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11 TYPES OF TELECOMMUNICATIONS FRAUD: HOW TO DETECT & PREVENT IT
by Tamas Kadar
Table of Contents
* What Is Telecommunications Fraud?
* How Does It Work?
* 11 Types of Telecom Fraud
* What Is Telecom Fraud Detection and Prevention?
* Telecommunications Fraud Solutions
* FAQ
* What Is Telecommunications Fraud?
* How Does It Work?
* 11 Types of Telecom Fraud
* What Is Telecom Fraud Detection and Prevention?
* Telecommunications Fraud Solutions
* FAQ
Historically, telecommunications companies have been slow to deploy RiskOps
departments. Losses were either absorbed or passed on to the repo business.
But telecom operators are increasingly inclined to meet their unique fraud
challenges head-on.
Let’s examine them in detail here and see what kind of tools can help.
WHAT IS TELECOMMUNICATIONS FRAUD?
Telecommunications fraud, also known as telco fraud or telecom fraud, includes
any kind of activity designed to abuse and gain an advantage over
telecommunications companies using deception (fraudulent practices).
This includes IRSF fraud (International Revenue Sharing Fraud), where fraudsters
abuse premium phone rates, and interconnect bypass fraud, a form of arbitrage
between operators’ call rates.
HOW DOES TELECOMMUNICATIONS FRAUD WORK?
Because telephony is the largest and oldest deployed network in the world,
accounting for 48% of the worldwide consumer electronics revenue, fraudsters
have long developed tools and practices to exploit it to extract value.
And while fraud attacks usually evolve quickly over time as companies squash
them, telco fraud is unique as it’s often taken as a given. Its costs are
absorbed by operators, who would rather not embark on integrating complex risk
management systems into their architectures.
Adding to the challenge is the fact that telecom companies also break down their
services to resell them to local networks and carriers – a £4/$5 billion
industry in the UK alone.
As the technology to run your own mobile network becomes more widely available,
large telecom operators are becoming targets of fraud indirectly, making it
harder to identify.
Worried about Telecom Fraud?
Protect your business with SEON’s advanced real time fraud fighting tools to
keep you and your customers secure
Book a Demo
11 TYPES OF TELECOMMUNICATIONS FRAUD
Let’s now look at the most common types of telco fraud attacks operators should
know about.
1. INTERNATIONAL REVENUE SHARING FRAUD (IRSF)
International Revenue Sharing Fraud, or IRSF fraud, takes advantage of premium
phone rates, which are then dialed unwittingly by users.
It is by far the biggest fraud challenge for telecom operators, costing the
industry an estimated $4 to $6.1 billion a year. This is how it works:
1. Bad agents sign up to lease a premium phone number.
2. They break into a business’s phone systems and make calls to that number.
3. The business pays as much as $1 a minute, 25% of which goes into the
fraudster’s pockets.
Businesses may suddenly find themselves with astronomical phone bills for calls
they do not recognize. The calls often happen outside of working hours and
companies only realize they’ve been made when it’s time to foot the bill.
It doesn’t help that regulation is lacking in this area. Unlike with card
payments, where the chargeback process can protect the person whose credit card
was stolen, there is no such thing in the telephony world.
2. INTERCONNECT BYPASS FRAUD
Interconnect bypass fraud, also known as SIM box fraud, takes advantage of
something called a termination rate to make cheaper phone calls. It is estimated
to cost telecom operators $2.7 billion in lost revenue per year.
To understand it, let’s look at a scenario with two operators in different
countries:
1. A customer of Operator A calls a customer of Operator B.
2. Operator A charges its customer a fee per minute.
3. Operator B charges Operator A a fee for providing the call to its customer.
That last charge, where the call terminates, is the termination rate. These
rates vary wildly depending on the contracts between the two operators. Some of
them are expensive, others are close to 0.
This is where a fraudulent operator comes into the picture. They reroute these
international calls using a SIM box or GSM gateway, effectively hijacking the
connection to achieve cheaper termination rates. They are essentially making
long-distance calls much cheaper, but the caller pays the same price – so the
fraudster telco pocketss the difference.
This also impacts telecom customer satisfaction because more often than not, the
quality of these calls will be inferior to standard international calls.
3. TELECOM ARBITRAGE FRAUD
Arbitrage is the general practice of capitalizing on price differences. In the
telco world, these differences appear in the long-distance rates between
countries.
Just like with international bypass fraud, it can lower the international cost
for customers, but also open the door to fraudulent companies who insert
themselves between operators. They claim to connect directly from country A to
B, whereas, in fact, they go through a cheaper rate country to connect the call.
4. PBX HACKING
PBX hacking allows fraudsters to take control of phone lines by exploiting
unsecured phone networks.
A PBX (private branch exchange) is a private phone network that connects to
external networks. It’s what allows companies to share lines and to reduce the
number of numbers needed in an office, for instance.
