Study finds worldwide telecom fraud is worse than predicted

World-wide levels of telecom fraud “worse than predicted” says Chorleywood Consulting.

Predictions on the level of fraud in the telecom industry may have to be revised upwards in light of a new report issued by Chorleywood Consulting.

The Manual of Fraud, Bad Debt and Revenue Assurance conservatively estimates the impact of fraud in the telecom industry world-wide to be over $22bn in 2000 and rising.

Sue Hubbard, head of research at Chorleywood Consulting says “On average, telcos lose 3% of revenue to fraud - which means that the oft quoted figure for the level of global fraud being US$12 billion per annum is a gross underestimate.”

According to the Federal Communications Commission the global total fixed telecom market in 1998 was worth in the region of $800 billion. Adding up the revenue of the top 25 telcos alone amounts to $513 billion, which makes this total appear reasonable.

Cellular Fraud

But 3% of this $800 billion is $24 billion, without taking into account the large amount of fraud on cellular networks.

Hubbard continues “We have taken a more conservative view on losses attributable to fraud, estimating an overall percentage of 2% of revenue, with less than this for markets where massive investment has been made in fraud management (such as the US cellular industry) and up to 5% for areas where fraud is known to be a particular problem.”

Most of the growth in fraud in the European cellular market can be attributed to the expansion of the subscriber base of individual telcos, plus the many new telcos which have entered the market.

Some of the new operators in Eastern Europe had problems similar to those experienced in Asia.

In Western Europe, the migration of subscribers from analogue to digital networks, plus considerable efforts to limit subscription fraud, have tended to reduce the percentage of revenues lost to fraud.

This has had less obvious impact than the US efforts, partly because the problem was less acute in the first place, and partly because prices remain relatively high.

In 1998 a new problem made a significant impact: that of fraud on prepaid services. Some types of prepaid technology are highly vulnerable to fraud.

The extremely high take up rate for prepaid services has boosted telco revenues, but has also had a major effect on fraud losses. Without this factor, it could be expected that European fraud losses would have fallen in line with those in the US.

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