Roam Like Home – A Broken Window for Fraud

The new EU roaming regulation, in place since June 2017, was received with great enthusiasm and excitement by European consumers. It is easy to understand why, as communication charges are one of the biggest expenses of anyone traveling across Europe and probably most of us have experienced a bill shock at least once in our lives.

Surprisingly though, the benefits of these new rules may not be limited to frequent flyers. As it was designed, Neelie Kroes’ “Roam Like Home” proposal opens the window for international arbitrage and is a blatant invitation for free riders. As we speak, many customers in Germany or France might be hoping to purchase a Polish SIM card that will give them access to much cheaper services. With the speed at which these deals spread in digital channels and social media, if large European MNOs do nothing, it will be a ‘breeze’ before they start feeling it on their topline.

The main thing overlooked by the European Commission was the role of roaming fees on ensuring market segmentation and appropriate capital remuneration, especially in an era of hypermobility. The costs of deploying and operating a network in Germany, in Poland or in Romania are significantly different and we should never give people the opportunity to use an asset without paying a fair price for it.

According to analysis done by Strand Consult, this might imply that “mobile operators in Europe will lose up to 20–40% of their turnover, and that the industry will lose up to 75% of its revenue”, assuming the current price gaps across the 27 EU countries. This will likely upset many operators who invested a significant amount in their spectrum licenses and who are now feeling defrauded by this decision. And by the way, sooner or later member states will also be caught by an erosion in their tax collection.

To try to mitigate all these effects, the EU Commission laid down a fair usage policy, setting up a maximum number of roaming days over a 4-month period. However, international roaming arbitrage fraud will proliferate while operators lack the proper controls to track and prevent this type of fraud.

Who will pay for this ‘free lunch’? Unfortunately, we all will. The consequences of such incentives are worrisome and far reaching. The industry will suffer because investment in infrastructure will be discouraged, and investors will be alienated. This will translate into lower quality communications for all, at a time where data consumption is exploding.

Operators can respond by rapidly fixing the “broken window” that allows this type of fraud. They can do this by leveraging their risk management platforms and deploying engines and controls to detect fraud when it occurs. My business, WeDo Technologies, has been closely following this topic, and our analytics system allows us to monitor roaming traffic and identify abnormal roaming consumption patterns that do not comply with a ‘Roam Like Home’ fair usage policy.

Another interesting option is for operators to accelerate their M&A activity in low-price countries and to promote cross-border price harmonization in an attempt to “stop the bleed” in the medium and long term. This would be similar to what we saw in the pharmaceutical sector, when pharma companies raised drug prices to deal with reference pricing.

Nonetheless, the road ahead will be grueling. There will be multiple grey lines when determining fair usage. Customers will find new intricate workarounds to stay out of the radar while reaping the benefits.

Telcos need to act fast and send a strong message that they will not tolerate devious behavior. Unfortunately, there will be an inevitable impact on the European economy as the loss of revenues and investment will result in poorer communication network services.

Bernardo Galvão Lucas
Bernardo Galvão Lucas
Bernardo Galvão Lucas is the Chief Marketing & Strategy Officer of WeDo Technologies. In this role Bernardo focuses on defining and overseeing the implementation of the corporate marketing strategy and representing the WeDo brand to a global audience. He leads a team that grows the business by sharing the value of WeDo’s fraud management and revenue assurance solutions with the communications industry.

Prior to WeDo Technologies, Bernardo led some of the world's biggest technology, media, telecommunications, retail and financial services consulting projects.
  • akrittok

    It’s brilliant consulting to say that something “might imply” something else. Strand definitely put skin in the game and their reputation on the line for saying that this regulation “might imply” that 75% revenue will be lost. Or it may not imply that. Who’s to say?

    Leaving that aside, I am unclear who exactly WeDo is trying to help.
    As far as I know wholesale charges between operators still apply, so in your example above with the Brit buying a SIM from Poland, the losses will be more on Polish side.
    Perhaps I misunderstood your logic, when you say “we should never give people the opportunity to use an asset without paying a fair price for it.” it implies you see some losses on the UK side.

    I doubt WeDo system can do anything at all for the UK operator in this scenario, please correct me if I’m wrong.

