AT&T Slaps Suit on MCI, Onvoy

ALEXANDRIA, Va. -- AT&T (NYSE: T - News) today filed a lawsuit in federal district court against MCI/WorldCom and ONVOY, Inc., seeking damages for, among other things, violations of the civil provisions of the federal Racketeering Influenced and Corrupt Organization (RICO) Act and other laws. AT&T's complaint and a bankruptcy court filing also being made today noted that this lawsuit seeks post-petition damages resulting from MCI/WorldCom's continuing business operations.

The lawsuit accuses MCI/WorldCom and ONVOY of orchestrating a scheme called the "Canadian Gateway Project," in which they worked with other telecommunications companies to reroute MCI customers' domestic phone calls through Canada to deceive and defraud AT&T into paying hefty termination fees for terminating calls to high-cost independent telephone companies in the U.S.

MCI is headquartered in Ashburn, Va., and the suit was filed in U.S. District Court for the Eastern District of Virginia. The lawsuit also cites as defendants unknown individuals or entities referred to in the lawsuit as "John Does 1-20."

The lawsuit alleges, among other claims, fraud, civil conspiracy, unjust enrichment, racketeering conspiracy and substantive racketeering through a pattern of multiple acts of mail fraud and wire fraud. AT&T recently discovered the existence of those claims as a consequence of a Federal Grand Jury investigation. AT&T also maintains the scheme is ongoing and that MCI and ONVOY continue to engage in the misconduct.

The conduct alleged in the lawsuit involves a fraudulent call-routing scheme that is fundamentally different from, and bears no relation to, legitimate routing practices widely employed in the telecommunications industry. That legitimate conduct involves long distance companies obtaining the lowest access fees knowingly offered. In contrast, the lawsuit alleges that MCI/WorldCom used deception to cause AT&T unwittingly to pay the full access charges MCI/WorldCom should have incurred on a large number of calls.

In addition to the claims related to the previously reported "Canadian Gateway Project," the lawsuit alleges for the first time an MCI/WorldCom scheme to fraudulently cause AT&T to pay access fees to MCI/WorldCom itself.

Under this variation of "Canadian Gateway," the lawsuit alleges, MCI/WorldCom concocted the scheme to cause AT&T to pay terminating access charges directly to MCI/WorldCom for domestic long-distance calls that were originally on MCI/ WorldCom's network, but were taken off and rerouted through Canada and onto the AT&T network so AT&T would terminate the calls and bear the terminating access charges.

AT&T alleges that MCI/WorldCom should have properly kept the telephone traffic on its own network and been responsible for terminating access fees, if any, via intra-company transfers. Instead, AT&T said, MCI/WorldCom conspired with ONVOY to create access charges "out of thin air" for AT&T by rerouting the calls through Canada and then to AT&T for completion on the MCI/WorldCom local network -- where MCI/WorldCom would receive the access payments.

Through the lawsuit, AT&T seeks to protect the interests of its shareowners who were victims of this fraud. The filing of the lawsuit is consistent with AT&T's position that a reorganized MCI/WorldCom should operate on a fair and level playing field with its competitors.

Separately, in federal bankruptcy court in New York, AT&T today filed its objection to the MCI/WorldCom Official Committee of Unsecured Creditors' request for discovery in the bankruptcy court proceeding. AT&T said: "The Committee requests an unprecedented and all but unbounded inquiry into the highly confidential and proprietary, competitively trade-sensitive, and even Government-classified, business activities of AT&T in its capacity as a business competitor of WorldCom."

AT&T called the Committee's request "to produce millions of pages of documents" an "effort to punish" AT&T for asserting its legitimate fraud claims.

AT&T Corp.