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08-16-06, 11:45 AM #1
Profiteers Reselling Cell Phones Rankle Industry
This relates to the guys accused of buying cell phones for terrorists a few days ago...
POSTED: 7:40 am CDT August 16, 2006
UPDATED: 7:47 am CDT August 16, 2006
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.
Three Texas men were arrested last week in Michigan with about 1,000 cell phones, mostly prepaid TracFones, in their vehicle. Local prosecutors charged them with collecting or providing materials for terrorist acts and surveillance of a vulnerable target for terrorist purposes and said investigators believed the men were targeting the 5-mile-long Mackinac Bridge.
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.
"It's a huge problem," Entner said. "It can bankrupt wireless carriers."
Therefore, he said, companies often try to restrict the number of phones that a person can buy.
That includes TracFone, the leading provider of prepaid wireless service in the U.S., which says it works with retail outlets to enforce limits on the sale of the phones.
"TracFone is aware of instances where individuals are purchasing the lowest-priced TracFone models in bulk, with no intention of activating these handsets with TracFone wireless service, but to remove the TracFone software and resell the altered handsets at a profit," Derek Hewitt, senior vice president for marketing at TracFone said in a statement. "Sales to these individuals cause extensive losses to TracFone..."
Cingular spokesman Mark Siegel said that their outlets limit the purchase of such prepaid cell phones to no more than three, "ensuring that it's used for what it's designed to do."
"We are in business to have people use our network," he said. "That's what we want people to do."
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.
Still, untraceable prepaid cell phones at least have the potential for illegal use, said Bob Jarvis, a professor of constitutional law at Nova Southeastern University in Fort Lauderdale, Fla.
"Because prepaid cell phones are untraceable it has become a very favored means of communication for organized crime and other people who are up to no good, including terrorists," Jarvis said.
He also points out that while the person buying the phones in bulk might not be involved in any criminal activity, the third party buying the phones could be using the profits for illegal purposes.
"If you're reselling them and reselling to a drug dealer, you are facilitating a criminal organization," Jarvis said.
"It used to be that cell phones were just for communication purposes, now we know they can be used for a detonator for a bomb," he said.
Earlier this year, the FBI and the U.S. Department of Homeland Security sent out joint bulletins to police departments nationwide warning about the bulk purchase of phones for personal profit or financing terrorism.
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.
Last edited by TXCharlie; 08-16-06 at 11:48 AM.
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