Dial ‘F’ for Fraud : Irvine Firm Develops Cellular Monitor System
Computers and telecommunications are often viewed as two very different industries, with experts in one knowing almost nothing about the other.
At Subscriber Computing Inc. in Irvine, though, the two have made a successful match. The company’s mission is to provide personal computer-based software to telecommunications companies ranging from paging services to cellular phone operators, said Mark Nielsen, president.
The latest product is a crime-stopper program called FraudWatch that helps cellular companies monitor fraud on their phone networks. The company is also selling software to foreign companies working on futuristic phone networks and software billing systems.
Industry sources say fraud costs cellular companies more than $100 million a year.
FraudWatch, Nielsen said, is “our effort in a never-ending battle to make the phone system fraud-proof.” The module will bolster the company’s revenue, now projected to total $3 million, Nielsen said. The privately held company, which employs 38 people, does not release financial data regularly. The 15-year-old company is profitable, Nielsen said, and has managed to grow without venture capital.
With FraudWatch, PacTel Cellular’s Southern California network security team can identify fraudulent accounts by monitoring the patterns of each subscriber’s phone calls in the same way that banks monitor credit-card use, said David Daniels, manager of the carrier’s fraud-control unit.
If an unusual pattern of calls emerges on a particular account, FraudWatch sounds an alarm to indicate that a cellular thief may be using someone else’s security code, Nielsen said.
“These callers look valid, but they’re counterfeit because they illegally obtain the electronic serial numbers that are used to verify cellular phone calls,” Daniels said.
Stan Belitz, assistant to the special agent at the U.S. Secret Service in Los Angeles, said that tools such as the FraudWatch program are becoming more important in fighting cellular fraud.
“We’re dealing with very high-tech criminals, and the more high-tech the tools, the better,” he said. “This is the age of electronic crime.”
Other businesses, such as phone company Cincinnati Bell Information Systems Inc., computer services firm Electronic Data Systems Corp., computer maker Digital Equipment and third-party software vendors provide competing products to combat fraud.
But anti-fraud tools are only part of Subscriber Computing’s offering of software for the increasingly complicated telecommunications industry. The company, founded by current Vice President Paul Hoberg in 1973, built its business by providing software programs to handle the elaborate billing systems that paging service operators must establish.
Billing services are crucial to cellular phone technology, particularly as it becomes more important to keep existing customers rather than build new systems, said Nielsen, a 33-year-old former manager at Cincinnati Bell. He became Subscriber Computing’s president in 1988.
Based on an average industry-operating profit of $28 per subscriber each month, a cellular carrier would have to keep a customer at least 18 months before it recouped the initial installation cost of about $500, he said. So cellular carriers find that the new software can deliver a competitive advantage.
After switching from a minicomputer platform to PC-based software, Subscriber Computing has picked up 60 clients in the past four years, compared with only a few in 1988.
Subscriber Computing’s Accelurator software features the ability to collect money from credit-card accounts as soon as customers make their phone calls. So, rather than wait a month to discover that no payment has been made on an account, a carrier can use the software to find out immediately if it is taking a credit risk. Customers, too, can use the system: By dialing a code, they can put money in their cellular accounts and charge it to their credit cards.
“One way for a carrier to stay profitable is to build customer loyalty, and that’s where we come in,” Nielsen said. “We improve their customer services and efficiency.”
The company’s innovations put it in an enviable position on the cutting edge of telecommunications technology, which is increasingly moving toward computer-controlled wireless communications.
For instance, Subscriber Computing has sold billing software to foreign nations that are building the next generation of cellular phone service, called CT-2, which allows people in big cities to carry portable pocket phones that are never out of range of a calling network. The futuristic phone networks have been compared to Star Trek communicators.
Industry giant Motorola Inc. has agreed to offer Subscriber Computing’s billing software to all customers seeking to build CT-2 systems. Bell Canada is testing a CT-2 system that uses Subscriber Calling software in Toronto, and Singapore and the Netherlands launched their systems in the past year.
In the United States, the Federal Communications Commission is still testing the technology. On implementation, the CT-2 technology could give another burst of growth for the cellular phone industry, which boasts 7.5 million subscribers in 1992, according to the Cellular Telecommunications Industry Assn., a Washington trade group.
“Our goal is to support personal communications services,” Nielsen said. “We don’t do anything else.”
Cellular Security
Mobile-phone fraud is not easy to accomplish because the industry has taken safeguards to prevent it. Still, the cellular industry estimates that it loses more than $100 million a year to phone fraud. There are three basic types of phone fraud:
* Roaming. If you are a subscriber whose service area is programmed for Newport Beach, but you are in New York, you can still place a call even though you have “roamed” out of your service area. A fraudulent caller, however, would reprogram a phone using an area code and prefix from a different service area. Most “roamed” calls are stopped by a computerized caller-validation system at the carrier’s switching office, but some calls may get through before the system has a chance to validate the authenticity of the caller.
* Cloning. Occurs when one or more valid MINs--mobile identification numbers--are put into one or more phones. It is difficult to do. A fraudulent caller would have to have a subscriber’s MIN and electronic security number and the technical expertise to physically alter the electronics of a phone. It would be the equivalent of someone knowing your credit-card number and expiration date, and being able to reproduce your card, complete with a valid magnetic strip.
* Subscription fraud. Happens when a fraudulent caller uses your Social Security number, name, address and driver’s license to apply for services under your name.
If you have been a victim of cellular phone fraud, call your phone company. In Orange County, the main carriers are Pactel Cellular, (714) 222-7000; and Los Angeles Cellular (800) 831-7776. Incidents will be reviewed and possibly reported to the Cellular Telecommunications Industry Assn., which has hired a private investigation firm to pursue claims and present fraud cases to the appropriate law enforcement agency for procecution.
U.S. Secret Service, Pactel Cellular, Los Angeles Cellular
