-------------------------------------------------------------------------- ___ ___ _________ ___ ___ / \/ \ /\ _____\ /\______ ________/\___ / /\ / /\ / __ __ \\ \ \____/ \/_____|---|____--------_|- / / / / / // \ \ / / \\ \ \____ /___ _`---'___________| / / / / / // /\ \/ /\ \\ \ ___\ _/ _\(_)__// WAKE UP! / /_/_/ / //___/ / \ \___\\ \ \__/ (___)(___)`--' /_________/ / \___\/ \/___/ \ \__\ / (____) \_________\/ 1 9 9 1 - 1 9 9 5 \/__/ \__(__) [Well there seems that there is not enough interest in wireless communications these days to keep groups like the old C.O.P around.. However there are still many independent phreakers out there who know what's up and we hope this information will help guide you in the right path to keep the underworld iLLUMiNATED from the darkness Bill Gates and other POWER mongers are inflicting upon us. so here we go. A Brand NEW system to combat cellular fraud.. lets see if it works.. ..then we'll break it!] - UMF '95 - "WE RULE YOU BY YOUR OWN CONSENT, THEREFORE YOU DESERVE TO BE RULED" -The iLLUMiNATi -------------------------------------------------------------------------- _ _ __ / \ _____/ \ __/ \___ / Y Y / Y \ ___) / | | / \ \__ \ |_| / \ / \ __) \ / Y / | \______\______|___/__| UNiFiED MAGNETTiC FiELDS [1] pRESENTs: Another UnderGround iLLUMiNATiON A U T H E N T I X EXECUTIVE SUMMARY Brought To You By The P/\NTHER-UMF [1. See A. Einstein RE: Philidelphia Experiment/Unified Magnettic Field Theory.] İİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİİ -------------------------------------------------------------------------- Proprietary & confidential by Authentix Network, Inc. Unfortunately for the U.S. cellular industry, their position has been all too aptly described by Rubin Velasquez, one of a new breed of bandit, in a recent Wall St. Journal article. Rubin, who claims to have ripped off a quarter of a million dollars from cellular companies, says the carriers "are losing the battle." "The Phone Companies can't do nothing," he brags. Rubin and thousands of other cellular pirates like him began hitting an unsuspecting industry with a vengeance in the late 1980s. Since then, a minor annoyance for cellular carriers has become their major problem - threatening profits and the very integrity of their systems. Cellular fraud has increased 400% in the last three years. Some estimates peg the theft of airtime at close to $1 billion per year - as much as 7 cents on the revenue dollar. The forces that drove the cellular industry to spectacular growth have contributed to the fraud problem. The major metropolitan markets were built out first, and each carrier's focus tended to be on its home market; therefore, the management and billing systems were based on individual market approaches, not on a nationwide, networked solution. Additionally, the infrastructure was built market-by-market by independent cellular companies with equipment from different suppliers; therefore, opportunities to link markets and rival systems were largely absent. There simply was not a truly nationwide cellular system in the early going. Several years ago, the A-side (non-wireline) and B-side (wireline) cellular carriers each cooperated with a different company to link their local markets. Technically, these linking networks, called SS7 systesm, use high-speed data transmissions lines to link individual cellular switching centers around the nation. In 1993, the major industry association signed an agreement with Independent Telecommunications Network, Inc. to provide B-side carriers with access to that company's SS7 network for the purpose of economically connecting their cellular systems, thereby enabling nationwide seamless roaming capabilities. This meant that the subscribers of these carriers could then travel from their home markets and utilize their cellular phones in another city without the hassle and inconvience that had existed previously. As a result of this linking of markets through SS7 technology, total industry roaming revenue increased dramatically, approaching $2 billion in 1994. Along with this good news for the carriers came the bad news - by making it more economical and trouble-free to roam for their legitimate subscribers, they did so too for those with fraudulent intent. And they did not have a system in place to authenticate that a call made away from a home market by a certain phone number was actually being placed by the person who paid the bill for that phone number. Criminals of all stripes, from normally honest businessmen who are enticed by the prospect of free calls without getting caught to drug dealers who don't want their communications tracked, now have a relatively easy time of it. Cellular phone numbers that are essentially plucked out of the air in one market can be quickly programmed into so-called "clone" phones in another city. In fact, stolen phone numbers from a given market can be sold to users in several other cities and used simultaneously! Authentix Network, Inc. ("Authentix") was founded to provide the U.S. cellular industry with the technology it needs to effectively combat this pervasive fraud - a nationwide authentication network, integrated with an existing SS7 network. Mal Gurian, who was president of OKI Telecom when an OKI phone was utilized to make the first official phone call on a commercial cellular system in October, 1983, is CEO and one of the founders of Authentix. The proprietary Authentix technology meets all of the characteristics of the ideal solution as outlined by the major cellular carriers and the major industry association. It is a nationwide, networked solution that minimizes roaming fraud while allowing easy access to legitimate subscribers. And it does not require replacing or retrofitting existing cellular phones. Most importantly, it provides authentication of roaming calls prior to the call being connected, before the expense is incurred. Strategically, Authentix meets another important consideration for the various cellular companies. Authentix and its outsourcing partners are independent of any given carrier. Therefore, the carriers will not be required to share their subscriber information with rival systems. Authentix, with a seasoned and accomplished team of marketing and technical people, will launch its system by leveraging the powerful capabilities of two other communications companies. Authentix is currently operating under a preliminary agreement with Independent Telecommunications Network and a July 17, 1995 date has been agreed upon to complete a more extensive, final agreement. A final agreement with National Dispatch Center, the outsourcing partner selected to provide authentication center services, is also contemplated within two months. Although the immediate focus of the Authentix team is to rapidly deploy its nationwide system to solve the roaming fraud problem, the company has significant other opportunities once its netowrk is in place. Authentix plans to leverage the capabilities of a netowkr and authentication center that links the switches of many carriers and tthat also has the capability of confidentially handling proprietary subscriber records. The company will also be in a position to address significant fraud problem within each home market and to offer other value added network services to the carriers