AT&T files racketeering suit against MCI, Onvoy

AT&T today filed a racketeering suit against MCI and Onvoy under the RICO (Racketeer Influenced and Corrupt Organizations) Act. AT&T has alleged that MCI directed a scheme dubbed the “Canadian Gateway Project,” through which MCI-originated long-distance traffic was rerouted by Onvoy through Canada and then dumped back onto AT&T’s network in the U.S., forcing AT&T to unwittingly pay access fees that rightfully belonged to MCI.

In a related maneuver, AT&T today filed an objection to a request made by the committee of unsecured creditors of WorldCom, which is now doing business as MCI, that would require AT&T to produce “millions of pages of documents” related to the allegation. “It’s not relevant to the bankruptcy proceeding,” said AT&T spokesman Paul Kranhold.

AT&T wants to keep the matter out of bankruptcy court because any pre-petition claims would be wiped clean when MCI emerges from Chapter 11 protection, said Kranhold. “We can’t even begin to quantify that damage that has been done to AT&T shareholders or the scope of the fraud,” he said.

Though the RICO statute – which prohibits fraudulent activities affecting interstate or foreign commerce – generally is used against organized crime, it does provide the opportunity to seek civil damages, said AT&T spokesman Jim Byrnes. “We’re not in a position to file a criminal charge; that’s for the authorities to decide,” Byrnes said. “But the statute allows us to seek redress for losses resulting from harmful behavior that falls under the act.”

According to AT&T, MCI handed interstate and intrastate long-distance traffic off to Onvoy, which then sent the traffic to a series of Canadian telcos. The traffic allegedly then was handed off to Bell Canada, which had a reciprocal agreement with AT&T to carry each other’s traffic. Consequently, the MCI-originated ended up on the AT&T network, causing AT&T to assume “untold millions of dollars of MCI operating expenses” for calls that it normally would have had no role in completing, said the filing.

MCI spokeswoman Claire Hassett today characterized the suit as an attempt by AT&T to “generate headlines from something that is nothing more than a commercial dispute that started weeks ago.” She added that an internal investigation conducted by the Washington, D.C. based law firm Gibson, Dunn and Crutcher LLP, “has found nothing wrong with our dealings with Onvoy.” Hassett said MCI would continue to cooperate with the U.S. Department of Justice in its ongoing investigation.

Previously, MCI had said it has not directly routed traffic through Canada, “though there would be nothing illegal” if it did. MCI also said it routes about 8% of its traffic through least cost routing carriers such as Onvoy and that Onvoy transports only about 0.5% of its total traffic, yielding a savings equal to 0.02% of MCI’s total telecommunications expenses. Onvoy CEO Janice Aune said in a statement that the company anticipated the lawsuit and the allegation upon which it is based would “fall by the wayside,” and suggested that AT&T has its own ulterior motive for pursuing the action.

"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."