Telecom allegations have a familiar ring
As MCI faces probe, some experts say change in rules needed
7/30/2003
By Crayton Harrison, The Dallas Morning News
The Justice Department's new investigation into MCI may be a shock to those who thought the company was on its way to recovery, but the allegations shouldn't surprise telecommunications industry insiders.
Long-distance companies have tried for years to circumvent the fees they must pay local carriers, the same activity federal investigators are now looking into at MCI, formerly WorldCom Inc. Some telecommunications experts have called for uniform rules they say would eliminate such maneuvers.
If the allegations that local carriers, including SBC Communications Inc., have made against MCI are true, the company may have crossed the line by disguising and doctoring the codes that show where calls were routed.
It wouldn't be the first time a long-distance company flouted the law to avoid access fees, and that's why it may be time to change the game, telecom experts said.
"The rules are so complex and difficult to interpret, and each state has its own access charge system," said Robert Atkinson, research director at Columbia University's Institute for Tele-Information. Changing the rules would "get rid of a tremendous amount of waste of intellectual energy, not to mention the expenses of gaming, lawsuits and disputes."
The Federal Communications Commission has done much in recent years to lower access charges for long-distance calls between states, experts said. Those charges average less than a penny a minute for long-distance providers, while customers pay a fee of no more than $6 a month.
Setting their own rules
State governments set their own rules for access charges on in-state calls. In Texas, SBC charges a little less than 6 cents a minute, one of the highest rates in the nation.
SBC has said it needs the access charges to support the infrastructure that long-distance companies use to connect their calls.
Long-distance providers, caught up in a blazingly competitive market that only intensified with the entry of cellphones, complain that access charges eat away at their already suffering profits.
The revenue from a 10-cents-a-minute calling plan, for instance, would lose as much as 6 cents a minute in access tariffs.
"I don't care what industry you're in, if you have that large a cost for a component of your goods sold going to one single element, you're going to do everything possible to bypass that element," said Danny Briere, chief executive of consulting firm TeleChoice.
Bypass it they have. Long-distance carriers have routed calls through neighboring municipalities and countries to get around access fees.
'Creative routing'
The practice, which Mr. Briere called "creative routing," is widely known in the industry, especially among the biggest long-distance providers.
"You'd be hard-pressed not to find an engineer who has worked for the top three who hasn't either done it or explicitly known about it," said Jack Holt, chief executive of Austin-based DueTel LLC, which makes software for companies to compare call records to phone bills.
Call routing records are hard to patrol. Each of the billions of calls carriers route each month can generate about half a page of code, Mr. Holt said.
Nevertheless, creative routing does often lead to disputes about charges between the local carriers and long-distance companies.
In fact, SBC notified MCI chief executive Michael Capellas three months ago that the company was inaccurately accounting for its calls in Texas. The letter to Mr. Capellas complained that MCI was labeling 94 percent of its volume to SBC Texas as interstate calls, while SBC's information showed the figure was somewhere between 55 percent and 80 percent.
MCI noted this week that it has agreed in bankruptcy court proceedings to pay SBC $68 million to settle access charge disputes.
Disputes common
When the allegations against MCI surfaced Saturday, the Virginia-based company noted in a statement that "access charge disputes between local and long-distance carriers have existed for decades and are routine in the industry."
The difference in the MCI case is its competitors' accusation that the company altered the records of where some calls were routed, making them appear to be local calls and even confusing local carriers to the point where they billed AT&T Corp. for some charges.
MCI has pledged to do its own internal query into the charges.
Telecommunications companies spend far too much time and money arguing about access charges, said Mr. Atkinson, who advocates passing much of the costs on to consumers as the FCC has allowed for interstate calls.
As long as there are loopholes, "somebody's going to try to come up with some new idea" of how to circumvent charges, Mr. Atkinson said. "It distorts the whole economic activity."