Official dollar losses from wireless fraud have decreased significantly in the past several years, but whether that means the wireless industry is truly winning its war against fraud is a matter of debate.
Tom McClure, vice president for wireless fraud and security at the Cellular Telecommunications Industry Association, said fraud losses are down more than 80 percent from 1996 levels. CTIA, which collects wireless industry data semiannually, said fraud losses have fallen from 4 percent of total revenues, or more than $800 million, at the end of 1996, to less than one-half of 1 percent, or around $150 million, last year.
While fraud losses last year were split evenly between subscription and technical fraud, McClure said subscription fraud is likely to exceed cloning fraud this year. Numbers for the first half of 1999 have not yet been tabulated, but McClure said his perception is that fraud losses this year probably will remain constant from last year as higher subscription fraud losses are balanced out by lower cloning fraud losses.
Individual carrier stories throughout the wireless industry mirror the CTIA figures. GTE Wireless, for example, said its fraud losses have decreased more than 80 percent during the last several years. (See related story on Page 36.) However, despite what appear to be rosy statistics, carriers would be wise not to celebrate victory just yet.
Is fraud down?
“I don’t actually agree with the thought that fraud is going down in the industry,” said Michelle Wheeler, manager of fraud products at Lightbridge Inc., a provider of fraud solutions.
Wheeler and other fraud experts are cautious about the figures that are circulating, saying several factors likely are contributing to artificially low numbers.
Of primary importance is the lack of a standardized method for identifying and tracking fraud on an industrywide basis, say experts. That leads to problems, including fraud being accounted for as bad debt.
“When it was technical fraud, it was a lot easier because you could see what was happening,” said Wheeler. “As the industry shifted more toward subscription fraud, that became more difficult to track because that really is more easily masked with bad debt.
“How do you know that the person who didn’t pay the bill that month is a fraud or the real person not paying the bill?” she asked.
“The rule of thumb I’ve heard is if you have a bad debt problem, about one-third of that is probably truly subscription fraud that hasn’t been identified properly,” said Kimberly Eubank, manager of fraud prevention at BellSouth Mobility DCS. “Whether it’s truly that high or not, I don’t know, but I’ve heard several people say that.”
CTIA’s McClure said increasing competition also could be leading to deceptively low fraud losses by giving the appearance that fraud losses are down when in fact they are just being spread among more players. In addition, as wireless penetration increases, fraud losses decrease as a percentage even though fraud incidences remain unchanged.
Another factor that inadvertently may be leading to low fraud loss numbers is a trend of falling airtime rates, which means carriers are taking a smaller financial hit for the same amount of fraudulent calls.
“Yes the dollar amounts may be going down because of the airtime, but at the same time, the number of incidences are not going down,” said Wheeler. “I think it’s kind of difficult to put your finger on what exactly is happening out there.
“I think we need to figure out the best way to count the monetary loss, which I don’t think we have pinned down yet,” said Wheeler. “We’re calculating it the right way, but I think we’re diluting it with things like bad debt and additional subscriber rate volume, and I think that those give us a false sense of comfort that we’re actually winning the battle when in fact I think we’re playing a game of table tennis. The ball is just going back and forth.”
Technical fraud
Still, the industry can comfortably claim some successes.
Tools like authentication and radio-frequency fingerprinting, coupled with the growing presence of fraud-resistant digital networks, without question have put a clamp on cloners.
CTIA’s McClure said the industry has taken what was a runaway train five years ago and turned it into something more manageable.
“We have successfully eliminated cloning fraud,” said McClure. “That is to say the products are out there to technically defeat cloning fraud, but it’s the carriers’ decision whether or not to deploy those products.”
McClure said a small carrier may choose not to deploy cloning-prevention technology when the cost of the technology exceeds the amount of its fraud problem, for example.
“Why would (a carrier) want to deploy $10,000 worth of equipment to fix a $2,000 problem?” he asked.
Those situations, however, create a loophole in which larger carriers that have protected themselves with cloning prevention technologies in their own markets can get trapped. Cloning fraud in roaming environments-where a fraudster uses a cloned phone in markets outside a carrier’s footprint in order to make the fraud difficult to detect quickly-remains a sticky issue.
