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Fighting phone fraud
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October 9, 1996: 6:00 p.m. ET
Cell phone companies use new technology to battle costly crime
From Correspondent Rhonda Schaffler
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NEW YORK (CNNfn) - If you've ever been the victim of cell phone fraud, you're part of a growing group. The business of cloning phones is a thriving black market, growing fivefold in the past three years.
"Cloning" happens when thieves steal your phone number and reprogram it into another phone.
While consumers usually don't have to pay for fraudulent calls, industry observers say the costs are passed along through higher rates. The estimated total cost to American businesses is $650 million a year.
But new anti-fraud technology and increased law enforcement are being used to battle back. Phone companies have even employed undercover investigators to alert the police to suspected cloning operations. (811K QuickTime movie)
Nicholas Arcuri, vice president of fraud control for Bell Atlantic Nynex mobile, is confident about their tactics. "We've deployed some state of the art technologies which we think will give our customers maximum protection."
The industry's new silver bullet is a highly advanced computerized system called "authentication." It was put in place on the East Coast last May.
Developed by Bell Labs and Motorola Inc., authentication works this way:
- Secret data is transmitted between a cell phone and network center.
- The new, fraudulent cell phone can't match the secret data.
- The number is blocked from making calls.
Authentication will be rolled out across the country by the end of the year, but it won't spell the end of cell phone fraud.
The new technology only works on digital cell phones built within the past year, about five percent of all cell phones now in use.
Until users catch up with the technology, law enforcement is beefing up its fraud crackdown. At a recent raid in Paterson, New Jersey, police seized dozens of phones and $10,000 in cash. Cloned phones usually sell for $60 to $100 on the streets.
Michael Stenger, a special agent for the Financial Crimes Division of the Secret Service, said many of the people who buy them are involved in other types of crimes. (133K WAV) or (133K AIFF)
With fraud arrests occurring more often and improved technological crime-fighting weapons being developed, many cell phone thieves are finding their number is up. And reduced fraud losses for the industry will eventually mean cost savings for consumers. 
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