Dollars to donuts, its most likely arbitrage.
What has everyone confused is that they think a cell phone is a low cost item. It is not. You can go on any carrier's website and see the deals -- “your cost – $29.99” or “Your cost – free.” Now try to buy the same phone itself, without a 1 year or 2 year service agreement , and the price is $100, $200, $300 dollars. That’s the real price of the phone.
The Tracfone sold at Walmart is one of the cheapest phones around, but it probably still has a wholesale value of at least $100. So Tracfone, in providing phones to WalMart says to Walmart you must limit 3 to a customer because Tracfone is trying to prevent exactly what’s happening here. Tracphone is willing to eat the loss on the phone to get recurring revenue from usage, but if you’re buying more than 3, you’re probably not a retail customer but an arbitrageur.
It’s no different than razor and blades. Sell the razor at a loss, but get blades sales for years and years.
So these guys buy a bunch of phones at $20 and sell them to a wholesaler at $27-30. The wholesale sells them to wholesalers in the Caribbean, South America or Africa for $40. The wholesaler there sells them retail for $50 (and reprograms the SIM for the domestic network). The carriers in those areas just cannot afford to subsidize a 100-200 cellphone like US carriers can because the average bill is $10-15 dollars per month, not $40-50 like it is here in the US. Moreover, in countries with per capital annual income of $3000-5000, people cannot afford to spend $100-200 for a phone exactly because the carrier is not subsidizing.
You’d be surprised at the cellular penetration rate in a place like Haiti. Yet, if you ever went there you could not imagine how they can scrounge together 10 cents for a meal, let alone a cellphone.
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