Nine people have been arrested over a global scam to use fraudulently bought mobiles to call premium phone numbers.
City of London Police seized iPhones, mobiles, sim and bank cards and passports in raids in London, Southend, Walsall, Birmingham and Middlesbrough.
The gang set up premium lines based overseas and used sim cards from the iPhones and other devices to call them, leaving providers to settle huge bills.
Phone company O2 called in the police after losing £1.2m in July alone.
Police unravelled the scam following a month-long investigation after O2 noticed "massive bills". As the premium numbers were based overseas O2 was bound to settle the bill before approaching their customers for payment.
The gang was also suspected of setting up front companies to launder the profits from the premium phone numbers, police said.
The eight men and one woman, aged between 18 and 42, were being held on suspicion of conspiracy to defraud.
Officers also seized up to £15,000 worth of mobile phones, still in the boxes without their sim cards, along with hundreds of other sim cards, laptops and computers, cash and fake documents.
Police believe that the gang bought contracts for mobiles and iPhones using false identities and bank cards and passed them on to a man in Birmingham.
The next phase saw the sim cards being used by people based in London and Essex to call overseas-based premium numbers, which were set up by the gang. Calls to some of the numbers cost £10 per minute.
The gang also made money by passing on the handsets to their contacts overseas where the devices, particularly iPhones, could not be locked. Police said they were sold for up to £450 each.
Police traced some of the handsets and sim cards to countries in the Middle East, Europe and Vietnam.
They said the gang members lived "under the radar" in council houses, but some had expensive cars.
Officers arrested several suspected gang members at homes in Forest Gate, Southall and Southend.
Det Supt Bob Wishart, from City of London Police, which is the national lead force for fraud investigations, said: "We have struck at the very heart of a highly sophisticated criminal network that has been targeting the telecommunications industry to steal millions of pounds.
"Each month more sim cards were being used to make more phone calls to premium rate lines at more expense to the network provider."
Adrian Goreham, who is responsible for tackling fraud at O2, said: "This was a sophisticated and organised attempt to defraud mobile phone operators."