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Fraud at the heart of telecoms

01 July 2004

Telecommunications operators are losing 10% of their revenues through fraud and related losses, says Azure CEO John Cronin. As the market develops towards paid-for premium content, the position will get more complex

John Cronin
John Cronin sits in his office in the City of London and contemplates the millions of dollars a year that the telecommunications industry loses through fraud. It will get worse, he says, knowing that — as CEO of revenue assurance company Azure Solutions — he is one of the few people in the world who can perfectly legally do well out of the losses that are sucking maybe 10% of revenues out of the industry.

Cronin and his colleagues in the company have worked hard over the past couple of years to alert senior executives in telecommunications operators to the size of a problem they would apparently have preferred to ignore.

"Today leaks are about 10% and it will increase over time," says Cronin. "With more content providers, fraud will get bigger. The problem will get worse."

Azure, which has grown up from being an offshoot of BT's research and development operation to becoming a fully independent company backed by venture capital, has sponsored a series of studies by the Analysys consultancy group to gauge the size of the problem.

The third industry-wide survey is just going into operation, with results due out around the third or fourth quarter of the year. The first and second survey's have helped change the industry perception.

"Because we've been talking about the problem over the last 18months, people are starting to articulate it and they are starting to talk about it and take corrective action," says Cronin. "Some of that has been the work we've done with Analysys. People don't like admitting fraud. It's a common interest to work together — but it's only just starting, and people are now starting to recognise it's not just their company that is affected."

But where do the losses come from, and how much is fraud the cause? Azure believes the vulnerable points are where calls are transferred from one operator to another.

Where are the losses?
"A lot of telcos don't really understand where some of the losses are," agrees Cronin, who has moved the company's headquarters from a site near the BT labs to a large, airy space in a bank building in London's financial district. "What we're saying is that a key problem is fraud on the back of the interconnect; 60% of the fraud is off the interconnect and we can put our fraud tool on the back of that."

But is this fraud in the sense that there is some criminal intent behind it? Or is it partly that operators find it hard to match up call information? Cronin thinks that there is a remarkable amount of crime involved.

"The fraud is heavy," he says. "There are companies set up offshore as telcos to front for money laundering through the network."

How do they do that? If they're just there to launder money, they charge low rates and "then they're closed down", he says.

There are frauds involving premium rate services, with companies that could be based "in the back of a shop somewhere", he says. "People do the credit checks as best they can" on the premium rate provider: "Where are they, who are they, are they creditworthy?"

But it can be difficult to get the information about a company that is set up deliberately to extract money from operators. "There is criminal, real heavy criminal fraud," says Cronin.

Of course, there are also hackers, people "who just want to prove a point, just because they're that sort of person", who try to make calls without paying. And employees can also be a cause of losses. But Cronin remains convinced that there is real crime around. "It is real fraud."

Content in the value chain
And the task will get more complicated, he says, as the market changes and premium content becomes part of the value chain. Part of the complexity is because the price will vary.

Already Azure too often finds its clients are losing heavily because of mistakes. One mobile operator had simply typed in the wrong data so it was charging too little for certain calls. Azure found it, and "it took 11 working days to get the return on investment", says Cronin. "Data was input wrongly. Until they got a system in that could pick this up they just didn't realize. It's quite a fundamental mistake."

Which company? Cronin won't say. "People don't talk about it — just as banks don't talk about credit card fraud," he says. "It comes down to processes and methodologies."

Azure goes into a new client by doing "a revenue assurance health check", he says. "We can take a part of someone's network and tell if there's any fraud there. We extrapolate across the whole network and estimate the saving."

It is "a real way to differentiate and get some factual evidence", he says. "We've done that with some big operators." What sort of sample? "A sample means a sample of the call detail records, and we can put test calls into the network and find where they're lost."

Azure's team looks for patterns to indicate fraud. "We can see if there is something going on — hackers phoning friends etc, maybe calling one company in Europe today and another in the Asia tomorrow. We can analyze their patterns and build up a picture over time, even though they're hacking different companies. The trends and patterns are quite common. It becomes like a fingerprint."

And once hackers are discovered, the team can look through their previous calls to see who they have been calling. "We have the tools to do that and the people to do that."

Consultation with operators
Operators have tended to keep their problems to themselves, he admits — and Azure's widespread publicity about the scale of the challenge that they face is giving them the opportunity to work together to defeat fraud. Operators should "look at incoming traffic as well as what's sent out", he says. "They should be self-promoting solutions on a greater scale together. It's no good just clearing your own network. You've got to have more consultation with other operators."

Cronin and his colleagues have designed a sort of traffic light-based dashboard which is designed to give the CFO of a company a general picture of the problem. At what point should the CFO be informed. "He wouldn't get involved when it's amber, but when it goes red he'll be running round and kicking people," says Cronin. "The amber light is alerting the technical people that there is something going on."

With content charging, the need will increase and there are many more opportunities for mistakes, he says. "After a football match, if someone wants to see a goal on their mobile phone, straight after the game they might pay £5 for it." But by the following day the price might have dropped to £1, and "by the end of the week it might be 50p or 10p".

And in each case the operator has not only to get the revenue from the customer but also to ensure that an appropriate portion of the revenue goes to the content provider. There are clearly dangers of collecting too little from the customer and paying too much to the provider — or the other way round.

Some of the biggest operators are having problems "because they have to protect the existing cost base", says Cronin. "The winners are true partnerships." As a result, Azure Solutions is developing its operations in what he calls "partnership management, to help them get to this value chain and ensure it is split fairly".

Azure has been gradually expanding and widening its product portfolio. It now covers interconnect billing, fraud management, mediation software, event integrity and route optimisation.

"Our ability is to put product sets together," says Cronin, "so we cover not just fraud, not just interconnection, not just mediation and not just network integrity, but packaging that together. with different elements."

Real-time integration
Margin management is the latest extension to the range. In January it bought the intellectual property rights to a range of products from Monnet, and took on Monnet staff to continue the development.

"For a CFO margin management is the profitability of the company," says Cronin. That is why Azure bought the Monnet product range, "and we are moving to trading management and real time business integration, to really be proactive."

He believes that at a result Azure will be able to offer products that will aid content providers by introducing a facility for real-time operation. "Instead of waiting for the money to be credited to the bank account, we'll provide the information right through in real time," he says. "One thing that kills a lot of the content providers is cash flow, so by having real-time trading this will help companies grow."

This means that as soon as a content provider has "delivered some content they get paid for it", he adds. "It's in the bank account, and the operator's got paid." This system will help to "cut down problems from reconciliation".

This is helping to change Azure's position in the market, he says. "We've traditionally been in the core network, but content providers coming in — and mobile virtual network operators — and this changes what it means to be a service provider," he notes.

Azure is embracing this transformation by starting to explore links with some of the companies that will be offering services in the mobile commerce world. "We've taken on chunky pieces of consultancy work," he says. Operators are starting to appreciate the need for partnership management, he adds. The big operators will be the catalysts, working together with the retailers.

Tier ones are crucial to the general appreciation of the need for more work on revenue assurance, says Cronin — and it is something about which Azure, with its long established BT links, is well positioned to benefit from. "CEOs recognize that this is an issue," he says. "They recognize that we all need to do something about it. We are sharing the information with our customers, looking at some of the bigger tier ones to start with. The incumbents have a significant influence in each country and can make these things happen." GTB






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