    • WeDo should reply for themselves, but I think they would say they are making a more strategic observation than we might usually expect from vendors of fraud systems. Though harmonized rates increase the likelihood of fraud, Bernardo is also concerned with the more general issue of price competition leading to lower margins.

      This isn’t specifically a telecoms issue, but effectively forcing every telco to charge the same rate, irrespective of the nation they operate in, will lower prices overall. If companies cannot discriminate on price according to where they sell a product, they will not just fail to attain the maximal revenues that the market would have supported, they risk being unable to compete in a market where the only competitive factor is price differentiation, because there is no longer a way to sustain higher standards that some customers may have become used to.

      Lower prices and intense price competition may be good for politicians, but not so good for telcos with higher prices, and some of those prices relate to investment in network assets and paying the people who maintain them. With respect to the Polish example given by Bernardo, we might agree that if I built a German-designed car in a factory in Poland that might prove cheaper than running an equivalent factory in Germany, and this might upset some German workers as well as some German factory owners. It seems perfectly possible that the same thing could happen in telecoms, except that price controls mean the German ‘factory’ – by analogy, the network – must be made available to rent to Polish designers at a consistent rate. If the Poles have lower overheads then they may offer an inferior product in terms of the complete package received by the customer, but might succeed because they are charging lower prices, partly thanks to only paying the low price for using a high-grade productive asset (the factory/network).

      If creating and maintaining this productive asset costs more in Germany – perhaps because land costs more, or because the German engineers demand higher pay – then there is a risk of further depressing the economic incentives to invest in German network capacity in future.

      Perhaps it is best that Barnardo explains himself, instead of me putting words into his mouth. And it is possible to debate the economic truth of the argument expressed above. But it is an argument that deserves respect, because if we remove incentives to invest in infrastructure then we all risk being poorer in the long run.

      • akrittok

        Eric, I agree with what you say above, what I failed to understand is what precisely can WeDo FMS do. The only operator who is in a position to monitor traffic is the HPLMN. The rest will only have visibility on roaming traffic, without being able to compare to Fair Usage policy.
        So to that example above, I guess WeDo can help a Polish operator to determine if any customers are in breach of FUP (still a long way from “fraud”), but I don’t understand what they can do for the UK operators, who may have Brits appearing as inbound roamers in their networks, while in fact they reside in Britain but pay their mobile invoice in Poland.
        And his examples, like yours, focuses on the impact this may have on more expensive markets.

        • I don’t think they’re suggesting their FMS can do anything about intense price competition or lower investment. They’re only observing that the market will get tighter. The rational response is to cut costs, be efficient, and avoid wasting a penny. That includes taking an analytical approach to the extent to which roamers use a network, and to use this data to push back on the roamers – and politicians – when it can be argued that the use goes beyond what is ‘fair’. After all, some national politicians will defend national telcos, but they need to be given data that supports the relevant economic arguments.

          • Akrittok

            Thanks for the explanation Eric. The only analytics possible will be from the home operator point of view. And even that, most probably, will not include people who perhaps are only receiving calls in roaming. There is a big disconnect between what politicians are striving for and how operators are actually set up.

        • Bernardo Galvão Lucas

          When a Roamer switches on in Germany, a German VPLMN can get access to the IMSI of the Roamer. When prompted by a VPLMN VLR, a Polish HPLMN HLR would send info that can be used to identify the country and PLMN where the user is registered. This together can be used by a German VPLMN to identify consistent abusive patterns by a specific IMSI, from a given low cost country/ operator. There are other rules you would have to set up, as a disguised German with a Polish SIM might try to switch VPLMN. In any case, you should be able to capture the majority of abusive patterns. Let me know if you would like to discuss this in more detail privately.

      • Bernardo Galvão Lucas

        Exactly and your factory analogy is spot on. My key concern here is the impact and pressure that this will put on the Telco market, until operators actually have time to adjust. In the short/ medium term, and regardless of the discussion of which operators will suffer more, this will drag European Telco revenues downward and customers in high overhead countries, such as Germany, will be able to surf the network for a price below cost. The problem is that there is no such thing as free lunch and in the end this means that there will be less incentives to invest in communication infrastructures.

