Fraudulent use of GSM gateways continues to plague the cellular industry, with the problem reported to be costing wireless carriers millions of dollars in revenue every month.

GSM Gateways, or "SIMboxes" as they are more commonly known, are increasingly being used by resellers of national and international voice services. A SIMbox is a device containing one or more SIM cards, which enables the routing of voice calls to mobile subscribers by establishing a mobile-to-mobile call from the fixed network.

When providing a fixed-to-mobile call for customers, the offending GSM gateway operator will route calls to the host mobile operator’s network via the SIM box, as a mobile-to-mobile call. The gateway operator will therefore pay lower rates for the mobile-to-mobile connection than for fixed-to-mobile terminated calls. This enables the GSM gateway operator to offer cheaper peak-time airtime for its customers while the host mobile network operator loses valuable interconnection revenue.

So how prevalent is the problem?

“We use SIMboxes,” says the CEO of a European company that resells voice minutes. “If you make a phone call from a fixed line to a mobile it is 22 euro cents. If I can reroute it via a SIMbox it is zero cents. So I offer my customers the service for 14 or 16 cents and I’m earning a lot of money. That’s the simple situation… Our competitors are doing this, too. It’s a global phenomenon.”

In September 2003 the European arm of the GSM Association, GSM Europe, published an industry report that aimed to “raise awareness of the problems being experienced by mobile operators due to widespread deployment of GSM gateways.” (Read the full report here.)

The document outlined a number of issues associated with the fraudulent use of SIMboxes, including network congestion and service disruption. GSM gateways, for example, do not allow delivery of the calling line identity (CLI) of the calling customer, resulting in the receiver being unable to return a missed call, send a text message, or identify the caller’s number.

Despite this initial attempt to raise awareness of the problem, it appears that there has been relatively little real progress in stamping out such activity. “We believe there is an increasing use of them, as they are difficult to detect,” admits Steve Jordan, chairman of GSM Europe’s Regulatory Working Group, and head of regulatory strategy at O2 UK Ltd. (NYSE: OOM). “There certainly has been increasing concern. It’s difficult to put a finger on what the level is though… People are finding it quite difficult to quantify.”

Tackling the issue isn’t easy, according to Jordan. “Part of the problem is finding them in the first place. They are detected on one level through serious network congestion in a specific cell, but it might just be that a company has moved offices and there are now a lot of folk in a particular area using mobile phones. Some mobile operators also provide GSM gateways to corporate customers for controlled, legitimate use.”

One vendor attempting to tackle the problem is Belgian software company Meucci Solutions NV. “Our customers are mobile operators and they are losing something in the magnitude of millions of euros of revenues per month,” claims managing director Conrad Tuytte. “Some people say there are no SIMboxes in a particular country, but we know that is not true. We serve a wide variety of interconnect operators and we always detect SIMboxes.”

Of course, an obvious way to counter the use of SIMboxes would be to reduce interconnect rates so they are priced at the same rate as “on-net” (same network) fees, thus removing any incentive for fraudulent SIMbox activity.

“We are seeing in most countries a decline in call termination charges, and we expect that to continue,” comments GSM Europe’s Jordan.

Meucci’s Tuytte is less optimistic, however, claiming that mobile carriers are unlikely to keep cutting interconnect rates in the next few years. “They definitely don’t want to do that. It just isn’t commercially attractive for them.”

For the time being at least, it seems that fraudulent use of GSM gateways is unlikely to disappear. “Terminating prices are going down, but in my mind we can still do this for the next three or four years,” adds our European CEO source who's taking advantage of the situation.

— Justin Springham, Senior Editor, Europe, Unstrung