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AT&T files lawsuit against MCI

ALEXANDRIA, Va. — AT&T Corp. sued MCI on Tuesday seeking millions over allegations MCI routed long-distance calls through Canada as part of a scheme that forced AT&T to pay costly fees MCI should have paid to complete those calls.

The civil fraud and racketeering suit, filed in U.S. District Court in Virginia, mirrors charges already being investigated in a federal criminal probe that could derail MCI's bid to emerge from bankruptcy as early as this fall.

Prosecutors are also investigating charges by Verizon Communications and SBC Communications that MCI has disguised its calls as local traffic to avoid paying the fees that local telephone companies get for providing the connection between a long-distance network and a person's home.

The AT&T lawsuit contains new allegations that MCI sent calls through Canada even when the final destination was a local phone network in Phoenix owned by MCI. By doing so, MCI forced AT&T to pay fees that MCI " 'created' out of thin air," the lawsuit alleges.

MCI, which has rejected AT&T's earlier charges and defended its call-routing strategies as proper, said in a statement Tuesday that the lawsuit "is nothing more than AT&T trying to make headlines from something that is at best a commercial dispute that started weeks ago."

Filing the lawsuit in Virginia, where MCI recently moved its headquarters from Mississippi, will allow for a broader inquiry than would be permitted in bankruptcy court, where AT&T has leveled similar allegations against MCI.

MCI, formerly known as WorldCom, is trying to emerge from bankruptcy just a little more than a year after collapsing in an $11 billion accounting scandal. The new controversy over call routing has threatened to delay that effort.

The company says its accusers are merely trying to sabotage its bankruptcy reorganization.

In its lawsuit, AT&T claims it has a host of circumstantial evidence to prove MCI and another small carrier, Minneapolis-based Onvoy, engaged in a scheme they dubbed the "Canadian Gateway project."

MCI responded in its statement that, "Our internal review . . . has found nothing wrong in our dealings with Onvoy."

Typically, when an MCI subscriber makes a long-distance call, MCI must pay an access fee to the local company that owns the final connection to the dialed phone number. In many rural locations, where running a local phone system is less profitable, the access fee charged to long-distance companies can be particularly high.

Since AT&T has a contract with Bell Canada in which most of the Canadian company's U.S.-bound calls are routed onto AT&T's network, the local access fees for those completing those calls are paid by AT&T.

The lawsuit claims MCI conspired with Onvoy to route long-distance calls that originated in the United States through Canada, forcing AT&T to pay access fees that would have been billed to MCI if they had remained on MCI's vast U.S. network. The alleged conspiracy began on or before July 2001 and has continued through the present, according to the lawsuit.