COMMENT: Protecting telcos from fraud

Luke Taylor talks about fraud and risk in telecoms
Luke Taylor, general manager for EMEA, deputy CEO and CCO for Neural Technologies.
Luke Taylor, general manager for EMEA, deputy CEO and CCO for Neural Technologies.


Africa and areas of the Middle East are on an upward trend in economic growth and telco operators in these regions stand to benefit from the improved quality of life and increased socio mobility of their populations. However, with great potential comes great responsibility and operators are dealing with more fraud than ever before in these regions. They are now called upon to protect their customers’ interests as well as their own and, with the rise of mobile money, the regulations and compliance laws by which they must abide are increasingly strict. It could be argued that the ‘glory days’ of telcos and operators are over, with margins squeezed on calls and SMS messages. It is necessary for companies to ensure that every penny of this income is collected and they are paying increasing attention to their fraud and risk departments as a means to combat revenue loss.

A 2013 survey on Global Fraud Loss suggested that the telecoms industry was losing more than $46 billion per year due to fraud. The CFCA found that the top types of fraud reported by operators were roaming, wholesale and frauds related to premium rate services. The survey report illustrates losses between $3.5 billion and $5.3 billion through each of those categories in 2012. A few years on from this report, all signs are that fraud loss has not diminished but increased.

Whilst certain risks and types of fraud are prevalent across both the Middle East and Africa, some are specific and relate to the economic, political and social environment of the countries in which they appear. IRSF/PBX (International Revenue Share Fraud/ Public Branch Exchange) fraud has come full circle and is becoming an increasing problem worldwide once more. PBX fraud has been around for a long time as a technique used by criminals to steal revenue from the enterprise clients of operators. These criminals tap into the now digital PBXs of numerous companies in Europe and, over the course of a weekend, route international and premium-rate calls through their networks. Callers dial through a company’s PBX to international revenue-share services with which the fraudsters are in some way associated. Most companies do not know about the fraud until they get the bill at the end of the month. In some cases, hundreds of thousands of dollars have been defrauded over a weekend. IRSF can also be undertaken on mobile phones with the technology to make simultaneous calls, redirect, conference call etc. According to the 2013 CFCA survey, African countries comprised five of the top 10 countries in which fraud terminates.

Another prevalent fraud in the region today is bypass fraud. Bypass fraud (or interconnect, GSM gateway, or SIM box fraud) is the unauthorised insertion of traffic onto another carrier’s network.  Fraudsters make international calls appear to be cheaper domestic calls by using the internet, software and hardware, to effectively ‘bypass’ the normal payment system for international calling.  The fraudsters will typically sell long distance calling cards overseas to consumers in African countries with a historical link to Europe, as there is a large audience for these services.  When customers call the number on the cards, the fraudulent operators are able to remotely switch the call to make it appear as a domestic call, defrauding operators and in some cases governments from revenue.

Just as in the old days, when technicians illicitly tapped into paying customers’ lines in order to steal calls, many of today’s frauds are internally masterminded – particularly in Africa. External political factors also have a massive impact on fraud. Companies need to set controls to identify and track individuals using fraud to fund terrorism and work closely with law enforcement agencies to bring these individuals to justice.

On a broader scale, we estimate that up to 35% of bad debt reported in annual financial reports of telecom operators is potentially fraud.

In fast-growing markets like Africa, there is increased risk of internal fraud and corruption due to diversity of wealth, fewer skilled resources and less mature processes, controls and regulation, which all contribute to the fraud problem. Whilst service providers are distracted by focusing on network expansion and competing for subscriber acquisition, opportunities to generate revenue from poor controls and processes are constantly being identified by the individual opportunist as well as the dedicated organised criminals.

The key point is that fraud management and revenue assurance (RA) should be a proactive department safeguarding the service provider’s revenues and protecting subscribers from fraudulent abuse, and should not be considered an ‘insurance policy’. At a time when operator margins are being squeezed, deploying the best fraud and RA solutions could be the most profitable single action open to CEOs or CFOs.

About the author

Luke Taylor is general manager for EMEA, deputy CEO and CCO of Neural Technologies.

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