MCI CALL ROUTING RAISES TRUST ISSUES

Last week, former ADC CEO and long-time AT&T executive Rick Roscitt stepped into a new role as chief operating officer and president of MCI. He also stepped into a controversy that alleges fraud not at the executive levels that the industry is all too familiar with, but at the operations level he has come in to run.

While his first order of business is to meet and greet the customers and employees of his newly adopted company, Roscitt will be forced to deal with allegations and formal complaints to the FCC from AT&T and Verizon Communications about illegal call routing and manipulation of call details designed to avoid paying access fees. He also must answer a letter that SBC Communications sent last week to his boss, MCI CEO Michael Capellas, claiming SBC was not receiving proper compensation for calls it was terminating. The letter included data from test calls made by SBC.

His first public day on the job, Roscitt addressed the issue by saying it was a non-issue. “I have every reason and the confidence to trust the integrity of this team,” he said.

Roscitt wouldn’t say, given his 28-year history with AT&T, whether he thought the allegations lacked foundation. He did say, “We don’t believe we did anything wrong.”

Roscitt added that after speaking with board members, the creditor committee and other employees, he was convinced the company would get to the bottom of the situation. “And when we figure it out, we will tell the world,” he said.

MCI has answered the allegations by conducting an internal investigation and claiming it will lay it all on the table when the time comes. The company also has said that the least-cost routing practices its accusers are calling illegal are not only legal, but are a widespread industry practice.

However, the allegations go far beyond least-cost routing to include the intentional manipulation of call data, as well as the use of pseudo numbers to help make long-distance calls appear local.

Regardless of the validity of the allegations, a certain circle of trust—albeit a tenuous one—that exists between carriers, mostly in order to resolve reciprocal compensation issues like these, appears to have been broken.

“This scheme shamelessly abused that relationship of trust which has governed so many things on the inter-carrier side,” said Randy Milch, senior vice president and deputy general counsel at Verizon.

While some verification methods exist that could be used to prove the allegations, carriers have trusted each other to play by the rules when routing traffic and determining the amount of compensation owed.

But the system was never perfect. “Historically, there has been a big problem with honesty—a lot of less-than-forthright reporting,” said Ken Helgeson, vice president of network operations at VeriSign.

In addition to making allegations harder to prove, it raises a bigger question, one that must be answered irrespective of the outcome of allegations: Is relying on “trust” any way to run a multi-billion dollar industry? Right or wrong, it seems incongruous that with the volumes of regulations, tariffs and other rules that exist to maintain a level playing field, fair compensation is left to trust.

The players involved say they are at a loss over how to fix the problem, primarily because it is such an old one and a solution goes to the heart of what they have been battling over since AT&T’s breakup in 1984: access charges.

“It is MCI’s long-time position that access charges continue to be priced way above the cost to the incumbent local carrier providing the access,” said an MCI spokesman.

The RBOCs’ long-time position also holds. “If you are looking at inter-carrier compensation, you can’t just look at one access charges; you have to look at the whole basis [of compensation] and that goes off into all different directions,” said an SBC spokesman.

Some, such as Helgeson, believe that more equitable and understandable access pricing would remove some temptation to circumvent the system. “Flat-rate pricing would be one way around the fraud issue, and some states are moving in that direction,” he said. However, he added that flat-rate access pricing would do little to address the concerns over as yet unregulated voice-over-IP technology.

Additionally, if the flat rate is not to the IXCs’ liking, there is still the temptation of avoidance, said the SBC spokesman.

Some have even suggested eliminating access charges altogether. “But that’s like saying we should get rid of Visa because some customers won’t pay their credit card bill,” said Linda Lancaster, vice president of inter-carrier billing at Intec Telecom Systems.

Access-rate policy is currently under review by the FCC as well as several individual state commissions, however, flat-rate pricing won’t likely come out of any of those bodies.

“This is one new development that could indeed spur some kind of changes in rules, but I couldn’t speculate on what they might be,” said the MCI spokesman.

Some changes could be implemented without a regulatory mandate. For example, carriers could generate call detail records on the terminating end of every call. RBOCs have balked at this mainly because of the cost of creating and maintaining such immense volumes of data.

With the additional data, though, carriers could apply the analytics currently used to detect fraud from outside the network to fraud from within and other network anomalies, said Tony Zarella, director of risk management for Fair Isaac, a fraud management company. For carriers, though, it comes down to a cost-benefit analysis, he said.

“Carriers have to look at the cost of the extra processing and storage requirements vs. the amount of fraud they will catch,” Zarella said.

SBC, for one, doesn’t believe it would catch much more fraud. “We disagree with the idea that this is a situation that is ripe for reform because companies are tempted to abuse it,” said another spokesman for SBC. “It doesn’t happen that much—certainly not to this scale.”

Either way, carriers’ argument that their systems lack the ability to handle and manipulate such large amounts of data no longer holds true, said both Helgeson and Zarella. It comes down to the importance and cost of relying on trust vs. truth.

The truth over MCI’s practices will come out soon enough. But the consensus is that what is being alleged against MCI does constitute fraud—and that it goes far beyond MCI. “I don’t see how this could have been done without the help of a local company,” Lancaster said. “It has nothing to do with the billing of access and everything to do with receiving misrepresented data.”

But all MCI or others accused need is reasonable doubt. Helgeson said it exists. “There are a lot of softswitches out there that have not gone through all the rigorous testing, and it is conceivable that some of this occurred because of a bug in a switch.”

Asked what should happen to a carrier that does manipulate call records, Lancaster said, “I am a capital punishment kind of girl. What happens in real life—you know, getting your hand slapped—I’m just out of that loop.”