Business

Some options to counter menace

The technological and institutional options need to be exercised together to control the thefts and enhance consumer welfare. If the issue is not addressed at the moment, it could lead to a big societal menace, warn Vinish Kathuria and Aj it Gupta

WHAT IS so common among London, Paris, Barcelona, New-South Wales, Nairobi, Delhi and Ahmedabad? The answer is the mobile thefts. However, what separates all others from India are the efforts to stop these mobile thefts. Be it the U.K., Australia, France, Spain or even Kenya, endeavours have been made to curb the menace. Countries like the U.K. have already brought legislations to control mobile thefts. The only action so far taken in India is in the form of a Concept Paper by the Telecommunications Regulatory Authority of India.

This article delves into the problem of mobile theft and investigates the solutions available and the difficulties in implementing these solutions.

The solutions can be divided into two categories — technical and institutional. The categorisation is highly fluid because the institutional solution needs technical backing and without appropriate institutions no technical solution will work.

Theft of a mobile handset is a criminal act and hence a law and order problem, which in most countries is a State subject. Keeping this aside, the technical solution to combating theft is to block the Subscriber Identification Module (SIM) card or block the handset by preventing the re-programming of International Mobile Equipment Identity (IMEI). The first is easy as the person losing the phone can inform the service provider who can then block the calls from the SIM card. However, blocking the handset is more effective than blocking the SIM card as the handset can be reused by replacing the SIM card.

Blocking the handset

Handset blocking requires that the operator ban a particular handset (identifying it through its unique IMEI) from its network. However there is a loophole even here. If the IMEI of the handset is re-programmed or the network is changed, the handset can be reused. The reprogramming, though a technical job, does not need much expertise and can be done even by petty vendors. The gravity of reprogramming the IMEI becomes clear from the fact that in the U.K. and Spain, the IMEI is the same for a large number of phones. A number of countries including the U.K. and France have brought or are bringing legislation that bans such reprogramming. On the parallel front, a number of handset producers are designing tamper-proof IMEI.

This still leaves two other options to a person stealing the handset — sending it to another country or using the network of another service provider. The former is not a serious threat as data show that a majority of the stolen phones are used in the same country.

The second option, which is more plausible, requires co-operation from other service providers. By maintaining a common database — called the Central Equipment Identity Register (CEIR) — and sharing the data, they can debar the stolen handset from every network. Major mobile phone operators in Britain — Vodafone, Orange, O2, T-Mobile and Virgin Mobile — and the GSM Association have done the same thing. They have launched a database that aims to prevent stolen handsets being used on any U.K. mobile network. By co-operating and teaming up, the operators can ensure that a phone that is reported stolen is barred from every network and this will automatically reduce its value. Thus the unique database CEIR is a crux in combating the menace of mobile theft.

Institutional solution

Another solution to the problem, overlooked in the Concept Note, is the involvement of insurance companies. This option seems extremely useful from the customers' viewpoint. Even if technology can check the theft and the reuse of the mobile, it cannot prevent the selling of components such as battery and chip. Thus insuring the mobiles will help consumers. However, any perceived involvement of insurance companies raises two important issues, namely, a possible insurance model and the reason for insurance companies to adopt that model.

Possible insurance model

A clue for the possible insurance model can be obtained by looking at the insurance practices of other consumer durable goods such as automobiles. However, insuring a cell phone requires a different approach from that for any other durable good. This is because a phone cannot be insured for more than a year given the spiralling fall in its price. For example, Nokia 2100, which was selling at over Rs. 7,000 at the time of initial launch in India nearly a year ago, can now be bought for less than Rs. 5,000.

The premium has to be fixed monthly and should the value at which the cell phone is insured diminish monthly the premium too should come down. If during the insurance period, a theft or loss is reported, the insurance companies will pay the cost at which the cell is insured for that month. No doubt a monthly insurance plan will increase the transaction cost, but the utility it may give to the customer will outweigh the costs.

Solving a moral

hazard problem

This however raises a common problem in insurance: how to deal with a moral hazard? In other words, how do insurance companies ensure that the reporting is for theft and not for losses. A recent study in London has estimated that of the 70,000 reported handset thefts in 2001, as many as 40,000 (57 per cent) could have been bogus. Such reporting enabled customers to make fake claims on their insurance for a replacement of the handset. This bogus reporting however cannot be done without the connivance of the mobile's sales staff. The U.K. study has also revealed that in a majority of cases it is the retail outlets operated by the four network operators as well as some independent retailers that are behind this moral-hazard problem. This in turn suggests that the insurance policies need to cover not only theft but also the loss of a handset. Such an extensive insurance coverage can only be given with increased premium.

Given that stolen cell phones cannot be used to make calls, the number of incidents of cell phone theft will come down fast. Still there is the threat of organised crime. If theft forms part of an organised syndicate, the phones may be smuggled to other countries. While it is less of a problem in a developed country, it is a force to reckon with in regions like South Asia where there is a highly skewed tele-density. In such cases, even collaboration among Indian telecom operators will find it difficult to sustain this solution. However, if big international insurance companies join hands/co-operate, they can always persuade operators in other countries to block calls from stolen mobiles. As this is a win-win situation for both operators (more users, more money) and insurance companies (more users, more insured products, more money), no one should have any objection to contributing towards this common cause. In other words, a cooperative solution yields more returns than tackling it individually.

If insurance companies, with help from the government and telecom service providers, can enter this business and come with a product that can insure a cell phone, the end users will be tremendously benefited.

Moreover, given that this will drastically reduce the incidence of cell phone thefts, they can claim that they are doing some kind of social service also. It is important to note that with such products from the insurance sector, the demand for expensive handsets will also shoot up. This is sufficient inducement for handset manufacturers to the join insurance companies and telecom service providers in the drive to introduce these products.

Thus, a number of ways exist to address the mobile theft issue. It is not that these solutions are unknown to operators. The technological and institutional options need to be exercised together to control the thefts and enhance consumer welfare. If the issue is not addressed at the moment, it could lead to a big societal menace. This is because of the high utility value of mobile phones in carrying out other criminal activities such as drug trafficking or organised killing.

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