Another Tech Dilemma: Theft

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As if integrating complex new technologies into a
functional network wasn't enough to haunt cable operators, now they must contend with
a $5 billion electronics-component-theft market.

A recent RAND study reported that high-tech theft is a
thriving business affecting every company that uses computers, including the cable and
telecommunications industries, which depend heavily on computers and electronic components
to run their businesses.

The study researched 95 high-tech firms and reported $250
million in direct losses to manufacturers and distributors during a two-year period ending
in 1998, with indirect losses -- such as lost and displaced sales, security and insurance
-- exceeding $1 billion annually.

In addition, the cost of thefts from the industry's
customers could top $4 billion, bringing the total annual cost of high-tech theft to $5
billion, the report said.

Industry security budgets rose 26 percent at the 95
companies surveyed. The heightened security seems to be paying off, though: The report
found that the beefier the security, the fewer the losses. Some companies said they cut
theft by as much as 75 percent by investing in tight security measures.

More companies, the report continued, are incorporating
creative security methods into their business plans, including serialization and
"poison cookies," which help to identify and disable stolen property, and the
use of more discreet packaging to help camouflage valuable contents from thieves.

Researchers also found that as the value of products such
as computers, microprocessors, computer chips, hard drives, network file servers and even
digital set-top-box components increase, so do thefts. A 100 percent rise in the price of
a product is accompanied by a 95 percent rise in losses, they said.

In addition, 71 percent of high-tech theft occurred while
goods were in transit.

Stealing electronic components is popular because
they're easy to sell to a demanding black market. In fact, many criminal gangs have
switched from drug dealing to computer and electronics-parts dealing because punishments
are softer and profits could be greater.

"A suitcase of microprocessors is worth more than an
equivalent volume of cocaine, it is more difficult to trace than cash and it is not a
felony to have in one's possession," the RAND study authors said.

For cable operators, the impact is felt mostly in added
insurance and security costs. But the growing issue of high-tech theft is also a creeping
annoyance, causing longer delays in getting components for such products as set-top boxes
and computers.

The electronics-theft market isn't reserved for
criminal gangs, either.

MediaOne Group Inc. recently stung a Moreno Valley,
Calif.-based operation that had apparently stolen a host of electronic components,
including set-top-box equipment, from MediaOne and AT&T Broadband & Internet
Services, with the cache's street price estimated at about $1 million. The operation
even had a Web site to promote its illegal dealings.

"We found a considerable amount of radio-frequency
transmitters and spider-board descrambling devices, which, once hooked up, can trick the
converter into thinking it has access to all programming. We also found set-top
converters, microprocessors and circuitry boards," said Mike Bates, director of
Western region security for MediaOne.

High-tech theft, Bates continued, is an ongoing problem for
most MSOs, and it requires a heightened sense of security and awareness.

"There are hundreds of thousands of stolen or illegal
items out there, like spider boards, RFTs and microprocessors. The problem is not as
prevalent as it was five years ago because of the industry's focus on the issue, and
there are better security methods at MSOs. But it won't end anytime soon. It's
too profitable for thieves," Bates said.

Recent awareness of the high-tech-theft issue prompted by
the RAND study, along with beefed-up security, is helping to reduce the problem, but
issues remain.

Production-line stoppage, the report said, is "one of
the most feared outcomes resulting from theft," while disruptions of business
operations range from "minimal to devastating."

Loss of proprietary data is also expected to be more
serious, especially when computers are stolen from corporate offices, RAND said. Delays in
deliveries to customers -- which would harm business and violate contracts -- are also a
concern, the report read.

Some of the stolen components are so valuable that they
should be treated as jewels, according to the American Electronics Association, which
delivers seminars to raise industry awareness of the severity of high-tech theft.

"There are literally hijackings of huge quantities of
high-tech components overseas, and it continues to be a problem here, as well," AEA
director of media relations John Hatch said.

Bates can attest to that. "While we were assembling
all of the stolen and illegal equipment during the sting, a UPS [United Parcel Service of
America Inc.] truck delivered another 50 components," he added.

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