Risk and Fraud Analytics

for Telecom
Improve Profitability and Network Efficiencies
for Telecom Providers

A Fair Isaac White Paper

May 2004

1 800 999 2955 from the US

1 612 758 5200 from anywhere

info@fairisaac.com email

www.fairisaac.com

Risk and Fraud Management for Telecom

Table of Contents
Executive Summary ...................................................................................................................... 2
Risk and Fraud Management Solutions ........................................................................................ 3
How Do Risk Analytics and Fraud Analytics Work?...................................................................... 3
Risk and Fraud Analytics Key Capabilities ............................................................................... 4
How Do Neural Networks Work? .................................................................................................. 5
Neural Network Models............................................................................................................. 5
Data Consortium ........................................................................................................................... 6
Patented Profiling Technology ...................................................................................................... 6
Investigating Risk and Fraud......................................................................................................... 6
Case Management ........................................................................................................................ 7
Reason Codes............................................................................................................................... 8
Return on Investment .................................................................................................................... 8
A Breadth of Experience ............................................................................................................... 8
Conclusion..................................................................................................................................... 9
Fair Isaac Telecom Decision Analytics ..................................................................................... 9
About Fair Isaac .......................................................................................................................... 10

Copyright 2003-4 Fair Isaac Corporation. All rights reserved.

Risk and Fraud Management for Telecom

Executive Summary
Telecom fraud and bad debt are growing problems for fixed and wireless providers worldwide,
representing over $55 billion in annual losses. Combined they can total up to 12% of gross
revenues split between early life bad debt, ongoing credit losses, technical and subscription
fraud, and roaming fraud. Unaccounted for in this figure are ongoing credit risks and fraud
against prepaid services. Ultimately all of these work against the profitability of service
providers and the efficiency of network operations.
As service providers seek to acquire new subscribers while building out next generation
networks, they are still obliged to support the legacy and often disparate voice, data networks,
CRM and billing systems. At each point across this network of systems, providers become more
vulnerable to fraudulent activities.
In an effort to minimize exposure, providers have looked at their current risk and fraud
management systems and have determined they are no longer adequate to detect or prevent
various types of risk and fraud over their complex networks. These rules-based systems or
statistical approaches are often limited in scope and capacity, and are unable to serve the rapidly
changing drive towards integrated voice, data and Internet services.
In response to this need, Fair Isaac is providing its proven analytic and decision management
software based on comprehensive and advanced neural network technologies that are patented
and proven across industries. Fair Isaacs Risk Analytics for Telecom and Fraud Analytics for
Telecom solutions apply these technologies to detect credit risk and fraud more quickly,
respectively, and detect or predict exposure more accurately.
The software platform is also able to support the capacity and flexibility needed to manage
hundreds of millions of event records created by hundreds of millions of subscribers in real
time. By doing all of this, Risk Analytics and Fraud Analytics supply providers with costsavings for capital expenditures, business management and customer services, in addition to a
reduction of losses or write-offs in excess of 50%.

Copyright 2003-4 Fair Isaac Corporation. All rights reserved.

Risk and Fraud Management for Telecom

Risk and Fraud Management Solutions

The optimal solution combines the most advanced analytics available today along with elements
of artificial intelligence such as neural networks. By applying neural network technologies with
more traditional statistical analytics, decision management and expert rules, service providers
are able to capture the highest degree of suspicious or fraudulent transactions.
Using all of the above, Fair Isaacs Risk Analytics and Fraud Analytics for Telecom solutions
will deliver the following key benefits to fixed and wireless providers:

Substantially reduced financial losses and resource expenses from bad debt and fraud.

Protected network operations and enhanced effectiveness of operations support systems

(OSS) and business support systems (BSS).

Maintained or improved risk and fraud detection rates as new technologies and services are
deployed.

Ensured customer satisfaction by protecting high-value customers with reliable, secure and
cost-effective services.

Maximized efficiency of customer care and collections efforts by focusing on most critical
and suspect accounts.

Support for hundreds of millions of subscribers with high data volumes using a fraction of
the hardware needed by alternate solutions via one flexible and scalable solution.

How Do Risk Analytics and Fraud Analytics Work?

Risk Analytics allows service providers to quickly and accurately predict bad debt and payment
risk throughout the life of an account. Using empirical customer data and transaction details,
Risk Analytics applies models, profiles and rules to predict the likelihood of early-life bad debt
or future credit risk. Fraud Analytics works the same way and detects technical and subscription
fraud for a complete end-to-end solution.
FIGURE 1: RISK AND FRAUD ANALYTICS ARCHITECTURE

Copyright 2003-4 Fair Isaac Corporation. All rights reserved.

