By AP Technology Writer
updated 10/20/2006 1:44:16 PM ET 2006-10-20T17:44:16

Wal-Mart Stores Inc. plans to limit each customer to two prepaid cell phones per purchase amid complaints that entrepreneurs are buying the subsidized handsets by the hundreds to resell at a profit, according to people familiar with the matter.

The new limit on the phones, effective last week, was disclosed to The Associated Press by persons at two national cell carriers. They spoke on condition of anonymity because Wal-Mart's policy hasn't been announced.

Wal-Mart declined to confirm the change from its prior limit of three prepaid phones per customer.

The phones in question, sold under brands including TracFone and GoPhone from Cingular Wireless, are priced as low as $20 and $30 per handset. The phones are called "prepaid" because users buy minutes of air time in advance for calls rather than signing up for a monthly plan with recurring charges.

Limits on their purchase aren't new among major retailers. But phone makers and service providers are pressing retailers to tighten restrictions, which can be easy to skirt by going to multiple cashiers or coming back at different times of day. Law enforcement, meanwhile, worries the anonymity of prepaid phones makes them appealing tools for criminal and terrorist activity.

Wireless service providers willingly lose money or make no profit on the devices in hopes that purchasers will make up for it by using the service, buying additional air time for calls. But there's no profit if the phones are never used for their intended purpose.

Those who buy in bulk at stores can double their investment by reselling the phones to entrepreneurs who deactivate a software lock on the devices. The phones can then be used on other cellular networks, often in Asia and Latin America, though sometimes in the United States.

Purchasing phones in bulk is not in itself illegal, and authorities haven't had much luck trying to prosecute those engaged in the trade. But wireless companies have sued them, alleging the reconfiguration and repackaging violate trademark and copyright protections.

The change in Wal-Mart's policy follows high-profile arrests two months ago in Ohio and Michigan of men who had purchased bulk quantities of the phones.

The Federal Bureau of Investigation and Department of Homeland Security issued bulletins earlier this year warning police to look out for bulk phone purchases. Authorities said they were worried the devices might be used as bomb detonators or that profits from their resale might fund a terrorist attack.

But in the Ohio and Michigan cases, early hints of possible terrorism links by authorities never resulted in related charges. The men arrested in Ohio pled no contest last month to a low-level charge of giving misleading information to police. In the Michigan case, a federal judge threw out charges of trafficking in counterfeited goods.

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