Someone's on The Line

By John Greenwald

The remarkable thing about the customers who filed in and out of Allman's Fashion Discount, a small Miami apparel shop, was that they never bought any clothes. Instead, say the police, they flocked to 17 cellular phones at the back of the store to call family and friends in Central and South America for just 50 cents a minute -- less than half the nighttime rate for standard phones. Even at that low price the shop's owners, who had rigged their phones to bill the calls to other people's numbers, managed to rake in up to $200,000 in just six months before police raided the store in June. "They were basically operating their own phone company," says Bill Brush of the Secret Service, the agency involved in breaking up the ring. "It was pure profit."

Paydays like that have helped turn cellular-phone fraud into a high-tech crime wave that costs the cellular industry about $300 million a year. Such breaches of security could threaten the growth of a booming $11 billion market that has 17 million U.S. customers and is gaining new ones at the rate of 14,000 a day.

That's why both AirTouch Communications and Nynex Corp. last fall began testing a system to thwart telephone thieves that was developed by aerospace conglomerate TRW. The pirates typically use radio scanners to record the serial number and subscriber identity number that each cellular phone transmits at the start of a call. Then they program the numbers into their own phones, leaving the victim to get the bills. But TRW engineers have come up with a proprietary method for analyzing and storing a third signature of cellular phones -- their unique radio-frequency signal, which cannot be cloned.

Police agencies are also taking steps to thwart the pilfering of cellular numbers. Since 1991 more than 5,000 federal and local officers have completed industry-sponsored training that focuses on detection and prosecution. That has paid off across the country, especially in the Los Angeles area, where authorities are now arresting nearly 40 phone defrauders a month -- up from just one offender a month two years ago. Among them: 29-year-old Rodney Phillips, who ran up $2 million worth of fraudulent calls from a home he had turned into a minifactory for snatching numbers. Police found more than 20 cellular phones there, along with two computers equipped with the software to reprogram them. L.A. law-enforcement officials also nabbed a suspect while he was casing a neighborhood in a car filled with crowbars and gloves -- and using a stolen number to talk on the phone. Though the man avoided being charged with burglary, he faces four years in prison for making $8,000 worth of bogus calls.

While some victims of rip-offs may wind up with astronomical bills, the industry tries hard to see that their subscribers don't. Most companies monitor any unusual jumps in a customer's calls and can immediately inquire whether the subscriber has made them. Harder to spot is illegal activity in large corporate accounts or small thefts that take place over time. Thus cellular companies warn consumers to watch their bills closely and report any suspicious charges. The last thing this booming industry wants is to have pirates plunder their customers and send them back to wired phones.

With reporting by David S. Jackson/San Francisco and Jane Van Tassel/New York