Identity module for terminal equipment using prepaid applications

A system according to an embodiment of this invention provides for binding an identification card to terminal equipment so that the card cannot be used in any other equipment. A unique challenge will be initiated by the ID card to externally authenticate the terminal device by generating a random value and sending it to the terminal device (the longer the value the more secure the challenge will be). While the terminal device is executing this random value it received form the ID card, the ID card will perform it=s own computation using the same algorithm the terminal device has and the random value it sent to the terminal device plus a fixed key programmed in the ID card, whose value matches that of the fixed key in the terminal device. If the terminal device=s response value which is passed back to the ID card matches the response value generated in the ID card, computation then the ID card is then free to initialize according to the GSM specifications. If the value is different, then the ID card may report to the end-user that the terminal device used is invalid.