Virgin Mobile have been doing this for at least 18 months - you select the phone you're trading it, they tell you how much you'll get, send you a bag and on receipt of the working phone they credit that amount to your mobile account.

http://www.virginmobile.com/vm/genericContent.do?contentId=trade.in.or.recycle.howdoi.sm105

O2 has been recycling phones for a long time now. Paying 20-40 pounds each for a phone that requires a flash and case change. These are then RESOLD and not put through the shredder.

The inq has become very lazy recently, so many stories referring to websites and providing no link.

In this case I thought maybe I would let you off as www.o2.co.uk isn't a hard one to guess, but they say jack about it on their front page, and to be honest I couldn't be bothered to dig further.