Apple know how many this affects and will be prepared for it. They know how many are in the serial number range in each Country and how many are still in use. itunes probably sends details when you connect a device. This program has a 6 week turnaround, as soon as they arrive they will start refurbing them with fronts,backs and batteries and then start sending them back out 6 weeks later, this isn't a big problem for them, they have done this twice already for the nano's. This will probably take a team of technicians around 10 minutes per device to test and replace the parts.
This is why you won't get you original one back, because everyone will have a new front and back and battery. 6 weeks is plenty of time to build up a refurb stock.
Apple won't be paying for this, the battery manufacturer will be because they caused the issue in the first place. Apple can't risk not recalling them and them catching fire.
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Received my email back in the UK, no scaremongering about charges in my email... Don't believe these spammers people.
Dear xxxxx,
We have received your request for a replacement IPOD NANO. Your Repair ID is xxxxxxxx.
Serial Number: xxxxxxxxxx
Problem Description: iPod Hardware - iPod nano (1st gen.) Replacement Program
Our initial diagnosis indicates that because your product replacement will likely be covered by the warranty, an AppleCare Protection Plan, or another Apple repair program, there should be no charge to you. If we have questions or concerns regarding the repair coverage, we will notify you.
Within two business days, you should receive the return instructions for the original and shipping materials for you to use. Please don't use any other package, because if the original is damaged in shipping as a result of improper packaging, it will not be eligible for service and will be returned to you unrepaired. Do not include any other items, such as the power cord, as they will not be returned to you. The ship time to Apple will be approximately two business days. Apple will send you an email when your product reaches the repair center.
Shipping address:
xxxxxxxxxx
xxxxxxxxxxx
xxxxxxxx
To avoid cancellation of this replacement request, you must return the original to Apple within ten (10) business days. If you no longer require service, simply dispose of the package Apple sends you.
Your repair status is available online.
If service is covered under the warranty, an AppleCare Protection Plan, or an Apple repair or exchange program; the terms of the warranty, the AppleCare Protection Plan, or the Apple repair or exchange program will apply. Otherwise, the Apple Repair Terms and Conditions apply.
Apple
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On behalf of Apple Operations Europe