Telecoms jockeying for federal favor

The three leading telecommunications firms continued elbowing one another last week, each trying to knock its competitors out of the picture or at least a few rungs down the ladder.

AT&T and MCI, formerly known as WorldCom, continued an exchange of accusations and defenses regarding MCI's alleged misrouting of calls to dodge connection fees. AT&T filed new allegations with the court overseeing MCI's emergence from bankruptcy, while MCI accused AT&T of trying to block its return to solvency with underhanded tactics.

Meanwhile, the General Services Administration's inspector general requested that the agency consider debarring Sprint from federal contracting over a matter that Sprint representatives consider a long-settled billing dispute. Sprint is just one notch below MCI, which GSA has recommended should be debarred.

The potential debarment of Sprint worries federal telecom analysts. MCI and Sprint are the primary holders of GSA's FTS 2001 contract, which provides long-distance voice and data services to agencies. If both were to be debarred, they would lose their place on the contract when the next option period begins in January 2004.

"I would be surprised to see the government put itself in that kind of position," said Warren Suss, president of telecom and information technology consulting firm Suss Consulting Inc. "I think that the politics are not as pressing for the debarment of Sprint," he said. "Debarment is a very drastic action."

GSA officials declined to confirm or deny the IG's request, but Sprint spokesman James Fisher confirmed and denounced the action.

Fisher said it stems from an inadvertent billing discrepancy in which Sprint billed the government for a charge called the Presubscribed Interexchange Carrier Charge at the market rate rather than the lower FTS 2001 contract rate. Sprint stopped billing the fees when officials learned of the error, alerted GSA and negotiated a settlement.

The total overcharge was around $2.1 million, and Sprint agreed to repay $5.2 million, which should have ended the matter, Fisher said.

"We think it is outrageous to link a simple and settled billing dispute of $5 million with more than $11 billion in fraud by MCI. We think the suggestion by the IG to consider debarment is unprecedented," he said.

Meanwhile, accusations continued between MCI and AT&T. In July, AT&T filed documents with the U.S. Bankruptcy Court of the Southern District of New York, alleging that MCI avoided paying access fees to other carriers by routing long-distance calls to disguise their true origin or by sending calls through Canadian networks.

MCI officials said AT&T's examples were cases of "least-cost routing," a common practice of finding the lowest-cost path to connect a call.

AT&T countered with another filing Aug. 6, reiterating its accusations and rejecting MCI's defense.

Analysts say the number of companies in the telecom field has grown larger than the market can support, leading to cut-throat competition and a nearly continuous stream of accusations, countercharges and defenses from the leaders.

MCI is especially worrisome to its competitors because it is expected to emerge from bankruptcy in the fall with few liabilities. The bankruptcy court moved the process along last week, granting final approval to the settlement to which MCI and the Securities and Exchange Commission had agreed.

Competitors are afraid that MCI will be able to underbid them, but analyst Muayyad Al-Chalabi of RHK Inc. in San Francisco said those fears are unjustified.

"Debt is not [MCI's] major cost," he said. "Even without the debt and taxes and that other stuff, it doesn't look that healthy." Common operating costs and depreciation account for most of MCI's expenses, he said.

Consultant Mark Amtower suggested, however, that AT&T is simply trying to derail MCI's chances of emerging from bankruptcy. "They are slinging mud everywhere they can," he said. "AT&T should be debarred for whining and rumor-mongering."

Some MCI customers are worried about what the firm's possible debarment could mean, said a GSA spokesperson. GSA is acting to allay those concerns, by providing information about what the debarment would mean for the agencies, the spokesperson said.