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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.

Michigan prosecutors dismissed terrorism-related charges against three Arab-Americans Wednesday, but soon afterward the FBI accused them of a phone-selling scheme that could land them in prison for 25 years, Reuters reported.

The three U.S. citizens of Palestinian descent from the Dallas area — brothers Adham and Louai Othman and cousin Awad Muhareb — were each charged in federal court in Bay City, Mich., with conspiracy to traffic in counterfeit goods and money laundering.

The FBI said the men were engaged in a fraudulent scheme in which they traveled the country buying Nokia cell phones equipped with software to install a prepaid calling card. But the software was removed, the FBI said, and the phones were eventually resold overseas.

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 often bought by people who don't have a lot of money. "They want you to get the phone and then use it."

Prepaid phones allow users to sign up for "pay-as-you-go" service, under which they are given a balance of airtime minutes, rather than paying monthly bills, the Wall Street Journal reported.

Those who buy the phones in bulk may 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."

TracFone says it is losing millions of dollars through reselling schemes. It filed a lawsuit in February in U.S. District Court in Miami to shut down two Florida companies accused of buying large quantities of cell phones at major retail stores with the intention of selling them.

"Sales to these individuals cause extensive losses to TracFone, as these handsets are not used with TracFone service," Derek Hewitt, senior vice president of marketing for TracFone, said in a statement Monday.

Therefore, Entner 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," Hewitt said in a statement.

Cingular spokesman Mark Siegel said his company's outlets limit the purchase of prepaid cell phones to three, "ensuring that it's used for what it's designed 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.

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 might not be involved in any criminal activity, the third party buying the phones could be using them for illegal purposes.