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MCI's routing of calls probed

Posted on: Monday, 28 July 2003, 06:00 CDT

Federal prosecutors are probing MCI's payments to local phone companies for delivering long-distance calls, the company confirmed on Sunday. Officials are investigating whether MCI defrauded the companies of hundreds of millions of dollars by re-routing some long-distance calls to disguise their origins, say executives close to the probe.

The U.S. Attorney's office in Manhattan, aided by information from MCI rivals and at least one former MCI employee, subpoenaed documents last week on how MCI paid ''access fees'' -- payments from long-distance carriers to local phone companies to connect calls. They are a major expense for MCI of $8 billion to $10 billion a year.

The new probe is the latest threat to the No. 2 long-distance company. MCI, formerly WorldCom, is trying to recover from the largest-ever corporate fraud case. Four former managers have pleaded guilty, and a fifth awaits trial. MCI, operating under bankruptcy-court protection, plans to pay victims $750 million to settle charges by the Securities and Exchange Commission.

MCI says it is cooperating with the probe, which involves rivals Verizon Communications, SBC Communications and AT&T. Federal officials could not be reached for comment.

The alleged schemes to lower access fee costs date to 1994, according to The New York Times, which first reported the probe Sunday. That's earlier than the previously known range of federal probes of the company's $11 billion fraud, and it predates MCI's acquisition by WorldCom.

Executives familiar with the probe say SBC and Verizon became suspicious after customers complained that long-distance calls appeared as local calls on Caller ID. SBC and Verizon believe MCI routed calls through small local phone companies to disguise them as local and avoid fees.

AT&T executives allege MCI routed calls to Canada and then to lines owned by AT&T, which paid access fees to deliver them in the USA. The Times reports in today's editions that AT&T has evidence some of these calls were placed by the State Department and other government agencies, raising concerns about the security of cross-border phone lines.

MCI spokesman Brad Burns says, ''Access charge disputes . . . are routine in the industry'' and says MCI meets monthly with other companies to resolve disputes.

MCI says the probe won't derail plans to emerge from Chapter 11 by October. Creditors still support MCI's reorganization, executives familiar with the matter say.

While taking the probe seriously, some see it as an attempt by rivals at disruption. Verizon, SBC and AT&T have pushed for MCI to be liquidated. ''We can't help but to question our competitors' motives,'' Burns says.

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