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Premium Rate Scams

Premium Rate Scams

February 7, 2005
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" As the industry matured, so did the fraudsters. "

Since their introduction in the eighties, premium rate telephone lines have been controversial and have not had an easy ride since their introduction into most developed countries. A multi-million dollar industry in its own right, the premium rate industry has long been regarded as the 'bad boy' of the telecoms sector – with other sectors often envious of the turnover it produces.

Arguably the first form of e-commerce, premium rate has courted controversy since its birth. Since the key revenue generator has always been adult, the industry has always suffered from image problems as a result. Furthermore, the open architecture nature of the business, coupled with the very real possibility of generating some serious cash, has attracted fraudsters to this industry like bees to honey.

The underlying principle behind premium rate is a sound one. A telephone subscriber calls a number which is priced at a premium for which they are offered value added entertainment or information. This is then collected by the phone company with whom the customer has their subscription. They keep their portion, and pass rest on to the Information Provider, who operates and advertises the underlying service.

Some of the most primitive form of fraud that emerged involved 'too good to be true' offers that would blatantly defraud people by getting them to call for a non-existent items or services. Thus, classified ads might appear in the newspaper that would run along the line of "Downtown luxury apartment for rent, 4 bedrooms, 2 bathrooms, designer kitchen, wonderful view on the lake only $350/month call XXX XXXX." The would-be tenant would then call and would then have to listen to lots of pre-recorded garbage before being prompted to leave their name and number. Worse, some fraudsters even recorded the ringing tone, giving callers the impression that their call had not yet been answered whereas in fact they were paying for listening to said tone!

As the industry matured, so did the fraudsters. Advertisements would appear enticing people to call to claim a 'free' $100 vacation voucher. After listening to a long protracted message, the caller would be sent a voucher entitling them to a $100 'discount' on a $900 vacation.

Then came international premium rate, whereby money is to be made by sending traffic from one country to another. A revenue-share arrangement would be in place in the 'terminating' country, of which Hong Kong was one of the first. And a rather ingenious form of white-collar crime surfaced. Instead of placing voice services on the receiving end of the line, the fraudsters simply placed an incoming fax capability behind the Hong Kong Number. The fraudster would then wake up in the 'originating' country and, after a leisurely breakfast, simply call the local real-estate agent claiming to be a Hong Kong businessman looking for property in the area and asking for details to be faxed to him in Hong Kong. Of course, the real-estate agent would run to the fax machine, keen to send this hot new prospect as much info as possible...

Another form of fraud involved individuals defrauding the telephone companies by, for example, hiring apartments and ordering 30 phone lines. These would be connected to so-called 'auto-dialers' which as the same implies would then automatically dial his premium rate numbers. This, in turn, generated an enormous phone bill that the crooks needless to say did not pay.

After Tim Berners Lee did us all a favor in the early nineties by 'inventing' the world wide web, an ingenious billing mechanism was born that would allow surfers to receive web content that is billed for on a per minute basis – the Dialer. As with it's IVR counterpart, it did not take long for the first malicious code to be written that would then instruct the user's modem to dial a premium rate number every time that person logged on to the Internet – leading to horrendous telephone bills. The image of the dialer has consequently been irreversibly damaged, with the vast majority of users instantly terminating the download of any software that might infect their computer.

Then came the next big thing; the phenomenal worldwide growth of the cell phone. And with it yet another cunning scam. Unlike their land line counterparts, cell phones usually display any missed calls that the user has received. So what did this team of programmers from Israel do? They sent millions of half second calls to, ironically, German cell phone subscribers. Since no-one can answer the phone in that timeframe, no calls were answered. Marketing costs were therefore zero. This, in turn, generated millions of 'missed call' messages from a mysterious 00 (foreign) number. Thinking the call might have been important, thousands responded by calling back, only to be confronted with a pre-recorded recording of two people arguing which some would then end up hanging on and listening to for the curiosity value.

These scams, whilst undoubtedly well thought out and intelligently executed, have defrauded us all. They have defrauded the end-user, who has had to pay money for something that he or she did not want. And it has robbed the industry of a potentially excellent billing mechanism – since users have become skeptical of anything to do with premium rate calls in some markets.

This having been said, it is unlikely that premium rate will disappear. The legitimate profits that the phone companies make from this industry are simply too big to ignore.

In some counties such as the UK for example, new laws are being drafted by the government that will make it easier for the rogues that perpetuate such crimes to get caught, whilst at the same time ensuring that the victim has adequate recourse to some form of compensation if they become a victim of this form of crime.

Maybe this will allow the rest of us who offer genuine value-added services via this excellent billing mechanism to get on with our jobs and not be tarred by the same brush as the villains.


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