Feds suspend MCI from contract bids

WorldCom last week was prohibited from competing for new federal contracts and found itself embroiled in yet another investigation, this one involving allegations that for years it has illegally routed phone calls to avoid paying network-access fees to rivals.

The U.S. General Services Administration said it suspended WorldCom's eligibility to compete for new contract bids after determining that the company, which now operates under its MCI brand name, has yet to adequately revamp its internal accounting controls and business ethics.

Hord Tipton, CIO at the Department of the Interior, said the GSA's decision could have "a big impact" on his agency's IT operations. "We have all sorts of contracts with MCI that are subject to renewal coming up the first of October," he said. "The big cost would be in dollars and time to migrate to another carrier."

Tipton added that GSA officials met with agency heads on Friday to assess the potential governmentwide impact of MCI's suspension, which took effect that day.

Vance Hitch, CIO at the Justice Department, said he is also concerned about the situation. "We sent several people from our telecommunications group to meet with the GSA to understand exactly what this means," he said. "We'll be assessing our alternatives and working on a strategy over the next several weeks."

By contrast, Lt. Gen. Steven W. Boutelle, the U.S. Army's CIO, said he doesn't expect "any interruption in our ability to provide global and pervasive information." The Army has a number of potential network service providers other than MCI, he added.

But even GSA officials have acknowledged that the effects could be widely felt. In a May 30 memo, GSA General Counsel Raymond McKenna said any shift away from MCI would disrupt telecommunications services to many agencies, including military, law enforcement and homeland security organizations.

MCI has 30 days to challenge the GSA's decision before it's formally barred from the contracts process. But the company said it accepts the ruling and will seek reinstatement after it finishes installing new control systems and strengthening its ethics office.

A spokeswoman for MCI said it plans to continue making contract bids to agencies in anticipation of being reinstated. The carrier "fully intends to be able to put into place the necessary accounting controls," she said, adding that MCI hopes to meet the GSA's requirements "sometime in the very near future."

The ruling by the GSA, which awards and manages private-sector contracts for the government, won't affect existing deals between MCI and federal agencies.

The call-routing investigation came to light when AT&T Corp. filed a 27-page objection to MCI's Chapter 11 reorganization plan in U.S. Bankruptcy Court in New York. AT&T said calls made by MCI customers were "knowingly and recklessly" routed through Canada and back to AT&T's network. That resulted in "millions upon millions" of dollars in MCI operating expenses being offloaded upon AT&T, the company claimed.

In addition, a spokesman for San Antonio-based SBC Communications Inc. said MCI has avoided access fees owed to SBC at a rate of about US$1 million per week, dating back to its bankruptcy filing in May 2002. Long-distance calls from MCI users were "disguised and masked" as local SBC calls, the spokesman claimed.

"MCI has a big magnifying glass on it right now," said Rick Sloan, manager of telecommunications at retailer Dollar Tree Stores Inc. in Chesapeake, Va. Dollar Tree has been an MCI customer for 11 years and buys millions of dollars worth of network services from the company annually, Sloan said. He added that Dollar Tree is now evaluating MCI and 16 other vendors for a new multiyear contract that will be awarded next month.

Sloan said he thinks MCI's rivals are worried that it will emerge from bankruptcy in a relatively strong competitive position. "In our contract talks, any vendor's ethics are one thing among many we consider," he said. But for Dollar Tree, reliability of service "has never been an issue" with MCI, Sloan added.

In a statement, MCI CEO Michael Capellas said that MCI officials have met with staffers from the U.S. attorney's office for the southern district of New York and "committed to them our full cooperation in their efforts." He also said that MCI has hired an outside law firm to analyze the charges.

"As I have said all along, we will do the right thing," Capellas said. "We have a zero-tolerance policy, and if any wrongdoing is discovered, you can be certain that we will take appropriate action swiftly."

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