8/14/2019 Telecommunications Fraud

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Business IssuesCommunications Fraud

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Understanding Fraud problems and solutions in theTelecommunications, Media and Entertainment sectors

Fraud in the Telecommunications, Media andEntertainment sectors can have a massive impacton an organisations operations and image. Fraudproblems often lead to dramatically increasedcosts, artificially inflated revenue data, damage tothe brand and customer dissatisfaction. Fraud inthe sector has been relatively high profile for thelast 15 years with notorious cases leading to newlaws and increased Regulator attention. MostService Providers, Regulators and Governmentsare now taking fraud very seriously - it is costingthe world economy billions of dollars each yearand degrading the quality of genuine serviceofferings.

The sector provides very attractive targets forfraudsters due to the multitude of products and therelative ease at which they can transform theseservices into cash through fraud. Its estimatedthat the telecoms industry alone is losing $72-80billion annually (source Communications FraudControl Association: CFCA Global Fraud LossSurvey 2009).

There are several prime fraud objectives:

Making money

Saving money/avoiding cost

Money laundering

Anonymity (often facilitating other crimes)

Given the global nature of the risk, and the factthat fraud is sometimes used to facilitate orsponsor more serious crimes (for exampleterrorism and money laundering), organisationsthat neglect to aggressively combat fraud not onlyface direct financial and operational impact butmay also be seen to be diminished in theirCorporate Social Responsibility and GlobalCitizenship status by endangering the communityat large.

Its widely recognised that reaching a zero -fraudstate is almost impossible and may not be costeffective, however managing fraud andestablishing a companys tolerance to risk isessential to keeping losses in check. Furthermore,enhanced fraud prevention practices can becomea competitive advantage allowing ServiceProviders to confidently launch new services withhigher profitability quickly to market.

The Issues

Fraud directly impacts the bottom line; revenuesgenerated by fraudulent activities are artificial andwill often not be collected (except, of course, whenlegitimate customers have their servicescompromised and unwittingly pay the fraudcharges). In the majority of cases, the revenueswould not have been generated in the first place ifthe fraud had not taken place. In fact, some fraudoperations actually compete with genuine servicesand divert legitimate revenues to a black-hole.Preventing fraud may actually increase legitimaterevenues as a competitor is taken out.

Its important to remember that fraud losses arenot limited to uncollected revenue; they includeinterconnect costs, 3rd party and content costs,sales commissions paid to dealers and staff,handling costs of customers who are the victims of

fraud, lost handset or equipment costs, cost of theresources to resolve issues/restore services etc.An organisation will need to have an in-depthunderstanding of what its net cost of fraud is inorder to allocate time and resources to resolvingthe issues. Fraud can also create serious securityissues, threats to staff, blackmail, loss of sensitivedata, negative impact on employee morale anddamage to the brand through various means.

So how does fraud happen? Fraudsters will

usually commit fraud where it is the easiest andmost cost effective for them to do so; they will take

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8/14/2019 Telecommunications Fraud

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