Revenue Frauds and Telecom Operators                 Muhammad Rasheed Khan                                AD, CA
Agenda     g       Background       Fraud-Definitions       Different Forms of Revenue Fraud       Fraud Prevention Method...
Why?      yBackground◘   Revenue F d against    R       Fraud  i t    licensed telecom operators    What is visible is jus...
$$        Commercial Magnitude of Telecom Fraud    ◘   $50 Billion 2004            Billi    ◘   $60 Billion 2006    ◘   Es...
$$    •   Middle East         >  President of Telco confirmed over US $400million loss in 2006    •   Mid Asia         >  ...
$$•       Pakistan         >  No formal study carried out            No formal study carried out        >    Estimates dif...
Why?      y        Effects of revenue losses occurring from fraud    >   Reduced revenue to Licensed Telecom Operators by ...
What is Fraud?        Fraud    >   “Intentional misrepresentation or concealment of information        “I t ti    l i     ...
Fraud Triangle               g9                    Pakistan Telecommunication Authority
Characteristics of Telecom Fraud >   Telco fraud seen as victimless >   Crime committed remotely - minimises detection ris...
Types of Revenue Frauds  yp >   There are more than 200 types of frauds and the number is on     the rise >   We briefly d...
Fraud Types Chronology        yp           gy >   50-70s: Teeing-in Payphone Tapping             Teeing-in, >   70-90s: Me...
Subscription Frauds (Mobile and Fixed)        p            (                )>    Customer has No Intention to Pay>    Cus...
Teeing- Teeing-In or Clipping On (Fixed Line) >   Connecting an instrument “box” parallel     to the telephone line >   Di...
Internal Frauds (Mobile and Fixed)                     (                )>   All telecom networks face the risk    of bein...
GSM Interconnect Bypass (                   yp    (Mobile and Fixed)                                          ) >   Corpor...
GSM Interconnect Bypass (                      yp    (Mobile and Fixed)                                             )>    ...
GSM Interconnect Bypass (                   yp    (Mobile and Fixed)                                          ) >   Cost s...
International Gateway Bypass (                     y yp     (Mobile and Fixed)                                            ...
International Gateway Bypass                     y yp20               Pakistan Telecommunication Authority
Fraud Prevention and Management                          g >   Finding telecommunications fraud in masses of call records ...
Activities                                                           Required resources       • Risk assessment review    ...
Fraud Detection >   An average mobile p             g         phone operator p                              p       produc...
Conclusion >   Revenue Fraud is a reality >   This menace is continuously on the rise >   It is not only affecting the tel...
Recommendations >   Incentivise CMOs, being the biggest markets takers, to invest     in FMS >   Possible funding source %...
Thank you for patience……..               Questions26        Pakistan Telecommunication Authority
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Reveneu frauds and telcos

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  • GSM Operators are losing millions dollar every months. No one has ability to monitor their own all the CDRs which come from MSCs. Fraud Management and Revenue Assurance solutions normally do not fit in the developing countries Telecom environment. Although, these solutions are developed in the most advanced countries and installed there yet they are losing millions dollar, read KMPGs reports.

    There is a need to customize these solutions (Fraud/RA) according to the Pakistan's telecom environment. The most important area is MEDIATION which is not taken serious and according to the true spirit and/or requirements.