on a cost-effective basis. BACKGROUND The explosion of cellular communication over the past decade has truly been one of the premier success stories of U.S. industry. The first U.S. cellular systems went operational in late 1983. By late 1984, there were only about 300,000 subscribers to a few systems. From that base, the number of cellular subscribers increased to 24,000,000 over the next 10 years. During the most recent full year, the number of subscribers grew nearly 8,000,000 a 50% increase. The focus of the cellular industry in its early years was to build out the largest metropolitan area first and then to acquire as many subscribers as possible for these markets. Individual carriers built their infrastructure to cover a city and then built more to cover it better. Virtually all carrier planning and effort was aimed at serving the customers within their home city while they were originating calls from their home city. Very little emphasis was given to the business that could be generated from a carrier's customers traveling, or roaming, to another system and utilizing their cellular phones away from their home city. In general, the systesm were not mature enough to make such roaming easy or economically attractive - and there was plenty of profit margin and potential in the first large markets to soak up much of the available investment capital and management attention. As a result of this focus, the cellular business grew quickly, with most of the subscribers located in the major metropolitan areas. This was so for both A-side carriers, the non-wireline companies, and the B-side carriers, the wireline companies such as the Baby Bells and GTE. Generally, both the A-side and the B-side carriers in each city were independent companies whose focus was their home city market; they were not focused on a nationwide market. The management of thses businsses tended to be 'home grown' that is, because each market was basically a local business, the management and billing systems tended to be based on individual market solutions, not overall network solutions. In fact, in the early going, it would have been a stretch to consider that a true nationwide network existed. However, the makeup of the total cellular customer base has gradually changed. In 1985, virtually 100% of all subscribers were located in just a few metropolitan markets. But, as recently as 1992, only 40% of all cellular subscribers were located in the top ten markets; by 1994, this concentration in the top ten markets was down to 31%. The early significant growth in cellular subscribers has accelerated in more recent years. The underlying key reasons for this huge growth have been 1) decreasing prices for both cellular phones and service and 2) the increasing demand for cellular service. Business usage has always bben the significant segment of cellular usage and these two forces have resulted in a growing percentage of businesses that subscribe, to nearly 70% today. These same key forces have also driven the personal market for cellular service. In addition, cellular coverage in both rural areas and smaller cities has continued to expand. More and more of the population now has continuous access to more consistent cellular service. This spectacular expansion of the U.S. cellular industry is expected to continue for the next ten years because the underlying dynamics are still operative. 1) The effective cost of cellular ownership, the combined effect of the amortization of a phone purchase and service rates, will continue to decrease. * The average cost of a mobile phone has decreased from $1,478 in 1985 to #313 in 1990 to about $120 today. In fact, in many major markets today, portable cellular phones are offered for free to new subscribers who sign up for certain service packages. * Monthly revenues per subscriber have decreased from $197 in 1985 to $82 in 1990 to about $59 today. [Although monthly revenues per subscriber is a function of both minutes used and service rates, a comparison of such average revenues is a good indication of the trend of service rates.] 2) And demand will be stimulated by greater marketing and advertising, expanding distribution, greater telepone functionality and the transition of the product/service to a "life style" accessory. * A driving force for this stimulation of demand by cellular carriers is the recent government auction of PCS wireless licenses which will become operational systems in 1997 in some major markets. The cellular carriers are motiveated to expand their subscriber base as broadly as possible before competing systems come online. * The carriers are still signing up as many customers as possible to their analog system even though they are now working on building digital systems. Their thinking is that it is better for them to have an analog customer now and convert them later to digital. Herschel Shosteck of Herschel Shosteck Associats, Ltd., a leading industry analyst, forecasts subscriber growth to 32,000,000 in 1995, 42,000,000 in 1996 and 47,000,000 in 1997. By the end of 1997, the industry will probably have doubled in size again over its customer base in 1994. In ten years, by the year 2005, it is anticipaged that there will be nearly 90,000,000 cellular subscribers in the U.S. At that time, cellular penetration (the ratio of subscribers to total population) is forecast to be 32% vs. about 9% today. In general, the cellular industry is very healthy and enjoying substantial growth and profitability. However, some of the very elements that have caused the cellular industry to grow and prosper have also generated one of its major challenges. THE PROBLEM The growth in U.S. cellular subscribers that will lead to industry service revenue of about $18 billion this year has been strengthened by the buildout of systems that now cover virtually 100% of the population. Historically, these different cellular systems were built to serve a specific metropolitan or geographic area and were more independent of eath other than joined. However, the recent introduction of networks to seamlessly interconnect these cellular "islands" has fueled a dramatic usage in subscribrs roaming to a system other than their home city. From none at all in 1984, roaming revenue gerw slowly to $455 million in 1990 and then surged to $1.8 billion in 1994. Total U.S. roaming revenue will exceed $2 Billion this year and the percentage of roaming to total subscriber revenue has continued to increase over the past three years. It is clear that the ubiquity of cellular systems and the demand of subscribers to utilize wireless communication, wherever they happen to be at the moment, will result in continued significant growth in roaming revenue for cellular carriers. The nature of the market-by-market development of the cellular infrastructure and the systems that cellular carriers utilize for billing, management information systems and control has left open the door to users who wish to defraud the carriers. Users with an intent to defraud are stealing unique identification codes (electronic serial numbers from phones, or ESNs) from legitimate subscribers n one city so that they can program "clone," or counterfeit, phones to then use fraudulently in other cities. And because the industry has developed to a point where roaming everywhere is