Wholesale Carriers Lose 3.8% of Revenues to Frauds and Leakages

Employees of wholesale carriers submitted 37 of the 175 responses to the RAG Revenue Assurance and Fraud Management Survey, meaning we have a decent sample size for evaluating the impact of fraudulent and non-fraudulent leakages on that specific class of telco. All of the raw survey responses have been made publicly available so anybody can crunch the numbers for any particular type of telco; in practice nobody has done it for wholesale carriers so I did it myself out of curiousity. This is what the numbers said about wholesale carriers at the highest level:

  • Wholesale carriers lose 2.17 percent of revenues to fraud
  • Wholesale carriers lose 1.62 percent of revenues to non-fraudulent leakages

These averages are considerably less than the losses suffered by comms providers generally. The data from wholesale carriers also differed from the universal results by finding fraud is worse than non-fraudulent leakage. The averages across all 175 responses to the survey were that fraud costs 2.59 percent of revenues and non-fraudulent leakage costs 2.92 percent of revenues. So whilst wholesale carriers claim to suffer significantly less fraud than other kinds of telcos, the difference in the rates for non-fraudulent leakage is especially marked, with wholesale carriers believing their non-fraudulent leakages are roughly half of the norm for all other telcos.

The different loss rates for wholesale carriers could be because their business model avoids some of the complexities found in retail markets, making accidental errors less likely. Those wholesale carriers that are part of a business which also provides retail services may benefit from the enhanced control that comes from having visibility of a wider cross-section of the telecoms ecosystem. Or lower reported leakage rates might be the result of underinvestment in revenue assurance. However, the respondents who said they worked for a wholesale carrier were almost as likely to say their function was responsible for revenue assurance as for managing fraud.

Breaking down the leakages by type showed some significant differences between the losses endured by wholesale carriers and those suffered by other kinds of telcos. Whilst bad debt was the greatest single cause of leakage across all telcos, the averages for wholesale carriers showed international revenue share fraud (IRSF) was the top cause of leakage. However, caution is required because an examination of individual responses shows that a few respondents submitted especially high numbers in this category, and there was considerable variance between their answers and those given by other respondents. Per the averages, wholesale carriers leak 0.57 percent of revenues because of IRSF, which is more than the total for the 10 lowest categories of leakage put together.

The following list shows the average leakage in percentage terms for all 25 categories used in the survey.

  1. International revenue share fraud: 0.57%
  2. Bad debt: 0.39%
  3. Billing and collection errors: 0.27%
  4. Bypass fraud including simboxing: 0.25%
  5. Usage errors: 0.24%
  6. Artificial inflation of traffic: 0.21%
  7. Rating and tariff errors: 0.2%
  8. Subscription and identity fraud: 0.17%
  9. Handset crime: 0.17%
  10. Messaging fraud: 0.17%
  11. Products with negative margins: 0.14%
  12. Subscription fee errors: 0.13%
  13. Compensating customers for PBX hacking: 0.13%
  14. Theft of network assets and equipment: 0.12%
  15. Commissions fraud: 0.12%
  16. Network and system outages: 0.10%
  17. Stranded assets and underused equipment: 0.09%
  18. Excess operating costs: 0.08%
  19. Compensating customers for wangiri: 0.08%
  20. Tax fraud: 0.08%
  21. Compensating customers for account takeover including SIM swaps: 0.03%
  22. Customers sharing services with non-customers (e.g. passwords for services): 0.03%
  23. Compensating customers for mobile money fraud: 0.02%
  24. Denial of service attacks: 0.02%
  25. Piracy of digital content: 0.01%

One challenge with a survey of this type is to obtain data from the largest possible number of communications providers whilst acknowledging the important differences in their business models. In this survey respondents were asked to identify all the kinds of business model that applied to their employer, and this unsurprisingly showed a great variety in the combinations that a single business might support in real life. Nine of the responses stated the telco was only a wholesale carrier, whilst 28 came from professionals who worked for a telco that was both a wholesale carrier and also some other kind of comms provider, such as a mobile network operator serving the retail market. Three responses indicated their telcos supported all seven business models identified in this survey, namely: wholesale carrier, mobile retail network operator, fixed-line retail network operator, mobile virtual network operator, ISP, direct to home TV provider, and mobile money provider. This should be taken into account when reviewing the averages because the figures relate to the business as a whole, and not just the portion that is a wholesale carrier.

Survey respondents were also asked about the challenges they face and the use of machine learning in their function, and these questions revealed further differences between wholesale carriers and other kinds of telco. Employees of wholesale carriers rated ‘technology investment’ as their top challenge, narrowly ahead of ‘finding skilled people to work in our team’. This contrasted sharply with the majority of other telcos who identified ‘executive sponsorship’ as their leading challenge. However, frustration with the levels of investment in technology may also reflect higher expectations. 27 percent of wholesale carriers said they were already using machine learning for revenue assurance or fraud management in contrast to an average of 20 percent for telcos overall. Just 30 percent of wholesale carriers said they currently have no plans to use machine learning, compared to 42 percent across all respondents to this survey.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.