Alan Reynolds

The former WorldCom, under new management and an old name (MCI), is scheduled to go to court Aug. 25 to begin emerging from bankruptcy. But competitors seem intent on using public accusations and political influence to keep MCI down, if not down and out.

The latest round began with heavyweight AT&T against the injured lightweight. AT&T claims MCI diverted federal agency calls through Canada to avoid paying access fees to local carriers. AT&T called this "fraud and racketeering," and impugned its rival's patriotism, saying MCI "demonstrated their willingness to play fast and loose with our national interest to line their pockets." Similar disputes about creative routing and unpaid access fees have long been commonplace, with AT&T often the accused rather than the accuser. But such squabbles have heretofore been settled quietly, rather than through intemperate press releases.

"Whether true or not," The New York Times observed, these accusations "could make it harder for the company to keep some of its current customers and sign up new ones." After two more MCI rivals piled on, Accounting Web remarked, "This latest fraud charge, levied by three of MCI's chief competitors -- AT&T, SBC Communications and Verizon -- could derail the company's efforts to resolve its Chapter 11 bankruptcy case with the federal government."

Perhaps the idea of derailing MCI never occurred to AT&T, SBC and Verizon, though it happens to be in their interest. The Atlanta Journal-Constitution reports, for example, that SBC "lost 249,000 residential and business lines in the (past) quarter to rivals such as AT&T and MCI." Since MCI is vulnerable and AT&T is not, it makes commercial sense for SBC to now make common cause with AT&T against MCI.

The new accusations follow a suspicious trail of several previous efforts to damage the MCI brand. When something smells this fishy, it is time to do a little fishing.

On July 7, the SEC imposed a record $750 million fine on the remnants of WorldCom. Predictably, MCI's competitors attacked that huge fine as being far too lenient. Jim Cicconi, general counsel to AT&T, called it "a travesty of justice" that MCI should be able to "emerge from bankruptcy at a competitive advantage." The complaint that bankruptcy is an "unfair advantage" presumably means MCI will be relieved of unpayable debts. But debt relief is an unavoidable part of any bankruptcy, and a recent bankruptcy is certainly no advantage in the market for new capital.


Alan Reynolds

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