ATT alleged in a lawsuit filed in Virginia that WorldCom, now doing business as MCI, improperly routed internal US calls via switches in Canada, in order to offload costs to, and create phantom revenue from, AT&T. AT&T is demanding at least $10m in damages, plus triple that amount in punitive damages, and costs.

MCI, still undergoing a troublesome reorganization under Chapter 11 bankruptcy protection after collapsing last year in the wake of what was described as one of the largest accounting frauds in history, says its routing practices are perfectly legal.

Also named in the suit is Minneapolis-based network operator Onvoy Inc. AT&T alleges that Onvoy, which has previously denied any wrongdoing, acted as the middleman in what AT&T refers to as MCI’s Canadian Gateway Project.

MCI orchestrated a scheme with defendant Onvoy and other intermediaries to deceive AT&T into paying a substantial portion of MCI’s cost to complete hundreds of millions of minutes of telephone calls, the AT&T complaint reads.

This is nothing more than AT&T trying to make headlines from something that is at best a commercial dispute that started weeks ago, MCI said in a statement in response to the lawsuit. AT&T originally disclosed its allegations in a bankruptcy filing.

MCI added: Our internal review, led by the law firm Gibson, Dunn & Crutcher LLP, has found nothing wrong in our dealings with Onvoy. We will continue to fully cooperate with the Department of Justice and its ongoing investigation.

At the core of AT&T’s claims is a practice known as least cost routing, where a carrier will route a call based not on the efficiency of the path, but on the cost of the path. AT&T claims MCI used this strategy to reduce its costs and to create revenue.

For almost 10 years AT&T has had a deal with Bell Canada under which AT&T agrees to terminate US-bound calls that originate in Canada. AT&T incurs the cost of terminating these calls, which eats into its operating profit.

AT&T claims that MCI exploited this relationship by routing calls that originated on the MCI US network to Onvoy, which in turn would route the calls to facilities in Canada, where they would be routed via Bell Canada to AT&T’s US network.

AT&T alleges that this unnecessary north-of-the-border diversion was used to pass to AT&T the cost of sending calls to local phone companies in rural areas, where the cost of terminating the call is unusually expensive.

The company also claims that MCI would use the Canada trick whenever it was handling a call between a US-based MCI long-distance customer and a customer on one of its own US-based local exchanges.

AT&T said that rather than route the call along its own domestic network the whole way, MCI would send it via Onvoy and Bell Canada, in order that AT&T would be obliged to pay MCI to terminate the call when it reentered the US.

Onvoy, in a statement released when the allegations first emerged in August, said: Onvoy maintains its position that least cost routing is a legal and commonplace practice. The company has retained a law firm to investigate its practices.

At about the same time, MCI said it had investigated the matter, and accused AT&T of making sensational accusations in order to keep the company in Chapter 11 for a while longer, purely for competitive reasons.

MCI also claims that AT&T engages in least-cost routing via Mexico, and has fought for the legitimacy of such practices in lobbying with regulator the Federal Communications Commission.

Source: Computerwire