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Billing fraud and theft of people's online identities can be expected to proliferate as carriers make heavier use of the Internet instead of conventional circuit switched networks.

That's one of the conclusions drawn from a report by industry analysts Aberdeen Group which warns of an increase in fraud as telcos begin rolling out next generation networks.

"Abusers can be expected to not only invent new forms of billing fraud, but new forms of identity theft, vandal-like denial-of-service attacks, and other forms of misuse will inevitably appear," said Michael Allen, an analyst at the Aberdeen Group.

Fresh routes to illicit riches for phreakers and crackers is bad news for almost everyone except firms that make fraud detection software, like NetEye which commissioned the research.

Aberdeen expects the size of the IP fraud management software market to grow by a factor of six in the next four years, rising from $110 million this year to $682.8 million in 2005. By comparison the market for switched circuit fraud management software will only grow by around 55 per cent over the same time period.

Up to now identity theft, stealing another person's identity to obtain loans and credit cards and running up debts that are never repaid, has largely taken place offline - because that's where the money is. There's little doubt, however, that the Internet makes identity theft a much easier crime to pull off.

The security infrastructure to protect Internet systems is still very much a work in progress and the knowledge about how to break into such systems is widely known, so the belief in a rise in identity theft and fraud seems reasonable. What to do about the problem and how much money is at risk remain far thornier issues.

Insurance brokers the Beazley Syndicate at Lloyd's of London has reported that financial fraud over the Internet and extortion from hackers are now leading risks to US corporations.

"Hundreds of claims now come through the worldwide insurance market every year," said Johnny Rowell, an underwriter at Beazley. "Many of them are large claims."

"Until two or three years ago, most cyber-risk was related to projects coming in late or over budget. That's changed. Now, it's protecting technology or services against sabotage or theft."

Rowell added that demand for cyber-risk insurance now greatly outstrips supply, in part because the number of insurance companies underwriting cyber-risks has shrunk.

Gene Kim, the chief technology officer of internet security firm Tripwire, compared the risks inherent in e-commerce to those endured by maritime shipping 300 years ago, which was, coincidentally, about when Lloyd's was founded as a maritime insurer.

"A server going down today is the equivalent of a Spanish galleon being lost at sea," he said. ®

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