Weird pricing problem: Sell your old iPhones for as much as a new iPhone?

The NY Times had this interesting blog piece:

I was walking by the lengthy iPhone line outside the Apple Store in Soho on Sunday when I heard someone call out: “Turn in your old iPhone and get the new one free!”

I turned around and saw a bearded guy handing out fliers (photo above). They were from FreeiPhoneSwap.com and offered payments equal to the cost of a new 3G iPhone to people who turned in the old ones. Our conversation went something like this.

Me: “So what happens to the old phones?”

Him: “Well, we break them down for parts, strip out the LCD screens, they’re recycled in an environmentally friendly manner…”

Me: “You can’t make that money back by taking them apart. You must be unlocking them and sending them overseas.”

Him: “They’re recycled in an environmentally friendly manner…”

I was unsatisfied, so I did a little research and found that the story isn’t quite so simple. . . .

Well, it turns out that they can sell the old iPhones as unlocked so that they can be used on other networks. You can't do that with the new ones because you have to activate them in the store when you buy them.