AT&T and MCI find common ground

Carriers sign agreement ending dispute over calls routed through Canada, other disputes.

It turns out it was perhaps just a war of words.

Last summer when AT&T accused MCI of routing calls through Canada to avoid paying access fees, AT&T tossed around strong terms such as fraud and racketeering, and claimed lost revenue in the millions of dollars.

Last week, however, the two carriers ironed out this and a few other outstanding issues without anywhere near as much fanfare.

AT&T and MCI drafted a settlement agreement that was filed with the U.S. Bankruptcy Court in the Southern District of New York. The carriers are seeking court approval of the agreement that puts an end to call routing, local switched access and contractual arguments between the telecom giants. The court is expected to hold a hearing this week to review the agreement.

Experts have speculated that a federal investigation into possible wrongdoing by MCI might fizzle out now that AT&T has dropped its suit, although the Department of Justice and FCC investigations remained open last week.

AT&T called the most public disagreement the “Canadian Gateway Project.” The company accused MCI and its partner Onvoy of illegally routing calls through Canada to avoid paying access fees to AT&T and other carriers.

The accusations were quickly followed by a civil law suit against MCI claiming fraud and racketeering. MCI responded with a motion urging the bankruptcy court to sanction AT&T and find it in contempt of court.

Experts speculated in August that AT&T could have lost up to $100 million as a result of the MCI maneuver.

MCI paid no restitution to AT&T as part of the deal.

“It turns out it was just a boldface attempt by AT&T to derail MCI’s emergence from bankruptcy,” says Bryan Van Dussen, director of telecommunications research at The Yankee Group. “It didn’t work.”

After AT&T’s accusations became public, MCI halted all least-cost routing practices, according to MCI CEO Michael Capellas. Although MCI says its practices were legal, it wanted to distance itself from the negative publicity they generated.

Both carriers have agreed to drop their separate court actions three days after the court approves the settlement agreement.

AT&T separately announced last week that it also settled its dispute with Onvoy over its part in routing calls for MCI. AT&T says it is keeping that agreement confidential.

In addition to the dispute over call routing, the carriers have been arguing over how much each was owed for telecom facilities and services. AT&T says MCI owes it more than $100 million while MCI says AT&T owes it approximately $220 million, according to court documents. The agreement wipes away much of those, except for all services that were delivered, but not invoiced, after Oct. 10, 2003. The agreement says each carrier will invoice all such services and pay the other party in full. Neither carrier commented on the significance of the Oct. 10 date.

The carriers’ Unbundled Network Element-Platform (UNE-P) disagreements are even more complicated. The motion says there is a “significant contractual dispute between AT&T and [MCI]” over UNE-P local switch access provisioning before January 2004, when the carriers signed a two-year contract.

The motion stresses more that the overall agreement “is the product of extensive arm’s length negotiations, is fair and reasonable under the circumstances and in no way unjustly enriches [either carrier].”