Fraud management, a growing necessity for telcos

People outside the industry may believe that telecommunications operators -- also known as telcos -- are money machines with negligible risks.

This is not the case. Just like banks and other utility companies that provide public services, they have to deal with the possibility of fraud.

Otherwise, how do you think it is possible that the number 08XX34567890, for example, makes a call from Plaza Indonesia at 10:24 a.m. and then another from Bandung Indah Plaza at 10:27 a.m. on the same day? We cannot be in two places at one time, but clearly a mobile phone fraudster can.

Duplicating Subscriber Identification Module (SIM) cards is not difficult, as the data is in digital format. The process takes only a few seconds and the duplication device does not cost a fortune, either -- they are readily available in major cities. The device can even combine two or three SIM cards into one, and a user can switch from one SIM to another by simply entering a code.

The practical side to this is that a user does not have to carry an army of cellular phones to use more than one SIM card, and they do not have to keep opening the phone's back cover to change the card to use a different service. However, it is rare that this is a necessary convenience.

Fraudsters are super-ingenuous people, and we are never short of them. Unfortunately, while they generally work on the false assumption that they are not ripping off any individual victim, they severely hamper operators' investment in new technologies.

For operators, much effort must be made every step of the way to identify possible kinds of fraud and their management. In other words, telcos may hesitate to introduce new services for fear of added vulnerability. Ultimately, although technology keeps advancing, consumer options do not expand as quickly as it could and should.

Fraud management solutions have been in use since the mid- 1990s, and a number of companies have been developing software tools to detect fraud as early as possible to minimize loss, including Alcatel, Amdocs, Data4s and Visual Wireless.

Alcatel, recipient of Frost & Sullivan's Next Generation Infrastructure Vendor of the Year Award 2004 for the Asia Pacific, has a comprehensive set of fraud management tools, which it presented to select IT journalists last month.

Telecom industry fraud is defined by Fraud Management Ltd. as: "The procurement or use of a telecommunications product or service with intent to avoid payment in respect of that product or service".

According to Alcatel data, loss incurred by fraud jumped from US$14 billion in 1998 to around $40 billion in 2003. The figures are not really surprising, given that we have far more telcos and subscribers today than in 1998.

Alcatel also showed that subscriber fraud accounted up to 50 percent of an operator's total losses from fraud. Usually, subscriber fraud is made possible by salespeople's lack of attention, and new subscribers can use fake or stolen identities to register. Once the service is activated, fraudsters will use -- nay, abuse -- it until it is terminated due to non-payment. They will then go to a different mobile phone shop.

Numerous other types of fraud abound, including insiders at a telco setting a zero tariff for friends and relatives.

How can fraud be managed? Alcatel's solution, for example, uses rule-based tools and data from various sources to detect fraud as well as credit limit breaches for prepaid customers.

A database of fraudsters' "favorite numbers" -- or those numbers most frequently dialed -- can be maintained, and when the same gang of fraudsters use different IDs to call these numbers, a profile match will automatically trigger an alarm. Artificial Neural Network can also be used to detect suspicious subscriber activity.

As for subscribers, what should we do? Needless to say, we must always monitor our monthly bills and not hesitate to pay a little bit more for detailed billing statements, so that we can track our usage. Finally, if we ever take our phones in for repairs, we must make sure to remove our SIM cards. -- Zatni Arbi

Upcoming Topics:
- Features of latest digital projectors --- June 21
- A look at the latest motherboard features --- June 28
- What to do with 'spyware'?  --- July 5
- What is a dual-layer DVD writer? --- July 12