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Fraud & Revenue

By Telco3 min read

This might seem a strange topic – doesn’t everyone love the pre-paid business because it eliminates things like fraud and bad debt? This was the question on my mind as I listened to a presentation from Telstra on this very topic at a recent Billing and Revenue Assurance conference. Of course the world is not so simple, especially the world of mobile telecommunications pricing. In fact, there are a couple of sources of revenue leakage or “fraud” in pre-paid mobile.

One scenario is where pre-paid, retail SIMs are used in a “SIM Box” by a reseller. The reseller then routes fixed to mobile calls via this device to take advantage of the cheap on-net retail rates. Now, I would actually call this “arbitrage” rather than an insidious term like the f-word. Of course, the carriers and their expensive lawyers take a different view, and declare such practices in breach of their Acceptable Use Policy (you know, that stuff that no-one ever reads). AUPs are very cool things (for vendors); their goal is to protect against practices that go against usage assumptions the pricing people make. The challenge is enforcing them!

I recently heard a rumour that a certain carrier was driving around the major cities using a device that would detect the concentration of mobile activity caused by SIM boxes! It may be true, it may not be true. Even if it isn’t, such an “urban myth” can achieve the desired prevention on behalf of the carrier.

Another source of revenue leakage is where someone takes advantage of particular pricing of call to premium numbers in a pre-paid mobile to call his own premium numbers. In this case, the cost of the calls can actually be less than the revenue obtained from the premium number service. Again, this straddles the fine line between fraud and arbitrage. Such practice was common several years ago as an international arbitrage. The smart carriers shut it down quickly by simply creating additional pricing scales for premium numbers in certain countries. So, for example, calls to UK might be 5c/min, but calls to UK mobiles or UK premium numbers might be 50c/min. Problem solved. The not-so-smart carriers kept charging 10c/min to all UK numbers, and were burnt until they got their billing act together.

The reason that these examples of revenue leakage exist even in the pre-paid world is because of the assumptions the pricing folk make. In their eagerness to offer attractive headline rates and sweet capped plans, they make usage assumptions that in turn have weighted-average margin implications. If the customer broadly fits the usage profile, then the vendor makes money. But if the customer doesn’t, then this can cause problems.

An “efficient” market will shut down an arbitrage very quickly by closing any pricing discrepancy. Unfortunately, the complexity and underlying assumptions built into retail mobile pricing is such that it does not allow discrepancies to be closed down. Therefore, vendors must resort to AUPs to protect themselves. How have you dealt with these challenges?

This was also posted at [Billing Bureau].

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