Because a lot of these PBX are IP-based, they can be an easy target for hackers.
They will log into the system and use it to their advantage – for instance for
instances of IRSF fraud mentioned above. This is a cybersecurity and IT issue
that can be avoided with better internal controls and password security.
5. TRAFFIC PUMPING
Traffic pumping, also known as access stimulation, is a practice where
unscrupulous local exchanges cook the numbers of calls to their networks to
benefit from compensation fees set up by the US FCC.
Under the Telecommunications Act of 1996, big telcos such as Sprint, Verizon,
and AT&T have to pay fees to rural carriers – so these carriers do everything in
their power to boost the number of calls to get larger payouts.
6. DEPOSIT FRAUD
Essentially a type of credit card fraud, deposit fraud targets telecom
operators’ online stores using stolen credit card numbers. Fraudsters usually
purchase prepaid SIMs, but the same technique applies to devices (smartphones,
routers, etc.).
The problem, of course, is that online telecom stores are responsible for
refunding the fees in the form of chargebacks. You could, of course, rely on
your payment processor to reduce these rates or deploy chargeback-guarantee
fraud prevention tools, but this does make your company vulnerable to high rates
of false positives – where legitimate customers are prevented from making a
purchase.
There’s also a growing threat in the form of 4G proxy networks, a practice
that’s been booming in recent years, both for legitimate business and
residential use cases.
Unfortunately, fraudsters also purchase SIM cards and USB dongles en masse to
create their own residential mobile network. While services like Proxidize claim
to cut costs and offer higher speeds, they also allow fraudsters to launch more
attacks by generating and controlling IP addresses.
7. SUBSCRIPTION FRAUD
Subscription fraud in the telephony world sees criminals sign up for contracts
using stolen IDs and stolen credit card numbers.
Phone contracts are harder for fraudsters to purchase than items because they
involve a form of KYC check. That is to say, you need to verify the user’s
identity before they can subscribe.
Fraudsters love high-end smartphones they can acquire through contracts. It’s a
simple case of submitting fake IDs, jailbreaking the device, and reselling it on
second-hand markets. By the time the repo company comes, it realizes the person
does not exist.
So how do they pass the KYC checks? That’s barely an inconvenience for identity
fraud experts. They have a large pool of stolen identities to choose from,
acquired via phishing techniques, bought on the dark web, or rented out from ID
mules.
It should be noted that in-store purchases tend to have a higher risk rate than
shipping. While fraudsters have plenty of options for acquiring drop addresses
(where they receive items not tied to their real identities), it’s much easier
for them to walk in and pick up the devices in person.
8. ACCOUNT TAKEOVER
Telecom companies who offer online user accounts can be victims of ATO attacks,
where fraudsters find the login and password details of other users and sign in
in their place.
If your online store lets users create accounts, chances are fraudsters are
ready to steal them – regardless of what you sell. It is expensive, as Javelin
estimates it costs a business an average of $263 to recover a user’s account,
not to mention how it can damage your business reputation.
The point is that you need to have systems in place to authenticate user logins
to ensure you are indeed allowing the right people into your store.
9. SMISHING/SMS PHISHING
Smishing, also known as SMS phishing, is the practice of sending mass SMS in
order to obtain personal information from the person who receives the messages.
Mass spam campaigns are the bane of customers’ and telcos’ existence. This is
why SMS phishing rings have become adept at avoiding detection. They’ve been
known to use software to confirm the numbers they target are mobiles and not
landlines (so telcos don’t notice red flags), create auto-shops to resell the
stolen details, and even provide their own hosting services to host phishing
sites and marketplaces.
The volume of social engineering attacks that take the form of smishing
skyrocketed by more than 328% in 2020 and while telco operators don’t always
take the fall for it, they should feel uncomfortable knowing that they are
accidentally complicit in the practice (and it potentially affects their
reputation, too)
A simple system for monitoring signups and transactions coming from the B2B
service should be enough to ensure your telco company isn’t helping a smishing
business.
10. WANGIRI FRAUD
From the Japanese meaning “one and cut”, wangiri telecommunications fraud
involves striking curiosity in customers by calling them, letting the phone ring
once, and hanging up. The customer will often ring back, unwillingly calling an
expensive premium number that the fraudsters control.
An SMS variant of this also exists, where fraudsters send a message prompting
customers to call back a certain number, or even text it. The typical red flags
for this kind of telecommunications fraud are spikes in traffic to high-cost
destinations, which telcos should be able to monitor with their internal
systems.
The key here is to know that, as a business, you should keep an eye on which
numbers are automatically dialed. This isn’t only for telcos, by the way: Any
company where phone calls are an important part of finding leads or customer
service could do well to deploy a simple reverse phone lookup tool to protect
themselves whenever someone is asked to dial back an unknown number.
