Telecommunications companies are facing a growing surge in fraud that cost the industry an estimated $38.9bn in 2023, as artificial intelligence enables criminals to scale and sophisticate their operations, PricewaterhouseCoopers said in a report.

The study, titled “AI’s Dual Role in Telecom Fraud”, said rapid technological advances are reshaping the threat landscape, allowing attackers to automate scams while also giving telecom operators new tools to detect and prevent fraud.

“While AI has tremendous potential to drive positive change across sectors, it also enables fraudsters to create and disseminate scams quickly and at scale, making them more convincing and difficult to detect,” PwC said.

The consulting firm noted that fraud has long been a persistent challenge for the telecommunications sector, causing financial losses for customers and reputational damage for operators. But the risks are intensifying as telecom companies expand into adjacent services such as mobile money and payment banking, blurring the traditional boundaries between telecom and financial services fraud.

This convergence is creating a more complex risk environment, where telecom operators increasingly serve as critical infrastructure for digital financial services.

In Nigeria, the scale of the challenge is already significant. Data from the Nigerian Communications Commission shows that citizens lost about N12.5bn to telecom-related financial crimes between 2019 and January 2023, highlighting the growing vulnerability of the country’s digital ecosystem.

PwC said the growing adoption of artificial intelligence will further transform the fraud landscape. Generative AI tools can enable scammers to craft highly personalised phishing messages, eliminate the spelling errors that once made scams easier to spot, and automate attacks across large numbers of targets.

Deepfake technology is also raising concerns. Fraudsters can now use AI-powered voice cloning to impersonate trusted individuals, such as family members or bank officials, making scam calls more convincing and increasing the likelihood that victims will disclose sensitive information.

Several types of telecom fraud are already evolving with the help of AI, the report stated. SIM swap fraud, for example, involves criminals hijacking a victim’s phone number by tricking telecom customer service agents into transferring the number to a new SIM card. Once the number is compromised, attackers can intercept one-time passwords and gain access to banking or email accounts.

AI can further amplify this tactic by helping criminals generate synthetic identities or manipulate voice verification systems.

Another common threat is SMS phishing, or smishing, where victims receive fraudulent text messages designed to lure them into clicking malicious links or revealing confidential data. According to PwC, generative AI allows scammers to create tailored messages at scale, making them more persuasive and harder to detect.

Other schemes include SIM box fraud, which reroutes international calls through local networks to avoid termination fees, and international revenue share fraud, where scammers place missed calls from premium-rate numbers in the hope that victims will return them.

In many of these cases, AI helps fraudsters optimise their operations, automate attacks, and evade traditional detection systems. But the same technology also offers telecom companies a powerful defensive advantage.

PwC said operators can use AI-driven tools to analyse vast volumes of network data and identify suspicious behaviour patterns that may indicate fraud. Machine learning models can be trained on historical datasets of legitimate and fraudulent activities, allowing them to detect anomalies more effectively than conventional rule-based systems.

Real-time data analysis also allows telecom companies to detect suspicious activity as it occurs, potentially preventing fraud before it causes major financial damage.

For instance, some telecom operators have introduced AI-powered spam alert systems that analyse hundreds of parameters to determine whether a message is likely to be fraudulent.

“With their vast data resources, telecom companies can train AI models to identify and mitigate risks, effectively fighting fire with fire,” PwC said.

Despite the potential benefits, the report noted that many business leaders remain cautious about adopting AI because of concerns about security risks, regulatory scrutiny, and ethical implications.

PwC’s global surveys show that while executives are eager to harness AI’s capabilities, only a minority believe it will significantly improve the efficiency of compliance programmes.

To address the growing fraud threat, PwC urged telecom companies to conduct regular fraud risk assessments, invest in advanced anti-fraud technologies, and strengthen workforce training so employees can recognise emerging scam tactics.

The firm also stressed the importance of educating customers about common fraud schemes, since many scams rely on social engineering techniques that manipulate individuals into revealing sensitive information.

Beyond telecom operators, PwC said stronger collaboration between telecom companies, financial institutions and regulators will be crucial in combating fraud across the digital ecosystem.

Telecom networks already play a central role in digital banking services such as USSD transactions and mobile payments, meaning that fraud incidents often affect both industries simultaneously.

By sharing intelligence on emerging threats and coordinating response strategies, telecom operators and financial institutions could strengthen their collective defences, the report said.

Regulators also have a role to play. AI technologies could help supervisory bodies automate compliance checks and monitor telecom operators’ adherence to fraud prevention regulations.

PwC said closer engagement between industry players and regulators could accelerate the development of clear rules that support innovation while protecting consumers.

Ultimately, the firm said the battle against telecom fraud is becoming an AI-driven arms race, where both criminals and defenders are deploying increasingly sophisticated tools.

“AI has the potential to revolutionise how telecom companies and regulators combat fraud while enhancing the quality of service,” PwC said. “But to fully harness this potential, industry players must stay informed about evolving technologies and anticipate future threats.”