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April 2015

Protecting 900+ MVNOs around the Globe from IRSF Fraud Pirates

Protecting 900+ MVNOs around the Globe from IRSF Fraud Pirates

Telecom fraudsters behave a lot like electricity: they follow the path of least resistance, gold being their favorite conductor of electrons.

And when it comes to International Revenue Share Fraud (IRSF) — a fraud that robs telecoms of a cool $4 billion a year — that new path of least resistance is the MVNO, the 900+ mobile operators who generally own no mobile networks, but sell mobile service virtually — reselling the facilities of a network operator.

That’s the analysis of Colin Yates, a foremost consultant and authority on fighting IRSF fraud, and he’s here to tell Black Swan readers all about this new threat — and explain what MVNOs should do to protect themselves.

Dan Baker: Colin, what’s the scoop?  What’s changed to make MVNOs more susceptible to IRSF?  And maybe we should change the meaning of the term MVNO to “Massively Vulnerable Network Operator”.

Colin Yates: Dan, the MVNOs definitely are massively vulnerable.  Without fraud management domain knowledge, training, and tools, you’re an easy target to be picked off by IRSF fraudsters.  Data I’ve collected suggests that in the last 3 or 4 months there has been a gradual shift toward fraudsters attacking MVNOs more and more.

I think that’s a conscious decision by the fraudsters.  Mobile and fixed operators have suffered IRSF attacks for 7 or 8 years now, but over time they have become skilled at putting in controls for prevention and early detection.

Big damage has already been done.  Last month I spoke to two MVNOs who suffered losses of around $500,000 each.  And neither of them had any effective controls.  One of those MVNOs missed out entirely on the required knowledge transfer and intelligence around IRSF.

Now the mobile networks have got their education networks in place such as the GSMA Fraud Forum, but many MVNOs are outside that information loop.  So they are hiring guys like me to come in and do fraud reviews to bring them up on industry best practices.

MVNO Treasure Hunt


What are these MVNOs doing wrong?

They basically don’t understand the fundamentals of fraud management.  For example, in near real-time roaming data exchange, they often don’t look at those records because they don‘t understand their importance.  Many are not even aware that IRSF exists.

Now the ‘Light’ MVNOs are probably in a bit better shape because their traffic is going through a large network operator who has the necessary fraud defenses in place.

Those ‘Full’ MVNOs who have their own core network are probably more exposed because most have not implemented any fraud management tools.  Then the other thing that works against MVNOs is that their operations are very lean and they make their money on volume and low prices.

Sure, they treat telecoms as a no-risk commodity to offer, like selling cinema or lottery tickets.  Some of these MVNOs are grocery store chains.

Yes, most of the emphasis is on acquiring customers.  Even if the MVNO appoints someone to be a fraud manager, that function often gets low priority.

They also don’t realize that they can get into a fraud management system for a reasonable price these days.  Some excellent tools are available that run around $100,000.  The days of million dollar fraud systems for small to medium operators are gone.  And some of these suppliers are offering 24/7 fraud monitoring via a managed service.  The managed service is a good fit for a medium-sized MVNO because it’s not efficient for them to employ dedicated people to look at fraud records.

So what do you prescribe for these MVNO organizations?  What do you consider they need to do?

Well, I think the actions they need to take generally boil down to five steps:

  1. Fix accountability — Assign someone in the organization to be responsible for fraud management.  They may not be big enough to appoint a full-time fraud manager, but someone needs to be accountable.  At some MVNOs whoever answers an incoming call about a fraud issue is responsible for handling it.  That sort of policy is too loose and doesn’t take the risk seriously.  Your average person has no idea how fraud occurs.
  2. Make an investment in training — Whoever is appointed to the job needs to spend some time learning the basic principles of fraud management, at least.  They must learn what’s required to bring their organization in line with industry best practices for their smaller shop.  Because people don’t have the background in fraud, they end up being purely reactive.  A solid fraud program needs to be proactive — and it’s best to develop a two or three year strategy for implementing programs they need to build.
  3. Invest in Automated Tools. — It’s not practical for MVNOs to put people behind a desk 24/7.  They have got to look at an inexpensive and automated fraud management system with the ability to send an email or text message to alert someone when the system identifies likely fraud.  About 90% of all IRSF happens between Friday night and Monday morning.  No one in the organization is working during that period so you must cover that period with an automated system.
  4. Do a Full Risk Assessment-- It’s worth having someone like me come in and do a fraud health check to see where their risks are and what controls should be in place.  In every fraud risk audit I’ve done, the organization was surprised at the level of risks they were exposed to.  CFOs are giving fraud management a low priority, but that’s because they don’t understand the risks.  Actually the damage could be anything from $1,000 a week to $500,000 a week.
  5. Enlist the Aid of the MNO Supporting Them — Another key thing is to look over their agreements with their MNO supplier.  One of the surprises is the contracts in many cases date back before the time when IRSF was an issue, so fraud management doesn’t even appear as a line item. 

