telecom

Preventing Fraud in the Telecommunications Industry

Combatting fraud in the telecommunications industry is of utmost importance for all of the players within the sector due to the many billions that the industry is worth. Its overall value is expected to be $1.46 trillion in size by the end of 2020. It is expected to continue to increase in value over the course of the upcoming decade and beyond.

Evidently, with an industry of this size, the wider implications of fraud have a gargantuan impact on both the big telecom players and end-users who purchase mobile devices. There are, however, certain considerations and options available to curtail and even eradicate fraud from taking place in the first place. Evidently, these options are essential as they offer benefits for both enterprises and end consumers on a global basis.

The State of the Mobile Industry in 2020

Industry experts believe that fraud results in yearly revenue losses of around $17bn, with most of this going to various organized crime groups around the world. In recent years though, there has been an increased focus by telecos in preventing mobile fraud and increasing their capabilities in detecting it in the first place.

Measures that have been undertaken include improving internal processes and more stringent policing of the networks to identify suspicious behavior. This change in attitude resulted in a positive impact and fraud decreased from 5% in 2005, down to 1% in 2019.

However, while this is most certainly a positive, when we consider the overall size of the industry, this is still a considerable amount of money, and action needs to be taken to ensure that further reductions take place.

Current Issues with Fraud

The industry’s current business model means that it is more susceptible to fraud. End users can purchase high-end devices with minimal or no upfront costs when signing a contract with a duration of between one to two years. This model has proven to be attractive to fraudsters who use stolen bank account details in order to collect the devices and then sell them on the black market at a reduced rate.

It goes without saying that this poses a major issue for device manufacturers and mobile network operators (MNOs). This is due to the fact that this is often a preferred business model for end-users as they are able to have the latest devices with a minimal upfront cost and spread the cost over the duration of the contract.

End-users’ preference for this business model means that this poses a challenge for the industry, especially for device manufacturers and MNOs. This means that it is essential that alternative avenues are considered, and robust smartphone fraud and theft prevention put in place. However, this applies across the industry as a whole, as throughout the lifecycle and supply chain there are porous stages where fraud and theft take place.

Smartphone theft is a major cause for concern and one that has so far proven hard to completely eradicate. Devices are stolen at various points including, warehouse break-ins, pre-planned theft during the shipment process, and even at the point of sale.

As this type of fraud is so prevalent, it is one that needs to be addressed immediately if the industry is serious about preventing billions of dollars being lost.

The Importance of Kill Switches

Kill switches provide end-users with the opportunity to deactivate their device if it is stolen. This prevents it from being accessed and used by thieves and it also diminishes any resale value it may have had as it will be completely unusable. This functionality has proven to be highly effective in certain states in the USA where smartphone theft was reduced by 50% following implementation.

This feature is clearly going to be desirable from the perspective of end-users, but MNOs are not so keen. This is because it still has a negative impact on their revenue. As mentioned previously, a large proportion of theft actually occurs before the end-user has even acquired and used the device.

Manual Unlock Codes

Most carriers still use lock codes on devices to prevent customers from changing over to a different network. This has multiple benefits for MNOs as it keeps customers loyal to their company, but it also assists in reducing the overall resale value when it comes to the black market as buyers prefer unlocked devices.

Consumers also crave and demand this level of freedom when it comes to changing network providers and the option to change once their contract has expired. This means that an increasing number of companies are having to provide completely unlocked devices.

However, even in cases where devices are locked, it still does not prevent fraud and theft. Experienced criminals are able to hack the devices and unlock them. Besides, it still does not provide any level of protection when it comes to the first stage of the supply chain.

What is a Viable Solution?

There needs to be a general agreement and resolve to work together across the industry as a whole if it is to tackle fraud at each stage of the supply chain. There is a clear need to implement measures on a hardware level during the manufacturing process, including the aforementioned remote and unlock technology. This would solve the issue of devices being stolen during the production and transportation phases of the supply chain as devices could be locked and would then have no resale value. This would also apply if they were stolen from the end-user and they too would be able to lock the device.

This approach is ideal as it provides high levels of protection at various stages of development and production with benefits for both MNOs and their customers. The lock and unlock technology implemented during the production process would mean that the devices would not offer any resale value and would therefore not be attractive to fraudsters.

Another upshot is that there would also be increased levels of protection for end-users, which would inevitably be demanded by most in the long-term. The option to remotely lock and unlock the device would be a hugely attractive feature.

Conclusion

As 2020 progresses, we will witness the wider roll-out of IoT and there will be new threats for the industry to contend with and shift their focus towards. Therefore, taking action now to address fraud and theft of mobile devices would empower the industry to focus on combatting the emergence of new threats.

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