Combatting Fraud within the Telecommunications Industry

The Telecommunications industry is expected to be worth $1.46 trillion in size by the end of 2020. Therefore, the implications of fraud within the industry have a significant impact upon both telecos and the end-users. There are, however, particular, considerations to be aware of and actions that can be utilised to help reduce and prevent fraud from taking place, benefitting both enterprises and final consumers.

Fraud in the Mobile Industry in 2020

It is estimated that fraud costs the industry around $17bn in lost revenue on an annual basis, with the majority of this money going towards funding various segmentations of organised crime around the world. In recent years there has been a greater emphasis by telecos to take action to be better skilled at detecting and bolstering their capabilities when it comes to mobile fraud prevention.

This has included improving processes and more in-depth policing of the networks. This has had a positive knock on impact and the amount of fraud actually fell from 5% in 2005 down to 1% in 2019.

However, despite this action being taken, there are still urgent issues that need to be addressed in relation to prevent fraud. The industry must focus its attention on future challenges as and when new avenues of fraud emerge.

What are the Current Issues with Fraud?

Unfortunately, in Europe the Telecommunication industry’s current business model means that it is a has a higher-level susceptibility to fraud. Users are able to purchase a high-value device with no upfront cost upon signing a monthly contract with a duration of between 1 to 2 years. This model has long been the focus of fraudsters looking to use stolen bank account details to order and collect the phone before selling it for a reduced rate for a quick sale on the black market.

This presents something of a challenge for device manufacturers and network operators as despite the levels of fraud associated with this business model, it is one that is popular with end users looking to spread the cost of a new device over a relatively long period of time.

This means that rather than looking at ways in which to deviate away from this business model, it is important to focus on combatting fraudsters by developing and implementing robust smartphone fraud and theft protection capabilities. This is applicable to the industry as a whole as it will have a knock-on impact across various sub-sectors.

Sadly, this is not the only way in which devices can be stolen by criminal gangs, and there are various points throughout the supply chain that are porous and where devices are stolen. These include warehouse break-ins, organised theft during the shipment process, and even devices being stolen from the actual point of sale.

Failure to tackle and prevent this ongoing fraud within the industry will pose long-term damaging repercussions for the wider industry.

Why Kill Switches are Important

Kill switches offer end users the power to deactivate their device if it is stolen and prevent it from being used by thieves. Utilising this functionality has previously proven to be highly successful in the USA state of California where smartphone theft was actually reduced by half.

However, while it is attractive to end users, MNOs do not share the same level of enthusiasm due to the impact that it may have on their revenue. There is also the aforementioned point that a large proportion of device theft occurs before the handset has even been acquired by the end user, meaning that a more holistic solution is required in the long-term.

Better Mobile Protection with Manual Unlock Codes

A majority of mobile carriers still implement manual unlock codes on devices in order to ensure that they are locked onto one particular mobile network. This reduces its resale value when it comes to the black market. It also has the added benefit that users are then locked onto that particular network and more likely to stay loyal.

However, consumers’ demands for increased freedom when it comes to changing network providers is leading to more companies providing unlocked devices, and in addition to this, unfortunately it does not fully prevent device fraud and theft.

Experienced hackers are able to unlock these devices by seeking out unlock codes and it is also a relatively expensive solution and does not provide adequate protection for devices in the first stage of the mobile supply chain.

What is a Viable Solution for the Industry?

A long-term solution needs to be developed across the industry as a whole if it is to prevent fraud across each area of the supply chain. There is a clear requirement to incorporate measures at a hardware level during the manufacturing process, including remote lock and unlock technology.

This would mean that devices that are stolen during the production and transit phases of the supply chain could be locked and would offer no resale value. This would provide the added benefit of meaning that the phones could be locked at any stage of the supply chain, even by the end user.

This type of technology offers the key players within the industry the chance of being able to incorporate the lock and unlock approach while providing the desired increased level of freedom sought by the end user.

This offers a higher level of protection throughout the development and production processes and offers benefits for both the carriers and end-users. The lock and unlock technology during the manufacturing and production phase means that the devices would not be able to be resold if they were stolen as they would have no actual resale value. This would mean that fraudsters would be required to look elsewhere for avenues to make money.

There would be greater levels of protection for end-users which would inevitably be demanded by a majority in the long term. The option to remotely lock the device regardless of modifications by the thieves would be a highly sought-after feature.

Throughout the remainder 2020 we will see a wider roll out of the Internet of Things and there will be even more challenges for the industry to contend with.  However, the widespread adoption of the technology to combat theft and fraud on a multi-layered basis would help to eradicate fraud in relation to mobile devices and allow the industry to focus on important considerations elsewhere.