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MCI, St. Louis Park, Minn., Phone Firm Settle AT&T Lawsuit

Posted on: Monday, 23 February 2004, 06:00 CST

Feb. 24--Onvoy, a small St. Louis Park phone company, and MCI, the telecom giant struggling to emerge from bankruptcy, have settled a high-profile lawsuit by AT&T that charged they conspired to illegally pass along phone-call routing charges to AT&T, the three companies announced Monday.

Terms of the settlements were not announced in detail. The settlements apparently have not halted a criminal investigation of AT&T's charges by the U.S. Attorney's Office for the Southern District of New York, which handles many Wall Street white-collar financial cases.

Onvoy CEO Janice Aune hailed Monday the settlement as positive news.

Her company, which provides telephone and broadband services primarily to businesses, has labored under a shadow since word of the Justice Department investigation leaked late last August.

AT&T then filed a lawsuit in early September in federal district court in Virginia. It charged that MCI and Onvoy committed fraud and racketeering by routing MCI calls over Onvoy's broadband pipeline into Canada, tricking AT&T into picking up the calls from Canada and paying fees to complete them at the other end. AT&T claimed MCI should have completed those calls and paid the fees instead.

"We're pleased to get this behind us," Aune said of the settlement.

Aune acknowledged the Justice Department investigation is ongoing, but she said "we view it as a step at a time, and this was a very good step. It takes a significant portion of the burden off of us."

Onvoy has said it made no secret of its Canadian routing service, in which it routinely sent long distance calls from MCI to Canada in search of the least costly way of connecting a call. "Least-cost routing," as it is known, is a common practice in a telecommunications industry where the cheapest way to complete a call doesn't necessarily take the most direct route, industry experts say.

A MCI official said the company no longer uses least-cost routing.

Joe Friedberg, a prominent Minneapolis criminal defense attorney representing James Krutchen, a former Onvoy employee who revealed the Canadian routing service to Verizon Communications and later AT&T, said the settlement had no effect on his client but it might make a federal prosecutor less inclined to bring charges now that the alleged victim has settled with the alleged perpetrators.

"It just makes common sense when you're talking about an extremely complex case and I can't think of a more complex case than this," Friedberg said.

The U.S. Attorney in the Southern District of New York declined to comment on the settlements or its reported investigation. The office routinely neither confirms nor denies the existence of an investigation unless it charges someone with a crime.

AT&T spokesman Jim Byrnes said his company and MCI continue to cooperate with the U.S. Attorney, and Aune echoed that, saying the company has complied with requests for information.

In a short prepared statement, officials for both AT&T and MCI stressed how the settlement was good for shareholders without disclosing details.

Court papers filed in federal bankruptcy court in New York Monday in connection with the suit give a glimpse of what was settled.

AT&T agreed to forgive $100 million that it claimed MCI owed it for disputed switching and access fees that routinely crop up between telecommunications carriers, while in turn MCI wiped out $220 million it claimed AT&T owes it for the same.

The claims were not related to the Canadian call routing allegations but part of a larger settlement that involve the sort of disputes that regularly occur between carriers over access charges and cover a period from October to Feb. 10.

AT&T agreed to drop its allegations of fraudulent call routing against MCI and MCI in turn dismissed a contempt of court motion against AT&T for filing the allegations.

AT&T also agreed to pay $3 million on a one-time basis for a new two-year contact with MCI.

The agreement is subject to approval by the bankruptcy judge.

No similar publicly available documents were available for AT&T's settlement with Onvoy.

MCI was scheduled to emerge from bankruptcy at the end of this month but it asked for a 60-day extension to finish restating its finances for the past three years, spokesman Peter Lucht said.

MCI, technically still known as Worldcom, had filed for creditor protection in 2002 after an $11 billion accounting scandal. Its plan to emerge from bankruptcy as MCI was approved by a federal judge on Oct. 31, 2003.

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(c) 2004, Saint Paul Pioneer Press, Minn. Distributed by Knight Ridder/Tribune Business News.

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