AT&T's Calling Card: Reach Out and Pitch Someone

Is AT&T playing by the rules, or breaking them with impunity?

The giant long-distance phone company is in an increasingly nasty feud with its competitors over fees paid on long-distance calls made with prepaid calling cards. And the Federal Communications Commission, which has to referee the dispute, has put it on hold for now.

The high-stakes squabble is over the difference between ordinary long-distance calls, for which long-distance companies have to pay intrastate connection fees to local phone companies, and those "enhanced" with advertising, such as the kind AT&T is selling to Wal-Mart Stores Inc. and other retailers.

AT&T insists that its "enhanced" prepaid card falls into the category of "information service," like caller ID or voice mail, a category exempt from intrastate and Universal Fund fees.

A portion of that revenue goes to the Universal Service Fund that helps support service to low-income customers and pay for services at libraries. AT&T, for instance, said it pays more than $1.5 billion a year to the fund on its basic long-distance service.

"If you are providing information to the end user, that's an information service," said Robert Quinn, AT&T vice president for government affairs. "When you call our platform, it is providing you the capability to retrieve stored data -- the ad."

Typically, the call is routed out of state from where it originates, goes to the computer "platform," then is connected in a separate call from there. In a few cases, all three parts of the call may be in the same state, and then the intrastate and Universal fees apply.

In a recent filing with the Securities and Exchange Commission, AT&T said it had "saved" $290 million in access charges since the third quarter of 2002 and about $150 million in fund contributions since 1999.

The disclosure infuriated AT&T's long-distance competitors and local phone companies who would have been collecting the access charges. They have been pressing the FCC to make up its mind whether this service qualifies as basic or enhanced.

"Our members feel if AT&T gets away with this avoidance in paying access charges and Universal Service support, who else will take advantage of this and why shouldn't they?" said Randy Tyree, director of legislative and industry affairs for the Organization for the Promotion and Enhancement of Small Telecommunications Companies, which represents more than 500 small phone companies in 47 states. "This sets a very bad precedent, and delay at the FCC continues to bleed the system."