Fraud in the Telecommunications Market: Balancing Security and Freedom

Every company wants to give their customers customized options and a seamless customer experience; telecommunications companies are no exception. But balancing freedom and security can be challenging, especially as the incidence of fraud continues to rise.

While fraud in the telecommunications market may not get much press, that doesn’t mean it’s not happening. And it’s costing companies millions of dollars monthly.

There are plenty of opportunities for fraud in this market — including through direct and indirect sales, vendors themselves and third parties. Even something as simple as the sales channel and the location of a company can affect its vulnerability.

Some of the most common types of fraud in the telecom market include:

Subscription Fraud

This type of fraud is perhaps the most widespread, making up 3%-8% of annual revenues. Fraudsters use stolen or fabricated data to obtain services, but of course have no intention of paying for them. Over time, cybercriminals may even use the data to apply for credit cards and mortgages, buy cars, and open bank accounts.

Friendly Fraud

A customer starts off placing a legitimate order and then files a dispute with the credit card issuer once the order has been received — all with the intention of receiving an undeserved refund. If customers forget to cancel a recurring service, they may also claim to be a fraud victim and report they never authorized the purchase.

Internal Fraud

Telecom employees can be as guilty of fraud as customers, adjusting accounts without authorization or improperly modifying a customer’s plan.

User Fraud

Some customers take advantage of contract and offer loopholes to gain services for free or at a discount.

Piracy Fraud

Customers may duplicate content without authorization; some may even resell that content.

Bypass Fraud

Bypass fraud frequently occurs in countries in which international calls are substantially more expensive than national calls. Fraudsters then manipulate call records to recognize international calls as local ones, reducing their expense.

Commission Fraud

The telecom market is also experiencing commission fraud, where dealers make sales outside the subscription contract to gain commission, like those below.

• Upgrading “X” Mbps for “Y” Mbps. Dealers make small program changes that result in just a small upcharge in price — and no equipment change. As a result, many customers don’t notice the small, but increased, difference in value from one bill to the next.
• Using another carrier’s “virgin” chip. Customers who don’t want portability may be offered a prepaid device from another carrier to encourage portability.
• Juridical person. When companies register with the National Registry of Legal Entities in Brazil, they may activate more lines than are necessary.

How Can the Market Better Reduce the Fraud Risk?

Gaining a complete perspective of selling process is important, but dealers must be asking themselves how they can:

• Use statistical intelligence to map vendor and customer behavior
• Identify fraudulent behavior at every stage of a customer’s life with a carrier
• Effectively work with and adjust millions of protocols

One way to minimize fraud risk is to get the customer more involved in multiple market interactions. To do this, ClearSale has initiated the Movement Buy & Trust project to help make the telecom market a safer and more transparent place in which to do business. When consumers use the Buy & Trust application to validate (or deny) transactions, it encourages trust and solid relationships while protecting the best customers. Learn more about ClearSale and our commitment to reducing fraud around the world.