AT&T says banned Internet plan saved it $250 mln

[Dave Farber <dave () farber net>]

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From: GLIGOR1 () aol com
Date: Mon, 10 May 2004 20:58:52 EDT
Subject: AT&T says banned Internet plan saved it $250 mln

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AT&T says banned Internet plan saved it $250 mln

By Justin Hyde

WASHINGTON, May 10 (Reuters) - AT&T Corp. <<aol://4785:T/>T.N> on Monday 
said it had saved $250 million since 2000 by using a now-banned strategy of 
paying lower fees on some long-distance calls by sending them partly over 
the Internet.

AT&T, the top U.S. long-distance phone company, also said in a filing that 
regulators were reviewing another strategy it had used on calls made on 
certain prepaid calling cards that it estimated had lowered its fees by 
about $355 million over the past few years.

The U.S. Federal Communications Commission ruled in April that AT&T had 
improperly deemed some long-distance calls it carried over the Internet as 
local calls, thereby paying local phone companies lower fees than normal.

Two local phone companies, SBC Communications Inc. <<aol://4785:SBC/>SBC.N> 
and Qwest Communications International Inc. <<aol://4785:Q/>Q.N>, have sued 
AT&T for back payments and punitive damages, with SBC asking for at least 
$141 million. In its report, AT&T warned that other local phone companies 
may file similar suits.

The decision by the FCC had been seen as a win for local phone companies, 
as the FCC rejected AT&T's argument that calls that travel even partially 
over the Internet backbone are not subject to higher FCC-mandated access 
charges.

AT&T criticized the FCC's ruling when it was released, and told analysts in 
April it did not expect to have to pay back charges from the ruling. It 
also said additional costs from the ruling would be less than $100 million 
a year, compared with the $9 billion a year it usually pays local phone 
companies for connection charges.

AT&T's strategy converted traditional phone calls to data so they could be 
carried on its Internet backbone, then converted back to voice signals in a 
way that made them appear like local calls to local phone companies.

The FCC sought to distinguish AT&T's tactic from other similar services 
that use technology known as voice over Internet protocol, or VOIP. Those 
services offer phone calls that originate on high-speed Internet 
connections, at a far lower cost than traditional phone service.

According to AT&T, the prepaid calling cards under review by the FCC 
required users to listen to advertising before their calls were completed, 
and the fees in question involved how the calls were forwarded through an 
advertising center.

The company said it had saved $215 million in fees to other phone companies 
since the third quarter of 2002, and about $140 million in federal charges 
since the beginning of 1999.

"An adverse ruling by the FCC on the prepaid card petition would therefore 
increase the future cost of providing prepaid cards and may materially 
adversely affect future sales of prepaid cards, as well as potentially 
exposing us to retroactive liability," the company said in its quarterly 
statement.

05/10/04 12:05 ET

Copyright 2003 Reuters Limited.  All rights reserved.  

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