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Last Updated: Monday, 28 July, 2003, 08:16 GMT 09:16 UK
New fraud inquiry for WorldCom
MCI is trying to put the WorldCom scandal behind it
United States federal prosecutors have subpoenad documents from WorldCom, the bankrupt phone firm, to investigate the fees its long-distance unit MCI pays other telecoms companies.

WorldCom - which is now trading as MCI, one of a string of companies it absorbed in the 1980s and 1990s - confirmed it had been asked for the documents, the Reuters news agency said, although it refused to discuss the details.

But news agencies and newspapers quoted company sources linking the investigation to allegations that MCI might have defrauded other phone firms out of hundreds of millions of dollars in call charges over nearly a decade.

While it was still called WorldCom, the company sought protection from its creditors after an $11bn accounting scandal was uncovered, leaving it with massive debts and stuttering demand.

Its hopes of surfacing from bankruptcy took a step forward in May when it agreed to pay a record $500m (305m) fine to the US financial watchdog, the Securities & Exchange Commission (SEC).


The story first surfaced in the New York Times on Sunday.

The paper said that the investigators were trying to find out whether MCI had disguised long distance calls as local ones, so as to avoid paying fees to other phone firms.

Long-distance companies have to pay a few cents a minute to other phone firms for "terminating" calls - delivering them to the person on the far end of the line.

But the issue, the paper reported, is whether MCI reached deals with small local carriers to disguise its own traffic as local calls, thus avoiding paying the termination fees.

There are also suspicions, the Times and news agencies said, that the company may have routed calls through Canada in a similar attempt to disguise their provenance.


The newspaper said the investigation was based on internal documents and information from ex-MCI executives and from three other phone companies - AT&T, SBC Communications and Verizon.

But it acknowledged that AT&T, SBC Communications and Verizon have long been bitter rivals of MCI and have competitive motives to try and derail the company's plan to re-organise and emerge from bankruptcy.

MCI was keen to avoid talking about the details of the allegations.

"Access charges between local and long-distance carriers have existed for decades and are routine in the industry," the company said in a statement.

"As always, we take all inquiries by the US attorney's office very seriously and will cooperate fully with any investigation."

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