easier and local markets are now connected via a seamless nationwide network, the amount of roaming fraud has exploded. Reducing cellular fraud is now a top priority of every major U.S. cellular carrier and CTIA (the Cellular Telecommunication Industry Association), themajor industry trade association. The total amount of cellular fraud from all sources is estimated to be a minimum of $500 million this year! Some industry observers put the cellular fraud figure as high as $1 billion this year - nearly 7 cents of every revenue dollar. Cellular carriers are extremely concerned about this problem because it costs them so much today. And they are doubly concerned because they already know what the near future holds for them. * Monthly subscriber revenue will continue to decline from its current $59 per month; * Montly revenue from new subscribers is already $10-11 less per month than average monthly revenue and will also continue to decline-most of the business people who have need of a cellular phone already have it; a greater share of new subscribers are first-time users, many of whom cannot afford larger cellular bills and want the phone for the personal convinence it affords or the security of accessing wireless communication in the event of an emergency; * Although there will continue to be some investment in infrastructure, the bulk of that infrastructure investment is already made and those costs are relatively fixed; * As revenue and margins per subscriber declline, the control of non-system costs such as marketing and other costs of subscriber acquisition, subscriber maintenance, billing costs and fraud will become even more important than they are today. The major cellular carriers know that the low hanging fruit has ben picked. Most of the potentially heavy business users that were willing to pay more for wireless communications are already on a cellular system. This means that the components of the carrier's profit picture are considerably different now than it was five years ago. In a future environment with a much larger subscriber base with much lower average subscriber revenues, the carriers know that control of their business (e.g. appropriate billing and management information systems and effective fraud control) will be the key to their profits. In addition to the pure, measurable hard costs of fraud today, there are additional opportunity costs that loom large for cellular carriers: * Carriers would like to reduce the service cost of roaming so that when a user travels to another city, the cost of utilizing his cellular phone is more competitive with the alternative of the combination of a pay phone and a calling card; * The major B-side carriers, such as the Baby Bells, have made application to resell long distance service. If eventually, as seems likely, they are permitted to do so, they will become responsible for the long distance portion of fraudulent roaming calls, the cost of which is substantial; * Cellular subscribers can be inconvenienced and frustrated by carrier attempts to limit fraud by limiting all calling. Last year, LA Cellular customers were not permitted roaming at all for a time in Seattle; for several months last year, essentially all roaming was shut down between New York City and Washington, D.C.; * Often, fraudulent users are stationary; they are utilizing the same cell sites while making their fraudulent calls. At certain times at certain cell sites, it is estimated that up to 80% of the cellular transmissions are fraudulent. This can result in both frustration for legitimate users who cannot get an available voice channel and lost revenue for the carrier. THE SOLUTION As one would expect from an infrastructure that was built market-by-market by many different entities using sometimes incompatible equipment from differen tsuppliers, hostorical approaches to the fraud problem have generally been customized for each carrier's home markets. The carriers' focus was traditionally on operating their systems for their individual markets, and they did not approach their business generally with the roaming customer as a priority. In fact, home market approaches to the roaming fraud problem have exacerbated the problem in some cases and differences among carriers have sometimes actually increased the opportunities for fraud. According to the major cellular carriers and CTIA, theideal solution to the roaming fraud problem would have the following characteristics: 1) Must be a networked, nationwide solution. 2) Must minimize roaming fraud and yet still allow legitimate subscribers access to a national roaming system; 3) Must not involve replacing or retrofitting subscribers' cellular phones; 4) Must authenticate attempted roaming calls in advance, before the call is connected and the attendant expsnse incurred; 5) Must be capable of being integrated with home market fraud control systems in a manner that enhances their performance; 6) Low up front cost to implement; and 7) Available as soon as possible for rapid deployment. To date, industry approaches to the fraud problem have generally taken two directions utilization of either post-call profiling or special codes (PIN) for users. POST-CALL PROFILING Post-call profiling is essentially a monster data base that compares recent calls placed from a specific cellular phone number with a pattern of usage based on the average cellular user of a particular system. In the event that recent calls are out of the historical average pattern - for example, 10 international calls a day for 10 consecutive days - then the carrier has the option of taking some action. They might call the subscriber to verify he's making or authorizing the calls or they can simply terminate service to that number. The major disadvantage to post-call profiling is that it is post-call. It is a mechanism that has the limited objective of eventually discovering only the greatest abuses - but fraudulent calls can continue to take place. Another major disadvantage is that post-call profiling is impractical to implement on a nationwide scale, which means that although it might somewhat reduce fraud within an individual market, it does not really address the problem of a stolen number from one city being used in another city. Additionally, post-call pforiling has a very high cost if it is implemented on any scale at all for a carrier and the administrative burden of such systems is considerable. This approach has inherent limited accuracy, because the data is based upon overall averages; therefore, the benefit-to-cost ratio is not attractive. SPECIAL CODE (PIN) The special code, or PIN, approach to the fraud problem is simply the issuance of a special number to legitimate subscribers. One of the PIN methodologies requires that subscribers input their PINevery time they attempt even a local call prior to the local cellular system allowing connection of that call. A major disadvantage to such a system is that not all carriers will implement such a system because their customers do not like the inconvenience in their home market. Customers are generally not satisfied with local calling service that requires more procedures than simply dialing the local number and being connected. In reality, this approach does shove the burden of combating fraud to the legitimate user. Another