11. SIM JACKING AND SIM SWAPPING
Also known as SIM swapping, SIM jacking sees fraudsters take control of a
person’s SMS messages and phone calls by switching a phone number to another
they are in control of.
As more and more companies, such as banks, use OTP (one-time passwords) and 2FA
(2-factor verification) delivered in the format of text messages or phone calls,
fraudsters are attempting to take control of people’s phone numbers in order to
intercept them.
The way they do it is via a form of account takeover called SIM jacking or SIM
swapping (which you can read more about in our fraud trends 2021 post)
The fraudster will contact the telco’s customer service and ask to transfer
their number to a new SIM, which they control. When the procedure is complete,
they can receive all the OTPs and SMS verifications needed to hijack customer
accounts, from social media to fintech apps.
Telco operators have become much better at mitigating this kind of risk in the
last few years, simply by deploying their own multi-factor authentication (MFA)
systems to confirm if the user legitimately requested a number change.
WHAT IS TELECOMMUNICATIONS FRAUD DETECTION AND PREVENTION?
Telecommunications fraud detection and prevention is a broad term that covers
any kind of technique or strategy put in place to reduce criminal actions
designed to take advantage of telco operators.
Telecommunications fraud detection and prevention should target three key areas:
* vetting and filtering out bad resellers
* protecting business revenue
* ensuring users and customers are really who they say they are
It is with the third area that SEON can help, thanks in part to technology such
as data enrichment, device fingerprinting, and machine-learning suggestions.
WHAT TO LOOK OUT FOR IN TELECOMMUNICATIONS FRAUD IN 2022 AND BEYOND
Telecommunications fraud is always evolving. However, we have recently witnessed
a rise in key attack vectors, including:
* Fake and synthetic IDs: Fraudsters have access to an increasingly wide range
of options to source ID documents, either via phishing or rent-an-ID service.
Detection has become a lot more challenging because parts of synthetic IDs
are legitimate.
* Virtual SIM cards: While eSIMs – virtual SIM cards – are more secure by
virtue of being less easy to clone or steal, virtual SIMs are nonetheless
prone to malware and social engineering attacks.
* Social engineering attacks: The pandemic has greatly amplified the frequency
and sophistication of phishing attacks, be they via SMS, calls, social
engineering, or even using deepfake technology. This includes more
personalized instances such as CEO fraud and spear-phishing attempts.
SOLUTIONS FOR TELECOMMUNICATIONS FRAUD
Fraudsters are adept at evading identification. They will use stolen IDs and
card numbers and deploy every possible tactic possible to hide their real-life
identities and intentions. This is true whether your telecommunications business
is dealing with an online store customer or a local carrier.
With SEON, you can learn as much as possible about who you’re dealing with, with
as little friction as possible.
In the context of telecommunications fraud prevention that means deploying
frictionless, invisible, and efficient tools to aggregate info without
disturbing the customer experience of your telco business customers.
The results? Smoother business operations, and reduced rates of account
takeover, transaction fraud, and ID fraud – all thanks to a powerful
machine-learning driven engine and full risk management control.
Reduce fraud by up to 96%
Partner with SEON to reduce fraud rates in your business with real time data
enrichment and advanced APIs
Book a Demo
TELECOMMUNICATIONS FRAUD FAQ
What are the major categories of telecommunication fraud?
The most costly fraud attacks for telecommunication companies include IRSF
(international revenue share fraud), bypass fraud, and traffic pumping.
How is telecommunications fraud detected?
Fraudulent attacks such as account takeover, transaction fraud, and subscription
fraud targeting telecommunications operators can be detected with real-time
monitoring, digital footprinting and data enrichment. This allows companies to
learn more about users in order to accept or decline their actions, such as a
payment or login.
You might also be interested in reading about:
* SEON: 5 Fraud Trends We’ll Be Keeping an Eye On in 2021
* SEON: Virtual SIM Cards: What They Are & How Fraudsters Use Them
* SEON: Fraud Detection & Prevention: What It Is & How to Choose a Solution
* SEON: IP Fraud Score: How IP Analysis Works for Fraud Detection
Learn more about:
Data Enrichment | Browser Fingerprinting | Device Fingerprinting | Fraud
Detection API | Fraud Detection with Machine Learning & AI
Sources used for this article:
* Telephony Report 2020: Telephony Report 2020
* IBISWorld: Telecommunications Resellers in the UK – Market Research Report
* ZDNet: Phone fraudsters are stealing billions each year through a scheme
known as IRSF
* Javelin: Identity Fraud Hits Record High with 15.4 Million U.S. Victims in
2016
* Proofpoint: Mobile Phishing Increases More Than 300% as 2020 Chaos Continues
* Infosys BPM Podcast: Emerging Telecom Fraud Trends
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TAMAS KADAR
CEO
Tamas is the founder and CEO of SEON and an expert in all the technological
aspects of fraud prevention.
TAGS
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