San Francisco District Attorney George Gascón says phone carriers are more concerned about insurance profits than stolen phones. Via Wikipedia

As smartphone theft continues to rise, one prominent prosecutor says carriers are more interested in cash than solving the problem.

A recent attempt by Samsung to pre-load Absolute’s LoJack app—software embedded in the firmware layer that assists device owners in either retrieving or disabling lost or stolen devices—was flatly rejected by the major American carriers, according to San Francisco District Attorney George Gascón. Such kill switches have been touted by law enforcement officials nationwide, who believe the inclusion of the technology in all phones would help curb phone theft. 

Gascón has been a vocal supporter, and along with New York Attorney General Eric Schneiderman, launched a campaign aimed at curbing smartphone theft. Along the way, they’ve placed blame on mobile providers for slow adoption of anti-theft technology.

“Samsung appears to be taking the issue seriously, but the carriers are not,” Gascón told Motherboard. “By continuing to reject a technological solution, the wireless carriers are subjecting millions of their customers to this epidemic of violent robberies.”

Why are national carriers against kill switches? The official line is that carriers are afraid of hacking—what happens if someone figures out how to brick customers’ phones remotely? But Gascón says carriers are more concerned about protecting their insurance premiums, a claim he says is based on emails between Samsung and mobile providers in which the latter reject the standard use of kill switches.

“These emails suggest that the carriers are rejecting a technological solution so they can continue to shake down their customers for billions of dollars in (theft) insurance premiums,” Gascon told the AP. “I’m incensed. … This is a solution that has the potential to end the victimization of their customers.”

The theory is that once thieves become aware that expensive smartphones won’t work if they’re stolen, the market for stolen phones will dry up, as San Francisco Police Department spokesman Albie Esparza explained. Legally requiring kill-switches is a tactic that’s worked in Australia, Esparza said, to the tune of reducing phone theft by about 25 percent. “Adding kill switch technology to phones would definitely help reduce the number of thefts,” Esparza said. “When you kill the phone, there’s no longer an aftermarket.” 

And, based on the number of phones stolen in the US, it’s a pretty big aftermarket. In 2012, about half of the robberies in San Francisco targeted smartphones, according to law enforcement officials. And in New York City, there was a 40 percent increase in robberies targeting smartphones from 2011 to 2012, according a statement issued by the San Francisco district attorney’s office. 

The big four carriers declined to answer questions about their reasoning for the alleged decision regarding the new Samsung phones. After providing some publicly available data from Securities and Exchange Commission-mandated reports, representatives from AT&T and other cellular providers referred me to the CTIA, the wireless industry’s trade association.

The CTIA declined to answer questions, and issued a written statement instead. “CTIA and its member companies worked diligently with policymakers and law enforcement to develop the proactive, multifaceted approach of databases, technology, consumer education, legislation and international partnerships to remove the aftermarket for stolen phones,” the statement said.

The CTIA statement indicated that a database of stolen phones was the most appropriate solution because a stolen phone database blacklists phones and prevents them from being reactivated. But the CTIA admits such a solution would require global cooperation from carriers.

Samsung also declined to discuss the increasingly common problem of smartphone theft.

Absolute CEO John Livingston, whose company was looped in on the discussions, told Motherboard that theft is a major reason consumers buy phone insurance. But if tracking software led to a drop in phone thefts, if the market for smartphone theft dries up, argues Gascón, consumers won’t have as much incentive to pay for insurance, which threatens a major revenue stream.

Absolute says other tracking software can be erased with a hard reset, something it claims isn’t possible with its LoJack software. Screenshot via Absolute’s YouTube

It’s worth noting how much cash is really coming in from that side of the carrier’s business. Insurance revenue is generally combined with operating revenue on carriers’ earnings reports. But a rough estimate can be calculated: based on subscriber data gleaned from an RBC Capital Markets report from January of this year, as well as what an RBC analyst told me are average insurance premiums and adoption rates, insurance premiums are worth hundreds of millions of dollars a year to the four major carriers.

