The SIMbox Fraud Debate

The SIMbox Fraud Debate
Source: Ghana|Adom Business|Samuel Nii Narku Dowuona/samuel.dowuona@myjoyonline.com/www.Simcardblog.WordPress.com
Date: 04-09-2014 Time: 10:09:51:am
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The complex maze of a SIMbox fraud system. Dont try to understand the diagram

Recently MTN Ghana led an anti-fraud team including the Police Criminal Investigations Department (CID), industry regulator National Communications Authority (NCA) and other telcos to go nab a SIM box fraud syndicate at Dome Pillar 2 in Accra. This would not be the first time a telco had led the way to arrest these fraudsters. Vodafone Ghana had often done that in the past.

Not many people understand what SIM Box fraud is but practically every mobile phone user in Ghana, who has ever received a call from abroad must have suffered from it in one way or the other. Simply put, the way it plays out on the public is when one receives a call from overseas and sees a local phone number on the screen, making it look like the call is a local call.

But behind that simple appearance of a local number on the handset from an overseas call is a complex fraud system called SIM Boxing or call bypass. It basically comprises of people and machines overseas [from where the call is coming], working with people and machines here in Ghana who channel the calls through unapproved routes abroad and terminate them through SIM boxes fitted with local SIM cards here in Ghana.

By so doing the fraudsters get to keep the international call rate charged, but the telcos whose SIM cards are used to terminate the call in Ghana, only get paid the local call rate because the call was channelled through a local SIM card. This is where lots of people get confused and often ask “how do the fraudsters get paid?”

 

Motivation for fraud

In Ghana there is a law [Electronic Communication Amendment Act] that enjoins telcos to charge not less than 19 cents (72gp) per minute of call from overseas telcos/traffic carriers who send calls into this country. Out of that amount, the respective telco is supposed to pay 6 cents to the government for every minute of call. Some neighbouring countries have legalised even higher rates, but it would appear 19 cents is enough motivation for fraudsters in Ghana to cash in.

 

Abroad

Some call cards used abroad for calling Africa for cheap

 

What happens is that, very often Ghanaians who live abroad use Call Cards [not recharge cards] for calls to Ghana because it is cheaper to use those card. Some of the call cards suitable for calls to Africa include “Talk Africa”, “Call Mama”, etc. These are prepaid cards, the caller pays for them before using them. The card bears access numbers that connect the caller to the machines of the card operator and a PIN number that tells the caller how much credit one has on the card for a particular call. There is often a specific charge for each minute, out of which the operator abroad is supposed to pay 19 cents per minute to the telco in Ghana through whose gateway the call comes.

 

Ghana

SIM boxes, SIM cards, recharge cards and other equipment on display after the recent arrest

But once the caller abroad dials the access number written on the Call Card, his/her call is automatically being routed through unapproved machines, other than the telcos gateway. And those unapproved machines are connected to SIM Boxes in Ghana fitted with local SIM cards and hidden in people’s homes, shops and other obscure corners. So the caller abroad may be paying more than 19 cents per every minute of that call to that operator of that illegal system, but that operator will eventually pay the telco in Ghana the local call rate because the call is channelled through local SIM cards. In fact the telco in Ghana would not even know the call was originally from overseas. It is only the recipient of the call who will see on their handsets that a local number has appeared even though the caller lives abroad.

Very often when that happens, some Ghanaians blame it on their local service provider and call them fraudulent. But all things being equal, the telcos themselves are losing money to SIM Box fraud because if the call came directly through the telcos’ gateways, they would get the full 19 cents, pay the 6 cents to government and get to keep 13 cents per every minute of that call.

Indeed, between 2010 and August 2014, a total of 13 SIMbox fraud cases have been recorded, and 17 suspects, both Ghanaians and foreign nationals, have been arrested. Cumulatively a total amount of $50 million (GHC187.5million) has been lost to both government and the telecom service providers. At the last count, more than 100million minutes of call come into the country every month. Some of it come through approved routes, particularly when those calling from abroad use their mobile phone, or direct fixed lines to make the call. But for those who use Call Cards, lots of those calls are routed though unapproved routes and that costs this country.

 

Telcos argument

Telcos and some other industry experts have argued that the mandated minimum of 19 cents is the major cause, and probably the only cause of SIM Box fraud in Ghana. The argument is that, in Nigeria for instance, inbound call rates is almost equal to local call rates, so there is no motivation or any fraudster to go invest in creating a complex traffic routing and termination system here and abroad only to terminate calls for peanuts or zero profit. But 19 cents per minute for over 100million minutes of call per month coming to Ghana, there is a lot of money there to be made.

Here is the analogy: In Ghana, Vodafone’s default per minute call rate is 15Gp, which is the highest in the country right now. So if all the over 100million minutes of calls went through SIM Boxes and are terminated on Vodafone, the fraudsters would be making at least US$19million (GHC72million) a month, and be paying only GHC15million to Vodafone. The fraudsters then get to keep a relatively gargantuan GHC57million (US$15.2million) in just one month. The fraud system is usually a chain, so even if everyone in that chain has to get an equal share of that money, and there are even 10 of them in that chain, each person is getting more than US$1.5 million a month. That is great motivation for any fraudster.

I reality, however the amount to be share is less, but even if is it down to US$100,000 (GHC375,000) per fraudster per month, that is still huge money for anyone to make in just one month.

