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Is that an issue with more modern systems like UMTS and LTE? For some reason I remember reading somewhere that when UMTS was introduced, the SIM card standard was updated to include some data allowing devices to challenge UMTS (and I assume LTE too) BTSes to provide proof in the form of an answer to a challenge code presented by the device using data from the SIM card. Have I got this right?

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Yes, you are correct. Some parts of LTE and WCDMA use a pre shared secret and rolling keys to allow UEs to identify themselves to the mobile network. There are however many non-data carrying parts of LTE that are not encrypted or authenticated, sort of how 802.11 has AES but management frames are still fully unecrypted.

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