Hacker could use the known vulnerability to pose as a known Wi-Fi access point, thereby causing WindowsPhone 7.8 or Windows Phone 8 devices to automatically attempt to authenticate with it. During this process it will be handing over encrypted domain credentials (password) to the attackers.
Microsoft has issued an advisory warning concerning a Windows Phone platform vulnerability when connecting to rogue Wi-Fi networks.
This issue at rests in a Wi-Fi authentication scheme (PEAP-MS-CHAPv2) which Windows Phones uses to access protected wireless networks. The cryptographic weaknesses in the technology can allow an attacker to recover a Windows Phone encrypted domain credentials (passwords) when it connects to a rogue access point.
As per Microsoft :
“To exploit this issue, an attacker controlled system could pose as a known Wi-Fi access point, causing the targeted device to automatically attempt to authenticate with the access point, and in turn allowing the attacker to intercept the victim’s encrypted domain credentials. An attacker could then exploit cryptographic weaknesses in the PEAP-MS-CHAPv2 protocol to obtain the victim’s domain credentials. Those credentials could then be re-used to authenticate the attacker to network resources, and the attacker could take any action that the user could take on that network resource.
Recommendation. Apply the suggested action to require a certificate verifying a wireless access point before starting an authentication process. Please see the Suggested Actionssection of this advisory for more information.”
News linked to Microsoft technet