Raw Data: Encryption Flaw Makes Phones Possible Accomplices in Theft

A German mobile security expert says he has found a flaw in the encryption technology used in some SIM cards, the chips in handsets, that could enable cyber criminals to take control of a person’s phone.

Karsten Nohl, founder of Security Research Labs in Berlin, said the encryption hole allowed outsiders to obtain a SIM card’s digital key, a 56-digit sequence that opens the chip up to modification. With that key in hand, Mr. Nohl said, he was able to send a virus to the SIM card through a text message, which let him eavesdrop on a caller, make purchases through mobile payment systems and even impersonate the phone’s owner.

He said he had managed the whole operation in about two minutes, using a simple personal computer. He estimates as many as 750 million phones may be vulnerable to attacks.

“We can remotely install software on a handset that operates completely independently from your phone,” Mr. Nohl said. “We can spy on you. We know your encryption keys for calls. We can read your S.M.S.’s. More than just spying, we can steal data from the SIM card, your mobile identity, and charge to your account.”

Mr. Nohl is well known in security circles. In 2009, he published a software tool that computes the 64-bit key used to encrypt conversations on GSM networks, prompting the industry to adopt better safeguards. His company, Security Research Labs, advises German and U.S. multinational companies on mobile security issues.

Mr. Nohl said the flaw he had discovered was the result of an encryption method developed in the 1970s called data encryption standard, or D.E.S. After uncovering the breach, he researched the pervasiveness of the problem by testing about 1,000 SIM cards on cellphones running on mobile networks in Europe and North America over a two-year period. The phones and SIM cards were owned and used by himself and members of his research team. Mr. Nohl said that about one-quarter of the SIM cards running the older encryption technology exhibited the flaw.

D.E.S. encryption is used on about half of the about six billion cellphones in use daily. Over the past decade, most operators have adopted a stronger encryption method, called Triple D.E.S., but many SIM cards still run the old standard. The encryption is used to disguise the SIM card, and thus a mobile phone’s unique digital signature.

Mr. Nohl has shared the results of his two-year study with the GSM Association, an organization based in London that represents the mobile industry, through a process of “responsible disclosure.” On Aug. 1, he plans to present the full details of his research at the Black Hat conference, a computer hackers’ gathering, in Las Vegas.

In a statement, a GSM Association spokeswoman, Claire Cranton, said Mr. Nohl had sent the association outlines of his study, which the organization had passed along to operators and to makers of SIM cards that still relied on the older encryption standard.

“We have been able to consider the implications and provide guidance to those network operators and SIM vendors that may be impacted,” Ms. Cranton said. She added that it was likely only a minority of phones using the older standard “could be vulnerable.”

Ms. Cranton declined to comment on Mr. Nohl’s estimate that 750 million cellphones might be open to attack, saying the association would not comment until it had reviewed Mr. Nohl’s full research findings in Las Vegas. A large maker of SIM cards, the Dutch company Gemalto, said the GSM Association had told it of Mr. Nohl’s preliminary findings. A second maker of SIM cards, the German company Giesecke & Devrient, said it had “analyzed this attack scenario.”

Gemalto has been working closely with the association and other industry groups “to look into the first outline given by Mr. Nohl,” Gemalto said in a statement. The company said the GSM Association had already disseminated Mr. Nohl’s findings to group members.

Mr. Nohl was able to derive the SIM card’s digital key by sending an SMS disguised as having been sent from the mobile operator. Carriers routinely send specially coded messages to handsets to validate customers’ identities for billing and mobile transactions.

For each message, the network and the phone verify their identities by comparing digital signatures. The message sent by Mr. Nohl deliberately used a false signature for the network. In three-quarters of messages sent to mobile phones using D.E.S. encryption, the handset recognized the false signature and ended communication.

But in a quarter of cases, the phone broke off the communication and sent an error message back to Mr. Nohl that included its own encrypted digital signature. The communication provided Mr. Nohl with enough information to derive the SIM card’s digital key.

Mr. Nohl said he had advised the GSM Association and chip makers to use better filtering technology to block the kind of messages he had sent. He also advised operators to phase out SIM cards using D.E.S. encryption in favor of newer standards. He added that consumers using SIM cards more than three years old should get new cards from their carriers.

Giesecke & Devrient, in a statement, said that it had begun phasing out SIM cards using D.E.S. encryption in 2008. The German company said the unique operating system used in its SIM cards, even those running D.E.S. encryption, would prevent a phone from inadvertently sending the kind of “message authentication code” that Mr. Nohl had used to pierce the encryption.

Mr. Nohl said he was not planning to disclose the identities of the operators whose SIM cards had performed poorly in his study at the Black Hat conference in August. But he said that he planned to publish a comparative list of SIM card security by operator in December at a computer hackers’ conference in Hamburg, Germany, called the Chaos Communication Congress.

Strategies: From the Fed and Apple, a Possible Economic Lift

HELP for the beleaguered economy came last week from two powerhouses: the Federal Reserve and ... Apple.

The Fed, believe it or not, was probably the more innovative of the two.

Maybe that shouldn’t be so surprising. These are the post-Steve Jobs years at Apple, after all, a time of big profits and seamless execution. At the Fed, these are the Ben S. Bernanke years, a period of ceaseless experimentation.

The Fed’s latest plan may be the most ambitious of all, but Mr. Bernanke has been coming up with inventive solutions since the onset of the financial crisis in 2007. His previous ventures have been limited in scope — like cutting interest rates or buying bonds, with a clear goal in sight.

