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This cell phone fraud has a familiar ring

A new study says the mobile content industry is losing billions through ringtone theft and fraud -- a trend that will continue if the market doesn't wizen up.

By not following transaction lessons learned in the e-commerce arena, mobile phone carriers and content providers are losing billions of revenue to simple theft and fraud. At the current rate, the losses will amount to almost a fifth of this year's total revenue, according to a new study.

Commissioned by mobile commerce software provider Qpass, the iGillottResearch Inc. report "Mobile Content Revenue Leakage: There's a Hole in the Bucket" forecasts that cellular network operators will lose 18 percent of their total revenue in 2005, or more than $5.6 billion, by faulty business processes and unscrupulous mobile phone customers using "ringtone shoplifting" and other illegal practices to defraud carriers. If the process continues unabated, carriers could lose as much as 22% of their worldwide revenue by 2009, totaling more than $18 billion.

Two basic types of fraud are behind the phenomenon. One involves a dishonest customer who downloads a mobile phone ringtone, then shuts off the mobile phone service once the ringtone's downloaded, thereby bypassing the subsequent request for payment from the carrier. The user will then turn the phone on after a hour's delay and avoid being charged. Another simple method of ringtone theft has the mobile phone customer download a free 'sample' ringtone to their computer so the customer can hear the ringtone before purchase. But that sample is the same size as the one used on the phone, and transferring the newly acquired ringtone to the phone is merely a matter of a file transfer to the portable cellular device. According to the study, more than one third of 100 global leading digital content Websites did not have protections to prevent their music from being downloaded free to mobile phones.

Claudia Popperl, marketing director for Qpass, said that during a recent focus group of young adults in London, when queried as to how much they spent on ringtones, chuckled and stated, "What?! We don't spend any money…." Seattle-based Qpass provides the infrastructure to allow mobile content transfers and includes among its customers major telecommunications companies such as Cingular Wireless, T-Mobile International, Vodafone and Skype.

Roger Parks, senior director of global products for Qpass, notes that several types of cellular fraud could be reduced by following the fast food industry's transaction model: Order. Pay. Receive Goods. In addition, according to the study, a lack of maturity in the mobile premium content business systems is to blame. According to the study, future lost revenue could be averted by incorporating four key process components: real-time business rules enforcement, transaction integrity, financial integrity and business intelligence and reporting. Following this model would, respectively, reduce revenue leakage and fraud; provide audits and business processes transparently; secure financial transactions; and provide centralized data on performance metrics.

While more than one-fifth of mobile users worldwide have already downloaded content to their mobile devices, the haste with which the mobile industry has put into place mobile commerce delivery systems is causing numerous revenue problems. According to Parks, maturity in the marketplace and updated billing systems will fix the problem.

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