Network operator fraud remains the biggest threat to mobile operator revenues
As anti-fraud company Revector celebrates 20 years in business, CEO and founder Andy Gent believes telecommunications fraud is not yet high enough on the business agenda for network operators – it should be a major concern for shareholders. In 2001, Revector was launched to combat specific fraudulent activities against mobile network operators. Company management expected the company to have a lifespan of at most five years – such as the belief that mobile operators could quickly bring network fraud under control and reduce it to zero. Twenty years later, fraud continues to persist – costing shareholders, networks and governments billions of dollars in lost revenue each year. Revenue from mobile service According to Andy Gent, fraudsters are businessmen at heart, exploiting an opportunity for money. Gent explains how this relates to network fraud: âMobile service providers generate revenue in two ways: by charging their company subscribers to access the networks they operate and associated services such as voice calls, text messages and data usage. The second, known as termination revenue, involves routing calls from other networks. Termination revenues are shared among all networks that help route the call. Termination revenues are shared among all networks that help route the call, as Gent points out: âImagine a call from UK to Australia. This will go through multiple service providers who will each take a small percentage of the call revenue to forward the call. âTelecom companies build relationships with others around predictable calling patterns. For example, BT may know that it needs a million minutes to call South Africa per month. So they’re establishing a relationship with a South African telecommunications company to provide that. Trading termination minutes The problem arises when the unexpected happens, for example, an earthquake in Cape Town. Now UK residents with relatives in Cape Town are suddenly asking for much more phone time. BT needs more minutes than it has. His partner in South Africa is unlikely to be able to provide them – they face the same problem due to the increased volume of incoming and outgoing calls in the country – so he will look to the open market for the minutes he needs. . Gent continues: âCancellation minutes are negotiated in the same way as other products. Exchanges combine minutes from multiple sources, bundle them and sell them. The problem is knowing where these minutes come from. Packages may well include âwhiteâ routes – premium minutes provided by legitimate telecommunications companies. However, many will include so-called âgrayâ routes. A simple but effective fraud Gray roads are not provided by telecommunications companies but by third parties or by fraudulent means. Typically, âgrayâ routes are cheaper than âwhiteâ routes, but some telecom service providers may not know or care. The natural pressure on costs means that some carriers end up using âgrayâ driving minutes. Threats to the revenues of network providers come from these âgrayâ roads. One of the main risks is SIM Box fraud. SIM Box Fraud SIM Box fraud occurs when there is a price difference between the cost of routing a call within a country and the cost of terminating a call, as Gent described below. below: âImagine that a network offers a promotion with free calls to others on the same network. At the same time, the value of terminating a call to clients on this network is $ 0.05 per call. A single SIM card used in this way can generate $ 3000 per month and there are hundreds of cards in each SIM Box of SIM cards in racks and connected to the Internet – to terminate calls. The owner of the SIM box can then offer to end the calls for $ 0.03 per call. The cost to the owner of the SIM box is close to zero – the local minutes he uses to complete calls are bundled with the SIM offering. The $ 0.03 per call is pure profit after purchasing SIM cards and SIM boxes. While this sounds like a complicated scam, it can be lucrative. A single SIM card used in this way can generate $ 3000 per month and there are hundreds of cards in each SIM box. Loss of Termination Revenue Service providers can quickly find a large portion of the revenue lost due to SIM boxes. Ghent has seen âup to 90% of termination income lostâ. âThe nature of the SIM Box fraud is transient: fraudsters will choose the countries with the best opportunities to generate quick income, make and end the calls for a month or two before the operator notices the drop in income and take action. Â»Is this illegal? If this practice seems entrepreneurial rather than illegal, it is probably because it looks like a victimless crime. However, mobile network operators have paid millions, if not billions, to be able to operate networks and generate termination revenue. A reduction in that revenue will mean less investment in next-generation networks or customer service. For the consumer, illegal termination often means poor quality calls with a lack of services such as Calling Line Identification (CLI). But perhaps the most worrying problem is where the proceeds of crime go, as Gent points out. “Often times, these SIM card frauds are carried out by criminal gangs using the process to launder money or finance organized crime or human trafficking.” âWith widespread restrictions on the number of SIM cards that can be sold to a single person, the only way to get enough SIM cards is through criminal activity. Gangs corrupt or coerce network operating personnel into providing SIM cards by the thousands, generating millions in illicit revenue. Other Telecommunications Fraud Threat to Operator Termination Revenue is from OTT Service Providers who have an Eye on Termination Revenue Another Threat to Operator Termination Revenue is from Over- Service Providers the-Top (OTT) who have an eye on termination revenues as well as telecommunications service providers for a share of the voice and messaging market. While most telecommunications companies view Voice over IP (or OTT) as fair competition, in recent years several new OTT service providers have grown extremely rapidly. WhatsApp, for example, was incorporated in 2009 and bought by Facebook five years later for nearly $ 20 billion. The business models of these companies vary. Some focus on the âfreemiumâ approach where the initial service is free but the add-ons become chargeable. OTT Application Fraud However, recently some OTT players are looking to end their income to monetize their business models. These operators offer competitive termination rates by diverting a traditional call from one phone number to another and terminating it in an OTT app, as Gent explains: âWe are seeing OTT apps intercepting traditional phone calls and transmit them to a user’s application. “The call begins as a dialed phone call, but the user receives it in an OTT application. If the OTT actors can achieve this, they can generate termination revenue at zero cost – other than for the traditional operator . “Use an app to make calls” Of course, if the recipient of the call thinks the caller used an app to call them, they are more likely to use this method of communication in the future – and less likely to dial a number directly. For OTT players, termination acts as a marketing tool as well as a revenue stream. âAccording to Gent, an OTT service provider has gone so far as to include a setting in its application that says âreceive regular incoming calls in the app when possible.â The default is âonâ when the app is downloaded. Only the most tech-savvy users would even know it was the. Fighting network fraud Networks are less worried about losing revenue to fraud and more about hogging as many subscribers as possible “Why aren’t networks doing more to fight fraud? Reality, according to Gent, is a combination of priorities and ignorance. He comments: âMost mobile network operators are large companies but still relatively young – usually built around customer acquisition.â âNetworks are less afraid of losing more revenue because of fraud and attract as many subscribers as possible. This has led to a mindset where whatever the questions, the answer is always more marketing promotions. âA small number of innovators around the world continue to fight these frauds directly, but scammers just move on to the next victim and, when anti-fraud measures are relaxed, scammers return.â If you had told me in 2001 that fraud would still be a problem in 2021 I would have been shocked. Yet operators continue to lose significant revenue to criminals. – Solving this problem must remain a priority for the industry, not only to ensure that the networks have the income necessary to create and maintain strong networks, but also to ensure that the criminal behavior that this type of illicit activity finances is reduced not only for network operators but also for society at large.