AT&T - MCI diverted government calls to Canada to avoid fee

NEW YORK -- Long-distance giant MCI avoided paying access fees to local phone companies by diverting calls to Canada -- including calls placed by the State Department and other government agencies, AT&T Corp. charged Monday.

AT&T said it was alarmed by the practice, which lawyers have said could compromise national security by leaving the calls unprotected from eavesdroppers. The company said it had evidence calls were being diverted as recently as Monday morning.

The claims were made by AT&T in a filing in U.S. Bankruptcy Court in New York, which is considering efforts by WorldCom Inc. to emerge from Chapter 11 bankruptcy protection. WorldCom, brought down by an $11 billion accounting scandal, is adopting the name of its MCI long-distance division in a bid to clean up its image.

MCI did not immediately return a call for comment. But the company said over the weekend that its competitors were simply trying to throw up roadblocks to MCI's emergence from bankruptcy.

Federal prosecutors are investigating accusations by AT&T, other rival carriers and former MCI executives that the company defrauded telephone companies of hundreds of millions of dollars. Members of Congress are also re-examining whether MCI should remain a large federal contractor.

Masking calls

The investigation centers on whether MCI masked long-distance calls as local calls, and diverted others to Canada, to avoid paying access fees to local carriers across the country. Long-distance carriers must pay local carriers when they use their lines.

In the over-the-border calls, AT&T claims MCI shifted calls through local carriers to Bell Canada, which has a long-standing agreement to send its U.S.-bound calls to AT&T lines.

The company said MCI's routing deceived AT&T into believing the calls had originated in Canada -- forcing AT&T to pay the high access fees when it routed the calls to local carriers.

AT&T said MCI had also diverted to Canada calls that were placed by one member of Congress, the Postal Service, the Library of Congress and the U.S. Agency for International Development.

MCI officials have "demonstrated their willingness to play fast-and-loose with our national interests to line their pockets with cost savings from local telephone tariffs they dodged," AT&T said in its filing.

Diverting calls to Canada would not necessarily have made them more susceptible to eavesdropping, said Berge Ayvazian, a telecommunications industry analyst with the Yankee Group.

He said secure calls are usually protected by scrambling devices on phones at either end. But phone companies sometimes arrange for secure lines -- and transferring calls off those secure lines could pose a risk.

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