More than 80% of African operators have experienced SIM Box fraud in the last year, says survey

According to a new survey conducted by anti-fraud provider Revector, SIM Box fraud and OTT hijack remain two of the major threats to mobile operator revenues.

More than 80% of operators have experienced SIM Box fraud and three quarters have been victims of over-the-top player (OTT) hijack, says Andy Gent, founder and CEO of Revector. On average, mobile network operators have lost 20% of termination revenues to OTT hijack in the last 12 months, with some operators losing more than 70%.

The productivity picture

Africa is viewed as one of the hubs of fraud against mobile network operators. Whilst it is easy to consider fraud against mobile networks as a victimless crime, it is far from the case.

The GSM Association reported in 2012 that a 10% increase in the number of people connected to a mobile phone network leads to a growth in economic productivity of 4.2%. The less money networks have, the slower they can roll out mobile network upgrades, and this impacts growth in the country.

The African perspective

Mobile operators in Africa have historically suffered from a fraud called Bypass or SIM Box.

Operators receive payment from the customer for connecting or ‘terminating’ a call in a country. The cost of connecting an international call can be more valuable than the cost of a local mobile to mobile call within a country.

Fraudsters exploit the difference between international and local call rates by buying thousands of local SIM cards and inserting them into a device known as a GSM Gateway or SIM Box, which is then connected to the internet. They then sell international phone minutes and connect them as local calls. The operator is denied the full international payment rate, resulting in a loss of revenue.

Recently, cross-border tariffs to offer users in East Africa the same calling costs across several countries (including Kenya, South Sudan, Uganda and Rwanda) has brought this issue further into focus.

SIM Box fraudsters have started terminating calls for each country outside their borders, leading to a significant threat to mobile operator revenues across the region. At a time when African mobile operators are attempting to invest in new infrastructure, this could impede the growth of mobile telephony across the continent, through no fault of the operators.

A new threat to revenues

More recently, operators have suffered a new threat to revenues which has the potential to be far more serious than SIM Box fraud. This is known as Over-The-Top Hijack and a recent survey by Revector of more than 16 operators in Africa has identified that this could cause revenue loss of more than 50% of termination revenues.

OTT apps such as Viber and WhatsApp have been proactively touting the capability to terminate calls, selling this service on the open market and directly to some operators in different countries.

This new threat means that someone calling a different country will dial the number on the keypad as usual. However, when the recipient answers it is no longer a normal telephone call – it arrives as an in-app call on a voice or messaging app.

Buried within the terms and conditions of several OTT apps is an option to ‘deliver normal calls as OTT calls when possible’. This is usually defaulted to ON. The recipient of the call will simply think that the caller has called them on an OTT app rather than via the normal telephone service (which is not the case).

This is ingenious short term profiteering by the OTT apps: Not only do they get to convince recipients of calls that more people are using their apps, they also get to keep the termination revenue, all the time delivering this call over data using the network of the operator they are hijacking the revenue from.

The lost revenue to the mobile network operator will eventually mean a lack of investment in networks, driving down quality for everyone (including the OTT provider), but most of all the mobile user.

OTT hijack can not only damage revenue but also reputation, with more than half the operators surveyed by Revector reporting an increase in customer complaints in the past 12 months. Issues around call quality were cited by almost 90% of respondents as the primary driver of customer complaints.

Wherever there is business, there is fraud. As new revenue opportunities grow, so new frauds appear. Across the African continent fraudsters continue to look to mobile network operators as a rich source of illicit gains. The long-term consequences, however, hit harder than operator revenues: With such a close link between mobile communications and country-wide productivity the consequences can be limiting to economic development for the entire continent.

The author of this blog is Andy Gent, founder and CEO of Revector

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