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American Morning
Minding Your Business: MCI's Fee Fracas
Aired July 28, 2003 - 07:44 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
SOLEDAD O'BRIEN, CNN ANCHOR: MCI long distance is catching the heat once again.
Andy Serwer is "Minding Your Business" this morning.
MCI again in big trouble. Well, they're bankrupt.
ANDY SERWER, "FORTUNE" MAGAZINE: They're bankrupt. They perpetrated an $11 billion accounting fraud, and now this. This is really another level, and it's kind of really unbelievable what's going on here, Soledad. It has to do with what are called "line fees" or "access fees."
Here is how it works. If you're an MCI customer in New York City, say, and you're making a call to Atlanta, well, you make the call and MCI sends you a bill for $20 or whatever to make the call. Now, MCI is paying Verizon in New York and they're paying BellSouth in Atlanta to make that connection, right? Well, what MCI did is they said, jeez, that's a lot of money. We've got to figure out a way not to make those fees. So, what we're going to do is we'll disguise those long distance calls as local calls, so we don't have to pay BellSouth and Verizon as much money. That's No. 1.
No. 2, they were diverting these calls, as far of the scheme, the allegations go, through Canada, which made it also look like local calls. The problem is they do a lot of work for the U.S. government, $800 million worth. And you can be snooping. The Canadians or other people can snoop on these calls through Canada.
The other thing they were doing, allegedly, is charging AT&T and saying that they were making these long distance calls and making them pay the charges.
So, it's just an unbelievable kettle of fish for these guys.
O'BRIEN: What is the bottom line on the dollar figure on all this fraud, allegedly?
SERWER: Well, allegedly, it's $13 billion is what they pay in these access fees every year. So, it's just billions and billions of dollars. We have no idea.
Now, to be fair, MCI is saying a lot of it is not really true, and look who is making these allegations, Verizon and also AT&T, our competitors. On the other hand, no one made those charges against these companies. And, you know, this time, they're going after their competitors. Last time, they were kind of messing over their shareholders and their customers, and this time it's the competitors.
And, you know, just one last thing. People say, oh, this company is bankrupt, it's coming back, we'll buy the stock, it's cheap. Be careful. Be careful with these companies. It's the cockroach theory.
BILL HEMMER, CNN ANCHOR: What is it? Three cents a share right now or something?
SERWER: Always something else going on with these guys.
JACK CAFFERTY, CNN ANCHOR: What is the cockroach theory?
SERWER: The cockroach theory is when there is one piece of bad news for a company, there's always more. There's always more than one cockroach.
CAFFERTY: Oh.
SERWER: Thank you for letting me clear that up, Jack.
CAFFERTY: Of course.
O'BRIEN: Thank you.
SERWER: OK.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.
Aired July 28, 2003 - 07:44 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
SOLEDAD O'BRIEN, CNN ANCHOR: MCI long distance is catching the heat once again.
Andy Serwer is "Minding Your Business" this morning.
MCI again in big trouble. Well, they're bankrupt.
ANDY SERWER, "FORTUNE" MAGAZINE: They're bankrupt. They perpetrated an $11 billion accounting fraud, and now this. This is really another level, and it's kind of really unbelievable what's going on here, Soledad. It has to do with what are called "line fees" or "access fees."
Here is how it works. If you're an MCI customer in New York City, say, and you're making a call to Atlanta, well, you make the call and MCI sends you a bill for $20 or whatever to make the call. Now, MCI is paying Verizon in New York and they're paying BellSouth in Atlanta to make that connection, right? Well, what MCI did is they said, jeez, that's a lot of money. We've got to figure out a way not to make those fees. So, what we're going to do is we'll disguise those long distance calls as local calls, so we don't have to pay BellSouth and Verizon as much money. That's No. 1.
No. 2, they were diverting these calls, as far of the scheme, the allegations go, through Canada, which made it also look like local calls. The problem is they do a lot of work for the U.S. government, $800 million worth. And you can be snooping. The Canadians or other people can snoop on these calls through Canada.
The other thing they were doing, allegedly, is charging AT&T and saying that they were making these long distance calls and making them pay the charges.
So, it's just an unbelievable kettle of fish for these guys.
O'BRIEN: What is the bottom line on the dollar figure on all this fraud, allegedly?
SERWER: Well, allegedly, it's $13 billion is what they pay in these access fees every year. So, it's just billions and billions of dollars. We have no idea.
Now, to be fair, MCI is saying a lot of it is not really true, and look who is making these allegations, Verizon and also AT&T, our competitors. On the other hand, no one made those charges against these companies. And, you know, this time, they're going after their competitors. Last time, they were kind of messing over their shareholders and their customers, and this time it's the competitors.
And, you know, just one last thing. People say, oh, this company is bankrupt, it's coming back, we'll buy the stock, it's cheap. Be careful. Be careful with these companies. It's the cockroach theory.
BILL HEMMER, CNN ANCHOR: What is it? Three cents a share right now or something?
SERWER: Always something else going on with these guys.
JACK CAFFERTY, CNN ANCHOR: What is the cockroach theory?
SERWER: The cockroach theory is when there is one piece of bad news for a company, there's always more. There's always more than one cockroach.
CAFFERTY: Oh.
SERWER: Thank you for letting me clear that up, Jack.
CAFFERTY: Of course.
O'BRIEN: Thank you.
SERWER: OK.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.
