Three years ago, blockchain was something telecom companies didn’t understand and had little interest in implementing. Fast forward to the Mobile World Congress in Shanghai in June 2019, and blockchain has become one of the hottest topics among telecom operators.

There’s a world of potential for the telecom industry to benefit from blockchain technology: It could reduce fraud, verify identities across different phone numbers, reduce costs and increase efficiency in handling roaming, billing, payments and data.

Among the numerous use cases for blockchain in the telecom sector, these are by far the most notable practicable applications:

  • Digital identity management
  • More efficient roaming
  • Combating fraud

However, arguably the largest reason for jumping on this trend is to ensure that telecoms don’t miss out on the monetization opportunities for this next-generation mobile internet like they did with the rise of the World Wide Web. While telecoms lament being relegated to the status of being a “dumb pipe” for the non-mobile internet, merely delivering over-the-top (OTT) content, through technology such as blockchain and IoT there are many more emerging monetization opportunities on the mobile web that giving the companies the flexibility to expand into new sectors.

Effectively, telecoms will be able to serve as a platform to allow new enterprise-scale businesses to develop, using it as a base. Although blockchain technology has the potential to significantly combat fraud, P2P banking services will also be a big beneficiary of the technology, allowing an expansion of the market.

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Mobile phone usage is widespread in China

Identity Management

Blockchain’s ultimate strength is the ability to assign a digital token or cryptographic hash to a customer to verify, with certainty, who they are and what they are doing on a network. Once this is determined, new doors are opened for things such as increasing efficiency in the roaming market and combating fraud.

China Mobile, China Unicom and China Telecom have engaged in a pilot project to share data on the blockchain regarding Know Your Customer (KYC) procedures. This will allow customers to port their data between networks with ease and help the companies identify fraud in its early stages. As eSIMs grow in popularity and their physical counterparts are phased out, this technology will also allow for customers to easily share and manage their account over a variety of devices. For China Telecom, this also plays into its blockchain SIM project.

Efficiency in the Roaming Market

As people are traveling more than ever, roaming is a must-have service for any telecom so their customers can stay connected. Telecoms can provide this service through their plethora of contracts with partner telecoms that allow their customers to connect to each other’s networks.

But this leads to procedural overhead in maintaining these contracts and reconciliation to ensure that the partner telecom gets paid and the customer gets billed.

With blockchain, smart contracts will enable the telecoms to trigger the roaming agreements between subscribers whenever they switch networks. Additionally, it can help with transparency by tracking the transactions every subscriber makes. Further, payment between the two telecoms happens automatically as the service is used, reducing the need for reconciliation via settlement companies.

In 2018, China Mobile announced a pilot with Japanese telecom NTT DoCoMo and Korean telecom KT Corporation to automate international data roaming operations. Through smart contracts on the blockchain, the three companies calculate the payments owed in real time, rather than waiting for data to be confirmed by clearing companies.

As eSIMs grow in popularity and their physical counterparts are phased out, this technology will also allow for customers to easily share and manage their account over a variety of devices.

Fraud Management

Telecom fraud is on the rise in China, costing the public millions of RMB a year in losses. Telecom companies also lose out as these criminals engage in fraudulent billing practices to cover their tracks. To counter this, China Telecom is implementing blockchain solutions onto its network to assist with identifying fraudulent activity and blacklisting bad actors.

Generally, telecom fraud in China involves the criminal spoofing the caller ID to make it look like the call is coming from a trusted source, such as a bank, government office or relative. They request money and cover their tracks by impersonating a third party on the network, sending the charges for the calls to their account.

Blockchain can combat this by assigning a token or cryptographic hash to every subscriber’s Mobile Station International Subscriber Directory Number (MSISDN). The MSISDN is the unique number — separate from a phone number — that identifies the subscriber’s account for billing purposes. When the fraudulent call goes through the authentication phase, the user is easily identified and flagged, as the token or hash doesn’t match the one assigned to the user on the blockchain. Furthermore, phones that are found to frequently engage in fraud can have their International Mobile Equipment Identity (IMEI) number blacklisted on the blockchain.

