The Financial Post
June 10, 19971997

Digital phones to block out eavesdroppers

by Deborah Stokes

Eavesdroppers and cellular fraudsters are going to hate digital cellular phones and PCS.

The new generation of cellular currently being rolled out by Rogers Cantel Inc., Microcell Telecommunications Inc. and Clearnet Communications Inc. promises to be better than traditional cellular phones in many ways.

But one improvement more important than most people realize is in the area of security.

According to the Washington, D.C.-based Cellular Telephone Industry Association, cellular fraud in North America costs more than $1.5 million -- a day. And guess who ultimately pays?

More scary still, as Lady Di and Newt Gingrich can attest, is the incidence of eavesdropping on cellular conversations. Says one industry insider: "Talking on a cellular phone is like speaking in a crowded elevator. If you can't say it there, don't say it on the airwaves."

If you use your cellular phone mainly to call home because you're running late, security is probably not a big deal. But if you're doing deals on your mobile phone, digital cellular is definitely the safest way to go -- for now.

"This time around, the industry has recognized security and privacy are key issues", says Robert Blumenthal, director of product development at Clearnet in Toronto.

Cellular fraud exploded in the late '80s on an unsuspecting and ill-prepared cellular industry. Analogue technology, it turned out, was very vulnerable to cellular thieves and eavesdroppers, and the industry has been playing catch-up ever since.

"The risk of fraud is never totally eliminated; however, digital technology reduces the more traditional risks prevalent with analogue cellular", says Mike Carlino, manager of KPMG's information, communications and entertainment practice.

Privacy is a big problem with analogue cellular because the tools to listen in on calls are so easy to come by. Analogue cellular converts voice signals into radio waves. Scanners intended for short-wave radio hobbyists can be picked-up at an electronics shop for a couple of hundred bucks and be used to tune into cellular conversations.

"Digital changes all that", says Robert MacKenzie, vice-president of Digital PCS for Rogers Cantel in Toronto. Because digital cellular transmissions are compressed and digitized into an arcane code, he says all eavesdroppers would hear is a series of dashes and noise.

Industry Canada has also restricted the sale of digital scanners to wireless service providers and police authorities. This doesn't mean digital scanners won't be available on the black market, but they will be well out of the range of hobbyists.

"If you can get your hands on one, these will likely be in the hundreds-of-thousands of dollars. So, you've taken out a whole market of eavesdroppers", Blumenthal says.

Moreover, PCS providers are all using different, non-compatible digital technology standards, such as Clearnet's CDMA (Code Division Multiple Access), or Microcell's GSM (Global System for Mobile Communication).

This means digital scanners would have to understand all the various standards.

Another inherent advantage of digital technology is the ability to embed additional layers of security like encryption technology and digital authentication tools to verify callers. Such defences will be especially helpful in the battle against cloning fraud.

When a cellular phone is activated it transmits an electronic serial number (ESN), a special coding that identifies the user on the network.

With the right equipment, ESNs transmitted in analogue format can be easily snatched out of the air and re-programmed into another phone or clone.

What this means is someone can make cellular calls charged to someone else's account.

Cloning fraud is big business, says Constable Michael McCrory, with the RCMP computer crime division in Montreal. Fraudsters move quickly and resell the stolen cellular service. "The going rate is $10 for 10 minutes of air time."

Although cellular companies are getting better at limiting the damages from cloning -- for instance, monitoring calling habits to detect unusual activity -- this is still the industry's biggest headache.

Subscribers should also be concerned. Cellular companies will take the charge for calls determined to be fraudulent, but users often don't even realize they've been hit. Professional fraudsters will sneak in a few calls here and there, or target company accounts where it is unlikely each call is scrutinized.

Digital technology has enabled more sophisticated caller identification measures. Microcell's Fido phones, for instance, are equipped with a removable smart card that contains the subscriber's personal account information -- sort of a digitized signature. Someone would have to steal the card, or the phone, to get this information.

With Clearnet's MIKE phones, a permanent ESN is hard-coded into the phone when the subscriber is authorized on the network. Since this information never passes over the airwaves, it can't be intercepted.

PCS subscribers won't be inconvenienced by security measures, says Norman Wai, chief operating officer at Microcell Connexions, the division building Microcell's PCS network. It all happens invisibly in the background.

Rather, he says, such measures will actually make digital cellular more convenient. According to Wai, the risk of cloning is one of the biggest reasons why analogue cellular providers aren't keen on roaming, a feature that allows customers to be handed from one cellular company to another as they move out of their coverage area. Microcell has signed roaming agreements in 15 U.S. states, as well as in Europe and Asia.

But as technology becomes smarter, so do the thieves. "This field is a cat-and-mouse game", McCrory says. "Once technology changes, they eventually catch up. We'll be around for awhile."

Copyright © 1997 by The Financial Post. All Rights Reserved. Reprinted with permission.