How to avoid telecommunications fraud in Africa

By Andy Gent

In 2015, the Communications Fraud Control Association (CFCA) estimated that mobile network operators lost more than $38 billion to fraud and revenue loss.  In percentage terms this figure is more than the amount lost by retailers to theft and remains a serious issue for operators.  More than 60 percent of operators surveyed believed that their company was losing at least two percent of revenue to fraud and more than 40 percent believed the sum to be between three and ten percent.

The productivity picture

Alongside Eastern European countries, Africa is seen by operators around the world as one of the hubs of fraud against mobile network operators.  While it is easy to consider fraud against mobile networks as a victimless crime, it is far from the case.  The GSM Association reported in 2012 that a 10 percent increase in the number of people connected to a mobile phone network leads to a growth in economic productivity of 4.2 percent.  The less money networks have, the slower they can roll out mobile network upgrades, and this impacts on growth in country.

The African perspective

Mobile operators in Africa have historically suffered from a fraud called Bypass or SIM Box. 

Mobile network operators receive payment from the customer for connecting or ‘terminating’ a call in a country. The cost of connecting an international call can be more valuable than the cost of a local mobile to mobile call within a country.

Fraudsters exploit the difference between international and local call rates by buying thousands of local SIM cards and inserting them into a device known as a GSM Gateway or SIM Box, which is then connected to the internet. They then sell international phone minutes and connect them as local calls. The operator is denied the full international payment rate, resulting in a loss of revenue.  Customers can find the quality of the call suffers or they do not receive services such as caller ID.

Recently, cross border tariffs offering users in East Africa the same calling costs across several countries (including Kenya, South Sudan, Uganda and Rwanda) has brought this issue further into focus.  SIM Box fraudsters have started terminating calls for each country outside of their borders, leading to a significant threat to mobile operator revenues across the region.  At a time when African mobile operators are attempting to invest in new infrastructure, this could impede the growth of mobile telephony across the continent, through no fault of the operators.

A new threat to revenues

More recently, operators have suffered a new threat to revenues – which has the potential to be far more serious than SIM Box fraud.  This is known as Over The Top (OTT) Hijack and a recent survey by Revector of more than 16 operators in Africa has identified that this could cause revenue loss of more than 50 percent of termination revenues.

OTT apps such as Viber and WhatsApp have been proactively touting the capability to terminate calls, selling this service on the open market and directly to some operators in different countries. 

This new threat means that some calling a different country will dial the number on the keypad as usual.  However, when the recipient of the call answers the call it is no longer a normal telephone call – it arrives as an in app call on a voice or messaging app.  How does this happen?  Buried within the terms and conditions of several OTT apps is an option to ‘deliver normal calls as OTT calls when possible’.  This is usually defaulted to ON, meaning that, unless the user digs deeply into the settings, they will be unaware.  The recipient of the call will simply think that the caller has called them on an OTT app rather than via the normal telephone service (which is not the case).

This is ingenious short term profiteering by the OTT apps: not only do they get to convince recipients of calls that more people are using their apps than really are, they also get to keep the termination revenue from the call, all the time delivering this call over data using the network of the operator they are hijacking the revenue from.

This is a very short term approach however.  The lost revenue to the mobile network operator will eventually mean a lack of investment in networks, driving down quality for everyone (including the OTT provider).  This practice is currently rife across the whole of Africa’s telecommunications landscape and constitutes the biggest threat to revenues for mobile (and fixed line) network operators.

Wherever there is business, there is fraud.  As new revenue opportunities grow, new frauds appear.  Across the African continent fraudsters continue to look to mobile network operators as a rich source of illicit gains.  The long term consequences however hit harder than operator revenues: with such a close link between mobile communications and countrywide productivity the consequences can be limiting to economic development for the entire continent.

 

Andy Gent is the CEO of Revector, a firm that creates products and services that enable telecommunications companies to counter fraud. He has done business in Africa, Iraq, and the Carribean.

 

African Business Review’s October issue is now live.

Stay connected: follow @AfricaBizReview and @WedaeliABR on Twitter.

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