AT&T Files Formal Objection To MCI Reorganization Plans

MCI last week berated AT&T for filing a formal objection to its Chapter 11 bankruptcy reorganization. AT&T's filing was based on recent revelations that MCI allegedly rerouted traffic through Canada to avoid high-access charges.

Bedminster, N.J.-based AT&T, which claims to be one of the service providers that picked up charges for MCI as a result of the rerouting, contends that Ashburn, Va.-based MCI sent traffic to network facilities operated by U.S.-based providers in the Midwest and then out of the country to a Canadian carrier, Manitoba Telephone Systems, which interconnects with Bell Canada, and in turn routed the traffic back to the United States over facilities jointly owned by AT&T and Bell Canada.

According to AT&T's filing, "The 'Canadian Gateway Project,' as named by a source that reported the alleged situation to the federal government, is a scheme by which debtors (MCI/WorldCom et al) knowingly, intentionally and recklessly shifted to AT&T the cost of terminating debtors' customers' calls to areas of the United States with especially high access charges for terminating calls. Debtors were aware that AT&T tariffs and contracts did not permit the subscription directly to AT&T service for the purpose of dumping high-cost traffic upon AT&T."

Verizon also is urging Congress and the Securities and Exchange Commission to take a closer look at the settlement MCI reached under its reorganization plan to pay what it views as mere millions for MCI's $11 billion accounting scandal.

In a filing with U.S. Bankruptcy Court, MCI said AT&T's objection filing "is baseless and designed to delay and derail MCI's reorganization efforts."

MCI also said that an internal analysis, conducted by law firm Gibson, Dunn & Crutcher LLP, has determined that its call-termination practices comply with legal and regulatory requirements, adding that AT&T's claims against MCI for allegedly rerouting traffic were made "solely for competitive gain."

MCI's filing called AT&T's claims false and asked the court to dismiss AT&T's objections.

MCI claims that a contract with Onvoy, Plymouth, Minn., which provides least-cost routing services, was "completely legal and commonplace" in its practice of routing domestic traffic through Canada. MCI said AT&T has publicly confirmed that it engaged in the same type of arrangements.

Solution providers and analysts are quick to point out that MCI, if the allegations prove true, is not the only service provider that has rerouted traffic to avoid high access charges.

"I'm not surprised by the whole thing. Like many telecom professionals, I often heard that some carriers used that same scheme to get around higher long-distance rates with the RBOC," said an executive with a master agent, who requested anonymity.

Danny Briere, CEO of research and consulting firm TeleChoice, said the rerouting practice has been going on for years.

MCI Chairman and CEO Michael Capellas released a statement last month assuring that the carrier was fully cooperating with the investigators and that any wrongdoing uncovered would be met with zero tolerance.

Some competitors said they'd also like lawmakers to ban MCI from doing business with the government. MCI has continued to win government contracts throughout its bankruptcy proceedings and counts the federal government as its largest customer.

Late last month, however, the General Services Administration made a decision to restrict MCI from being awarded any new federal contracts until the company completes the restructuring of its accounting and financial controls.