Out-Law / Your Daily Need-To-Know

Out-Law News 2 min. read

AT&T and WorldCom settle racketeering dispute


AT&T has settled its dispute with US rival WorldCom. AT&T sued the beleaguered telco last year, accusing it of racketeering and fraud over the alleged improper rerouting of telephone calls. WorldCom, soon to be known as MCI, has always denied the charges.

WorldCom was brought down by an $11 billion accounting scandal that caused it to file for bankruptcy protection in 2002.

In August 2003, a deal was approved between the company and the Securities and Exchange Commission (SEC) in terms of which the troubled telecoms giant was to pay $750 million to investors who lost money as a result of the fraud. The deal opened the door to WorldCom's emergence from bankruptcy.

But one month later, AT&T filed a suit accusing WorldCom of diverting US telephone calls to Canada in order to avoid having to pay connection fees to rival networks, while hiding the origin of the call.

The legitimate version of this practice is known as 'least cost routing', and means that the company uses the most efficient network available to route calls. So, for example, if some networks are less busy at certain times, then these will be used in preference to busy ones.

It is when the origin of the rerouted call is hidden that the practice can be unlawful. And the allegation was that when WorldCom transmitted calls through intermediaries it stripped software codes to disguise the origin of the calls.

The lawsuit accused WorldCom and another telecoms company called Onvoy of orchestrating a scheme called the "Canadian Gateway Project". This scheme allegedly involved working with other telcos to reroute WorldCom customers' domestic phone calls through Canada. This practice caused AT&T to pay hefty termination fees for terminating calls to high-cost independent telephone companies in the US, such as Verizon.

In addition, the suit alleged that WorldCom carried out fraudulent operations that made AT&T pay access fees to WorldCom itself.

For good measure, the lawsuit also alleged fraud, civil conspiracy, unjust enrichment, racketeering conspiracy and substantive racketeering through a pattern of multiple acts of mail fraud and wire fraud.

A bitter war of words ensued, with WorldCom accusing AT&T of trying to disrupt its anticipated emergence from bankruptcy. This was due to take place on 28th February, but the telco has recently requested a 60-day extension to allow it to complete SEC filings. Once proceedings are finalised, WorldCom will be known as MCI.

The settlement announced on Monday resolves all claims that the two companies had on each other – including a previous claim made by AT&T in respect of the bankruptcy proceedings. The settlement is subject to the approval of the Bankruptcy Court.

"AT&T is pleased with the resolution, which fully addresses the interests of AT&T's shareholders," said Jim Cicconi, Executive Vice President and General Counsel of AT&T.

"This resolution is good for our creditors as well as both companies overall," remarked Stasia Kelly, MCI Executive Vice President and General Counsel. "It allows us to better focus on the common good of the industry – fostering healthy competition and serving our customers."

AT&T has also announced a settlement of the racketeering action against Onvoy. No further details have been released.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.