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Since the introduction of the EU’s Roam Like at Home (RLAH) roaming rules on 15th
June 2016, we have been witnessing a gradual change in the destinations being used byfraudsters to perpetrate the most lucrative of frauds: International Revenue Share Fraud (IRSF).
Historically, the same countries would usually appear in the top 10 terminating destinations, most prized byfraudsters owing to the high pay-outs associated with their call termination rates however since RLAH, there is evidence that the focus has progressively been shifting from high-risk to “low risk”destinations, mainly in the EU. It is therefore likely that these new low-risk destinations (eg. Portugal,Greece) are being targeted to exploit the new EU roaming regulations.
The Chief Financial Officer (CFO) or Finance Director (FD) is responsible for the performance of the business and will constantly face changes relating to advances in technology and an oftentimes uncertain economic and political landscape.
Getting the facts and figures right is one of the top challenges under his or her watch throughout the year. Changes to customer numbers, to projected and actual revenues, to costs, to margins, etc. will need to be reported accurately and on a regular basis to stakeholders.
The problem is that the CFO or FD generally has very little direct control over any of these variables. Customer numbers are influenced by sales and marketing teams; revenues are the responsibility of the billing department; costs are determined by operational considerations, etc., not to mention the external or macroeconomic factors influencing the business in general.
However, there is a way the CFO or FD can leverage their independence to add value to the bottom line, and this is by adopting a Revenue Assurance approach.
Smaller telecom operators and MVNOs tend to share the same operational concerns in respect of Fraud Management and Revenue Assurance (RA) as the larger tier 1 operators.
However, the smaller operator segment is exposed to quite a different set of challenges in order to achieve similar results in these areas.
These challenges include:
All of these will impact the results that can be achieved by Fraud and Revenue Assurance (RA) teams within the smaller organisations.
Frequently smaller operators and MVNOs fail to recognise the importance of Fraud and RA systems, or try and create in-house solutions, often leading to increased financial losses when incidents do occur.
Contracting out specific areas of Fraud Management and Revenue Assurance is not a new concept, and many "forward thinking" CSP's are already taking advantage of some of the Fraud and RA Managed Services that are available.
The writer's experience in this area has generally been that there is reluctance from the Fraud Analyst and Revenue Assurance Analyst to accept the benefits of outsourcing at least some components of the Fraud Management and RA functions to a third party, such as a managed service or a Shared Services Centre. Perhaps it would be of benefit to look at the three high-level business functions which exist for both Fraud Management and Revenue Assurance: Prevention, Detection and Investigation.
In addition to the increased risk faced by small CSP's to maintain their own market share, the challenge to reduce costs in the face of declining revenues, while maintaining service levels across the business can be a difficult one. The environment created by the growing competitive nature of our business has become ideal for the fraudster to exploit.
The most common (and highest financial impact) frauds highlighted by the Annual Fraud Indicator were:
It is known that fraudsters will often target smaller CSP's, knowing that their internal resources, processes and fraud management systems are generally not as robust and effective as in most larger operators, and consequently allow fraudulent activities to continue longer to maximise their profits.
Within the telecoms industry, Fraud Management and Revenue Assurance functions have not escaped cost cutting initiatives. Hence without an effective strategy to manage a reduction in resources imposed by senior management, a Fraud Manager or Revenue Assurance Analyst will continue to try and achieve the same results, despite having less resources and spending less money.
Outsourcing means more than just improved operational effectiveness and is not limited to specific areas of the business such as Networks, IT and Customer Operations. It is now generally accepted that it involves a growing number of an operator's activities and functions, especially those that significantly contribute to its added value, which must include Fraud Management and Revenue Assurance.
Recent surveys on fraud such as the Annual Fraud Indicator highlight how fraud is still a major issue for CSP's with 89% of the respondents stating that fraud losses had increased or stayed the same within their own organizations year on year. The headline figure for the industry extrapolated from the results of the survey show an average estimated 1.88% loss of revenue to fraud.
Many smaller tier 2 and 3 CSP's, new entrants and those in emerging markets have reported losses of between 4-6% of revenues from fraud, figures which can have a significant impact on a smaller CSP trying to maximise profits and their growth potential. It is known that Fraudsters will often target smaller CSP's, knowing that their internal resources, processes and fraud management system are generally not as robust and effective as in most larger operators, and consequently allowing telecom frauds to continue longer to maximise their profits.
The argument that "our fraud losses have reduced and we can now afford to reduce the capability to manage that function" is not a sound one. No CSP should be basing the development of their fraud management strategy solely around their own fraud experience, considering telecommunication trends and the likelihood of their fraud risk increasing if their capability to manage this function reduces.
The writer has seen first-hand the impacts of insufficient tools and resources resulting from cost cutting exercises, for example over €3 million lost to one operator because roaming fraud continued for 3 months without being discovered, and an IRSF fraud which grew to €1.3 million because no-one was available to check NRTRDE records. Could these losses have been anticipated?