The three men and others in this business buy phones at wal-mart, dollar general, family dollar, target, k-mart, alco, sams club, costco etc etc ad nauseum. The average retail price for an entry level handset ie the nokia 1100,2126 from tracfone is $20. There are other phones at other retail prices, but lets concentrate on the aforementioned.

The Nokia 1100 is sold by Nokia to Tracfone for about $60.00 Exact price undeterminable because neither party releases that info. The Nokia 2126 being a Dual-Band phone is closer to $100.
Tracfone writes down its inventory to 16.50 the cost charged to the retailer. The retailer applies its mark-up to get the $20 price or in the case of Sam's club,Costco 18.88.

The Nokia 1100 is on a frequency that IS compatiable in other parts of the world, as is the 2126. An obvious oversight in peoples knowledge, why would tracfone sell a product(the 2126) that costs 66% more, in some areas? Because the coverage area demands it. They cannot provide service in some geographies without additional roaming agreements on other freq's. So wholesalers know this of course and the wholesale market reflects a significant difference in the price offered for each phone.

The current price offered 1100-$28.50 2126-38.00
So if you were wanting to make to make some money which one would you buy? If everytime you walked into a wal-mart and bought 3 nokia 2126's, you made lets say $30.00 profit(because almost everbody in the business uses someone elses money. so less overall profit) how far, how many stores would you visit? Answer for most in the business, LOTS. Even the Nokia 1100 gets lots of play, it is now a discontinued phone. tracfone d/c'd it because it was so easy to unlock. So what do they do? Introduce a phone even easier to unlock, the motorolla c-139. Before that it was virgin moble, before that verizon Nokia 5165's. This business has been going on for years and likely will continue.

Why do you care? For most, you don't. For a few the idea that you can buy a product and not truly OWN it, are very disturbing. Lets say you spend $500 on your new Treo, you move or have other reason to desire to change carriers. And you can't use the phone you paid for! Because the carrier has locked it. Many are asserting that the locking of the phones in the first place is ILLEGAL and against the Truman Act, an illegal tie-in. Tracfone has every right to sell phones below cost, don't you have the right to do as YOU wish with your property?

p.s. My understanding of the theory behind the large number of phones is they could be used for bombs (two per bomb, one attached to the part that goes boom and one to make a single use call and then discard so as not to provide a thread to catch the bomber before the next attack) and they phones can be used for semi-secure communication by using one phone call per phone. The chances of intercept go down if you limit each phone use to one call. So if you take the London airplane bombers with 20 to 50 “people of interest”, how many phones do you need if you are going to limit the communication to one call per phone?

Depends on the number of IEDs you are making. If you make N IEDs then you need at least N+1 phones. If you want some redundancy in terms of people being able to set them off the upper limit probably N + M where M is the number of conspirators. So, if you have 50 bombs, and 50 conspirators you need at most 100 phones not 1,000 or 600, etc. You might have as few as 51 phones.

So the number of phones is less inconsistent with the use in IEDs (unless you plan on making a very large number of IEDs) and more consistent with re-selling.

While this isn't iron-clad evidence against this being terrorism related, it should be counted as evidence against terrorism when the number of phones gets high. The only other thing is that it is a money making scheme for terrorists. While possible, I think the burden of proof should be on those making the accusations.

I am not questioning the case of being able to sell the phone for more than $45. I took that as assumed. I’m not questioning that he would rather hire three guys in a van than go romping across the country buying phones in one to three phone lots. What I am questioning is why he would buy the phone from three guys in the van for $45 is he could buy it from a whole saler at potentially below $40.

Because he might be doing something illegal such as hacking the phone to seperate it from its carrier. In that case the wholesaler wouldn't sell to him.

I am not questioning the case of being able to sell the phone for more than $45. I took that as assumed. I'm not questioning that he would rather hire three guys in a van than go romping across the country buying phones in one to three phone lots. What I am questioning is why he would buy the phone from three guys in the van for $45 is he could buy it from a whole saler at potentially below $40.