    • Bernardo Galvão Lucas

      Hi Attrittok,

      Replying to some of your points:
      – 75% impact on Telco revenues, just takes into account the price differences across operator and assumes that customers are rational and since connectivity is basically a commoditiy they should switch for the lower price plan. Obviously there are a lot of mitigants, customer paralysis, assymetric information, loyalty schemes, convergent offer effects etc. But the point is that the impact will be big.
      – It is also unclear to me whether the losses in the medium term will be on the Polish side. That will depend a lot on the wholesale agreements negotiated and on the consumption profiles. There will be large differences across operators and countries. Also there will be some time differences in how the impact affects the operators. The first step will be for operators in higher rate countries to lose customers, although they might be compensated later depending on their user consumption profile.
      – In any case, my point was a broader one – this law will shrink the Telco market and will put at risk future investment in the sector
      – As for what we can do at WeDo, we had several discussions on how to address this issue using our system. 1) From the point of view of the home operator (the one you mention and which can be easily dealt with our RAID.Roaming solution): in which case you will only report the customers in which you are losing money, 2) From the point of view of the receiving network (more difficult to track, specially if you do not have access to most traffic processed in the country, but still possible to identify Roam In abusive patterns with specific controls)
      – If you want to know more on how we can address this issue drop me an e-mail at: bernardo.lucas@wedotechnologies.com

      • akrittok

        Hi Bernardo,

        We may not see eye to eye on this topic but I appreciate very much you taking the time to explain your thought process.
        From my point of view, in addition to what I’ve said already, I would only highlight this:
        1. 75% impact may be on a revenue/customer, considering price differences.To claim that this can be applied to Telco revenues it implies that all customers are going to use foreign SIMs.
        2. To your point that the customers are rational, I agree, but there are some pretty big disadvantages if you’re using a foreign SIM, the number one being that everybody would have to call International to reach you. I don’t think there are that many plans with all inclusive international. Businesses won’t be able to expense those invoices. Residential customers won’t get customer service in their language. And so on.
        All this to say that I doubt this will have such a big effect.
        But anyways, many thanks for the explanations and taking the time to address my questions.
        Kind regards,
        akrittok

  • Carlos Marques

    Interesting discussion. There is always room for discussion when it comes to debating the grey lines between abuse and fraud. I remember a recent RAG event where people were discussing if OTT Bypass was in fact a fraud type or just a service abuse that was decreasing CSPs revenues. The same goes with tethering. The ones that don’t consider it fraud give you the recommendation access it with fair usage.
    The use case mentioned here might generate a lot of discussion if its fraud or abuse but one thing is for sure: this can create a serious impact on operator’s revenue. Like when you live in France you can’t simply buy a car in Germany without having to register it and pay taxes in your country, this trend of “exporting” SIM-Cards for sell across the border will generate a lot of controversy in the near future.
    Will this be considered fraud and the EU Roaming legislation will change? Don’t know for now… but CSPs should better start collection the facts to create their arguments to stop it.
    How will you measure it? My friends here I will just repeat what a police officer once said to my 3rd floor neighbor that went to Germany buy a station wagon and didn’t legalize the license plate immediately:
    – I’ve seen you here driving and parking that beautiful station wagon in this street for 2 months with a foreigner license plate. Do you want me to believe that you Mr. António live and Germany and it’s only here on vacations? If you have so much time on vacations, maybe you also have some extra euros to pay this ticket that I’m going to give you now.

    • akrittok

      interesting, in several countries in the EU, the scenario you just described with the car was legal. not sure if it still is.
      I think we’re a very long way from common data processing between operators, and with GDPR coming in, it will be even more problematic.
      What would that look like I wonder? Profiling inbound roamers, people who never agreed to give you access to their data communication, then admiting to that to your roaming partner who would then have to let the customer know that all their physical locations and traffic patterns were monitored and assessed in order to determine if the operator is making enough money? That sounds magnificent.
      I doubt that we will see a CSP resorting to guerilla tactics against inbound roamers. What would the be the penalty for that I wonder…?

      I can understand a debate in case of bypass (even there, if the country’s legislation is fuzzy about bypass, you cannot call it fraud), but here I don’t know how you could prove intent to cause loss. And to call something fraud, I think you need to prove intent