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Reveneu frauds and telcos

  1. 1. Revenue Frauds and Telecom Operators Muhammad Rasheed Khan AD, CA
  2. 2. Agenda g Background Fraud-Definitions Different Forms of Revenue Fraud Fraud Prevention Methods Conclusion Recommendations2 Pakistan Telecommunication Authority
  3. 3. Why? yBackground◘ Revenue F d against R Fraud i t licensed telecom operators What is visible is justthe tip of the iceberg……..3 Pakistan Telecommunication Authority
  4. 4. $$ Commercial Magnitude of Telecom Fraud ◘ $50 Billion 2004 Billi ◘ $60 Billion 2006 ◘ Estimates E ti t vary but probably stable around $50 - $60 Billion b t b bl t bl d Billi per annum worldwide according to a 2008 report of CFCA ◘ The fraud tends to increase during recession ◘ A value of up to 6% of total company revenue is not unusual in US ◘ In recently liberalised markets the figures are up to 20% Source: CFCA: Communications Fraud Control Association (CFCA)4 Pakistan Telecommunication Authority
  5. 5. $$ • Middle East > President of Telco confirmed over US $400million loss in 2006 • Mid Asia > Regulator and others publish loses over US $500million in 2006 • North Africa > PT&T measured loss at US $400million in 2006 • Sub Sahara Africa Sub­Sahara Africa > Measured at over US $60million losses in 2005 • Central America > Government officially recognizes loss over US $100million in 2006 • Europe > VoIP bypass calls exceeded $3bn in 2005 to Africa b ll d d$ b 5 f5 Pakistan Telecommunication Authority
  6. 6. $$• Pakistan > No formal study carried out No formal study carried out > Estimates differ by vast amounts > In the range of  3   5 billion PKR    In the range of 3 ‐ 5 billion PKR annually (35 – 60 million USD) 6 Pakistan Telecommunication Authority
  7. 7. Why? y Effects of revenue losses occurring from fraud > Reduced revenue to Licensed Telecom Operators by free/cheaper call offering by illegal telecom operators; stealing current and future revenues g > Loss of taxes and levies to the government exchequers (which are based on telecom operator’s revenues) > Financial loss to regulators (regulators are normally funded on a percentage of annual licence fees from licensed operators). Same for ICT R&D Fund and USF. > Telcos may end up paying PRS partners for fraudulent calls > Security threats posed by absence of lawful interception and non availability of caller identity information7 Pakistan Telecommunication Authority
  8. 8. What is Fraud? Fraud > “Intentional misrepresentation or concealment of information “I t ti l i t ti l t fi f ti in order to deceive or mislead.” Telecom Fraud > According to CFCA the use of the telecommunications CFCA, network with the intention of avoiding payment • without correct payment ith t t t • with no payment at all • someone else pays8 Pakistan Telecommunication Authority
  9. 9. Fraud Triangle g9 Pakistan Telecommunication Authority
  10. 10. Characteristics of Telecom Fraud > Telco fraud seen as victimless > Crime committed remotely - minimises detection risk > Often, Often no equipment is needed > Easy conversion to cash - eg call selling > Telecom products are complex and become more so with further interactions with other products p10 Pakistan Telecommunication Authority
  11. 11. Types of Revenue Frauds yp > There are more than 200 types of frauds and the number is on the rise > We briefly discuss only the most common types here • Subscription Fraud • Teeing-in or Clipping on • Internal Fraud-Magic Phones • GSM Interconnect Bypass • GSM International Gateway Bypass y y11 Pakistan Telecommunication Authority
  12. 12. Fraud Types Chronology yp gy > 50-70s: Teeing-in Payphone Tapping Teeing-in, > 70-90s: Meter tempering, 3rd party billing, > 90s onwards: PBX, Magic Phones, GSM bypass12 Pakistan Telecommunication Authority
  13. 13. Subscription Frauds (Mobile and Fixed) p ( )> Customer has No Intention to Pay> Customer misrepresenting his/her identity (e.g. stolen electricity bills)> Use of forged salary slip to get high credit li it dit limits> Misuse of value-added, international roaming and PRS services g> Initial bills are paid on time “sleeper”, followed by heavy usage - default to pay - forced churn> Appears like bad debt> Almost always associated with call selling13 Pakistan Telecommunication Authority
  14. 14. Teeing- Teeing-In or Clipping On (Fixed Line) > Connecting an instrument “box” parallel to the telephone line > Divert the stolen line to fake subscriber > Legitimate user loses connection on and off when the fake subscriber is using the line. > May also be used against Public yp Payphones14 Pakistan Telecommunication Authority
