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AT&T says MCI risked U.S. security

Posted on: Sunday, 10 August 2003, 06:00 CDT

NEW YORK -- Intensifying its claim that MCI has compromised national security, AT&T Corp. said Wednesday it has new evidence that the carrier improperly routed U.S. military calls through Canada.

AT&T told a U.S. Bankruptcy Court that the calls diverted by MCI included some placed by the Defense Department, Army and Navy. AT&T alleged improper routing was occurring weekly, and sometimes daily.

"The fact that (MCI) diverted U.S. government traffic through Canada, with all the risks that such diversion entailed, demonstrates their willingness to elevate their corporate interests over our national interests," AT&T said.

MCI insisted it has not placed sensitive government calls at risk.

"The truth is secure government traffic travels over MCI's network via a dedicated connection and encryption," MCI spokesman Peter Lucht said. "National security has not been compromised."

Telecommunications analysts have said that simply diverting calls to Canada would not necessarily have made them more vulnerable to eavesdropping.

The dispute began last week when AT&T said it had evidence that calls from the State Department and other government agencies had been routed through Canada.

AT&T and other long-distance competitors have been ferociously fighting efforts by MCI, the former WorldCom Inc., to emerge from the largest bankruptcy in U.S. history.

While it has promised to investigate any new information, MCI has repeatedly characterized the new charges by AT&T as no more than a competitive ploy designed to derail the bankruptcy process.

Separately, MCI got a boost Wednesday from the court overseeing its bankruptcy case. Judge Arthur Gonzalez approved the company's $750 million settlement with the Securities and Exchange Commission.

Stasia Kelly, named this week as MCI's new general counsel, hailed the ruling as a milestone and said the company was looking forward to finishing its bankruptcy case.

"It represents additional validation of all the positive steps the company has taken over the past year to both put its house in order and establish itself as a leader in good corporate governance," she said.

The settlement, which includes the largest penalty the SEC has ever reaped from a single public company, was approved by a federal district judge last month.

Besides the security issue, AT&T contends the government might not have done business with MCI if it knew the carrier was diverting traffic to Canada. Last week, the federal government suspended all new contracts with the company, calling MCI's ethics and internal controls inadequate.

Meanwhile, federal prosecutors are looking into accusations by AT&T, other rival carriers and former MCI executives that the company defrauded telephone companies of hundreds of millions of dollars.

AT&T claims MCI has used third-party carriers to send calls to Canada -- calls that were sent back into the United States on AT&T lines, forcing AT&T eventually to pay the local fees where the calls wound up.

MCI has admitted using third-party carriers in an attempt to curb costs but says the practice is widespread in the telecommunications industry -- and perfectly legal.

As part of its filing with the bankruptcy court, AT&T submitted a list of sample calls that it said had been routed through Canada. It claimed AT&T wound up paying the access fees because of the MCI scheme.

The list included 12 calls placed by the Defense Department, most of them in July and as recently as July 28. AT&T also said MCI had sent 10 calls from the office of Rep. Ron Kind, D-Wis., through Canada.

WorldCom, brought down by an $11 billion accounting scandal, is doing business under the brand name of its MCI long-distance division in a bid to restore its image.

Web sites

AT&T

www.att.com

MCI

www.mci.com

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