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Losing Disney – Every Year

Heavy Lifting Analyst Notes
Heavy Lifting Analyst Notes
Heavy Lifting Analyst Notes
7/30/2012

Telecom fraud is an ever-present drain on operator profitability, and for decades service providers have built and implemented software systems and business procedures to limit theft. In spite of those efforts, the global annual losses are now estimated to be US$40 billion -- which is about the annual revenue of Walt Disney Co. (NYSE: DIS)

That $40 billion represents 2 percent of the $2 trillion spent each year on telecom services. In comparison, U.S. retailers lose about 1.5 percent of their business annually to theft -- which means it's easier to steal phone service than to shoplift from Wal-Mart.

The outlook for reducing loss from telecom service theft is not promising. Cost-cutting is likely to increase vulnerability to some forms of theft. The rapid growth of mobile services, including mobile payment offerings, will no doubt spark new attempts at larceny.

The latest Heavy Reading Service Provider IT Insider, "Bigger Than Disney: Telecom Fraud Tops $40 Billion a Year," takes a close look at the telecom services industry's theft problem, and identifies the potential solutions available to network operators to keep losses from service theft under control. The report profiles product offerings from 11 different suppliers, focusing on how those vendors are revamping their products.

Classic subscription fraud and private branch exchange (PBX) hacking techniques for stealing telecom services remain at the top of the list. Fraudsters are getting more sophisticated, and for every system and process the operators nail down, new forms of the crime emerge.

More mobile people and things add to the list of concerns. Mobility has enriched consumers' lives with new ways to transact commerce and banking, but the annals of fraud are already racking up case studies of loss from financial crimes. Machine-to-machine (M2M) connectivity is also starting to be hacked.

Networks have actually become less secure, as well. While the old circuit-switched wired environment is pretty well buttoned up, mobility and IP are still wild cards. IP is less centrally controlled, less well understood and less well managed. And internal fraud by employees, dealers and even other operators is adding risk to the total business.

Why can't we get control of this situation? Telecom managers and their vendors point to decreasing vigilance as one of the root causes. This is compounded by the increasing number and complexity of networks, devices and service types in the market.

To help tame the monster, operators and vendors are expanding their view of fraud. They are approaching the subject broadly to understand the full risk and attack it from the point of both probability and total impact. Classic fraud management systems are being augmented to incorporate more input sources about accounts, equipment and services. At the same time, these systems are employing more intuitive, self-learning techniques to amp up the detection side of the function. Lastly, advanced data analytics products help to identify emerging threats before they get out of control.

Industry insiders agree on one thing: It's time to re-commit to fraud prevention and redouble our efforts. Today we have at least 40 billion reasons, and it is clear that in the era of m-everything, our best defense will truly be a good offense.

— Susan McNeice, Contributing Analyst, Heavy Reading Service Provider IT Insider

Bigger Than Disney: Telecom Fraud Tops $40 Billion a Year, a 17-page report in PDF format, is available as part of an annual subscription (6 bimonthly issues) to Heavy Reading Service Provider IT Insider, priced at $1,595. Individual reports are available for $900.

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digits
digits
12/5/2012 | 5:25:24 PM
re: Losing Disney – Every Year


I wonder if there has ever been any buy-in to fraud prevention strategies from the top management team. 


It seems crazy but all I seem to have heard over the years is that there was no budget allocated to tackling fraud or that the budget was so msall that a proper strategy that would have any impact was not put in place.


Are we now at a point where the service providers are now getting desperate for anything that will increase margins? And would that strecth to  making a significant investment in a fraud prevention team and supporting technology?


I won't hold my breath. 

shygye75
shygye75
12/5/2012 | 5:25:19 PM
re: Losing Disney – Every Year


Maybe this will go the way of next-gen OSS: When it does become a priority, it will escalate immediately to crisis mode. Maybe fraud prevention will piggyback onto security initiatives, especially in the mobile area.

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