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The Life of a Stolen Phone: For the Smartphone Industry, Theft Is a Part of the Business Model 

Wednesday, Apr 23 2014
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Evidently, the companies had been hoarding kill-switch technology after all. For a moment, Gascón was heartened. Then, in the fall of 2013, his staff obtained an email between a Samsung executive and the kill-switch software developer. Under pressure from the major telecom carriers and their interest group, Samsung was trying to abort the deal.

Gascón was flummoxed. "So we started to look into it a little more," he says. "And as we became more educated, we started to see some pretty disturbing stuff."

What really disturbed him, he says, was the amount of money on the line. Smartphones represent a $69-billion-a-year industry in the U.S., the DA notes. About half of that — some $30 billion a year — comes from replacing lost or stolen devices, according to a 2012 report by the mobile security firm Lookout. Carriers harvest an additional $7.8 billion annually by selling insurance to consumers, to protect them from crime that the carriers themselves could have prevented.

Reflecting on those statistics, Gascón is convinced that telecom companies don't just benefit from theft; they build it into their business model. And San Francisco — the city that harbors this ascendant tech economy — is bearing the brunt of it. In the early months of 2014, Gascón says, iPhone theft accounted for 67 percent of all robberies. It shows no sign of abating.

It takes three people to commit the perfect smartphone robbery. Two of them identify a distracted, vulnerable person — usually a woman, police say — with a phone in tow. The third one carries a gun. He's the "safety" or "trigger man," whose role is to intervene only if the victim puts up a fight. In most robbery stakeouts, the trigger man stands by and watches while the other two ambush their victim and run. That lowers the risk, and raises the payoff: If the thieves are caught, they'll be charged with petty theft rather than armed robbery.

Local cops who handle these crimes say they usually take place over the course of a few seconds. The perpetrators are looking for a quick getaway; in some cases, a guy will just ask to borrow the victim's phone and then run off.

But sometimes, they get ugly. Many of the assaults and homicides that happen in San Francisco begin with a smartphone theft gone wrong, Gascón says. Oftentimes the perpetrators are young and clueless, seduced by the idea of a quick payoff. "It's very enticing," the District Attorney continues: The allure of modern gadgetry induces young people to commit robberies they otherwise wouldn't consider. "Young people are building up criminal histories," he says.

And those are the few who get caught. In most cases, the thieves run off, the victim is left with no means of communication, and the smartphone slips into a shadowy commerce system from which it may never be recovered.

San Francisco's black market for electronics is so prodigious — and efficient — that a thief can unload a stolen phone within minutes. Most of them go straight to Seventh and Market streets, where, according to the SFPD's Cherniss and other cops, many of the guys standing on the corner act as neighborhood fences. Some of these middlemen might buy a stolen phone and attempt to "unlock" it (meaning untether the phone from its carrier), or perform a factory reset (meaning wipe away the data), in the hope of selling it to an unwitting local. Peddlers on Mission Street offer to unlock phones for as little as $10, according to one merchant at the Alemany Flea Market (he also sells phones, but only used Blackberries and battered clamshells). A man who runs a used electronics kiosk in the back of a Mission Street piñata store will unlock a phone for $80 — cash only. Once it's scrubbed clean, a phone can be sold on Craigslist for roughly half the retail value: $430 for an iPhone 5; $340 for a Samsung Galaxy S4; $280 for an IPhone 4S.

Selling a stolen phone within the U.S. is a dicey proposition, because there's always a chance the robbery victim called her carrier and had the phone deactivated. That doesn't stop thieves from trying: Many circumvent the carriers' anti-theft features by hacking into the phone to change its serial number; others bamboozle their customers by selling phones that are inoperable. Still, it's become more common — and profitable — to ship stolen phones overseas, where they can easily be resold and assigned a new service contract.

The phones fenced at Seventh and Market will often wind up in the hands of an underground broker or wholesaler, who will export them in bulk. They're sewn into suitcases or jacket linings, secreted onto planes, and taken to other countries, where the cost of legally imported gadgetry is higher — partly because of tariffs, but mostly because U.S. tech companies don't subsidize foreign telecom carriers. IPhones, for example, are prohibitively expensive in parts of Asia and the Middle East, according to data collected by the international price index Mobile Unlocked. An iPhone 5S that costs $707 in the US will run $1,090 in Jordan and $1,196 in Brazil if it's sold through official channels. In China — which, ironically, harbors most of the factories where Apple products are manufactured — the same iPhone goes for $868, if it's sold legally.

Exorbitant retail prices have raised demand for black market merchandise, since stolen inventory is cheaper and easy to conceal. Once a pilfered phone is repackaged, no one can trace its provenance. It can be placed in a display window alongside any newly-manufactured Apple product. It's become the conventional wisdom that any phone sold at a brick-and-mortar store overseas might have been stolen from a U.S. citizen.

About The Author

Rachel Swan

Rachel Swan

Bio:
Rachel Swan has been a staff writer at SF Weekly since 2013. In previous lives she was a music editor, IP hack, and tutor of Cal athletes.

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