disadvantage is that a local PIN transmission is susceptible to interception by other who have fraudulent intent. Because the transmission of the PIN is accomplished over one of the few control channels to the local cellular system, it does not take sophisticated or expensive equipment or advance engineering to steal the PIN from the airwaves in the same manner that ESNs may be fraudulently acquired. And again, this approach is not easily networked to other markets because there are two differnt forms of PIN fraud control available. Additionally, different cellular systems utilize infrastructure hardware (and therefore, software) from different suppliers that will not support a nationwide PIN solution. Other The eventual changeover to digital technology for U.S. cellular promises to make it possible to combat fraud more effectively sometimes in the future. The reality, however, is that the digital roll-out is years behind original industry estimates and a fully built out digital system is not now expected until the year 2005 or beyond. Even when implementation on a large scale is well along, virtually all new phones sold will be dual-mode (both analog and digital) and there will also still be tens of millions of purely analog phones in use; a digital solution won't be completely effective while a significant number of phones are still operated in the analog mode. At current fraud levels of $1/2 to $ billion per year, the carriers simply cannot wait for the promised digital solution. One way of viewing the near-term application of the Authentix proprietary technology is as a bridge to a yet-to-be-completely-definted future digital wireless world. THE AUTHENTIX SOLUTION On the surface, the Authentix solution to the roaming fraud problem is simplicity itself. A subscriber from a home market has to do nothing when he plans to travel to another city and use his cellular phone. When he turns on his phone prior to making his first cellular call in the roaming city, * the cellular switch in the roaming city forwards his call to Authentix; * the subscriber is requested to provide an authentication code; * Authentix matches the code and the caller is instructed to push the send key on his phone; and the, * the cellular switch in the roaming city will then process his calls. From the subscribers' point of view, this authentication process will be much like his use of the long distance calling card that he uses when he travels, except much less time consuming. Travelers know and expect that operating away from home requires adjustment and procedures that take a bit more time. When they're home, they can simply get in their car and go. While traveling, they've got to call a cab and pay for it. When they're home and they're tired, they can simply fall in bed. While traveling, they've got to register at a hotel and make payment arrangements. When they're home, they can simply dial all over the world. While traveling, they've got to enter digits to access their long distance carrier and then enter more digits to pay for their call. HOW AUTHENTIX WORKS Although, to the subscriber, the Authentix solution appears to be simply a PIN that protects the security of his phone number and account, it is in reality a sophisticated nationwide network that provides huge advantages to the cellular carriers that participate. Until fairly recently, a cellular subscriber who traveled from his city and wanted to roam with his phone faced sometimes daunting registration codes and procedures, and oftentimes, roaming was simply not allowed between certain areas. In late 1993, CTIA and Independent Telecommunications Network, Inc. ("ITN"), signed an agreement to provide B-side cellular carriers with access to ITN's SS7 network for the purpose of economically connecting cellular carriers, thereby enabling nationwide seamless roaming capabilities. Just as ITN provides this function for the B-side carriers, North American Cellular Network ("NACN"), a subsidiary of McCaw/AT&T, serves a similar function for the A-side cellular carriers. Technically, the system uses high-speed data transmission lines, such as ITN's SS7 network, to link individual cellular switching centers around the nation. When a cellular customer travels or roams away from home, he turns on his phone. The roaming city system receives the phone's Mobile Identification Number ("MIN") and ESN, recognizes that this is not a local subscriber, and uses an SS7 network, such as the one provided by ITN, to reach the subscribers' home system. In that event, ITN accesses the subscriber's record in a Home Location Register ("HLR") of the home citty carrier, which contains that subscriber's identification information and also contains information on the options available to that subscriber, such as voice mail and call waiting and preferred long distance carrier. In other words, ITN accesses information in the HLR to verify that the MIN and ESN which is attempting to make calls on the roaming system belongs to a valid customer in the home system - that there is a name and address and a customer in good standing to send a bill to. ITN takes the information accessed in the subscriber's HLR and transfers it to a Visitor Location Register ("VLR"), thereby advising the cellular system in the roaming city to connect all calls initiated by the MIN and ESN which is attempting to make calls and to allow certain options to this phone number. This process takes place in a fraction of a second and is transparent to the user. With the implementation of the ITN SS& system, relatively trouble-free nationwide cellular roaming is now the norm. And the roaming cellular carrier now has a valid account name to bill for calls made on a particular MIN and ESN before roaming calls are connected. The problem is that, although the roaming city carrier now knows from the VLR that there is a valid subscriber attached to a particular MIN and ESN, the carrier still does not know whether the MIN and ESN is being used by the valid subscriber or whether the codes have been stolen and are being utilized fraudulently. To make matters even worse, a stolen MIN and ESN could be used in many cities simultaneously, so long as the subscriber is considered valid by the HLR. The current system transfers subscriber records from the HLR to the VLR and flags them as "valid", meaning that a valid subscriber in good standing belongs to a certain MIN and ESN. The Authentix network sysem basically co-resides with the current ITN SS7 network. With Authentix, when the HLR is access and the record is transferred to the VLR (enabling the roaming carrier to connect calls), Authentix 'grabs' a copy of the record and essentially changes the "valid" flag to "valid but not yet authenticated". That "valid but not authenticated" flag is then sent again to the VLR and overwrites the record that was just received a fraction of a second before. The user is then prompted to provide his unique code. If the correct code is provided by the individual attempting to place the call, then Authentix knows that, in addition to being a valid account in the home city, the current caller is actually the individual that legitimately owns the MIN and ESN. Authentix then changes the code on the subscriber's record to "valid and authenticated" and the record is again sent to the