According to the Financial Times, a "hacking" contest sponsored by Karstren Nohl, a German Encryption Expert, has resulted in the cracking of the encryption used for GSM phones world-wide.  This potentially means about 3 billion cell phones are susciptible to eavesdropping. It doesn't affect data trasmissions or 3G calls, but others are affected.

The encryption method used is A5/1 which was developed over 21 years ago.  Apparently the vulnerability has been known for about 15 years but this puts it into "practical" application.  Practical is in quotes because the trade association of GSM manufacturers says this cracking requires equipment beyond the reach of most people.  Nohl and others disagree putting the pricetag at about $1500 USD for the equipment to begin listening to calls.

In 2004, a similar vulnerability (in A5/2, a different algorithm) caused cell phone companies to replace base stations in 3 continents to remediate the problem and took over 18 months to complete. Assuming the same action is taken, a similar multi-billion dollar effort would be needed to update cell towers worldwide.  Another plan could be as simple as blanketing every area with 3G which uses a different method all together (though I'm not a cellular technology expert).

The vulnerability was annouced at this years Chaos Communications Congress in Berlin.  It is not likely that wide-spread exploitation is underway or will be in the near future. Time will tell how big the impact actually is.

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John Bambenek
bambenek at gmail /dot/ com