Cellular Fraud Swells Phone Bill to Book Size

THE brave new world of the information superhighway with its flick-of-the wrist telecommunications has met an ancient, formidable foe: fraud.

High-tech scam artists operating nationwide are stealing and selling cellular-phone access codes, and then foisting extravagant bills on phone companies and unwary consumers.

This has suddenly become one of the most widespread and menacing forms of electronic crime in the United States, according to the US Secret Service.

Last year stolen calls deprived phone companies of $482 million in revenues, a 32 percent increase over 1993, notes the Cellular Telecommunications Industry Association (CTIA) in Washington.

Many of the phone cheats have been white-collar ''hackers,'' but an increasing proportion are drug traffickers, gun runners, and members of organized-crime groups, says CTIA.

''It is the crime of the future,'' says Ralph Grayson, who is in charge of the Chicago office of the Secret Service.

The number of subscribers to cellular-phone service has jumped from 5.6 million in 1990 to more than 24 million today, says CTIA spokesman Mike Houghton. By 2000 that number could surge to more than 60 million, the industry says.

Costs from fraudulent phone schemes are expanding even faster. Losses in 1994 were 3.7 percent of total revenues compared with 3.2 percent in 1993.

Since significant fraud emerged in 1990, the cellular-phone industry has rallied to control the damage. It has repeatedly invented countermeasures only to be tricked again by more advanced forms of swindling. ''This is not an issue that will go away in the near future,'' Mr. Houghton says.

Scam operators have recently made Chicago a hotbed for hot phones and numbers. ''No doubt, Chicago is the No. 1 growth market,'' says Mr. Grayson.

Fraud hit Brian Fitzpatrick last January, less than one month after he acquired a cellular phone.

''Instead of looking like a phone bill, this one looked like a phone book -- there were more than $800 worth of fraud calls,'' says the funeral director in Hazel Crest, Ill., near Chicago.

Until the past several months, both the legal and illegal arms of the cellular-phone industry had left Chicago and other Midwestern cities comparatively uncultivated. The cellular-phone swindlers shifted to Chicago, Detroit, and other regional cities after tough law-enforcement efforts drove them from Los Angeles, Miami, and New York.

Cellular-phone access codes are abused in two basic ways:

*Tumbling. This alters a phone so that with each call it ''tumbles'' to one of several of the manufacturer-assigned electronic serial numbers, shifting the charge for the call to a different legitimate customer with each dialing.

*Cloning. This substitutes the serial and identification (ID) numbers stored on the semiconductor of a cellular phone with numbers stolen from other phones. The criminals purloin the numbers by electronically capturing and downloading the IDs of cellular phones passing near busy highway cloverleafs or other places frequently passed by phone users.

Fraud artists profit by selling phones programmed with the stolen numbers. Or they set up ''call-sell'' scams -- backroom operations that match a fraudulent phone with a stolen calling-card number and sell low-cost calls to anywhere in the world.

Call-sell is especially popular in Chicago and other cities with large immigrant populations, says the Secret Service.

NYNEX Corporation, the regional Bell company serving New York and New England, has cut its losses by 60 percent since October by requesting that its customers punch in a personal ID number over a separate frequency with each call, says NYNEX spokeswoman Kin Ancin.

''There are some things being worked on right now by the industry that are very secretive,'' says Gib Wolf, manager of fraud prevention at Ameritech Cellular Services.

But the industry doesn't count on finding a ''silver bullet,'' executives say.

''As we're working on preventative technology there are others who are trying to circumvent it and they will probably come up with solutions,'' says Houghton.