AT&T files racketeering suit against MCI, Onvoy

The lawsuit doesn't specify the amount of damages being sought

AT&T Corp. has filed a lawsuit against MCI and Onvoy Inc., alleging that the two companies cost AT&T tens of millions of dollars by rerouting U.S. telephone calls through Canada in an effort to stick AT&T with termination charges.

The lawsuit, filed in the U.S. District Court for the Eastern District of Virginia yesterday, seeks damages from MCI and Onvoy for alleged violations of the U.S. Racketeer Influenced and Corrupt Organizations Act and other laws. AT&T alleges that Onvoy and MCI, officially known as WorldCom Inc., engaged in a scheme of rerouting calls originated by MCI customers onto AT&T's network, so that AT&T would have to pay local telephone carriers for the cost of completing those calls.

AT&T's lawsuit doesn't include a specific dollar amount because the company is still trying to determine the impact of the so-called Canadian Gateway Project, said Jim Byrnes, a spokesman for the company. But AT&T alleges that its losses are in the tens of millions of dollars since MCI filed for bankruptcy in July 2002. The lawsuit covers only the time since MCI filed for bankruptcy, because the company's finances before then are controlled by the bankruptcy judge, Byrnes said.

In late July, the U.S. attorney's office for the Southern District of New York disclosed that it was investigating MCI after AT&T and two other long-distance companies had accused MCI of using the rerouting practice since July 2001.

According to MCI, its internal review has found nothing wrong in its dealing with Onvoy, accused by AT&T of helping MCI reroute calls. "This is nothing more than AT&T trying to make headlines from something that is, at best, a commercial dispute that started weeks ago," MCI said in a statement. "We will continue to fully cooperate with the Department of Justice and its ongoing investigation."

MCI has suggested that routing phone calls to take advantage of the cheapest line charges is a common practice in the telecommunications industry.

Minneapolis-based Onvoy expected the AT&T lawsuit as MCI heads into bankruptcy hearings starting Sept. 8, Janice Aune, Onvoy's CEO, said in a statement. The AT&T allegations will be dismissed, she said.

"The reality is that AT&T probably has more attorneys than we have employees," Aune said. "They can afford to tie this thing up in court for years. It is probably in their best competitive interest to do so."

In August, Onvoy announced that it had launched its own internal investigation. "Onvoy maintains its position that least-cost routing is a legal and commonplace practice," Aune said in a statement released Aug. 8.

AT&T's lawsuit alleges fraud, civil conspiracy, racketeering conspiracy and other claims through a pattern of mail and wire fraud. The conduct by MCI and Onvoy, AT&T said, isn't similar to legitimate routing practices used in the telecommunications industry. While legitimate routing allows long-distance carriers to get the lowest access fees knowingly offered by other carriers, MCI used deception to pass onto AT&T access fees that it should have paid, according to the AT&T statement.

"MCI improperly deceived AT&T into paying millions upon millions of dollars in terminating access costs that were rightfully MCI's obligation," the AT&T filing said.

AT&T said it is trying to protect the interests of its shareholders, who were "victims of this fraud," by filing the lawsuit. AT&T's lawsuit also accuses a number of other unknown telephone companies -- called "John Does 1-20" in the lawsuit -- of helping MCI reroute phone calls.

Copyright © 2003 IDG Communications, Inc.

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