 

Regulator’s Argument

So the argument against the 19 cent minimum rate seem to stand to reason. But the government and the industry regulator argues that the minimum rate was set to ensure a level playing field, so that the big boys like MTN would not use economies of scale to go negotiate lower rates with international carriers abroad and therefore get to terminate almost all international traffic in this country through its gateway.

That argument stands to reason on paper, because all the GSM players in Ghana have international gateways. But international carriers abroad would love to give the traffic to the network that offers the cheapest rates. MTN commands almost 50% of the market in Ghana and about 60% of calls terminate on MTN, so they can afford to offer international carriers cheaper rates, if there was no minimum rate set. Recently, two telcos in Ghana, MTN and Airtel were cited for violating that minimum 19 cents rule and “undercutting” competition. They are paying heavy fines for the offence. Vodafone was also cited, but they are still making an argument against the fine.

What is however interesting is that, while the regulator argue that the minimum rate set is to create a level playing field, all the telcos (including those the regulator claim to be protecting) are opposed to the mandated 19 cents minimum. They often argue that the field should be open for each telco to go use their negotiating skills to get traffic from abroad. They argue that if a telco decides to charge 7 cents and pay 6 cents to government and keep only one cent that is the telcos choice. In the telcos’ opinion, government/regulator should be concerned about their 6 cents and leave the telcos to play their game.

The other argument the regulator makes is that, the telcos must allow their international gateways to be monitored real time to verify the exact number of minutes of calls coming through them. Until that happens, they will not remove the 19 cents minimum cap, in spite of the obvious fact that it is an incentive to SIM Box fraudsters and it is hurting everybody.

Some members of Ghana’s Parliament have think the 19 cents should be removed and the telcos should be tasked over a given period to prove that without that cap, they are able to bring so much to the state in the form of taxes. Once they show that without the cap they can get the state more money, the cap remains off. But if they fail to bring more money to the state from the international gateway front, the cap would be brought back. That advice has not been heeded yet.

 

Accusations

The other interesting side of the argument is that the regulator believes that the telcos themselves are involved in SIM Box fraud in an attempt to make the 19 cents per minute minimum rate unpopular. The defence is that, every SIM in this country is supposed to be registered before being activated by the telcos; and the records of the user must be kept by the telcos. But very often thousands of SIM cards being used in SIM Box fraud are either not registered or not properly registered and yet they are active.

The question is, how come so many SIM cards get activated without proper registration, and all of them get involved in SIM box fraud, if indeed the telcos or at least some telco staff are not involved? No telco staff or agent has been OPENLY sanctioned for playing a role in SIM box fraud and yet the anti-fraud team, including the telcos are happy to parade fraudsters caught red handed.

Indeed, last year a SIM box syndicate that operates from Oregon in the USA to Ghana was busted and one of them was a staff of Airtel Ghana according to the NCA [http://www.nca.org.gh/73/34/News.html?item=251] . But Airtel has denied that allegation. Telco staff may be facilitating the fraud by activating unregistered SIMs for fraudsters, but it is still not clear if telcos as institutions are involved as the regulator may want Ghanaians to believe.

Secondly, when SIM box cards are detected, the respective telco is expected to deactivate them within two hours of being told about it. But the telcos usually delay in doing that. Recently, Glo Ghana took more than 30 days and some public bashing before they deactivated SIM Box numbers on their network. That also creates suspicion that the argument of the regulator may be sound.

The telcos often argue that SIM Box fraudsters target networks that offer very low call rates. But the regulator points out that in Ghana today, Tigo offers the lowest on-net call rate of 3Gp and one of the lowest off-net call rates, and yet Tigo has the lowest incidents of SIM boxing on its network. The argument here is that vigilance from Tigo is a put off to fraudsters. So the telcos’ low call rate logic is flawed. In fact now, there are more SIM box incidents on telcos with the highest call rates like Vodafone and MTN.

The regulator also has a solid point, which is that prior to the 19 cents cap, SIM Box fraud was even worse in Ghana even though the operators had a free market to compete. So there is no guarantee SIMboxing will go done if the cap was remove.

Again, that there are several countries within the sub-region and elsewhere, where there are higher fixed call rates and additional surcharges [for real time monitoring] for incoming traffic and yet SIMboxing is not a challenge in those countries. An example is Rwanda, Togo, Cote d’Ivoire and Burkina Faso. On the contrary, in Uganda, telcos are free to determine their own incoming international call rates and yet there are more SIM boxes in that country than there are in Ghana. So the argument against the 19 cents cap seem flawed on that score.

 

Regulator benefits?

But all said and done, if the regulator’s purpose was a level playing field, the telcos it is seeking to protect say they do not need protection; if it is to guarantees the 6 cents per minute meant for the state, the telcos said they will not mind paying 6 cents to government even if they charge 7 cents per minute.

Secondly, given what pertains elsewhere, it would appear the cap brings in more of the international traffic revenue into Ghana. It gives Ghana an appreciable share of that revenue, which would have otherwise been kept by international traffic carriers like Tata Mobile and Belgacom on behalf of telcos abroad.

The telcos insist the removal of the cap will disincentive the fraudsters. But the regulator insist prior to the cap SIMboxing was worse and in countries where there are higher caps plus surcharges there are no SIM boxes. The question is whether regulators and telcos would ever agree on this matter, and whether SIMboxing would ever go away in our country.

But who was caught on camera facilitating the import of SIM boxes at the Kotoka International Airport? That is for another day.     

 


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