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.
