Posted: 07/1998

Resale Long Distance and Telecommunications Fraud

By Jim E. Marsh

There are several old sayings about telecommunications fraud:

Unfortunately, there is a common theme in these sayings: Fraud can’t be stopped. In one
sense this seems to be true, but in another way it shows the fraud problem really never
goes away, it only changes patterns. This is even more apparent with telecommunications
fraud estimates for 1998 pushing $5 billion.

A perfect example of how fraud changes is in the wireless area. Tremendous
technological advances in wireless severely restricted cloning fraud and reduced losses
initially, but fraud losses again are growing in wireless via another path, subscription
fraud.

Now what does this mean to the resellers of long distance? The fraud scene is changing.
Many of the major providers of telecommunication services have instituted more intense
fraud detection systems and have become more aggressive in identifying fraudulent trends.
This aggressive stance squeezes the fraud on their network. As the old sayings imply,
crackdowns in one area will force the fraud to occur in another area; fraud will follow
the path of lesser resistance.

Fraud is big business. It impacts not only the bottom line, but also the integrity of
the carrier with its customers. The larger wholesalers are making it tougher for fraud
perpetrators to impact their customers. They offer liability limits to their business
customers and request or require businesses to take specific precautions. Still, there is
one class of customer that is still exposed: the reseller.

The reseller may ask why. It uses the same network the wholesaler does. The reseller is
an important customer. But consider the real facts. For a normal business- or
consumer-type customer, the wholesaler has more information to work with: the actual
location, a real contact name and knowledge of prior calling patterns.

The opposite is true for a resale customer. The wholesaler does not know who the actual
end user is (a business or consumer), the location or actual calling patterns. Plus, the
reseller may have told its carrier not to impact the reseller’s customers, because fraud
detection can be an inexact science and mistakes do occur. Therefore, if it does provide
any notifications, it is only on heavy fraud events that fit a known fraud profile.

Basically, if there is not a mechanism to identify and reduce fraud exposure, the
reseller may not remain in business. Telecommunication fraud does not care whether a
company has a monthly revenue stream of $1 million per month or a $100 million per month.
The perpetrators of telecommunications fraud do not care if the business or its customers
are impacted or put out of business by fraudulent activity. They have a business to run,
which requires access to the dial tone. If the reseller does not provide for its own
protection, it becomes the path of lesser resistance.

Resellers can fight fraud by becoming more proactive. They can request more
notifications from their underlying carrier to a 7×24 group who can quickly evaluate the
alert and make decisions. They can request call detail records be delivered in a more
timely fashion, within hours or at least daily. They must recognize the need for a
comprehensive usage management strategy, which limits exposure to telecommunications
fraud. Lastly, they can join industry associations such as the Communications Fraud and
Control Association to learn about current fraud trends and techniques to fight fraud.

Telecommunications fraud can be reduced only by consistent, aggressive fraud prevention
and detection strategies from all telecommunications carriers. Resellers are at a
disadvantage vs. those carriers who have their own network. This disadvantage can be
overcome by improved processes and procedures, but only the reseller can control its
destiny.

Jim Marsh is president of Marsh TeleManagement Group, a telecommunications fraud and
collections advisory. An expert in telecommunications risk management, he can be reached
at (314) 458-1390 or via e-mail at [email protected].