Risk and Fraud Management for Telecom

Risk and Fraud Analytics Key Capabilities

Aggregates customer transaction data, analyzes transactions through proven neural network
models and updates to transaction profiles

Analyzes interactions between hundreds of variables simultaneously and automatically

identifies fraudulent patterns not evident if reviewed by an individual person

Creates risk scores and reason codes for each transaction event that predicts the probability
of suspicious or fraudulent activity

Offers easy-to-use Case Management to provide a single viewpoint of a customer for

priority assignment and tracking and alleviates burden on customer care and collections
resources

Generates a complete list of reports based on transaction profiles, workflow process, analyst
performance and case investigations

Integrates with legacy systems with a flexible and scalable system that can support millions
of customers and daily account transactions

Supports data input and output feeds to third-party platforms such as business systems or
decision management software such as Fair Isaacs TelAdaptive account management
service

Copyright 2003-4 Fair Isaac Corporation. All rights reserved.

Risk and Fraud Management for Telecom

How Do Neural Networks Work?

Neural Network Models
Fair Isaac uses neural network techniques to build models that are able to detect and predict the
probability of a particular transaction to occur. The models are developed using real customer
data and are refined by exposing a large set of transaction examples (often hundreds of millions)
to a neural network algorithm. Once completed, the models are able to identify common data
elements that are predictive of a particular transaction pattern or event.
The models are trained in a number of iterations to ensure peak model performance. In addition,
Fair Isaac modeling tools allow our scientists to identify critical input variables that are crucial
to model performance, versus those that will have minimal impact. This results in improved
neural network performance since only the necessary data is integrated into the final model.
Fair Isaac models generate scores from 1 to 999 for each transactional event to indicate the
likelihood of fraudulent or suspicious activity. In the case of Risk Analytics, the models predict
and detect:

Early-life bad debt

Ongoing credit risk

In the case of Fraud Analytics, the models predict and detect:

Technical fraud

Subscription fraud

FIGURE 2: ADVANTAGES OF NEURAL NETWORKS WITH PROFILING TECHNOLOGY

Copyright 2003-4 Fair Isaac Corporation. All rights reserved.

Risk and Fraud Management for Telecom

Data Consortium
Fair Isaac trains its models based on an individual customers data as well as data from across
multiple providers utilized by the Fair Isaac data consortium for telecom. The consortium
allows models to be generated on the most comprehensive set of transaction patterns and
available data. The data consortium is an exclusive way to collect and analyze all historical
subscriber information that is provided to Fair Isaac by its participating providers. This
encrypted data is held privately by Fair Isaac and is used by the staff scientists to build the best
neural network models possible.
By using a consortium, Fair Isaac is able to protect all providers that participate from all of the
types of risk seen by the entire consortium. It is this consortium that, when combined with Fair
Isaacs state-of-the-art subscriber profiles and neural network technology, has allowed us to
predict risk and fraud with the highest accuracy.

Patented Profiling Technology

Risk and Fraud Analytics apply a patented profiling technology that maintains user profiles
based on transactional data on a provider network for each subscriber. The profiles are updated
in real time or near real time based on actual data events and other pertinent information such
as, but not limited to:

Transactions events (CDR, IPDR, SMS, SS7)

Subscriber information

Billing and payment history

Rate plan and class of service information

Third-party information (credit bureau, content provider/aggregator)

Equipment data (stolen ESN, IMEI information)

The comprehensive profiles can consist of more than a hundred data elements that are used to
depict normal transaction patterns and changes in patterns, both past and present. These profiles
are fed as an aggregate to the optimized Fair Isaac neural network model which analyzes all of
the variables in every combination in order to detect fraud.
Fair Isaac applies an advanced software architecture to capture and retain profile information
that greatly improves capacity and processing speed to provide critical performance for
providers with a high volume of accounts and daily transactions. It also requires less capital
hardware and improves the total cost of ownership.
The patented profiling technology, along with best-in-class neural network models and expert
rules, delivers the best detection rates and lowest false positive rates available to the telecom
industry.

Investigating Risk and Fraud

The case generation process begins when the models generate a score that indicates unusual or
suspicious activity, with scores ranging from the lowest probability of one to the highest level of
probability of 999. Once a score meets or exceeds a threshold or other criteria defined by the
provider, a case is generated for further analysis or investigation.

Copyright 2003-4 Fair Isaac Corporation. All rights reserved.

Risk and Fraud Management for Telecom

A case is defined as the collection of all CDR (call detail record), billing, payment, and
customer information associated with a particular transaction that has been identified by either
the neural network or expert rules to be potentially risky when compared to the subscribers
normal activity. The transactional information is passed to the Case Manager with all of the
associated calling and billing data for that given subscribers account or sub-account, including:

Subscriber data (name, address, balance and other information from systems such as billing
and customer care)

Billing/payment data

Calling activity

Scores and reason codes

Case comments, status, and disposition

Historical cases

Case Management
Case Manager is a browser-based user interface that presents the case with all of the information
aggregated that is relevant to the transaction, including scores and reason codes. Case Manager
prioritizes the cases into queues according to the score or other provider-controlled criteria. Analysts
are able to investigate cases as efficiently as possible by making available all of the pertinent
information and by allowing them to investigate the most risky cases first.
Losses are mitigated by allowing action to be taken quicker and where the exposure is greatest.
Equipped with advance notice, a provider can take appropriate action to either shut down a
fraudulent account or to make payment arrangements for a legitimate user that is delinquent.
FIGURE 3: CASE MANAGER FOR FRAUD ANALYTICS SOLUTION

Copyright 2003-4 Fair Isaac Corporation. All rights reserved.

