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MCI, AT&T resolve dispute over call fees

Posted on: Tuesday, 24 February 2004, 06:00 CST

Long-distance phone giants MCI and AT&T said Monday that they settled a dispute over call-connection fees that were at the heart of fraud allegations against MCI last summer.

Also, AT&T said Monday that it settled related claims with Onvoy, a small Minnesota company it accused of being a conduit for the allegedly fraudulent scheme.

AT&T sued MCI for fraud and racketeering in September, alleging MCI improperly stuck AT&T with MCI's call-connection fees by passing calls to Onvoy and through Canada for delivery in the USA.

MCI countered with a lawsuit that accused AT&T of contempt of court for violating the rules of MCI's bankruptcy case.

Terms were not disclosed, but settling the issue is a bright spot for MCI as it attempts to emerge from Chapter 11 this spring and leave behind its $11 billion accounting fraud.

MCI had planned to emerge from bankruptcy protection in February but requested more time because of the size and complexity of its financial restatement. The No. 2 long-distance carrier expects to emerge by the end of April.

In July 2002, MCI, then known as WorldCom, filed the largest-ever Chapter 11 case after revealing its accounting fraud. It then replaced management and made sweeping changes to its governance that were the basis for a $750 million fraud settlement with the Securities and Exchange Commission.

But that settlement was criticized by competitors and some lawmakers last summer after No. 1 long-distance carrier AT&T and local phone companies SBC Communications and Verizon Communications brought up new fraud allegations involving call routing.

The trio accused MCI of improperly routing phone calls to avoid paying the fees required to connect them to local customers. MCI countered that its accusers were merely trying to derail its Chapter 11 rebirth as a viable foe in the ultracompetitive telecommunications market.

The allegations by Verizon, SBC and AT&T have been the subject of a probe by federal prosecutors. AT&T and MCI said Monday that they continue to cooperate with the U.S. Attorney's office.

The allegations offered a unique window into a confusing system in which carriers pay each other to carry phone traffic. MCI has steadfastly maintained that disputes over such charges are common and that it did nothing illegal. Still, it has since abandoned the practice it calls ''least cost routing,'' which it has said had saved the company about $60 million a year. MCI generated about $24 billion in revenue last year, based on unaudited performance results.

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