Imagine the mood of a mobile phone sales person on hearing that the customer in his store wishes to open nine new phone lines for his business. The commission alone should ensure a Happy Christmas! However, recently in Petersburg, US, this kind of transaction was used to mask a fraud that has left mobile networks out of pocket by several thousand dollars.

Criminals visited two mobile stores and, falsely using the identity of a local business, signed up for a total of 16 new phone contracts – seven in one store and nine in the other. The first sign of any problem came when the legitimate owner of the business received bills for the new mobile phone lines a month later. You can read the full story on the NBC 12 website.

This story highlights one of the most challenging issues for mobile operators – that of the handset subsidy applied to contract customers. A glance at almost any mobile operator’s retail site (for example Vodafone UK’s here) shows a huge number of handsets available for free with a contract. Obviously if the consumer thinks carefully about this, they realise that the cost of the handset is being paid for over the period of the contract – because if people had to pay the full cost of a mobile phone upfront they would change their phone less often.

What most people do not realise is the extent of the subsidy that the mobile networks provide to contact customers. At the date of this article an iPhone 5 SIM free on a typical website was retailing for £724.99, and whilst the networks will not be paying that much for each handset, it is still a considerable subsidy.
In the Petersburg, US, example, fraudsters would have left two retail stores with handsets worth around $8000. These can then be unlocked and sold on the open market, leaving the network to pick up the cost of the fraud.

This kind of fraud demonstrates once again the importance of vigilance by retail staff in setting up contract customers, particularly business customers. So much information is publically available now that fraudsters can find company information, addresses, phone numbers, registration numbers and Director’s names through a simple internet search. It also begs the question, “why do the retailers let customers walk out of the door with products worth a small fortune rather than mailing them to the registered company address?” A simple solution that would reduce this kind of fraud in a moment.