The $30 billion opportunity CSPs are ignoring

What would you do to increase your profits by 3%? What if you could simultaneously increase your profits and make your customers happier?

Sounds like a Goldilocks service right? But that’s the opportunity that mobile operators have in front of them if they choose to take it.

Where is such money to be found? These staggering sums could be realised simply by reducing the level of fraud to best practice levels within the industry. Because one of the dirty secrets of the telecoms industry is that we’ve been one of the biggest funders of criminal and terrorist activity for years. We are unwilling donors of at least $30 billion a year to criminal organisations. Europol thinks that figure is even higher – they calculated $32.7 billion in 2019. But let’s not split hairs – what’s $2.7 billion between friends.

But how is it possible that such a huge amount of money is being lost and we can’t even put a reliable figure on it? The answer is that it’s baked into the business model. And the trouble with that is whereas once we were making so much money we could sustain a certain level of fraud, the business model has changed and margins are a lot slimmer. That means our attitude to fraud also has to change.

Let’s put the assumed losses into context. The amount being lost varies by region, technology and operator. Some operators lose up to 10% of revenues; some less than 1% (best practice). The average for the industry though is generally agreed to be about 3%. For a trillion dollar industry that works out at around $30 billion dollars a year of losses, and everyone in-the-know thinks even this is a massive underestimate.

For a start, the figure doesn’t include the wider cost to society. There might be damage to cars or homes from break-ins, medical costs for victims, costs to insurers, and loss of productivity if the victim has to take time off work, spend time trying to recover their data or liaise with law enforcement. It’s been estimated that the wider cost of these crimes is more than $30 billion in the US alone (Mailley, J, Garcia, R, Whitehead, S, & Farrell, G. (2008). Phone theft index. SecurityJournal, 21(3), 212–227).

In comparison, the GSMA estimates that the industry will spend just over a trillion dollars ($1.1 trillion) between 2020 and 2025 on network investment, or around $200 billion a year. While trying to figure out where to find the money for this investment, those self-same operators will have given away at least $150 billion in fraud, or about 14% of their CAPEX budget. That money could build a lot of base stations.

Fraud raises costs for customers

Telecoms fraud doesn’t just affect operators though. Ultimately it translates into higher phone bills for everyone. Let’s anchor this in reality. The average household spend on telecoms in the UK is £930 per year. That means the average household is paying an involuntary donation of £28 a year to criminals, or £2 a month.

But let’s dig down a little more. Where is our £2 a month going? About 40% – or 80p a month – is due to handset crime alone. The UK’s ONS notes that in the last 10 years, 48 million customers have reported stolen phones – virtually one for every adult in the country. What’s worse is that stolen handsets contain a huge amount of data that has value in itself to criminals, and which can be resold on the Dark Web, potentially leading to even more losses down the line. On top of this, the customer is hugely inconvenienced by the loss of their phone and personal data, causing fear, upset and frustration. Frustrated and upset customers ring their service providers, which inevitably raises support costs.

Why hasn’t more been done to tackle the problem?

Phone crime is often seen as a low priority crime by police unless violence is involved or the phones are stolen in bulk. After all, there’s insurance to pick up the bill. But the scale of the criminal enterprise behind all of this often escapes the attention of local law enforcement, and the international nature of it makes it difficult to stop. The result is a flourishing blackmarket in stolen devices and millions of new victims each year.

Dion Price, CEO Trustonic

But can’t we just blacklist the phones? Not according to Trustonic’s CEO Dion Price, who says IMEI blacklisting just isn’t working. The ease with which phones can now be unlocked, Price says, fuels the problem. “The bottom line is that the scheme is voluntary, and many countries haven’t signed up,” he explains. This is why handsets stolen in North America and Europe end up in Nigeria, Southeast Asia and the Middle East.  

How this impacts on CSPs’ bottom lines

Isn’t this just a customer problem, not a CSP problem? The loss to mobile operators derives from the subsidies they invest in devices and from financing agreements. There are solid business reasons why operators do both of these – notably to ensure customers have the latest generation of phone so they can benefit from the full range of services, or to make phones affordable to less wealthy customers.  But the scale of their losses from organised device theft and fraud are big enough to form line items on their annual reports. One operator Trustonic recently worked with, for example, was losing almost 25% of their prepaid phone inventory, at a cost to them of $90 million a year.

Tackling the problem is an imperative, not optional

Now, there’s nothing new in these losses. As I said, they’re baked into the business model. So why should we worry about them now?

Firstly because we need to drive efficiency and ensure that costs to the business are minimised. Fraud is wasted revenue. And with downward price pressure and increased infrastructure investment, the level of fraud that was once sustainable no longer is. But what makes all of this so urgent is the rollout of 5G.

As 5G is commercialised in 2021-22 the perfect storm is being created.

  • criminals are well organised and continue to evade law enforcement
  • 5G handsets are more expensive than 4G handsets and are an attractive target for criminals
  • ID theft and data theft is a burgeoning industry and handsets are a honey pot of data
  • mobile operators are motivated to subsidise 5G handsets and offer good financing deals in order to get more customers using 5G.

Price says that this is the time to tackle handset crime once and for all. “Trustonic’s platform ensures that once phones are reported stolen to our customers they’re immediately put beyond use,” he explains. “This ensures they have no resale value, removing the incentive for the crime in the first place.” 

He adds that handset crime is an extensive and complex issue but the benefits of addressing it effectively are substantial. “Given the extent of the problem and the significant losses resulting from it, addressing it makes good business sense because, as our customers have seen, the cost of implementing a solution is only a fraction of the amount lost to theft and fraud”. 

Omnisperience’s view

Effectively tackling phone theft has the potential to make a huge impact on the bottom line, but not tackling it is no longer an option. With the rollout of commercial 5G the risk to operators increases exponentially. Chief Analyst Teresa Cottam says: “Phone theft might not be a new issue, but losses are set to soar as 5G handsets are rolled out. Make no mistake: phone theft is a brand slayer. Tackling this long-standing issue offers the potential to achieve a rare win-win for both customers and service providers. It’s become a no-brainer.”