VLR and updates the existing record. The roaming carrier then connects the call of the authenticated subscriber. With the Authentix system in place, these validation and authentication processes take only seconds to accomplish - less time than it currently takes to set up an average cellular call. The result of the Authentix authentication system is that the roaming carrier system knows before roaming calls are connected that the phone attempting the call actually belongs to a valid customer in a specific home city and that the person attempting the call is the valid subscriber. The authentication center for Authentix will be operated through the facilities of National Dispatch Center ("NDC") in San Diego, California. NDC is a "wireless gateway" company providing many interconnect services and operator dispatch services for wireless communications on a nationwide basis. Although the prompt given to a roaming subscriber, requesting his unique identification code, will be by means of an automated interactive voice response technology, NDC has multilingual customer service operators available 24 hours a day to handle special situations or problems. A comparison of the proprietary Authentix solution to the roaming fraud problem vs. the stated requirements of the major cellular carriers and CTIA is illuminating. Comparison of Authentix solution vs. carrier requirements: Requirements of cellular carriers for a roaming fraud control system Authentix Solution? -------------------------------------- ------------------- Networked, nationwide? Yes Minimize fraud, yet fully allow legitimate usage? Yes No requirement to retrofit phones? Yes Pre-call authorization? Yes Integration with existing home market systems? Yes Low up-front cost? Yes Rapid deployment? Yes STRATEGIC RELATIONSHIPS AUTHENTIX & INDEPENDENT TELECOMMUNICATIONS NETWORK Inc. (ITN) ITN provides advanced, standards-based, out-of-band signalling services using Signaling System 7 (SS7) technology. ITN was founded in 1988 by a group of Independent Telephone Companies (ITCs) for the purpose of providing SS7 services to the entire telecommunications marketplace and teh company became operational in 1990. It is still a private company with the majority ownership held by the leading ITCs. ITN currently provides SS7 services to ITCs, Regional Bell OPerating Companies, Interexchange Carriers (IXC), Operator Service Providers (OSP), Commercial Card Validators and Cellular Carriers. ITN is the SS7 hubbing vendor for five of the seven Region Bell Operating Companies, 90% of the ITC OSPs, and the major IXC OSPs. The ITN SS7 network technology provides basic transport services for call set-up and take-down, both line information and 800 database access, customer detailed billing, international calling card capabilities, cellular seamless roaming, private networks, and access to the advantages of the Advanced Intelligent Network. The company sspearheaded interconnection to all line information databases in the U.S. In fact, ITN was the first SS7 network to be fully interconnected with all other SS7 networks. ITN has recently expanded its SS7 network by deploying additional switches throughout the U.S. This expansion program was initiated to provide improved SS7 access to all present and future SS7 supported services for its client companies. ITN recently announced a significant alliance with Tandem Computers Inc. to develop a fully customized Advance Intelligent Network service architechture dedicated to providing customers with both flexibility and accessibility in creating AIN services for their subscribers. This offering called A(2)IN, will allow for complete and cost-effective customer control of AIN service creation, customer ownership of all data, as well as optional AIN functionality distributed to the customer premise. Authentix and ITN entered into an agreement dated April 7, 1995 whereby: 1) The parties agreed to time frames for delivering development plans, schedules and testing dates for the Authentix system; 2) The parties agreed, on a best efforts basis, to agree upon and execute a contract by July 17, 1995. The contract wil define the future relationship between the parties, whether joint venture, equity participation by ITN in Authentix, outsourcing contractors, etc., and if applicable, any development, software or hardware fees to be paid to ITN; 3) Authentix agreed to provide ITN the exclusive right, for 90 days, to negotiate with Authentix for the provision of SS7 network connectivity, signal transport and any directly connected components of the Authentix system; 5) Authentix provided ITN the exclusive right, for 90 days, any required outside capitalization or financing, including but not limited to some form of equity ownership, except that Authentix is not precluded from investigating other forms of outside financing; 6) ITN agreed to pay Authentix $120,000 during the 90 day evaluation period to defray certain costs of investigation, and development, and 7) Both parties agreed that neither Authentix nor ITN will gain any ownership rights, assignments or licenses as to the intellectual property of the other party under the agreement. AUTHENTIX & NATIONAL DISPATCH CENTER (NDC) When NDC was founded in November of 1990, its initial goal was to create an electronic network whereby sending a wireless message, to anyone in the country, regardless of their paging carrier, would be as easy as picking up a telephone or turning on a computer. NDC also wanted to make wireless information services widely available and inexpensive so that wireless carriers could offer them as value added services that consumers could afford. In addition, those services needed to be provided by a system with unsurpassed reliability. NDC has succeeded in accomplising its initial goals and is today the nation's leading provider of such services. NDC has continued to grow and now provides a single electronic gateway fo ra multitude of custom interfaces. The company specializes in creating new capabilities for existing communications technologies and in adapting software for the seamless handling of multiple protocols. NDC's unique operating network, composed of hundreds of processors utilitzing a distributed processing system, allows for virtually unlimited growth. NDC's system design elements are supported by multi-level redundant components, designed to continue reliable operation with little or no service interruption. All systems are monitored around the clock, every day of the year, by qualified technicians and engineers. Every major component has been mirrored, from multiple servers and modems to separate incoming communications circuits provided by different carriers. Should one local access provider's communications grid go down for any reason, another takes over, instantly and automatically. NDC also uses several long distance providers, with the ability to switch from one to another, if necessary. A major goal of NDC's electronic communications gateway is providing services in a manner that is easy for carriers to access. The principals of Authentix have a long relationship with the founder of NDC and have a complete understanding of the unique capabilities of NDC and the functioning of their systems. Because of that and because of NDC's position as the nation's leading wireless