Prepaid Phone Resales Annoy Carriers

The purchase of large quantities of prepaid phones for the purpose of unlocking and reselling them has grabbed a lot of attention lately after the arrest of some Palestian-Americans in Michigan on terrorism-related charges following their purchase of 1,000 of the phones. Though no link to terrorist activity has been established between the men and the phones, the incident put the spotlight on what’s apparently a booming industry, and one that’s annoying US mobile-phone operators. The men in Michigan reportedly bought the phones — branded by prepay operator Tracfone — for $20, and planned to sell them to a wholesaler for as much as $38, margins that any handset manufacturer or wireless operator would kill for. Presumably, the wholesaler would then unlock the phones and sell them for use on any GSM network, a practice Tracfone and other prepaid operators have sued in the past to stop, or ship them overseas. The only recourse operators seem to have found so far is to limit the number of phones an individual can buy at any given time, but that’s easily circumvented: the men arrested in Michigan were from Texas and on what sounded like a pretty extensive road trip to load up on phones. Although the operators sell the phones as a loss leader, they can’t just raise prices to try and cut out the grey-market trade, as a large part of their target market is people who can’t or won’t spend a lot on mobile service, and the legitimate prepaid business is booming.

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