Risk and Fraud Management for Telecom

Reason Codes
A major differentiator of Fair Isaac risk and fraud solutions is that reason codes are provided by
the model along with the score. The reason codes give visibility into the pattern analysis
allowing analysts to investigate a potentially fraudulent case with insight into the probable
cause. Reason codes are critical for an analyst to quickly validate fraud and the type of fraud.
Additionally, the list of reason codes provided by Fair Isaac models is wide ranging and not
limited to a few, most common codes.

Return on Investment
Fair Isaacs solutions have a proven return on investment based on the reduction of bad debt and
fraud as well as saved resources for collections and customer service efforts. Typical
implementations have seen a payback period in as quickly as four months. Prevention of bad
debt risk and fraud allows service providers to protect earnings and profitability.
FIGURE 4: RISK AND FRAUD REDUCTION AND REALIZED SAVINGS

A Breadth of Experience
One distinction is that Fair Isaac has the benefit of the former HNC Softwares (now Fair Isaac)
long-standing experience in developing and training neural networks in general. Our modeling
staff, which consists of over 100 Ph.D. scientists, has developed tools over the last 15 years that
optimize the building and training of the neural network models for our solutions.
Fair Isaac dominates markets for fraud detection in the financial services and insurance markets
as well as providing critical fraud detection solutions to over 100 telecom providers worldwide.
The companys installed telecom risk and fraud detection and prevention products include Risk
Analytics for Telecom, Fraud Analytics for Telecom, FraudTec, ATACS, LiquidCredit
Service for Telecom, TelAdaptive account management service, and RoamEx roamer data
exchanger solutions. Telecom solutions from Fair Isaac have been deployed worldwide.
Today, Fair Isaac is also your resource with the broadest experience with different types of provider
networks and technologies for both fixed and wireless services, including circuit-switched, Internet
protocol, AMPS, CDMA, TDMA, GSM, and the GPRS/2.5G/3G migration path. Whether you

Copyright 2003-4 Fair Isaac Corporation. All rights reserved.

Risk and Fraud Management for Telecom

are using these technologies today, or plan to incorporate a new technology tomorrow, Fair
Isaac has the ability to serve your requirements.

Conclusion
Although analytic solutions have been deployed in other risk and fraud solutions across the
telecom industry, the technology advancements incorporated into Risk Analytics for Telecom
and Fraud Analytics for Telecom are unique. Fair Isaac boasts several distinctions that allow
our technology to deliver best-of-class performance including:

Neural network models

Data consortium

Patented profiling technologies

Integrated expert rules

Extremely efficient, scalable and high-speed processing

Case and workflow management

Scores and reason codes

Flexible, lower-cost platform and total cost of ownership

Integrated solutions for decision management and optimization

Proven experience and return on investment

Worldwide customer base

Customer references

Fair Isaac Telecom Decision Analytics

Fair Isaacs Telecom Decision Analytics Suite of solutions enables service providers to
automate and improve complex decisions across the customer lifecycle. Our solutions help
cultivate more valuable customer relationships and enhance profitability through increased
revenue, reduced fraud and lower credit losses. For more information, visit us on the Web at
http://www.fairisaac.com/telecom.

Copyright 2003-4 Fair Isaac Corporation. All rights reserved.

Risk and Fraud Management for Telecom

About Fair Isaac

Fair Isaac Corporation (NYSE:FIC) is the preeminent provider of creative analytics that unlock
value for people, businesses and industries. The companys predictive modeling, decision
analysis, intelligence management, decision management systems and consulting services
power more than 25 billion mission-critical customer decisions a year. Founded in 1956, Fair
Isaac helps thousands of companies in over 60 countries acquire customers more efficiently,
increase customer value, reduce fraud and credit losses, lower operating expenses and enter new
markets more profitably. Most leading banks and credit card issuers rely on Fair Isaac solutions,
as do insurers, retailers, telecom providers, healthcare organizations and government agencies.
Through the www.myfico.com Web site, consumers use the companys FICO scores, the
standard measure of credit risk, to manage their financial health. For more information, visit
www.fairisaac.com.

Corporate Headquarters:
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Suite3200
Minneapolis, MN 55402
1 800 999 2955 from the US
1 612 758 5200 from anywhere
info@fairisaac.com email

Offices Worldwide:
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United Kingdom, United States
www.fairisaac.com

Fair Isaac, FICO, LiquidCredit, TelAdaptive and RoamEx are trademarks or registered trademarks of Fair Isaac
Corporation, in the United States and/or in other countries. Other product and company names herein may be
trademarks or registered trademarks of their respective owners.
Fraud Analytics for Telecom, Risk Analytics for Telecom, LiquidCredit for Telecom, TelAdaptive and RoamEx are parts
of Fair Isaacs Telecom Decision Analytics Suite of solutions.
Copyright 2003-4 Fair Isaac Corporation. All rights reserved.
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