gateway company, Authentix has chosed NDC to be our outsource authentication center for the roaming anti-fraud network. Authentix and NDC have agreed on the suitability of NDC to provide: * the management of subscriber data bases that will have been supplied by the cellular carriers in order to authenticate their customers; * secure facilities for sensitive carrier data and codes; * interactive voice response services; * backup customer service operator services; * future value added network services; and * billing services. NDC is positioned to be the Authentix outsource authentication center because they currently offer a unique range of services and, because they of their existing high volumes, can offer very low transaction costs. NDC already has in place a premier quality assurance and training program and are currently handling the highest volumes in their industry. Their systems and infrastructure are already in place and operational and their reliability and quality have been proven over time. Additionally, NDC is currently providing services to many of the large companies that Authentix will market to, carriers such as McCaww, AirTouch, Ameritech and Bell Mobility Canada. Authentix and NDC have agreed upon the basic framework for the provision of services to Authentix. The parties are currently working on the specifics of a final agreement that will include definitive pricing, development scheduling and costs and the exact form of the relationship between NDC an Authentix. It is contemplated that this agreement will be finalized by June 30, 1995. COMPETITIVE ADVANTAGE The competitive advantages that will belong to Authentix are significant. Once the system is rolled out, these advantages will present formidable barriers to entry to possible competition. They are: * Authentix will have exclusive agreements with the nation's largest cellular carriers, those that have the greatest fraud problem today and are the most highly-motivated to solve it; * Authentix will necessarily have access to and control over the unique subscriber authentication codes for these carriers; * Authentix is an independent company not providing carrier services and therefore not competing with its customers; * Authentix plans to have agreements with the two major intercarrier network providers, ITN and NACN - potential competitors would have to create and implement a new nationwide network; * Authentix plans to protect its technology by obtaining a system patent - potential competitors would have to create a different architecture; * Authentix is leveraging the millions of dollars of investment by NDC in network infrastructure and operator services - potential competitors would have to build and support a similar infrastructure; * Authentix has already built awareness by the industry's leading fraud experts and the leading industry association; and * Authentix has an experienced, professional management whose depth and breadth of industry contacts is difficult to match. PROPRIETARY TECHNOLOGY Authentix has retained experienced patent counsel through the firm of Flehr, Hohbach, Test, Albritton & Herbert of San Francisco, California. Although it is not possible to obtain a patent for the concept of an authentication network and center, patent counsel at Fleh, Hohbach has advised the company that a strong system patent can be obtained for the implementation fo the proprietary Authentix software and that additional patents may be obtained for the enhancements to the existing cellular intelligent networks for the purpose of defeating clone fraud. Additional patents in the area of advanced authentication techniques for analog phones are also being explored. Authentix has already filed for trademark protection for the Authentix name. Additionally, the necessary disclosures by the company have been complented and appropriate patent searches have been completed. The patent filing area currently being prepared. STATUS & MILESTONES Status: Authentix has: * Retained top counsel for coporate legal work, Wilson, Sonsini, Goodrich & Rosati, and experienced patent counsel, Fleh, Hohbach, Test, Albrittion and Herbert; * Assembled experienced and accomplished founding management team and technical consultants; * Although CTIA, as a matter of policy, won't endorse an individual company's technology, the company has worked closely with the Director of Fraud Prevention of CTIA to validate the Authentix solution; * Identified the key components necessary to being providing a nationwide, networked service; * Entered into development agreement with ITN, a leading provider of intelligent network services; * Leveraged long personal relationships between the founders of Authentix and the founder of NDC to forge a working relationship with NDC, the company that will provide certain authentication center services; * Obtained agreement from two cellular carriers, McCaw/Cellular One in New York City and U.S. Cellular Knoxville, Tennessee, to participate in initial testing; * Established working relationships with major carriers such as McCaw and AirTouch; * Been chosen by North American Cellular Network, an AT&T/McCaw intercarrier network subsidiary, to present the Authentix solution at their annual conference in May, 1995 * Been chosen by the Institute for International Research to present the Authentix solution at the major cellular fraud conference in June, 1995; * Been invited by CTIA to present the Authentix solution to leading fraud managers in May, 1995; * Had preliminary discussions with several leading suppliers to the wireless industry with an objective of forging additional strategic relationships for both the first Authentix service and planned future intelligent network services; and * Operated in a startup mode wtihout compromising the company's financial flexibility - no equity dilution or debt. Milestones: Management has identified the following important future events: 5/15/95 Initial trial of Authentix protocols with the participation of ITN and two cellular carriers, McCaw/Cellular One in New York and U.S. Cellular in Knoxville, Tennessee; 5/17/95 Complete the alpha trial planning; 6/15/95 Complete the alpha trial with the participation of ITN, NDC and at least two cellular carriers 6/25/95 Sign agreement with NDC with final pricing and development costs; 6/30/95 Obtain board approval from ITN; 7/17/95 Sign agreement with ITN, incorporation the relationship of ITN as a network supplier only or as both a network supplier and an equity participant in Authentix; 8/15/95 Obtain Memorandum of Understanding from at least one major cellular carriers, with a future relationship dependent upon successful beta testing 8/30/95 Complete the 'two market' beta test: 9/30/95 Complete the final development of the Authentix system in preparation for full follout; 10/15/95 Begin authenticating in multiple markets with at least one major carier. 