Banned Plan Saved AT&T; $250 Million

AT&T; Corp. said Monday that 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.

The top U.S. long-distance phone company also said in a filing with the Securities and Exchange Commission that regulators were reviewing another practice it had used on calls made on prepaid calling cards that it estimated had lowered its fees by about $355 million.

The 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 underpaying fees to local phone companies.

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

SBC Communications Inc. and Qwest Communications International Inc. 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 because the agency 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 that it did not expect to have to pay back charges from the ruling. AT&T; 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.

The FCC sought to distinguish AT&T;’s tactic from 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.

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

AT&T; 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.

SBC called the AT&T; calling-card plan a replica of the VOIP argument AT&T; tried to use to avoid paying charges for completing calls through local phone networks. Just as the FCC ruled against AT&T; on the long- distance VOIP issue, SBC said, the agency should reject the calling-card practices.

“SBC also urges the commission to take this opportunity to send a clear message that it will not tolerate evasion of lawfully imposed access charges, whether by engaging in deceptive activities or by crafting baseless legal arguments,” SBC said in a filing with the FCC.

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Times staff writer James S. Granelli in Los Angeles contributed to this report.