Telcos lose money to SIM fraud

[geovalin]

Eddie Morton

On July 4 last year, a covert group of investigators homed in on an unassuming apartment in Phnom Penh’s Chamkarmon district.

During the multi-agency raid that followed, one Thai national was arrested and thousands of dollars' worth of equipment capable of rerouting incoming international phone calls was seized.

Following the July assault, on August 26, police and government investigators again swooped in on another property, this one close to the German embassy in Phnom Penh’s 7 Makara district.

This time, three Chinese nationals were arrested, and again authorities seized the same expensive equipment used to reroute international calls.

The raids grew out of a brief attempt to confront so-called “SIM boxing”, a practice that, since early last year, has been siphoning off millions in global incoming call rates from the local industry, according to interviews with executives.

“Everybody is losing money – I’d estimate up to 30 per cent of all of Cambodia’s incoming international call traffic is being lost,” said Paul Blanche-Horgan, CEO of Ezecom. “These underground operators are literally making millions of dollars every month.

“If you factor in lost telecommunications tax revenue for the government, that figure gets even bigger,” he added.

Needing only SIM boxes – which can be purchased off the web for between $3,000 and $10,000, a fixed-line internet connection, one operator and an array of local SIM cards, the clandestine operation is easy to set up and even easier to leave behind.

The unlicensed operations route calls through their own internet gateway servers (the SIM boxes) instead of a licensed gateway (owned by companies like Ezecom). The international firms that relay the calls go for the lowest bidder, undercutting Cambodia’s licensed gateway operators, who charge a standardised four cents per minute for calls from abroad.

SIM box operators charge about two cents per minute to the international call traffic carriers before relaying the call through domestic SIM cards at almost zero cost.

Neither the caller nor the receiver is aware the call has been routed through a SIM box instead of a licensed international gateway, except when a domestic number shows up or the quality is especially poor, with dropouts and echoes.

The government has taken notice, just not in the aggressive way industry insiders would have preferred.

In June, a letter from the Ministry of Posts and Telecommunications – which took part in the raids last year – to industry firms said that a new position had been created specifically to investigate SIM box fraud.
Threats to the Kingdom’s national security and financial losses to the national budget were cited in the letter as reasons for the effort.

But the appointee left his position at the ministry soon afterwards to work at the Council of Ministers, and no replacement has been named.

In the most recent industry attempt to stimulate government action, the CEOs of Ezecom, Cellcard, Smart and Vietnamese-owned Metfone sent a letter to Prime Minister Hun Sen on September 30.

The executives called on Hun Sen to act on SIM box fraud, citing a notable increase since April and “heightened security risk” as the rerouted and untraceable calls could be used for criminal activity. It also warned of mounting industry and government tax revenue losses.

Since the request for government action, firms say that the telecommunications regulator and its affiliated ministry have yet to respond.

The problem is not unique to Cambodia. US-based Communications Fraud Control Association (CFCA), an international lobbying group focused on loss prevention, estimates the global industry missed out on more than $46 billion, or 2.09 per cent of revenue, from illegitimate operations in 2013.

In Asia, the CFCA estimates more than $17 million is lost to SIM box operations annually, but the exact figure remains uncertain as many telcos refrain from disclosing revenue losses.

Toby Johnson, a spokesman for the United Nations’ International Telecommunications Union (ITU), declined to comment directly on Cambodia’s absence of related legislation, but said that globally, reports of the illegal bypassing method are on the rise.

“It’s very clear that Sim Box fraud is a major challenge, especially in the developing world,” he said in an email.

Ezecom is the Kingdom’s largest internet service provider and is one of only a handful of gateway operators licensed to ferry in international calls made to Cambodia.

Blanche-Horgan, the CEO, estimates his company is losing more than $300,000 every month as a result of connection fees from international incoming calls being rerouted to SIM box operators instead of licensed gateways.

“I don’t know if the problem is growing, but it certainly isn’t getting better,” he said. “As one gets caught, another one comes in.”

Ian Watson, the CEO of Cellcard, called for an all-industry effort to crack down.

“We continue to lobby the government to move swiftly on this and we are happy to work with all the major telcos and ISPs as a joint task force with the ministry to curb the revenue loss and penalise the fraudsters,” Watson said.

Firdaus Fadzil, Smart’s head of regulatory operations, said Cambodia’s telecommunications legislation is not only lacking, it is entirely nonexistent.

“Telecommunications law in almost all other countries outlaws these operations. But here, there is no such thing, so even if they are caught, there is nothing to charge them with,” Fadzil said. It is unclear what charges were brought against the men arrested in the raids last year.

“We have not seen any similarly stern action taken by the Cambodian government,” he said.

A senior telecommunications official who declined to be named said in an interview yesterday that the government was not responsible.

In fact, he blamed the mobile operators for any “suspected” increase in illegal SIM box activity.

He said that since telco firms had refused to adopt minimum call rates last year, as outlined in an unpopular government order that was later scrapped, SIM box operators are able to relay international calls for almost no charge.

While international calls are subject to a standardised four cents per minute connection rate, domestic calls have no standardised rate.

“With a higher cost base across the board, SIM box operators would not be able to connect to other domestic networks without paying a higher base rate, essentially diminishing their profit margins,” he said.

The official added that a full draft of a telecommunications law and subsequent fraud legislation was due to be coming in by the end of this year.

http://www.phnompenhpost.com/business/telcos-lose-money-sim-fraud