Protecting Against Fraud 

Every business faces a certain amount of risk. And in the CLEC market, there's a type of risk that many companies do not protect themselves against, and that's fraud. 

CLEC's are quick to offer services and make their mark in their market segments. But as with many upstarts, the need to gain customers sometimes overpowers common business practices. I have found that many firms do not consider fraud protection a valuable risk management tool. After all, a CLEC provides local service, and there is no fraud in local services. Or is there? 

If all that a CLEC offered was true local services, and revenues were only recurring monthly charges that it could collect from an end-user, that may be true to a point. However, a fraudster could easily use a CLEC as a jumping-off point to commit other fraud, and, depending on the exposure of the monthly recurring fees, stiff the CLEC as well. 

Consider the end-user that orders 5 T-1's and then walks away. If the CLEC is reselling the T-1 there's a direct cost to its T-1 provider. And the provider doesn't care to hear about a CLEC's customer committing fraud or going bad. The provider expects to be paid regardless of the circumstances.

According to the Communications Fraud and Control Association (CFCA), Telecommunications fraud exceeds $12 Billion worldwide. The prime targets for continuing fraud are new entrants, as they historically do not implement fraud prevention and detection measures to restrict fraud occurrences. This was apparent in the long-distance reseller market and continues today in the CLEC market. 

Most CLEC's offer a robust set of products along with providing the local loop. They bundle local, long-distance, calling card and operator service into a product set that gives them the opportunity to compete effectively. In some cases, the CLEC resells all products, or even a partial set through a vendor. In these cases, fraud is seldom considered until it hits.

So how does a CLEC protect itself? First is a frank evaluation of where it is in its stage of evolution. Has it obtained assurance (or insurance) from its service providers that are adequate and provide protection from fraudulent activities on all of its services? If the CLEC has its own switches, has it implemented processes to evaluate the traffic that ride on those switches? 

If, through the evaluations, the CLEC determines that it has the "insurance" to protect itself, then management must look at the next logical step: implementing a solution that provides the insurance to protect not only the CLEC, but its customers as well. Premier fraud prevention and detection is not a single approach. It is a coordinated activity that looks not only at the products that need protection, but addresses how to manage customer expectations.

Fraud solutions vary greatly. They range from the inexpensive to the expensive with the main difference being the functionality in the application, and how it interacts with the end-users of the application. Therefore, CLEC's need to determine what their requirements are. How would they use a fraud application? Where will it reside, in the Finance or Network organization? What future products will be offered and can the applications handle the future direction of the company (i.e. IP services)? How would it fit in the CLEC's IT infrastructure? These are a few of the questions a CLEC must ask itself as it begins its evaluation.

Obtaining the "insurance" in order to protect the company is a key component in the fraud detection and prevention equation. The rest of the equation is built through product delivery and customer interaction. Fraud has bankrupted companies in the past. Don't let it bankrupt you.

Jim Marsh is a senior consultant for The Management Network Group, a telecom consulting organization.  Jim has worked in telecom for 15 years and is an expert in revenue assurance, risk management and fraud. Jim speaks and writes on improving operational systems and functions to improve bottom lines.