The Smartcard Developer Association says it cracked the algorithm used as the basis for the The Global System for Mobile Communications (GSM) -- a digital cellular phone system that is used in about 80 million cell phones, primarily in Europe and Asia. Many US networks are starting to implement GSM standards, too, and this attack was launched against a card issued by Pacific Bell. If the group's claims are true, it could lead to a recall or reissue of the smart cards used in GSM-based phones.

"GSM is likely to face fraud problems of the same magnitude as analog systems have had," said Marc Briceno, a member of the SDA who said that analog systems have lost billions of dollars because of cellular phone cloning.

GSM-based cell phones work with a small card containing an electronic chip called a Subscriber Identity Module card. The SIM card inserts into the back of the cellular phone and contains information that is used to identify subscribers and their account information to the GSM network. The SIM card must be inserted into a GSM Mobile handset to obtain access to the network, and one of the primary benefits of the technology is that cell phones have access to GSM networks worldwide.

However, to clone a SIM card, a would-be cracker would have to have physical possession of one. Unlike the cloning used in analog systems, the crack does not yet include being able to listen in on peoples phone calls or obtain a SIM ID via the airwaves, although the SDA has stated that an "over-the-air attack should not be ruled out."

The SIM uses encryption to keep the identity of the phone secret, and the encryption algorithm used on most of the GSM network is called COMP128. The SDA was able to obtain the secret ciphers used by the GSM network. After verifying authenticity, the group turned them over to UC Berkeley researchers David Wagner and Ian Goldberg, who were able to crack the COMP128 algorithm within a day. In 1995, Wagner and Goldberg succeeded in another high-profile hack when they compromised the crypto code used in Netscape's Navigator browser, which was supposed to secure credit-card transactions.

"Within hours they discovered a fatal flaw," said Briceno. "The attack that we have done is based on sending a large number of challenges to the authorization module in the phone. The key can be deduced and recovered in about 10 hours."

A group of hackers gathered with security and crypto experts Friday evening at a San Francisco hacker club called New Hack City, for a demonstration of the hack, but it never came off. Eric Hughes, a member of the SDA and founder of the Cypherpunks cryptography group, discussed the technical aspects of the hack, but had to give up the planned demonstration after threats of legal action from Pac Bell and other telephone company executives. It is illegal in the United States to possess cellular phone cloning equipment, although legitimate businesses are exempted. The telephone companies dispute SDA's claims to legitimacy.

Wagner blames the ease of the crack on the secrecy with which the ciphers were kept.

"There is no way that we would have been able to break the cryptography so quickly if the design had been subjected to public scrutiny," said Wagner.

The GSM standard was developed and designed by the European Telecommunications Standard Institute, an organization that has about 500 members from 33 countries, representing administrations, network operators, manufacturers, service providers, and users.

"There's going to be an orgy of finger pointing," said Hughes, referring to all the engineers and other people associated with the design of the GSM network.

The SDA say that they were able to crack the GSM network algorithm due to weak encryption in the original design. When the system was being designed, several European government agencies were successful in their demands to weaken encryption standards for government surveillance purposes.

The SDA also claimed that the GSM security cipher that keeps eavesdroppers from listening to a conversation called A5 was also made deliberately weaker. The A5 cipher uses a 64-bit key, but only 54 of the bits are actually in use -- 10 of the bits have been replaced with zeroes. The SDA's Briceno blames government interference.

"The only party who has an interest in weakening voice privacy is the National Security Agency," he said.