MCI PLEDGES INTERNAL REVIEW OF FRAUD ALLEGATIONS
MCI announced Tues. it had retained law firm Gibson, Dunn & Crutcher to review “competitor claims” that it fraudulently mishandled call routing and access fees (CD July 29 p1). Responding to one particularly sensitive allegation, MCI said it was confident it had handled secure govt. calls properly.
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“Contrary to some of our competitors’ implications, secure government traffic travels over MCI’s network with a dedicated connection and encryption, not through gateways,” Jerry Edgerton, MCI senior vp-govt. markets, said in a statement issued to the news media. “National security has not been compromised through our secure network,” he said.
On another issue, Fred Briggs, MCI pres.-operations & technology, said MCI routed 8% of its traffic to “least-cost routing companies,” which he said had existed for more than a decade, providing long distance and CLEC providers with “a legitimate alternative to terminate traffic and reduce access fees.” He said the company was reviewing its least-cost routing relationships as part of its internal review.
The fraud allegations against MCI “threaten to delay MCI’s emergence from bankruptcy and may materially weaken the company in the process,” Legg Mason warned in a report Tues. “We believe the outcome will turn on the legality/illegality of MCI’s routing practices, the scale of any wrongdoing, the prior knowledge and reaction of the company’s new leadership and, of course, the government’s response,” the analysts said. The report said the allegations could affect MCI’s “ability to keep existing government contracts, obtain new government contracts, maintain existing operating margins and keep and attract corporate customers.” Legg Mason noted that AT&T had alleged MCI created national security risks by routing calls through a foreign country to avoid access charges, “an allegation that is designed to damage MCI’s ability to win and retain federal contracts.”
The report also suggested that those allegations, if proved true, “could affect MCI’s ability to attract corporate customers in a way that the accounting irregularities did not.” Accounting irregularities affected the stock price more than service provided to customers, Legg Mason said: “These allegations, if proven, suggest that one reason MCI customers are benefiting from lower prices is due to fraud. We think that could provide a new disincentive to win new enterprise contracts.” The report said a longer term result might be FCC action to “confront problems with the access charge and broader intercarrier pricing regimes.”
Meanwhile, MCI CEO Michael Capellas said company officials met with the U.S. Attorney’s Office Mon. “to gain an understanding of the nature of their inquiry” and pledge cooperation. “As I have said all along, we will do the right thing,” he said. Responding to suggestions that competitors made the investigation public to stymie MCI’s emergence from bankruptcy and threaten its federal contracting business, an AT&T official said Mon. that AT&T couldn’t be held accountable for the timing because it wasn’t aware of the alleged fraud until recently when the U.S. Attorney’s Office approached it to substantiate information provided by a whistleblower.