U.S. probes WorldCom over call routing, fees

WASHINGTON -- The Justice Department is investigating allegations that WorldCom Inc. improperly rerouted long-distance calls in the United States and Canada to evade paying hundreds of millions, if not billions, of dollars in access fees to other phone companies, sources said Saturday.

The telephone company, which plans to begin operating under the name of its long-distance unit, MCI, was served with a subpoena last week by Justice Department investigators, the company confirmed. The company is based in Ashburn, Va.

At the heart of the investigation is a whistle-blower claim by a former MCI executive, backed by several of its competitors, that WorldCom has conspired for nearly a decade with smaller local phone companies to reroute long-distance calls to make them appear as if they were local calls. In other cases, WorldCom is alleged to have routed calls through Canada in an effort to disguise its connection to the call.

In both cases, WorldCom was allegedly seeking to avoid paying access charges to companies such as AT&T Corp. and Verizon Communications, said sources familiar with the investigation.

It is the latest of several federal inquiries into WorldCom since it revealed last year that it had improperly accounted for billions of dollars in operating expenses. WorldCom filed for bankruptcy last July and is planning to emerge from Chapter 11 by October.

"My guess is if this has been going on at MCI since 1994 or 1995, we're talking about multiple billions of dollars," said Joseph Friedberg, a Minnesota lawyer who said he is representing the whistle- blower, whom he would not identify.

The New York Times first reported the investigation on its Web site Saturday. Access charges cover the cost of connecting WorldCom's long-distance calls to local telephone networks around the country. They are WorldCom's single largest cost, adding up to approximately $13 billion a year. With so much money at stake, access fees are a constant source of tension in the industry.

"Access charge disputes between local and long-distance carriers have existed for decades and are routine in the industry. Of course, we take all inquiries by the U.S. Attorney's office very seriously and will cooperate fully with any investigation," WorldCom spokesman Brad Burns said Saturday.

During the last few months, rivals including AT&T, Verizon and SBC Communications Inc. have stepped up lobbying efforts against WorldCom in an effort to derail its reorganization, contending that the government hasn't punished it severely enough for the accounting fraud. They contend that a $750 million legal settlement WorldCom reached with the Securities and Exchange Commission is inadequate, considering the scope of the misdeeds.

Several members of Congress have urged the federal government to stop doing business with WorldCom, and the General Services Administration is currently evaluating its contracts with the company. However, the government contracting agency has said that it is unlikely to act since WorldCom has taken steps to reform its business practices in the last year by, among other things, replacing its top management and entire board of directors.

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