Magazine article Risk Management

Coming to Terms with Cellular Fraud

Magazine article Risk Management

Coming to Terms with Cellular Fraud

Article excerpt

Although eliminating fraud remains a very elusive dream, cellular telephone carriers are attacking the problem with a multi-faceted approach that combines industry cooperation and education with new technology.

One of the most challenging aspects of trying to manage this expensive risk is that it evolves very quickly. Every solution the industry has developed so far presents a new challenge for cellular criminals, forcing carriers to develop several generations of anti-fraud measures at the same time. "Whatever you do in the technology area, the bad guys just adapt," says Roseanna DeMaria, vice president of revenue security for McCaw Cellular. "From the carriers' perspective, you have to develop a multi-faceted attack.

The biggest risk for cellular carriers is the "cloning" of legitimate phones. Every cellular phone transmits not only voices but also an electronic serial number (ESN) that tells the carrier which account to bill for the call. Unfortunately for the carriers, t]ye ESN is easily intercepted off the air with equipment that can be purchased through the mail. A cellular phone can then be reprogrammed to transmit the purloined ESN, instead of its own, so any calls made with the clone are billed to the legitimate phone - giving criminals free, anonymous access to cellular networks.

It is an expensive problem with no easy answers. Industry estimates of fraud losses range from $365 million to more than $1 billion annually. Apart from the cost, which is borne mostly by the carriers, the cellular industry faces the extra challenge of improving its security without inconveniencing legitimate customers.

"People used to think cellular fraud was a victimless crime, and that it only took away revenue from big companies," says NYNEX spokesperson Kim Ancin. "That's not the case. It hurts the customers because the carriers aren't able to reduce their rates, and the more cloned calls that are on the air, the harder it is for legitimate customers to use the network."

The carriers' first line of defense is requiring customers to enter personal identification numbers (PINS) before a call can be placed. When the phone is turned off, it is electronically blocked from accessing the cellular network until the legitimate user re-enters a PIN. This method helps somewhat, but no one in the industry expects the protection to last very long.

Somewhat more sophisticated is using software to monitor customer calling patterns. if phone use deviates from normal trends, the carrier can contact the customer and ask if he's called Bogota 40 times in the last hour. Carriers are also testing a method called phone printing, which involves analyzing the transmission characteristics of individual phones to create a kind of electronic fingerprint for the legitimate phone. …

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