  15. 15. Internal Frauds (Mobile and Fixed) ( )> All telecom networks face the risk of being compromised from within> Providing value-added services to customers free of cost, un- authorised bill adjustments and discounted tariff to customers> Temptation of financial gain; or disgruntled employees may take their revenge> “Magic phones/SIMs” employ Magic phones/SIMs network vulnerabilities to provide certain services free of cost or to charge 3rd party for the services used by the magic phone user 15 Pakistan Telecommunication Authority
  16. 16. GSM Interconnect Bypass ( yp (Mobile and Fixed) ) > Corporate customers use intelligent PBX to bypass the interconnection costs for Fixed to Mobile calls > The intelligent PBX can sense the number being dialled and doesn’t route it through fixed lines but through SIM box containing SIMS of the CMO being called. t i i SIMSs f th b i ll d > Calling from fixed terminal but CLI of called mobile shows the incoming call from mobile number (on-net call) > The mobile number seen on CLI cannot be called back …!!! !!!16 Pakistan Telecommunication Authority
  17. 17. GSM Interconnect Bypass ( yp (Mobile and Fixed) )> Illustration Both outgoing No incoming call g and incoming 20 CMO lines 5 fixed (each CMO lines selected) 0345-XXXX calling17 Pakistan Telecommunication Authority
  18. 18. GSM Interconnect Bypass ( yp (Mobile and Fixed) ) > Cost savings for corporate fraudsters and revenue losses to telcos are huge > For a 30 second call to Mobile • Ordinary fixed line charges = PKR 2.5 (excluding tax) 25 • Using interconnect bypass cost = PKR 0.63 (excluding tax) • Saving / loss of PKR 1.87 PKR 1.6 Loss to fixed line operator PKR 0.27 Loss to CMO 2.5 – MTR (0.9) = PKR 1.6 tariff – MTR (0.9) = PKR 0.27 > Actual losses are even higher because of corporate discounts negotiated by such clients > On-net On net calls are also free in certain situations18 Pakistan Telecommunication Authority
  19. 19. International Gateway Bypass ( y yp (Mobile and Fixed) ) > Illegal gateway exchange terminate voice over internet protocol (VoIP) International calls over public switched telephone network (PSTN) or over the GSM network > Bypassing the legal International Gateways yp g g y > Fraudster receives international calls from foreign countries over VoIP (through an ISP) > Illegal operator collects revenue from foreign callers > Losses to telcos • LDI operator loses foreign revenue from carriers • LL operator loses APCL • Mobile operator loses MTR19 Pakistan Telecommunication Authority
  20. 20. International Gateway Bypass y yp20 Pakistan Telecommunication Authority
  21. 21. Fraud Prevention and Management g > Finding telecommunications fraud in masses of call records is more diffi lt th fi di a needle i a h difficult than finding dl in haystack. t k21 Pakistan Telecommunication Authority
  22. 22. Activities Required resources • Risk assessment review • Expertise in telecomMin • Define fraud management policy fraud management • Create awareness regarding g g • Expertise in risk assessment p fraud & its management • Perform customer vetting & Cr. • Tools to support authentication, rating Internal Cr. Rating & exposure • Set alerts based o Usage, C a e ts on Cr. Security • Experience of use of techniques Exposure, dealer performance & tools to manage telecom fraud • Tighten data & network security • Maintain audit trails • Capability to process CDR Fraud prevention to generate alerts • Process CDRs & monitor alerts and usage reports • Alerts monitoring experience • Reconciliation audits • Fraud analysis • Analyse alerts Fraud detection experience • Investigate • Knowledge ofMax fraud & impact law enforcement • Take action Fraud investigation & prosecutionCOST 22 Pakistan Telecommunication Authority
  23. 23. Fraud Detection > An average mobile p g phone operator p p produces 250 million CDRs every week. (CFCA estimate) > Gigantic d t b Gi ti databases; l large d t warehouses data h > Fraud Management Systems (FMS) rely on complex data mining techniques > $$$23 Pakistan Telecommunication Authority
  24. 24. Conclusion > Revenue Fraud is a reality > This menace is continuously on the rise > It is not only affecting the telcos but the regulator and Government as well (since tax receipts and other subscriptions are based on teleco revenues)24 Pakistan Telecommunication Authority
  25. 25. Recommendations > Incentivise CMOs, being the biggest markets takers, to invest in FMS > Possible funding source % share from APC which must be spent on FMS for international bypass detection > This investment will be recovered when CMO revenues increase and consequently the subscriptions and levies received from CMOs are increased > Further benefits will emerge from shared responsibility of bypass detection between PTA and CMOs25 Pakistan Telecommunication Authority
  26. 26. Thank you for patience…….. Questions26 Pakistan Telecommunication Authority

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