Nope, Nobody Resells Tracfones for Money

The Cellular Telecommunications and Internet Association are just making this all up.

DALLAS — People who buy prepaid cell phones in bulk to resell for profit are raising terrorism suspicions for law enforcement officials and causing big problems for wireless providers.

“Very simply, what’s going on here is you can buy a prepaid phone in Wal-Mart or Kmart for X and sell it across the border for Y, and Y is more than X,” said Joe Farren, director of public affairs for CTIA-The Wireless Association.

Ahhh, the age old practice of arbitrage. As for the terrorism angle, well not so good,

However, the FBI said it had no information to indicate the men had any direct connection to known terrorist groups and the men themselves told a magistrate they were simply buying the phones to resell them for a profit.

One man’s wife told The Associated Press that the men went to Michigan because so many people in the Dallas area were making the same types of purchases that they had to travel long distances to find the phones in stock.

Such profiteering hurts cell phone companies, said Roger Entner, an analyst for Ovum, a technology, research and consulting firm.

He said that such prepaid phones cost the companies that make them around $80 to $100. They then sell the phones for less — $20 to $70 — in hopes that customers will continue to load more minutes onto the phone, making the company money.

“The reason they subsidize the handset is to make it easier for people to buy the phones,” said Entner, who added that such phones are oftentimes bought by people who don’t have a lot of money. “They want you to get the phone and then use it.”

But there are those who buy the phones in bulk, strip out the software and load them with software that will work in other countries, most likely Latin America because the systems are similar, he said.

[snip]

FBI spokesman Stephen Kodak said that the only issue with such enterprises is where the profits from the resale are going, whether profits are being used to generate money for terrorism.

“We haven’t seen any nexus at this time,” Kodak said.

A Dallas Police Department spokeswoman said that they have been alerted by clerks from time to time because of large prepaid cell purchases, but there is nothing illegal about that in itself.

And yes, non-Middle Easterners do this too,

The focus on people buying cell phones in bulk concerns 26-year-old New Yorker Michael Vargas, who said he buys and resells the phones.

Vargas, who contacted The Associated Press, said the widespread trade in TracFones is legal, adding that he had been questioned multiple times by police during his buying trips but always let go.

Basically, what we have is arbitrage going on and that isn’t illegal. Buying a Tracfone stripping out the software and installing new software making the phones able to function overseas or seperating them from their providers might be, but the simple act of buying and then reselling is not illegal. To be sure these phones have their uses for those engaged in illegal activities such as drug smuggling and smuggling illegal immigrants into the U.S. Also, there is the potential that a terrorist organization could use reselling as a means of generating money for their terrorist activities. So, as I’ve noted before, following up on these kinds of things is sensible. However, calling people who do this kind of thing terrorists right off the bat is premature.

FILED UNDER: National Security, Terrorism, , , , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

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  2. cirby says:

    …and, once again, you’re still missing what’s actually happening in the real world.

    Sure, the cell phone folks are miffed because someone takes those HIGH END, locked, heavily discounted phones that they sell with their services, unlocks them, and sells them to other people for a cut price (compared to full retail, but not that great compared to what you can get them for). Generally, what happens is that someone comes out with a trendy phone (the SLVR, for example), prices it at “$399.99,” discounts it to “$299.99,” then offers it for “$99.99 with a two year contract.” then, after several months, they drop the “real” price to $99.99 or less, and start selling it for what it’s really worth.

    …but the C139 Motorola is sold all over the place, unlocked, without service, for $19.99 or so. That’s reasonable, since they cost about $10 to produce (even “fancy” phones with a lot of features don’t cost that much to make) – there’s a $3 LCD and a $2 battery, tied together with about a dollar’s worth of electronics and a $1 transformer to charge it. CompUSA sells them, as does a lot of other places.

    …so, once again, what those “arbitreurs” are claiming doesn’t hold water. At best, they can claim to be violating the DMCA about a thousand times with intent to sell their product to criminal enterprises. “We’re innocent! We were only intending to sell to drug lords, instead of terrorists!”

    Even at that, though, it would be interesting to find out how these nice, innocent men living in Texas, of Mideastern descent, got these great international sales contacts with those big criminal enterprises south of the border…

  3. John Burgess says:

    Just curious if cirby makes a living by jumping to conclusions or by overbroad assumptions based on ignorance. Seems a pro, either way.

    Individuals can live with/on modest profits. A couple of bucks difference–especially if multiplied by a few hundred–makes a difference in a lot of people’s livelihoods. These guys aren’t buying the $400 phones because they can’t sell them onward. Their typical customers in the Middle East are guys who earn $200-400/month; they’re Third World laborers, marginally employed people in failing economies, even students. And they’re not going to pay more than $30/$40 for a phone.

    If they had the money to buy a $400 phone, they’d buy them, complete with service contracts and warranties.

    Immigrants don’t lose their connections with home once they get to the US. They’re in constant contact, through whatever media possible: e-mail, calling cards, even letters. New tech like VoIP works really well in places across South Asia, but not so well in the Middle East.

    These immigrants all have relatives in business in the Middle East, mostly because business is something people can do with little capital, little real estate, little governmental interference. If a guy can corner the market on selling boxes of matches on a busy street corner in Cairo, he’s got respectability and a job. Also an income.

    The immigrants are also looking for ways to help their relatives. Many do it through repatriating part of their salaries. Others try to get visas for them to join them in the US (or UK, or wherever). Yet others find good business deals for Uncle Samir, whether it’s in importing used cars, selling “recycled” clothing, or, gasp, cell phones.

    Of course some cross legal lines. Some deal in stolen used cars. Some deal in importing drugs. Others launder money for nefarious reasons or are involved in illicit weapons sales. It’s really, really hard to prevent this; much easier to stop and punish it once the guys are discovered.

    I haven’t noticed that the US (or any significant portion of the US population) was calling for all Brits to be given extra scrutiny when we learned that Gerald Bull was building superweapons for Saddam Hussein. Nor do I recall any great profiling effort aimed at the Irish to get control over all the NorAid fundraising that went to the IRA terrorist organization. I guess we’ve just been asleep at the wheel all these years.

  4. Steve Verdon says:

    Cirby,

    John is quite right. My step father makes a decent living re-selling Christian books (oddly enough he isn’t a big Christian himself, but that was the niche market he discovered on the internet). He started out trolling through the Salvation Army and other thrift stores for books in decent shape and that had a low price (and occassionally he would find a gem, like a classic book with the authors signature inside).

    Funnily enough his purchases were very much like these tracfone purchases. He’d head up to the register with dozens of books that he’d never read. Of course, books have little use for terrorists, but still the pattern is the same. This doesn’t mean all bulk tracfone and other pre-paid cell phone purchases are legit, but the idea that they are automatically terror related is dopey reasoning.

    You keep insisting there is something wrong here and yet can’t produce anything other than speculation and supposition.

  5. Steve Verdon says:

    By the way, did you read the article Cirby? Your characterization of it is off. They aren’t talking about the high end phones, but the pre-paid phones at Wal-Mart. Heck I even quoted that in the post. It is like you read an entirely different article and then claim it is the one I linked too.