likely to become an increasingly important factor in the purchase decision. This may affect not just consumer sales, but also those made by enterprises, for which total cost of ownership should factor in the expected resale value once smartphones are returned. A possible consequence of a more organized second-hand market is the potential for cannibalization: some consumers may elect to buy second-hand, rather than new, as is the case with the car market. However, some of those that purchase a second-hand device may then decide to purchase new next time round, and they may also purchase new accessories and apps for their used smartphones. Furthermore, familiarity with a used device may act as a brand ‘gateway’ and encourage the purchase of other devices from the same vendor. Carriers in developed markets could increase their offer of refurbished premium smartphones. Customers on tight budgets with a refurbished premium device may generate more network traffic, or opt for a large monthly data bundle, than those with a brand new mid-range or budget device. Carriers could offer superior trade-in rates and simple trade-in procedures to lure users from other networks, or to encourage contract extensions. They should consider how best to flex contract length, or offer shorter terms. Any entity (for example a carrier or an enterprise providing handsets to employees) providing leased handsets should evaluate the tax implications. In some markets, the depreciation in the value of the asset may be tax deductible while in some markets the provision a handset may be treated as a form of income and taxed accordingly. Carriers in developing markets should also analyze closely the merits of offering a wider range of refurbished, second-hand premium handsets. Consumers across the world aspire to premium brands, and many may well prefer a used aspirational brand, ahead of a new device from a second-tier brand. The ideal $100 handset does not necessarily need to be a new one. Insurance companies should consider what opportunities this trend may present for them. One of the risks of leasing devices is uncertainty over the condition of the handsets when returned. Vendors or carriers offering leased devices may oblige consumers to take out insurance so as to mitigate risk. Insurance companies should evaluate the robustness of each smartphone model, and also how well each device may be treated. The growth of a second market could lead to consumer confusion. Some smartphones are locked to specific networks. Customers unaware of this may end up purchasing a device that they cannot use on their current network. Furthermore, there are multiple variants of each device, which may not be obvious to consumers. Each 4G model, for example, supports different frequencies of 4G, with the earliest 4G phones supporting relatively few frequencies. So someone purchasing a 4G phone may find 338 that this phone is not compatible with the 4G frequencies owned by their current operator , especially for phones that are being 339 resold in different countries or regions . Consumers selling smartphones should ensure that data stored on their devices is erased before selling on. While professional buyers of phones delete data as part of the service, private buyers would not do so. In one small US study, five of 13 used phones 340 still had customer information on them . The trend to resell old hand-me-down phones may be better for the environment: 140 million mobile devices were thrown away, 341 ending up in landfills in the US in 2012 alone . By 2016, and globally, the number would likely be over 250 million, with some portion of those previously discarded phones now being resold. One category that may lose from this market is children, seniors and charities, who have become accustomed to receiving hand-me-down phones for free. If trading in becomes lucrative, the flow of gifted devices may become interrupted. CIOs can now dispose of old smartphones more effectively, or offer refurbished devices to more junior employees. Companies purchasing smartphones for their staff should evaluate how long they should own their phones to optimize the total cost of ownership. It could be that replacing (and trading in phones) after two years is more financially attractive than keeping them for three, for example. 52