Cellular industry estimates indicate that carriers lose more than $650 million per year to cellular fraud. The principal cause of this fraud is cloning of cellular telephones. The Wireless Telephone Protection Act (Public Law 105-172) was signed into law on April 24, 1998, expanding the prior law to criminalize the use, possession, manufacture or sale of cloning hardware or software.
A cloned cellular telephone is one that has been reprogrammed to transmit the electronic serial number (ESN) and telephone number (MIN) belonging to another (legitimate) cellular telephone. Unscrupulous persons obtain valid ESN/MIN combinations by illegally monitoring the transmissions from the cellular telephones of legitimate subscribers. Each cellular telephone is supposed to have a unique factory-set ESN. After cloning, however, because both cellular telephones then have the same ESN/MIN combination, cellular systems cannot distinguish the cloned cellular telephone from the legitimate one.
A cloned cellular telephone can then be used to make calls that will be billed to the subscriber of the legitimate cellular telephone. Sometimes the cellular carrier may suspect fraud because of a sudden change in the frequency, duration or destinations of calls, which is not consistent with the legitimate subscriber's usual calling pattern. In that case, after contacting the legitimate subscriber and verifying that fraud is occurring, the carrier must terminate service to the compromised ESN/MIN combination to prevent further losses. This inconveniences the legitimate subscriber because his or her service is interrupted until his or her cellular telephone can be reprogrammed with a new telephone number (MIN). In other cases, the unauthorized calls may not be detected and they will be billed to the subscriber of the legitimate cellular telephone. When the subscriber gets billed for calls he or she did not make and complains, the cellular carrier absorbs the cost of these unauthorized calls. Further, the subscriber is then inconvenienced by having to obtain a new MIN as previously described.
In an Order, the Commission adopted a rule (22.919) requiring that all cellular telephones for which type acceptance is sought after January 1, 1995 must be designed such that the factory set ESN can not be reprogrammed. At the same time, the Commission stated that it considers any knowing use of cellular telephone with an altered ESN to be a violation of the Communications Act (Section 301) and alteration of the ESN in a cellular telephone to be assisting in such violation.
The cellular equipment manufacturing industry is currently developing an authentication methodology that is intended to reduce fraud. This authentication methodology would replace use of the ESN with an encrypted code that could not be obtained by off-the-air monitoring.
In the near term, until authentication can be put into widespread use, some cellular carriers are achieving some success in reducing fraud by requiring subscribers to use their personal identification numbers (PIN) before allowing access to the cellular system. Others are implementing various sophisticated fraud detection technologies that help them to manage the fraud problem.