Walmart uses its buying power to get good deals. But they do include a mark up. The guy selling the phones to walmart is undoubtedly selling them for less than $40. For the sake of argument, lets say that walmart has a just under 10% mark up, so they are buying the phones at $36.50. If mystery man from Dallas comes to the wholesaler and says I want to buy 1000 of these phones, the wholesaler may not give him the $36.50 price he gives to walmart, but he might gladly take the business at $39. And if the wholesaler is making a profit at $36.50 (which is why we assume he is in the business), then even if the price went up to $44.99 (a hefty 23% mark up for the wholesaler over what is presumably his bottom price), the mystery man in Dallas would be better off going directly to the wholesaler. I'm not suggesting that the mystery man should go wandering across middle America buying phones in ones and twos, but that he would find it economically beneficial to cut out the two middle men (the guys in the van and walmart) and deal directly with the wholesaler. Its a pretty flimsy argument that says dealing with the wholesaler is that much larger of an opportunity cost than dealing with the guys in the van. Maybe it is, but that isn't obvious to me on its face.

Maybe there is a reason why he can't deal directly with the wholesaler. But it sure seems worth a question to the mystery man before wrapping all of this up.

There is also the notion presented that the phones would be purchased by themselves without the chargers. So after they hack the phone and resell it for something greater than $45, wouldn't the person buying it want to be able to recharge the phone?

There may be a perfectly good explanation on all of this, but it all does seem fishy to me.

p.s. My understanding of the theory behind the large number of phones is they could be used for bombs (two per bomb, one attached to the part that goes boom and one to make a single use call and then discard so as not to provide a thread to catch the bomber before the next attack) and they phones can be used for semi-secure communication by using one phone call per phone. The chances of intercept go down if you limit each phone use to one call. So if you take the London airplane bombers with 20 to 50 "people of interest", how many phones do you need if you are going to limit the communication to one call per phone?

But then back the deal up a bit. The guy they are selling to is paying a $5 premium for the phones to make a profit for the guys buying retail. So why doesn’t he go directly to the wholesaler, rather than the teams driving around several hundred miles away on $3 gas.

It just doesn’t seem to add up to me.

Because you haven't taken a course in basic economics. The idea you are missing here is opportunity cost. Doing any activity has a cost of not doing the next best opportunity. Paying $5/phone premium may make sense if he is doing something that he sees as having a value of $5.01/phone or more.

But then back the deal up a bit. The guy they are selling to is paying a $5 premium for the phones to make a profit for the guys buying retail. So why doesn't he go directly to the wholesaler, rather than the teams driving around several hundred miles away on $3 gas.

It just doesn't seem to add up to me.

I've looked at some blogs and links but have yet to see a detailed analysis of the economics of this entrepreneurial opportunity.

These men had 1,000 cell phones. Using the numbers in the news that's a $40K investment in inventory. Supposedly they re-sell them to unidentified "wholesalers" for $45 each. A gross profit of $5K. But they have expenses. 3 guys driving across the Midwest need fuel, food and maybe some place to occasionally sleep. I wonder what their net profit is. And are they paying taxes on their income? (Per the wife in Mesquite, TX this is how her husband makes his living.)

What about the "wholesaler" what's his business model? He's paying $45 per phone. Is he retailing them or re-selling them to another "wholesaler"? How much is he getting for each phone? Is he paying taxes?

Law enforcement has the tools to investigate and get answers to these questions. But the reporters don't seem to be asking the right questions of the cops.

It could very well be that the arrested men are perfectly legit and that somewhere up the "value" chain these phones become part of a criminal or terrorist enterprise.

Buying hundreds of cartons of cigarettes in North Carolina is also perfectly legal. Selling them in NY without paying state excise taxes and then funneling the money to terrorists is not.

I just don't want someone telling me that you can buys eggs for $.05 in Sicily and sell them to the mess hall in Foggia for $.03 and still make a profit.

Because I DON'T have a share.

Three Texas men were arraigned Saturday on terrorism-related charges after police found about 1,000 ...