MCI says military and government calls were routed through safe, encrypted channels.

NEW YORK (AP) – Intensifying its claim that MCI has compromised national security, AT&T Corp. said Wednesday it had new evidence the carrier improperly routed calls placed by the U.S. military through Canada.

AT&T told a federal bankruptcy court the calls diverted by MCI included some placed by the Defense Department, Army and Navy. AT&T alleged improper routing was occurring weekly, and sometimes daily.

“The fact that (MCI) diverted U.S. government traffic through Canada, with all the risks that such diversion entailed, demonstrates their willingness to elevate their corporate interests over our national interests,” AT&T said.

MCI insisted it has not placed sensitive government calls at risk.

“The truth is secure government traffic travels over MCI’s network via a dedicated connection and encryption,” MCI spokesman Peter Lucht said. “National security has not been compromised.”

Telecommunications analysts have said simply diverting calls to Canada would not necessarily have made them more vulnerable to eavesdropping.

AT&T and other long-distance competitors have been ferociously fighting efforts by MCI, the former WorldCom Inc., to emerge from the largest bankruptcy in U.S. history. They and former MCI executives have alleged the company defrauded telephone companies of hundreds of millions of dollars.

A federal investigation into MCI centers on whether it masked long-distance calls as local calls, and diverted others to Canada, to avoid paying access fees to local carriers across the country. AT&T says calls were sent back into the United States on its lines, forcing AT&T eventually to pay the local fees where the calls wound up.

MCI has admitted using third-party carriers to curb costs, but says the practice is legal and widespread in the telecommunications industry.

Last week AT&T said it had evidence that MCI had routed calls from the State Department and other government agencies through Canada. MCI has promised to investigate any new information, but has repeatedly characterized the new charges by AT&T as a competitive ploy.

Besides the security issue, AT&T contends the government might not have done business with MCI if it knew the carrier was diverting traffic to Canada. Last week, the federal government suspended all new contracts with the company, calling MCI’s ethics and internal controls inadequate.

MCI did get some good news Wednesday from the judge overseeing its bankruptcy case. Judge Arthur Gonzalez approved the company’s $750 million settlement with the Securities and Exchange Commission – the largest penalty the SEC has ever reaped from a single public company.

WorldCom, brought down by an $11 billion accounting scandal, is doing business under the brand name of its MCI long-distance division in a bid to restore its image.

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On the Net:

AT&T: http://www.att.com

MCI: http://www.mci.com

AP-ES-08-06-03 1956EDT