Overall the wireless industry is projected to generate $195 billion in revenue in 2013, according to the RBC report. Of that, the big four carriers account for $175 billion, which makes insurance a small, but not insignificant, part of their businesses. The insurance revenue numbers also don’t include the cash Americans spent on replacing lost and stolen phones in 2012. That number? $30 billion. That’s enough of an incentive, Gascón says, for carriers to drag their heels when it comes to kill switches.

Interestingly enough, street-level smartphone robberies are only a small part of what law enforcement calls a massive criminal conspiracy to ship large quantities of stolen phones to other countries for use. “There are people stealing phones from people on the street, selling them to a middleman, who pay a premium, selling them again to someone else,” said Esparza. Law enforcement officials and industry representatives have said there are international criminal conspiracies aimed at illegally exporting stolen smartphones from the US to countries without diplomatic or law enforcement treaties.

For example, the SFPD is aware of a phone that was stolen in San Francisco and eventually made its way to South America—where the ultimate owner attempted to blackmail the owner in San Francisco by SMSing pictures stored on the phone. That’s just one example of a larger, endemic phenomenon.

Since smartphones are relatively cheap in the US—thanks to local taxes and exchange rates, they can cost double or more overseas—thieves enjoy a substantial markup when hawking purloined goods. Selling a stolen smartphone for a few hundred dollars overseas is still a huge profit, and buyers care more about cost than provenance. “It’s quite a deal,” Esparza said.

While the Federal Bureau of Investigation declined to comment on ongoing efforts to curb criminal organizations operating at a national level, spokesman Peter Lee said often international investigations are hampered by poor diplomatic relations or lack of treaties with foreign governments. “Our jurisdiction stops 200 miles from American soil,” he told Motherboard.

Lee said that the majority of smartphone theft crimes are handled by local law enforcement agencies. But the FBI continues to investigate criminal conspiracies operating across state lines, or at a national level. 

Unless a phone is completely bricked, it can still be used. And if phones can still be used, they’ll still be stolen.

Existing theft deterrent features and apps aimed at tracking phones are only useful up until a point, and have not been able to curb thefts, Absolute’s Livingston said. They’re not useless—tracking technology does help law enforcement recover stolen phones and catch bad guys. Livingston told Motherboard that his company regularly works with police to retrieve smartphones.

And of course there’s Apple’s new “Activation Lock” feature, which allows users to track and remotely erase their phones. Android’s Device Manager offers similar features. But both features require users to turn them on. And while remotely erasing a phone is good for the security of users’ data, and tracking can help law enforcement recover a phone, unless it’s completely bricked, it can still be used. And if phones can still be used, despite being wiped, they’ll still be stolen.

So far it’s hard to say whether or not it will have any effect on the rampant problem. The San Francisco DA’s office recently ran an informal survey to determine Activation Lock’s effectiveness—and the DA’s spokesman said that the results will be made public sometime in December. Local law enforcement isn’t sure how effective Apple’s technology is. “It’s too soon to tell,” Esparza said.

At this point, as tracking technology becomes more standard, it’s hard to imagine kill switches are very far away, even if carriers continue to balk. The public will soon learn whether or not carriers have indeed been resisting a solution due to concerns over profits: New York Attorney General Eric Schneiderman announced that he has sent letters asking carriers for detailed information about their reasoning for rejecting Samsung’s bid to pre-load the LoJack software.

“If carriers are colluding to prevent theft-deterrent features from being preinstalled on devices as means to sell more insurance products, they are doing so at the expense of public safety and putting their customers in danger,” Schneiderman wrote in the statement. 

There were a number of specific questions included in the letter, asking carriers to disclose whether they communicated about the issue with the CTIA and Asurion, a company which supplies the majority of insurance in the American market. Schneiderman has given the carriers until Dec. 31 to respond.