Fraud – signs of recovery?

21 January 2014 | Steve Heap

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Steve Heap

Blog Author | Hot Telecom, CTO


The global economy may be improving, the focus of criminals on making easy money from the world's telecoms companies is showing no signs of abating.

The global economy may be improving, but the focus of criminals on making easy money from the world's telecoms companies is showing no signs of abating. Results from a major voice wholesale company showed that of their 1050 global destinations, 275 of them had been hit by False Answer Supervision (an early answer fraud used to increase the margin of the fraudulent company) in the month of December. It used to be that only the expensive destinations were at risk of this type of fraud - now it seems that any destination worth a cent or more is fair game. As their customers often remove traffic when this type of fraud is seen, that 26% of destinations translates to around 60% of their revenue at risk.

How did we get here? Perhaps three key developments in the past decade are worthy of note. First was the widespread introduction of VoIP technology. Suddenly the industry moved from having to invest in a multi-million dollar suite of hardware from Nortel to handle voice calls into a piece of commercial hardware costing a fraction of that. That enabled two of the key enablers of fraud - the VoIP software itself was endlessly configurable, and, with some open source solutions available, the core operating routines could be modified if necessary. That allowed a fraudster to program their own routines - for example apply fraud on that destination for 20% of calls for 2 hours, then switch to the next destination. For wholesalers used to looking at long term averages of performance to identify the fraud, this on-off treatment could easily slip under the thresholds. The linked enabler was that it suddenly became possible to become a voice wholesale carrier with an investment measured in the tens of thousands of dollars rather than millions, and hence the marketplace grew like crazy with small carriers offering "directs" appearing at every conference. Good for the conference organisers, perhaps less so for the industry.

The final development evolves naturally from the other two - with so much competition, with small wholesale carriers willing to cut their overheads and margins to the bone, the profitability of the industry plummeted. With margins razor thin, a small improvement by answering a call 15 seconds earlier, or billing for listening to ringing tone made the difference between profit and loss. As many end customers don't notice this overbilling, the scene was set for a massive increase in the problem.

 

What are the signs of recovery then? I think the industry has woken up and is taking harsher steps with suppliers that routinely apply these types of fraud. Some carriers have installed automated fraud management systems that simply remove the supplier from route with no human intervention. After too many infractions, the supplier contract is cancelled and they are totally barred. Other wholesalers have installed systems that also provide visibility to their customers (the retail service providers) to enable them to spot issues closer to the source - a compromised PBX, for instance. The i3Forum has an active fraud group developing processes and approaches to minimise the damage from fraud and share best practices. Fraud management is showing definite signs of recovery