AT&T FILES RACKETEERING SUIT AGAINST MCI AND ONVOY

AT&T accused MCI/WorldCom and Onvoy of orchestrating a scheme called the “Canadian Gateway Project” in which it said the 2 carriers worked with other telecom companies to reroute MCI customers’ domestic phone calls through Canada “to deceive and defraud AT&T into paying hefty termination fees for terminating calls to high-cost independent telephone companies in the U.S.” It said a recent federal grand jury investigation led to AT&T’s charge that MCI/WorldCom was involved in “fraud, civil conspiracy, unjust enrichment, racketeering conspiracy and substantive racketeering through a pattern of multiple acts of mail fraud and wire fraud.” AT&T said the scheme was “ongoing” and MCI and Onvoy “continued to engage in the misconduct.”

“The lawsuit alleges for the first time an MCI/WorldCom scheme to fraudulently cause AT&T to pay access fees to MCI/WorldCom itself,” AT&T said. In addition to the claims related to the previously reported “Canadian Gateway Project,” the suit alleged that MCI/WorldCom had concocted the scheme to cause AT&T to pay terminating access charges directly to MCI/WorldCom for domestic long distance calls that originally were on MCI/WorldCom’s network, but were taken off and rerouted through Canada onto the AT&T network so AT&T would terminate the calls and bear the terminating charges. “MCI/WorldCom should have properly kept the telephone traffic on its own network and been responsible for terminating access fees, if any, via intracompany transfers,” AT&T said: “Instead, MCI/WorldCom conspired with Onvoy to create access charges ‘out of thin air’ for AT&T by rerouting the calls through Canada and then to AT&T for completion on the MCI/WorldCom local network -- where MCI/WorldCom would receive the access payments.”

AT&T said MCI’s call-routing scheme was “fundamentally different from, and bears no relation to, legitimate routing practices” widely employed in the telecom industry: “That legitimate conduct involves long distance companies’ obtaining the lowest access fees knowingly offered. In contrast… MCI/WorldCom used deception to cause AT&T unwittingly to pay the full access charges MCI/WorldCom should have incurred on a large number of calls.”

In a separate filing with the bankruptcy court Tues., AT&T objected to the MCI creditors’s request for discovery. The creditors have asked the bankruptcy court to subpoena the company’s competitors on the access charge issues those carriers raised earlier. The Committee has asked for authority to obtain documents from AT&T, SBC and Verizon by Sept. 4 and begin the examination Sept. 15. However, AT&T said the Committee had requested “an unprecedented and all but unbounded inquiry into the highly confidential and proprietary, competitively trade-sensitive, and even government-classified, business activities of AT&T in its capacity as a business competitor of WorldCom.” It called the Committee’s request an “effort to punish” AT&T for asserting its legitimate fraud claims. A Verizon spokeswoman confirmed Tues. that the company had filed a similar objection in the bankruptcy court.

MCI/WorldCom, which has been under investigation by the U.S. Attorney’s Office, Manhattan, on whether it improperly routed calls to avoid paying fees, has denied any wrongdoing. AT&T first urged the bankruptcy court in July (CD July 29 p1) not to approve MCI/WorldCom’s reorganization plan that, if approved, would deprive AT&T of the ability to file legal charges against the company on postpetition damages. “MCI/WorldCom drafted their plan of reorganization to give the bankruptcy court exclusive jurisdiction over any lawsuit, even those arising out of fraudulent activity occurring after they filed for bankruptcy,” an AT&T spokeswoman said. No decision has been made on that request, she said.

The suit comes less than a week before a confirmation hearing before U.S. Bankruptcy Court, scheduled to begin Sept. 8. MCI/WorldCom, which filed for Chapter 11 protection in July 2002, plans to emerge from bankruptcy this fall. An MCI spokeswoman said “this is really nothing more than AT&T trying to make headlines. This is a commercial dispute that started weeks ago.” She said MCI’s internal review conducted by Gibson, Dunn & Crutcher had “shown nothing wrong in our business with Onvoy. MCI will continue to cooperate fully with the Dept. of Justice in its ongoing investigation.”

Onvoy CEO Janice Aune said her company had “anticipated this type of maneuver out of AT&T this week prior to MCI’s bankruptcy hearing getting under way.” She said it probably was in AT&T’s “best competitive interest” to “tie this thing up in court for years.” She said AT&T’s 4 previous allegations of point code tampering, long distance calls’ being altered to look like local ones, routing calls to Canada as being illegal and routing calls to Canada as being insecure had been dismissed: “We anticipate this final allegation to fall by the wayside as well.”