2. Agenda
g
Background
Fraud-Definitions
Different Forms of Revenue Fraud
Fraud Prevention Methods
Conclusion
Recommendations
2 Pakistan Telecommunication Authority
3. Why?
y
Background
◘ Revenue F d against
R Fraud i t
licensed telecom operators
What is visible is just
the tip of the iceberg……..
3 Pakistan Telecommunication Authority
4. $$
Commercial Magnitude of Telecom Fraud
◘ $50 Billion 2004
Billi
◘ $60 Billion 2006
◘ Estimates
E ti t vary but probably stable around $50 - $60 Billion
b t b bl t bl d Billi
per annum worldwide according to a 2008 report of CFCA
◘ The fraud tends to increase during recession
◘ A value of up to 6% of total company revenue is not unusual
in US
◘ In recently liberalised markets the figures are up to 20%
Source: CFCA: Communications Fraud Control Association (CFCA)
4 Pakistan Telecommunication Authority
5. $$
• 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 f
5 Pakistan Telecommunication Authority
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. 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 information
7 Pakistan Telecommunication Authority
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 pays
8 Pakistan Telecommunication Authority
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
p
10 Pakistan Telecommunication Authority
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 y
11 Pakistan Telecommunication Authority
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
selling
13 Pakistan Telecommunication Authority
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
Payphones
14 Pakistan Telecommunication Authority
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. 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. 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
calling
17 Pakistan Telecommunication Authority
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 situations
18 Pakistan Telecommunication Authority
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 MTR
19 Pakistan Telecommunication Authority
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 k
21 Pakistan Telecommunication Authority
22. Activities Required resources
• Risk assessment review • Expertise in telecom
Min
• 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 of
Max
fraud & impact law enforcement
• Take action Fraud investigation & prosecution
COST
22 Pakistan Telecommunication Authority
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. 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. 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 CMOs
25 Pakistan Telecommunication Authority
26. Thank you for patience……..
Questions
26 Pakistan Telecommunication Authority