The telephone industry has been in an upheaval ever since upstarts began competing with the big telecoms by sending voice calls over the Internet. Now even big firms are using so-called voice over Internet protocol. But VoIP is not as secure as old-fashioned phone lines—as carriers that rely on the Internet are finding out. They're increasingly falling prey to "phreakers," who steal their minutes and resell them on a thriving black market.
Of course, anybody with a PC and a Net connection can talk free of charge to another PC user. For the telecoms, the profit is in using VoIP to deliver calls from one phone to another. That requires a "gateway" server to connect a carrier's phone network to the Net. Phreakers break into these gateways, steal "voice minutes" and sell them to other, usually smaller, telecoms. Many of these firms then sell printed phone cards or operate call centers. "It's a great racket," says Justin Newman, CEO of BinFone Telecom of Baltimore, which has been stung by phreakers.
These thieves steal 200 million minutes a month, worth $26 million, according to Stealth Communications, a New York City telecom. With more than 5,000 wholesale-minutes markets worldwide—located mainly on Web sites—fraud is hard to track. Emmanuel Gadaix, head of TSTF, a Hong Kong firm that investigates VoIP thefts, says it's "very easy to set up a temporary link" through a hacked gateway. His company was recently hired by a Panamanian telecom that lost $110,000 to phreakers. TSTF followed tracks, in vain, that snaked through Bulgaria, Canada, Costa Rica, Hong Kong and the United States. Phreaker trails are "way too complicated" to track successfully, says Gadaix.
The hackers use one of hundreds of cheap, illicit phreaker programs. One South African, who requested anonymity out of legal concerns, says he wrote a program, Lesion, in a few weeks and sells it for $10,000. Small telecoms, lacking the money for secure gateways, are "constantly under attack," says Marco Ivaldi, an Italian telecom expert.
For protection, telecoms are turning to private VoIP networks, separate from the public Internet. More than 1,000 telecoms, including AT&T and China Telecom, now buy and sell minutes on a network owned by Stealth. It car-ried more than 10 percent of worldwide VoIP traffic last year, a sevenfold increase over 2005. That percentage is expected to keep growing, as the security threat isn't going away.