Telecom Fraud: Killing Phenomenon

Fraud in telecom networks has been a problem that has always plagued the bottom line of operators. The lure of easy money turns many a man into a fraudster. There are many ways to defraud and abuse telecom

networks–especially wireless networks. Ingenuity and innovation are the hallmarks of this tribe of modern-day bandits. Telecom companies have a long history of fraud fighting but the imaginative methods employed by fraudsters call for continuous innovations of the solutions deployed to check fraud.

Unnoticed/or Ignored



In spite of the fact that many telecom companies world-wide have lost significant amounts of money due to fraudulent activity in their networks, a large number of operators are still not addressing this crucial issue. In many cases, they even feel that fraud does not exist. Even though one wishes that this should be the case, this is never true. Losses due to fraud often get swept under the carpet as bad debt. A recent study has proved that the portion of revenue lost due to fraud could form 40-50 percent of the bad debt component! Another aspect is the belief that networks based on digital technologies are secure. The networks that were rolled out earlier used analog technologies that had several technical loopholes. Fraudsters exploited these opportunities to make money. The advent of digital technologies like GSM put paid to most of the technical frauds. Perhaps this could be the reason why many GSM operators feel that they are safe from fraudsters.

However, innovative fraudsters soon managed to find simple, non-technical ways to continue their nefarious activities even in technically advanced digital networks. The much dreaded “subscription fraud” is the best example of this. This is a case where fraudsters obtain legal connections from telecom companies with no intention of ever paying their bills. The companies have no way of collecting these outstanding amounts, as the fraudsters can never be traced. The very nature of subscription fraud misleads operators into considering losses from fraudulent activities as ordinary bad debts. The danger here is that the fraud–which actually requires focused attention–goes unnoticed and in due course of time leads to significant amount of revenue loss.

Operators in new markets such as India are gullible such

practices as the knowledge about fraud fighting is just being developed. PricewaterhouseCoopers (PwC) recently conducted a study and reported that Asian mobile operators lose about 30 percent of their revenue to fraud and bad debt. (Extracts of the said report is given in this section.) There have been several reports about huge losses by Indian cellular operators and it is assumed that operators are losing about 10 percent of their total revenue due to fraudulent activity in their networks. This is quite high as compared to world-wide average of 3-4 percent. 

How Does Fraud Happen?



There are many methods employed by unscrupulous elements to defraud telecom networks. Technical frauds like cloning and tumbling were the major cause of worry for analog network operators. Such technical frauds cannot be perpetrated in digital networks (even though there are unconfirmed reports that cloning could be possible in GSM). As telecom companies today roll out digital networks, several countries like India have only digital networks. This has resulted in the evolution of non-technical frauds.

This acquires gigantic proportions in a roaming scenario due to the delay in accessing call detail records and subsequent detection. One can understand the possibilities of this fraud when one realises that roaming is a key feature offered by GSM operators and has many business benefits. Subscription fraud in the roaming situation is often referred to as “roaming subscription fraud”.Subscription fraud is the most damaging amongst the non-technical frauds. The methodology adopted here is simple with the fraudster obtaining a connection from the company using the normal, accepted procedure of the company. The fraudster has no intention to pay and rings up huge bills in very short time frames. The company comes to know of such high usage only after some time and by then it becomes impossible to trace the fraudulent subscriber. Ultimately all the money that was to be recovered from this subscriber will have to be written off.

A variation of this is what is called the “call-sell” operation. Here, the fraudster abuses the call-forwarding feature of networks and uses his connection to set up multiple, simultaneous calls for his “clients”. The “clients” pays a lesser amount of money than they would normally pay the company. The fraudster can, of course, afford to offer such “subsidy” as he has no intention of ever paying any money. By the time the bills are raised and the company comes around to collect the money, the fraudster would have made significant amount of money and got away. There is also another interesting variant called Premium Rate Services (PRS) fraud. Call selling and PRS are the major contributors to losses due to subscription fraud and could be more than 50 percent of the total fraud loss.

In addition to the above, is the problem of internal fraud wherein employees within the operator or associates of the company aid outsiders in defrauding the network. Employees have access to all parts of the network and are sufficiently knowledgeable to know where to play the dirty tricks. Even pre-paid systems, which were believed to be “fraud-free”, are susceptible to fraud, especially the internal variety.

Fighting It



From the above it is very clear that the task of curbing fraud in telecom networks is a daunting one. The first and foremost task is for operators to have a hard look at what they are writing off as bad debts and separate the loss due to fraud from this. Unless fraud is acknowledged it will never be fought. Unfortunately many operators, especially in developing markets like India, are on an overdrive to attract more and more subscribers to the network. Some operators are just starting to realise that more subscribers could as well mean more fraud generation and not necessarily revenue.

The next item on the agenda is to develop a corporate fraud fighting strategy that defines all the policies and the approach of the organisation to this issue. All departments within the organisation will have to be committed to this strategy, as this is a critical requirement for its very success. The strategy should be complete and should address all issues like policies to be adopted while signing on new subscribers, approach to employees, defining security aspects within the organization, procedures to be adopted when fraud is detected, etc.

A fraud management system has then to be implemented to detect and curb the fraudulent activity in the network. This is typically a sophisticated software solution that intelligently profiles each subscriber and alerts operators of possible fraudulent activity in a timely fashion. It is very critical to understand the peculiarities of the market and the behaviour of fraudsters within the network before the solution is selected. An intelligent selection has to be made after a thorough study of the various options will lead to a steep decline in the loss due to fraud.

A country like India does not have a strong system for establishing personal identity and credit histories or ratings are also not available. These are very crucial aspects in fraud fighting as the lack of such systems makes it a lot easier for fraudsters to have lucrative operations. So, a fraud management system to be effective in India must address these issues of checking identity and providing credit ratings. Other key issues are scalability, platform independence for the software, real-time operation, user friendliness, etc. 

The bottomline is that fraud accounts for a large amount of money being

lost by telecom companies and is an issue that warrants close attention. It is very important that it be curbed to

improve the profitability of telecom companies and to ensure smooth, hassle-free operations. Ultimately, it is the responsibility of operators to provide fraud-free services to genuine

customers, through the implementation of efficient fraud management policies and systems.