10/31/95 Generate first Authentix revenue; 11/30/95 Finalize a strategic relationship for the delivery of Authentix services 12/31/95 Obtain subscriber information and be authenticating for 1,000,000 carrier subscribers, basically a couple of major markets 06/30/96 Obtain subscriber information and be authenticating for 3,000,000 carrier subscribers, and 12/31/96 Obtain subscriber information and be authenticating for 8,000,000 carrier subscribers. MANAGEMENT MAL GURIAN - CHAIRMAN, PRESIDENT & CEO Mal Gurian is one of the pioneers fo the personal communications industry. he began his career as the Vice President of Radio Telephone Corporation in 1960. He then became Senior Vice President of Aerotron Inc., a Siemens company. In 1980, three years before the launch of the first commercial cellular service in the U.S., Mr. Gurian was recruited by OKI Electric Industries Company of Japan to start and build OKI Telecom, that company's Cellular Telephone Division. While President and member of the board of directors of OKI Telecom's Cellular Telephone division, the world' first manufacturer of a cellular telephone, Mr. Gurian was responsible for OKI receiving the first FCC type certification for a cellular phone. Following the divesiture of AT&T, he was instrumental in negotiating for OKI the only private label contracts with the seven Regional Bell Operating Companies. Under Mr. Gurian's leadership, OKI Telecom quickly became the premier provider of cellular phones to the U.S. market. Also, he was instrumental int he company's introduction and successful marketing of several new products, including the first briefcase portable cellular phone, the OKI/Chrysler "Visor Phone" and OKI's credit card "Swipe" phone. Mr. Gurian remained a member of the board of directors and served as an advisor after leaving OKI. He served as President of Cartell, Inc. in Detroit and Cellcom Cellular Corporation in New Jersey until late 1991. He then became Chairman and Chief Executive Officer of GlobalLink Communications, Inc. and remains in this position currently. Mr. Gurian has developed strong relationships with all the major cellular carriers and is frequently consulted by industry leaders on important issues affecting the industry. He serves as a moderator and speaker in numerous industry conventions and forums. In addition, he has recently served as an advisor to many major companies, such as Sony, Murata, and TRW as a corporate and strategic consultant. He operated as Executive Advisor to TRW Wireless and was charged with the responsibility of seeking strategic partners, recuiting top-level communications executive and advising TRW executive management during the sale of the wireless business unit. Mr. Gurian has been chosen to serve as an arbitrator for the American Arbitration Association and is on the Advisory Board of Sims Communications, Inc. of Delray Beach, Florida. He also serves on the board of directors of Electronic Communications Corporation of Fairfield, New Jersey. As a result of his significant contributions to the wireless communications industry, Mr. Gurian has received many honors and awards. He is a recipient of the "Sarnoff Citation" from the Radio Club of America, in addition to that organization's "Special Service Award" and "Fred Link Mobile Radio Award." He has also been the recipient of the "Chairman's Award," the highest recognition bestowed by the National Association of Business and Educational Radio (NABER) based in Washington, D.C., in addition to serving as Director of that orginization. Mr. Gurian is currently a Fellow and President Emeritus of the Radio Club of America. He served as a director of the Radio Club from 1977 to 1980, Vice President from 1980 to 1992, Executive Vice President in 1993 and President in 1994. He is a veteran of World War II having served with the U.S. Marine Corps during seven major South Pacific campaigns. He is listed in the Marquis "Who's Who in America: and the Marquis "Who's Who in the World." PETER McCoy - Vice President , Marketing & Planning Mr. McCoy is a leading specialist in the introduction and marketing of high-tech products and services. His carreer is marked with significant marketing successes, especially in the fields of personal computers, cellular and data communications. While serving as Director of Corporate Planning Services for D & B Information Services, he successfully introduced one of the first online information services. During his tenure at GRID Systems, he was instrumental in the introduction of hte first laptop computer. While at Eagle as Director of Sales, he introduced the first portable computer with a built-in hard disk. During the startup of Universal Cellular, Inc., Mr. McCoy served as Vice President of Marketing and was responsible for hte product introduction and marketing for the first cellular phone with a built-in pager. When he served as Director of Marketing and Sales for TRW Wireless, he headed up the marketing and sales team that introduced the first cellular anti-fraud produect designed to detect and terminate fraudulent cellular phone calls within the home markets of cellular systems. Mr. McCoy has also led several important consulting projects. These have involved technologies such as the first transmissios of data over cellular and the utilization of cellular for emergency communications backup. During his twenty year carreer, Mr. McCoy has won numerous awards for his marketing achievements. These include Cellular Marketing's Advertisement of the Year and the Industrial Design Society's Product of the Year Award. He has significant experience and has achieved considerable, measurable success at getting very high visibility for his products and services, including coverage on CNN, The Discovery Channel and numerous regional television and radio stations. He has also commanded significant coverage for his product and service introductions in publications such as Time, Fortune, The New York Times, and the Wall St. Journal. Mr. McCoy has a degree in Economics and Business Studies from Sheffield, England and continued his educations with MBA studies at the University of San Francisco. He was recently elected a member of the prestigious Radio Club of America. MICHAEL POWELL - Vice President, Business Development Mike Powell is one of the development pioneers in the wireless communications industry, with twenty years of successful business development experience. He began his career in 1975 in a family-owned enterprise where, at an early age, he learned the business of wireless communications "from the ground up" During his early experiences as a tower installer and FCC licensed bench technician and field sales representative, he had the advantage of learning from some of the brightest in the business. In 1980, Mr.Powell was hired by Motorola C & E as a field representative and was later promoted to National Telephone Market Group where he managed Motorola's subscriber paging and mobile telephone business for companies such as Pacific Bell, Nevada Bell and the Independent Telephone Companies throughout norther California and Nevada. Mr. Powell was recruited by PacTel Mobile Access (now AirTouch) in 1985 as a Sales and Marketing Manager to assist in pioneering their cellular systems in California. While there, he developed a highly successful distribution network of over 60 agents and dealers and had responsibility for major account sales. It was during this experience that he developed a strong interest in, and appreciation for management information systems and made the decision to develop his knowledge and skills in information systems as the foundataion for his career in wireless communications. He later worked for Automatic Data Processing, one of