    While an MVNO is expected to manage its own fraud risk as far as acquiring customers and offering products and services, it’s important that the MNO agrees to remove their margin in IRSF rather than profiting from it.  The MNO should at least be stopping the fraud once it’s detected to minimize the damage.
Colin, when you go in and consult with an MVNO, what’s the typical procedure?

When I do get called in to consult, I get all the information I can about the organization — who they are, customers, and products and services.  Then, over a 5 to 7 day period, I’ll typically interview all of the execs from the CEO on down and any Key Stakeholders in the next level of management.

With that information I’ll have a better understanding of their products and services.  If they’ve suffered a fraud loss in the last year, I’ll review each fraud case and identify every point of failure that contributed to that fraud.

From there, I start compiling a complete risk profile for the organization, what controls are missing, and what opportunities there are.  Typically I’ll come out with 15 to 40 recommendations on where to protect their network.

So usually within 2 week’s elapsed time, they come away with a complete framework for what they need to do.  And I also leave them with documented policies and instructions as well.

Sounds like a must-have audit for an MVNO.  Thank you, Colin.

Copyright 2015 Black Swan Telecom Journal

 

About the Expert

Colin Yates

Colin Yates

Colin started his working life in Law Enforcement in New Zealand, then after 18 years moved to a Risk and Fraud Management role in Telecom New Zealand.

After 12 years there, he moved to Vodafone New Zealand and for the next 12 years had roles with Vodafone in New Zealand, Australia, Germany and the UK, leaving Vodafone in 2012 as Group Head of Fraud Management and Investigations, having had responsibilities for managing fraud and investigations right across the Vodafone footprint.

Colin has held Management positions in the GSMA Fraud Forum, CFCA, FIINA and Pacific Partners.

He is currently managing his own firm, Yates Fraud Consulting Limited which consults back to industry operators to review their Fraud and Revenue risk maturity.  He also manages an IPR Test Number database currently in use by some of the world’s largest operator groups.

Colin is a Certified Fraud Examiner (CFE) and is also a Fraud Adviser to PITA (Pacific Islands Telecommunications Association).   Contact Colin via

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  • Is the M2M Device in Your Refrigerator a Telecom Fraud Threat? interview with Simon Collins — Machine to machine (M2M) technology is being applied in hundreds of monitoring apps, such as smart metering and health diagnosis.  It’s even being used to monitor driving patterns tied to auto insurance rates.  But this article shows the serious M2M fraud and security threat that stem from the theft of the SIM/USIM device used in every M2M device.  The article discusses the RA and fraud strategies operators need to employ to manage the risks that will come from wider M2M deployments.
  • “Fraud Is a Wind that Always Blows” and Other Wisdom From a 28-Year Old Software Firm interview with Gary Beck — Here’s the amazing story of how Beck Computers was pulled out of a Tier 1 account only to be brought back in a few months later.  The article explores software vendor service and support challenges, real-time computing requirements, advanced fraud management functions, and ways to educate management on the value an FMS investment.
  • Insider Fraud: Detecting Criminal Activity in the Telecom Sales Process interview with Tal Eisner — One of the biggest problems telecoms now face is fraud done inside their offices, dealer stores and firewalls.  This type of fraud is especially dangerous because it’s performed by people fully authorized to transact for the company.  The story dicusses the major causes of insider fraud, presents a case study, and explains basic techniques that software uses to detect insider fraud.
  • Fraud & Credit Risk Software: Setting the Client Free to Innovate interview with Luke Taylor — Not every operator wants the freedom to configure its own fraud management solution, but certain providers wouldn‘t live without such a “framework” approach .  This article discusses: the reasons why operator choose this strategy as it covers many other fraud and credit software implementation issues.
  • Why Selling to Business Customers Makes You a High Risk Target for Fraud by David West — There’s a saying in the fraud business: “It’s not a question of whether you’ll be hit by fraud — only when, how bad, and from which direction.“  Citing four recent cases where operators were hit by fraud, this article explains why investing in a fraud soluiont — and keeping up-to-date — are so critical.  The article gives several examples of vulnerability points that fraudsters commonly exploit.