Cellular/PCS Carriers Lose Half Million Dollars Daily to Fraud

Cellular/PCS Carriers Lose Half Million Dollars Daily to Fraud

Post by Arthur Ros » Fri, 10 Sep 1999 04:00:00




> Losses Are on the Rise as Faceless Fraudsters Make Their Mark
> September 7, 1999 - In 1998, cellular/PCS carriers lost a total of
> $33.4 million to fraud in the United States alone. By 2003, this is
> expected to exceed $57 million. This data comes from a new report
> from International Data Corporation (IDC), The Faceless Fraudsters
> Make Their Mark: Cellular/PCS Fraud, 1998-2003.

Sounds 10-20 dB too *small* to me. If that's all it is, it is way *down*,
not up.

The digital systems should be making major inroads on technical fraud. Most
of it used to be cloning of analog (AMPS) phones - I assume it still is. If
anyone has credible stories of technologically-based fraud on any digital
systems, I would like to hear them.

Actually, a check of the reference discloses that it is talking about
a rise in *subscription* fraud, brought on, in part, by faceless
internet-based marketing, plus the greater difficulty of techno-based
fraud.

   -- Best

   Dr. Arthur H. M. Ross
   2325 East Orangewood Avenue
   Phoenix, AZ 85020-4730

 
 
 

Cellular/PCS Carriers Lose Half Million Dollars Daily to Fraud

Post by Danny Burste » Fri, 10 Sep 1999 04:00:00




> Losses Are on the Rise as Faceless Fraudsters Make Their Mark
> September 7, 1999 - In 1998, cellular/PCS carriers lost a total of
> $33.4 million to fraud in the United States alone.

Errr ... a "half million dollars daily" would be more like $186 million/year
[snip]

Quote:> [TELECOM Digest Editor's Note: Yeah, and you know something else?
> The last time a hacker broke into the Acme Universal Corporation's
> web site, it cost them about a million dollars to repair the damage.
> I know its true because they issued a press release about it when
> it happened, and the newspapers would not have any reason to lie
> about something like that. I don't think the cellular industry would
> have any reason to lie either, and am sure all the figures they
> present in their report have been carefully audited.   PAT]

Far be it from me to defend a telephone company, but keep in mind
there are two ways of listing the expenses involved in a fraud
incident. Kind of similar to, dare I use the example, the "price" of
the * seized and then displayed in those all too familiar
television news conferences where the local gendarmes show the bricks
of * ... Note that they will always cite the "street value"
rather than the much less notable, for want of a better term,
"wholesale" cost.

In the case of the telcos, there's the choice between listing their
own cost of providing that service (a pretty small number), or the
much more impressive figure based on how much they'd have billed. And
naturally, they, too, at least in press releases, use the latter.

However, if you look around closely enough, you can find other venues,
such as SEC mandated filings, where the telcos use the (to me, at
least) more appropriate lower figure.

For example, on p. 16 of Omnipoint's 1998 annual report, they state
"Included ... for 1998 was approximately $9.6 million of costs
associated primarily with international fraud committed during the
first six months of 1998."

Notice their use of the word "costs". Presumably this was real money
Omni had to pay out to the international carriers/foreign telcos (and,
no doubt, a similar but smaller amount to USA landline carriers) to
complete the calls.

disclaimer: I'm not only an Omnipoint customer, I'm also a shareholder

Knowledge may be power, but communications is the key

[to foil spammers, my address has been double rot-13 encoded]

 
 
 

Cellular/PCS Carriers Lose Half Million Dollars Daily to Fraud

Post by Arthur Ros » Mon, 13 Sep 1999 04:00:00



> Far be it from me to defend a telephone company, but keep in mind
> there are two ways of listing the expenses involved in a fraud
> incident. Kind of similar to, dare I use the example, the "price" of
> the * seized and then displayed in those all too familiar
> television news conferences where the local gendarmes show the bricks
> of * ... Note that they will always cite the "street value"
> rather than the much less notable, for want of a better term,
> "wholesale" cost.
> In the case of the telcos, there's the choice between listing their
> own cost of providing that service (a pretty small number), or the
> much more impressive figure based on how much they'd have billed. And
> naturally, they, too, at least in press releases, use the latter.

Good point. But it is much easier to identify the actual loss in a
business where the product is some tangible item (clothing, hamburger,
 ... whatever -- the euphemistically named "shrinkage" in retail
outlets). It's a bit harder in a service business. The cloning fraud
represents a failure to pay for services received.

Does this actually cost the provider anything? Yes and no. There is a
certain cost associated with the provision of service, but it is
largely capital and operating costs, not cost of goods sold. It is
real tho, in the sense that, to the extent that the fraud causes the
operator to install more capacity, it is a cost that ultimately is
passed on to the legit consumers via higher prices. But little of that
finds its way explictly into the annual reports or SEC filings, per
Danny's comment, because it is difficult to ascribe any particular
item or portion of costs to fraud. The small amounts reported by
Omnipoint are presumably only those few things that *are* identifiable
direct costs, e.g. international charges for terminating outgoing
fraud calls.

It is my understanding that the level of analog cloning fraud is
indeed rather high, amounting to a few percent of airtime usage
nationwide.  Technical fraud ought to be essentially zero in the
digital systems, driving the thieves to more traditional means --
simply stealing phones, using phony IDs to sign up for service, etc.

All of this does lead me to wonder what sort of fraud Omnipoint is
talking about in that annual report. They *are* a digital (DCS-1800)
system ....

   -- Best
   -- Arthur

   Dr. Arthur H. M. Ross
   2325 East Orangewood Avenue
   Phoenix, AZ 85020-4730

 
 
 

1. Does Privacy Lose Out in Cellular Fraud Prevention Plans?

While I realize the need for 'user profiles', I can't help but shudder
everytime I hear about them. Primarily because, I am concerned over
how this information can be used. Does your company share these 'user
profiles'? Or, are they for internal use only? Do your customers know
that you keep their calling patterns? Or do you collect this
information on the sly? If they do know, do they have the option of
subscribing to this service?  Or is it imposed?

So much data is being collected on each and everyone of us that it is
only a matter of time where every action will be tracked, collected, and
dissiminated.

Again, I understand the need. It is valid, fraud hurts us all. My
concern is can (not if) the 'user profiles' be accessed by an outside
party? If so, what steps are taken to protect your consumers? Do you
notify them of inquiries? (such as Transunion, Equifax etc... are
required to do?) I am not directing this at your company in particular.
I know the practice is common with many companies, not just those in the
Telecom field. Just voicing my opinions as they reflect upon the privacy
of us all and curious as to how much consideration companies put into
the issue. I don't think they look at the issue. I know they don't
where I work <sigh>.


The Ferret Bulletin Board System  (501) 791-0124
North Little Rock, Arkansas

[TELECOM Digest Editor's Note: You know Jim, you ask too many questions
for your own good. :)  You make some people get uncomfortable when you
raise issues like that. We don't want that do we?     PAT]

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