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Blockchain could be used to combat fraud and illicit activity on mobile phones

Blockchain SIM Cards ‘Key To The Decentralized World’

China Telecom, one of China’s largest state-owned telecom providers, is looking to integrate blockchain into its network — and apply all the above-mentioned use cases — with its blockchain SIM card.

Director of China Telecom David Wei Liang, in an interview with Forkast.News, said the blockchain SIM card is a “key to the decentralized world.” Liang added, “The key point here is to transform the digital economy from a data monarchy to a data democracy. That is to say, to give the right of the data to the data producer themselves.” More than a medium that will allow cryptocurrency trading, the blockchain SIM is a means to make available to the masses the capability of managing data, data transparency and authentication, enabling a network of digital value transmission.

The blockchain SIM card may become available in China in 2020 according to Liang. Should the project push through, China Telecom, which has tens of millions of users as the country’s second-largest mobile operator, will establish one of the world’s largest blockchain ecosystems.

See related article: China Telecom Introduces its Blockchain SIM Card Project

For Liang, blockchain will provide the new telecom paradigm for the Internet of Value — a more efficient and more secure way of exchanging any store of value (i.e., money, stocks, votes, intellectual property, etc.) with another over the internet.

While blockchain proves to be an efficient method of doing away with the slow, expensive traditional processes and transactions, adoption across industries has lagged due to issues in its interoperability, scalability and usability. Innovations like China Telecom’s blockchain SIM card may prove to be the solution to these issues. As per Liang, China Telecom will design the blockchain SIM card to be a versatile key that can interact with various blockchains, and compatible with different platforms and protocols, overcoming the barriers relating to interoperability, scalability and usability that are hampering blockchain’s implementation on a global scale.

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P2P mobile payments could also be a potential use case for blockchain

For consumers, there wouldn’t be much of a change from their current roaming experience as the technology’s strength would lie in the back end. Already, the roaming experience for the consumer is seamless: When landing in a foreign country, their phone switches over to the new network in a matter of moments. The beauty is not what’s seen, but rather what’s behind the scenes: Automated auctions via smart contracts are run in order to get the best deal for the telecom, while the user’s identity is authenticated via a token on the blockchain to prevent fraud. It wouldn’t matter if the different telecoms used competing blockchains, as China Telecom’s cross-chain solution would authenticate the user and begin the process regardless.

The emergence of innovations such as the Internet of Things (IoT) and the development of 5G technology will pave the way to smarter homes, cities and nations. However, this will require an expensive and robust communication infrastructure, through wired or wireless channels, to transmit data. This is an opportunity for telecom operators to use blockchain as a lower-cost alternative instead of a centralized database in their communication infrastructure to reduce administrative and maintenance expenses.

The beauty is not what’s seen, but rather what’s behind the scenes: Automated auctions via smart contracts are run in order to get the best deal for the telecom, while the user’s identity is authenticated via a token on the blockchain to prevent fraud.

Given blockchain’s nature as an open ledger and payment mechanism, P2P mobile payments is a use case where the technology would shine, particularly in emerging markets where many rely on mobile payments instead of a formal bank account. As Ling Wu, chair of the Carrier Blockchain Study Group, explained to Forkast.News in a July 2019 interview, his firm completed a successful pilot the prior January with three telecoms in Asia. P2P mobile payments rely on a centralized clearing house whereas this system is decentralized. Trust between telecoms is built into this.

See related article: Why Blockchain is the Hot Topic at Asia’s Leading Event for Next-Gen Technology

Moreover, the increasing speed of communication through 5G technology and integration of virtually all devices will require a more secure protocol to which blockchain technology may be applied.

Blockchain has a broad scope of applications, and is a fast-moving and versatile technology. This requires industries to keep abreast of the latest advances in the development and deployment of blockchain. Through the right strategy, partnerships and capabilities for their selected blockchain value proposition, telecom operators can position themselves as enablers of their region’s digital ecosystem.

This article is part of Forkast.Insights’ China Blockchain Report.