the nation's most successful outsourcing providers, in 1988, to develop ADP's outsourcing markets in southern Arizona and Nevada. He was recognized as the company's district manager of the year in 1990. As National Sales Manager of Subscriber Computing, Inc. oe of the leading wireless dispatch (paging) providers of billing services, he was charged wtih the expansion of the company's business into the cellular arena. Mr. Powell's business unit developed real0time information systems and successfully marketed and deployed these systems domestically and internationally. Most recently, Mr. Poweel joined TRW Wireless Communications to head up business development for this commercial business unit of TRW, one of the leading providers of advanced radio frequency technologies to the U.S. defense industry. He helped to create and implement the marketing plans, business plans, and product development plans to commercially diversify TRW. He was an important player on the team that generated $24 million in pre-production letter of intent for TRW Wireless' anti-fraud product offering and a key contributor to the effort to package and eventually sell that business unit. Mr. Powell studied business management and marketing at Westminister College in Salt Lake City, Utah. He is a member of the Radio Club of America. HARRY A. YOUNG - CONSULTANT After a 29 year career with AT&T, Bellcore and BellSouth, Mr. Young joined Malarkey Taylor Associates/Economics and Management Consultants International (MTA/EMCI) as a Consultant to the Firm and Member of the Board. In that capacity, he participates in due diligence reviews and provides advice on new wireless services, economic analyses, regulatory assistance, and technology and strategic planning. He has published a book, Wireless Basics, and is a frequent speaker at industry events. He has also conducted a number of public seminars on wireless interconnection. Mr. Young is a Senior Member of the IEEE and is Chairman of the Wireless Interconnectiona nd Numbering Committee (WINC) for the personal communications Industry Association (PCIA). Mr. Young holds a B.B.A. degree fro mthe University of Miami and M.S. degree from Columbia University. THOMAS A. BRESON - CONSULTANT After eary-career experience at Ford Aerospace and Communications Corp. and at the IBM Research Center, Dr. Berson was co-founder and director of Sytek, Inc. He built this data communications equipment company from a startup to revenues of $100 million in seven years. Dr. Berson led security projects for Sytek that included the design, implementation, manufacture and support of Secure LocalNet, a LAN with end-to-end DES encryption at the transport layer utilizing KDC key management; the conception, design, implementation, manufacture, marketing and support of PFX, a personal authentication system employing one-time passwords in a challenge-response protocol, and the design, prototype creation and verification of "SEALION", a processor-per-domain architecture for GUARD (filter in the classification domain) applications. After selling Sytek in 1986, Dr. Berson founded Anagram Laboratories, an independent consulting company on issues of computer and communications security for market-leading companies. His recent projects have included: cryptosystem architecture, design and analysis of cryptographic algorithms and protocols; research on key-distribution schemes; penetration analysis, formulation of INFOSEC design criteria; and participation in NSA's Secure Data Network System INFOSEC Workign Group. Dr. Berson's clients have included Microsoft, Digital Equipment, Novell, Xerox, CTIA, the DoD, DOE and other government agencies. For CTIA, Dr. Berson conducted the Authentication Longevity project. This work included cryptoanalysis of the CAVE algorithm and analysis of the TSB-51 protocols. Dr. Berson has published extensively and is a member of numerous professional societies. He has served as President of the International Association for Cryptological Research, is Editor of the Journal of Cryptology and has been a member of the IEEE Computer Society Technical Committee on Security and Privacy since 1982. He holds a B.S. degree in physics from the State University of New York at Oswego and a Ph.D. in computer science from the University of London. AUTHENTIX OPPORTUNITIES The Authentix priority is to first establish a nationwide, networked authentication system to combat roaming fraud. This will involve a series of data collection computers that monitor roaming communications traffic and an associated network link to the authentication center. Once that system is completely established, Authentix will be capable of placing computers to monitor home market communications traffic. This will enable Authentix to provide authentication services for certain suspicious calls that are generated from a given home market, such as all the calls from a certain cell site that has been known to carry a high percentage of fraudulent calls or all calls after 6 p.m. from a home market to a certain city or country. Basically Authentix will be situated to authenticate all traffic from a given home market for a carrier. And finally, Authentix will have the capability to offer other value added network services to the carriers through its network. Authentix believes that its proprietary system and authentication center will provide important profit opportunities beyond the initial service offering. [The management of Authentix will provide more detailed plans for future service offering to qualified, interested parties under an appropriate non-disclosure agreement.] * E N D * "Keep yer eyes and your ears open and your mouth shut and you may just learn something kid..." WATCH OUT FOR MORE SCIENCE & TECHNOLOGY BULLETINS FROM WHO ELSE BUT UMF! -------------------------------------------------------------------------- @BEGIN_FILE_ID.DIZ /|___ ___ ____________ / | | \/ \ _____/ / | | |\/ __) _/ ! | \/ | |Z! \________|__ ||___|__ | <===PRESENTS===\|=TODAY=\|=9/1/95=> HPA DiViSiON: A U T H E N T I X INFO ON A NEW SYSTEM TO STOP ALL CELLULAR FRAUD NATIONWIDE IN U.S. @END_FILE_ID.DIZ -------------------------------------------------------------------------- ..................................... .................................. : ::::::: ......... ::::::::: ::::::::...... :::::::: : : .:::::::: :::::::::: ::::::::: ·:::::::::::::: :::::::· : : :::::::::. :::::::::: ::::::::..........:::::::: :::::::: : : :::::::::: :::::::::: ·::::::::::::::::::::::::·..::::::::.... : : Find the # & NUP's YOURSELF If You'Re So ELiTE : : /\______ __________/\ ___/\_____________ __ : : / \ /\___\_______ )\___\___ /\____ ____/\________/\ / \ : : ___\__ \__/ ____/_____/ / / / Y| __| |__/ / /_ )/ oo \ : : \ \/ \( __/__/ \____/ _/ /| :|__\ / _/ /_/ _// ( ) \_ : : \_____ / \ /\_____| \ \/ / \________\ //\ \/ / \ \\___\/___/ : : \/ \ / : \ / \ / \ / \ ___/[Seven M] : : \/ \/ \/ \/ \/ : : UMF WHQ - TrSi AMi USHQ : : .......... .......... ........................ .............. : : :::::::::: :::::::::: :::::::::::::::::::::::::: :::::::: : : ::::::::: :::::::::: ::::::::. ......:::::::: ·:::::::. : : :::::::: ·::::::::: ::::::::: ::::::::::···· :::::::: : ····································· ·································· CALL OUR UMF & TrSi HQ'S WORLD WIDE AND ENLIGHTEN YOURSELF