E-Recycler Hopes to Cash in on Global Shift to Smartphones

ERecyclingCorps’ recent $35 million cash infusion from Kleiner Perkins Caufield & Byers will help fund an international expansion of the company’s efforts to profit from the growing number of mobile handsets proliferating worldwide each year, CEO David Edmondson told us. Citing EPA data, Edmondson, the former RadioShack CEO, said more than 130 million mobile devices are retired each year in the U.S. alone, but only 10 percent are recycled.

That number is exploding each year as the amount of time people hold on to a phone before upgrading shrinks and the number of wireless devices continues to soar, Edmondson said. “People retire devices long before they're operationally obsolete,” he said, saying there’s no straightforward way to deal with old phones other than to “throw them in a bucket” at a carrier store that donates the phones to charity. “Most people don’t do that,” he said.

ERecyclingCorps’ model gives consumers a financial incentive to turn in their old phones when they upgrade to a new model. The average device has an average resale value of $35, which is paid by the reseller, Edmondson said. In turn, resellers benefit from the store credit that consumers earn with their trade-ins. Edmondson maintains it’s a win-win because “people tend to spend the entire amount, or a little more, on accessorizing their device,” he said. “Very seldom” do they not spend the trade-in credit they received, allocating the credit to add-ons or “to get a better phone,” he said. The pitch to carrier stores is that when customers accessorize their phones, “they tend to stay with the carrier longer,” which is good for overall revenue and churn, he said.

ERecyclingCorps finances the installation and integration of the transaction system, collection, shipping and recycling, Edmondson said. Under the program, every customer is asked at checkout whether they'd like to trade in a wireless phone. Employees go to the point-of-sale system, enter the make and model of the phone and ask customers several questions about working condition and broken parts. If the device passes, the software issues a value. The phone is sent in boxes of 10 or 30 to a central processing facility in Bloomington, Ind., where the devices are sorted by make, model or condition, Edmondson said.

Working phones are sold as is, and in some cases back to the carrier from which they were collected, who can use the phones for warranties, exchanges or insurance claims, Edmondson said. Those that don’t go to carriers are refurbished by eRecyclingCorps, which sells them to mobile virtual network operators who sell them back into the dealer channel. Others are sold outside the U.S. directly to carriers in developing countries where many consumers wouldn’t have access to technology so early because of the high cost of phones. “We extend the life of that device and keep it in useful service two or three times to reduce the rate at which the devices end up in landfills,” Edmondson said. Selling out of the country has tremendous profit potential in countries where usage is cheap because carriers don’t subsidize the cost of the phone, he noted. A typical smartphone in India retails for $600-$700 new, Edmondson said, leaving lots of room for profit beneath that level for cutting-edge devices some of which are less than a year old.

Phones that have no resale value are separated into three groups: those that are obsolete, which are sent to an ISO 14001-certified facility for recycling, those that are sent to a company that will do refurbishing or those that eRecyclingCorps will refurbish and send to someone else for resale, Edmondson said.

ERecyclingCorps’ differentiator is its focus as a carrier-grade solution that service providers can “implement easily.” The system has the controls in place to make the process quick, comprehensive (1,500 models are in inventory) and can be translated to multiple languages, Edmondson said. Edmondson cited benefits of his retail experience in helping to “connect the store process for the average retail rep to the metrics that drive the wireless business,” he said. The company has people who can “connect the dots and do the training,” he said. By incorporating a trade-in value into the traditional wireless sales model, eRecyclingCorps is “recapturing the residual value of the device for the consumer,” he said.

Working in reverse to the traditional cell phone sales model, “We try to buy a device and sell it for a higher price,” Edmondson said, saying the formula incorporates factors including market price at various points in the world, what it will cost to get the phone into the right condition, overhead costs, and acceptable profit margin. In addition, the company gets service revenue from the carrier if it wants a right of first refusal to get certain phones, he said. When a carrier introduces a new phone, it will have warranty and insurance claims on the device, Edmondson said. “They either have to provide the customer with a brand new device if they drop it in the pool, say, or they have to provide the customer with a like-for-like professionally renewed phone,” he said. If carriers can buy the used phone and refurbish it, when they get an insurance claim, it can be satisfied with a remanufactured phone rather than a new one, “which saves them a lot of money,” he said. So they're willing to buy the device and pay us a fee “because we did all this work for free with the expectation that we'd be able to sell the device to someone else."

Although eRecyclingCorps only works with carrier stores now, going forward -- and as part of its expansion into Europe -- the company will partner with more wireless retailers as well, Edmondson said. In the U.S. 60 percent of phones are sold at carrier stores, and the other 40 percent at retail. In Europe the ratio is more even, he said. Many consumers go to a carrier to buy a SIM card in Europe and then go to a retailer to buy the device, he said. Online retailing isn’t on the roadmap, he said, because “it’s a very inefficient model.” Collecting a phone one at a time and shipping one at a time is a more expensive model, he said. In addition, customers evaluating a phone’s condition on their own have a higher expectation of the value of a trade-in, he said. If the professional reviewing the phone has a different take, customers aren’t left with a positive experience, he said.

As eRecyclingCorps moves more into retail, it will encounter more competition with stores like Best Buy that offer trade-in programs for electronics. Edmondson said it may try to sell its service to those retailers offering a cost-savings advantage. “The more devices you have to sell, the better able you are to sell those devices directly to carriers who will use them for a recurring revenue stream from a contract,” he said. As the company expands worldwide, “our goal is to aggregate the greatest amount of volume to be able to sell those devices as close to the person who’s going to use them,” which will generate as much recurring revenue as possible, he said.

One area of the cell phone ecosystem that’s likely to take a hit from an incentivized recycling model is the charity market. Carriers have traditionally recycled old phones and turned over resulting profits to charity. Verizon, for one, has collected 8 million wireless devices since 2001, and 106,000 of those have been donated to victims of domestic abuse, a Verizon Wireless spokeswoman told us. Phones that couldn’t be refurbished were broken down and their parts re-sold. With proceeds from those recycled materials, Verizon Wireless has donated $10 million in grants to victims of domestic violence in that 10-year period, she said.

There could be enough to go around, if Edmondson’s forecasts come to pass. The number of recyclable cell phones is growing exponentially, he said, as more regions of the world get wireless coverage and as the average age of users decreases. Every 3 months, the age of users goes down 1 year in age,” he said. “If it’s 12-year-olds today that have 90 percent penetration among subscribers, 3 months from now it will be 11,” he said. The biggest growth driver for eRecyclingCorps will be the conversion from feature phones to smartphones, he said. According to current data, the average user keeps a feature phone for 18 months, while the average smartphone user keeps a device for between 10 and 11.5 months,” he said. Of U.S. wireless subscribers, 44 percent own smartphones, he said. “If people continue to keep their phones for less time, that will drive that number up considerably in the future,” he said. ERecyclingCorps has recycled more than 2.5 million phones since February 2010, he said.