According to the Communications Fraud Control Association (CFCA), network operators around the world lose around $38 billion annually to fraud and uncollected revenues. Currently the biggest threat to telecommunications service providers comes from loss of termination revenues.
Termination revenues come from when a network handles someone else’s call – for example when someone on one network in the UK contacts someone on another – or when you dial abroad. Telecommunications service providers naturally want to have a reward for handing on the call to the final recipient. Annual declines in revenue from termination in many countries are 10% or more.
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Reduction in termination revenues is due to two issues:
- Regulation, such as that in the EU around roaming costs, which operators can do little about other than lobby
- Revenue loss due to fraud or unfair competition from other (particularly OTT) service providers, which operators can do something about.
A bit of background
Operators buy and sell international minutes between themselves called swaps which they try to equate to an agreed value but often these will either be too big or too small for a particular country requiring a top up to make the swap balance (imagine the increase in voice calling to New York after the recent bomb threats). When operators need to top up their swaps, they buy or sell in online exchanges to make good on their commitments. However, when they buy additional bundles of minutes these can include bundles of minutes that are not entirely legitimate.
The traditional issue would be something called SIM box fraud:
SIM box fraud involves buying thousands of SIM cards, setting them up in a piece of equipment that is connected to the internet and selling the capability to terminate (i.e. connect) calls into a certain country. If the wholesale rate for connecting a call is 10p and assuming the SIM cards in the SIM boxes are able to connect local calls for, say 5p, the owner of the SIM box can make a margin of 5p for every call he connects. This often happens because SIM cards for consumers will include bundles of free minutes or discounted rates. However, a condition of buying a consumer SIM card is not to use it to terminate calls. Hence why this is fraud.
Just one SIM in a SIM box can lead to losses of $3000 in revenues per month and a SIM box can hold thousands of SIMs – do the maths. This is where operators traditionally lost revenues to criminal gangs that found it ridiculously easy to get hold of SIM cards, connect them and sell the capacity on the open market.
Recently a new threat has occurred. OTT apps, such as Viber and WhatsApp have struggled to monetise the often free calling they promote between users. Some have now recognised the opportunity to route telephone calls to handsets via their app, enabling the OTT players to terminate the call in an app and keep the termination fees.
OTT apps have been proactively touting the capability to terminate calls to second and third tier telecommunications operators. The caller calls someone’s normal mobile number and the recipient of the call ends up receiving the call within an OTT account.
That is all well and good but the caller legitimately called someone else’s mobile. The caller has the right to expect the call to be connected to the other person’s phone, not through their app. Furthermore, call quality can be affected, as might other voice services such as voicemail or caller ID. If you are abroad, you might also be using data to receive the call, which can add up to a large roaming bill that you are not aware of.
What this means for operators
Telecommunications research carried out by Revector, a mobile anti-fraud specialist, found that 81% of respondents experience SIM box fraud and 73% experience OTT bypass. 90% of those that experience customer complaints are directly related to call quality. Some operators are seeing their revenues from call termination drop by 50% due to this activity and 68% of the respondents are aware that OTT operators are offering termination on their network.
This matters because the operators are responsible for creating and maintaining a decent network for the OTT players to use. Part of that “deal” with regulators and Governments around the world is that they receive revenue from termination charges in exchange for maintaining the networks and keeping costs low for business and customers to thrive. With more and more data being used, networks are creaking. And if they continue to lose revenue to OTT companies that use their networks but do not contribute to the cost, it is a grim future for all of us.
Rarely does anything come for free and the severe reduction in termination charges can only negatively impact the industry as a whole.
Featured image credit to Lobster.media