Now the Fed is taking on an open-ended commitment to bolster growth and reduce unemployment. The goal is to return the economy and the job market to something resembling a normal state. “We’re looking for ongoing, sustained improvement in the labor market,” Mr. Bernanke, the Fed chairman, said in a news conference on Thursday. “There’s not a specific number we have in mind. What we’ve seen in the last six months isn’t it.”

In other words, if the Fed’s current spate of bond-buying doesn’t work, it will improvise until it finds something that does. Mr. Bernanke embarked on this effort under considerable pressure, all but assured in this political campaign season that he would be harshly criticized.

Apple, by contrast, is operating from a position of strength; it has the highest market value of any company in the nation. But it isn’t taking big risks. With the fanfare of a carmaker back in Detroit’s halcyon days, Apple proclaimed on Wednesday that it was time — yet again — to sell the newest version of its flagship product. The gleaming object of its promotional efforts is, of course, the iPhone 5, “the thinnest, lightest and best iPhone we have ever shipped,” in the words of Timothy D. Cook, Apple’s chief executive.

Not to be outdone, Philip W. Schiller, Apple’s global marketing chief, was, if anything, even more enraptured. “It is an absolute jewel,” Mr. Schiller told a carefully assembled crowd in San Francisco. “It is the most incredible product we’ve ever made, bar none.”

Is it, really? It’s too early to say. The iPhone 5 hasn’t yet hit the market. Tech mavens haven’t reviewed it carefully. But, blemishes and all, previous versions have sold extraordinarily well. There is no indication that this one will be different.

One reason is simply that the base of iPhone customers has become large and well conditioned. It is accustomed to upgrading phones, much as affluent Americans once upgraded to the next new Ford or Buick. “My dad bought a new Cadillac every year,” said Charles Wolf, senior analyst at Needham & Company. “A lot of Apple customers are like that.”

Another crucial factor is the expansion of Apple’s global reach to 250 carrier networks worldwide, Mr. Wolf said, assuring strong global sales. Raw numbers combine with Apple’s continuing finicky attention to quality and design. In his view, Apple’s surge in financial markets will continue unabated, at least for a while. (Its share price hit a record high of $696.98 on Friday.)

“I think there’s no question about that,” he said. “For the immediate future, Apple is extraordinarily well positioned.”

In fact, Apple’s commercial prowess is so well established that the effects of its new iPhone can be predicted and quantified, according to Michael E. Feroli, chief United States economist at JPMorgan Chase. In a research note early last week, he said the iPhone 5’s release could potentially add one-quarter to one-half a percentage point to fourth-quarter annualized growth in the gross domestic product.

In an interview on Thursday, Mr. Feroli said his calculations included only the direct effects of the expected surge in iPhone sales. They didn’t include productivity gains, if any, from use of the new technology, or possible trade-offs made by consumers who might be giving up, say, some nights at the movies to buy the phone. And, he said, he didn’t try to calibrate the iPhone’s impact on employment, which is complicated by the manufacture of much of the phone overseas.

“There are some jobs being created by these sales in the United States,” he said, “but it’s not clear how many.”

Fuzzy as these projections may be, it is much harder to calibrate the economic effects of the Fed’s latest stimulus effort. Mr. Feroli said Fed policy makers recognized that “long-run economic growth usually occurs because of technological developments like the iPhone,” so the Fed was merely “trying to get the economy back on a cyclical growth path, getting it to operate closer to its full potential.”

Viewing the Fed and Apple as dual agents of economic stimulus is probably irresistible, he said, but too literal of a comparison is “misguided.”

“The Fed isn’t trying to engineer the factors that lead to long-run sustained increases in standards of living,” he said. “It’s trying to get the economy working at full capacity again so more people are working and can enjoy the fruits of technical advances like those represented by the iPhone.”

Many commentators, however, couldn’t resist making the comparison.

Philip Swagel, a professor at the University of Maryland School of Public Policy, commented about it via Twitter. “QE3 like iPhone5: expected, not a game-changer,” he wrote, referring to the Fed’s latest round of quantitative easing — purchases of bonds aimed at lowering interest rates. “Fed responding to unemployment and fiscal inaction,” he added.

In an interview, Professor Swagel, who was assistant secretary for economic policy at the Treasury Department from December 2006 to January 2009, said: “It’s hard to second-guess someone as thoughtful as Chairman Bernanke. I understand why he’s doing what he’s doing, and I respect it. I just don’t expect a lot to come from it.”

He said the iPhone introduction was similar: “It’s probably a nice phone, and it’s probably going to produce some employment in retail stores. But it’s not going to change the landscape.”

NO doubt Mr. Bernanke would prefer to stop improvising, and merely preside over a growing economy, as he did all too briefly in 2006 and early 2007.

For Apple, the greatest risk is that, without Steve Jobs to stir things up, it may merely be executing a vision that is already in place. “Steve was an integral part of every one of Apple’s great innovations and disruptions,” Mr. Wolf said. Apple is in a groove, he said, and over the next few years, the company is likely to reap profits big enough to move the markets and the economy. “But you could argue that over the long term, Apple is going to need another big disruption,” he said. “The question I ask is, Who is going to do it with Steve gone?”

This article has been revised to reflect the following correction:

Correction: September 15, 2012

An earlier version of this column misspelled the surname of the co-founder and former chief executive of Apple. He is Steve Jobs, not Job.