Imagine you had a problem with your phone bill.

Then imagine that you found out you couldn't go to court to settle the dispute. Any challenge to the bill had to be heard by an arbitration company selected by the phone company--under rules written by the phone company. And those rules limited evidence, barred a stenographic record and demanded complete confidentiality. If you refused to participate, you'd automatically lose.

That's the reality for business customers of MCI WorldCom Inc.

MCI's requirement that all disputes over $10,000 be resolved by a private mediation firm is not unusual. A growing number of businesses, including credit-card companies, auto dealers and pest-control firms, are rewriting the fine print of their contracts, sales agreements and bill inserts to make customers agree in advance to give up their right to sue and submit any disagreements to arbitrators.

But MCI has taken the art of fine print even further, sticking its arbitration rules in perhaps the ultimate obscure document--its tariff filing at the Federal Communications Commission. Never heard of that? A tariff filing is required of all long-distance companies; it details rates and terms of service and is hundreds, sometimes thousands, of pages long.

In MCI's tariff, the arbitration rules account for only about a dozen pages, but since they are contained in a public document, MCI says customers are presumed to know about them.

"We're not hiding anything from anyone," said MCI spokeswoman Claire Hassett. The arbitration provisions are "there, in the public domain."

Try telling that to Lexington, Ky., businessman George Hopper, owner of Happy the Glass Man, who said he never heard of a tariff filing until MCI said he owed $22,000 for canceling his long-distance contract. Hopper said he never owed MCI that money but was barred from challenging the claim in court under the tariff's arbitration rules. When he refused to participate in the arbitration, he was automatically found in default and ordered to pay up.

"All they wanted was their money and all they got was their money," Hopper said. "I'm not very happy about MCI."

Happy the Glass Man is among a handful of companies now asking the FCC to declare MCI's arbitration rules as unjust and unreasonable. The companies say that the process mandated by the tariff gives the telecommunications firm an unfair advantage when it comes to resolving disputes. FCC officials declined to comment because it is a pending matter.

The companies also charge that MCI's private agreement with the arbitration firm, JAMS/Endispute, may taint the process in MCI's favor. Since 1994, MCI has paid JAMS more than $325,000 simply to administer MCI's caseload. MCI pays additional fees for each case heard by an arbitrator. MCI also has provided JAMS with free MCI toll-free numbers and phone lines.

"The smell of bias is powerful," said the initial complaint on the matter, filed with the FTC by Innkeepers' Telemanagement & Equipment Corp. (ITEC). "JAMS, as a for-profit entity, depends upon MCI's business and has a strong vested interest in keeping MCI happy, even if MCI's total business with JAMS is a small fraction of its revenues."

JAMS officials deny the charge, saying the arbitration process is completely neutral. All of the 100 "neutrals" appointed to hear MCI cases must meet two basic qualifications, said JAMS Vice President Deborah Masucci. "They have to be former judges and cannot have any ownership in JAMS," which is owned by the top administrators and some of the arbitrators.

Since 1994, when MCI's contract with JAMS was signed, MCI has referred 562 disputes to JAMS. JAMS records show that in 162 cases, the "responding party did not participate" and awards were rendered in MCI's favor. Officials at both MCI and JAMS said awards have been levied against MCI, but they do not know exactly how many. "I know anecdotally but don't know the numbers," said Michael Young, chairman of JAMS's committee on professional standards and public policy.

In papers filed with the FCC, MCI said it moved to arbitration in the early 1990s because the courts had become too clogged with criminal cases and major civil cases. "Lawsuits to collect unpaid charges for communications services are unlikely to be considered among the most pressing matters," MCI said.

While arbitration can resolve a dispute in a more timely and efficient manner than the courts, a number of lawyers and consumer advocates say the usually private process may adversely affect consumers. In some cases, they note, it may cost more than court proceedings, and evidence-gathering that can help win a case may be severely limited. Rights to appeal may also be curbed.

To both supporters and critics of arbitration, the location of MCI's arbitration provisions in the tariff filing is particularly troubling because it's in a document whose existence is rarely known by consumers. "As a general matter, you can't be forced to waive the constitutional right to trial unless you waive it knowingly, voluntarily and intelligently," said Paul Bland, a staff attorney with Lawyers for Public Justice.

"It would never fly in the industry I'm involved in counseling," said Philadelphia lawyer Alan Kaplinsky, who has encouraged many financial institutions to set up mandatory arbitration procedures. In the banking and credit-card business, notice that consumers must submit disputes to arbitration is usually found in the fine print of a contract or in a flier inserted into a monthly bill.

Many, but not all, courts have said this fine print constitutes adequate notice. But Kaplinsky questioned sticking the fine print in the tariff. "There needs to be something more than [tariff filing] to let the consumer know they're waiving the right to jury trial."

MCI spokeswoman Hassett said the company includes the provisions in the tariff "because the Communications Act stipulates that's how we have to do business."

Yet, the FCC has been trying to do away with the burdensome tariff filings for the past few years, only to be thwarted by MCI, which has challenged that decision in court and won a stay pending a court decision.

Kaplinsky said he was not troubled by the MCI-JAMS contract although many other businesses do not have written agreements with their selected arbitration firm, paying only on a case-by-case basis. But JAMS has agreed to provide weekly reports and an electronic docketing system so MCI can keep track of its cases. "That's a lot more administrative work than the conventional situation," Kaplinsky said.

He added, however, that "whatever compensation is paid ought to be disclosed."

JAMS's Young said the contract is always made available "upon request." However, Keith Boller, president of Pay Phone Concepts, said that's not always the case. In an affidavit filed with the FCC, Boller said "I asked both MCI and JAMS whether" there was any agreement between the two. "I was told by both MCI and JAMS that no such agreement existed. I now know that this was untrue."

Young does not know how that happened. "It could be that one call comes in and is handled by someone other than who normally handles it, so misinformation can go out. But in general practice, that information is provided." Young added that the JAMS agreement with MCI was upheld by the 1st U.S. Circuit Court of Appeals in a 1997 opinion.

In the MCI arbitration rules, if a company fails to respond to an arbitration notice, an award automatically is awarded to MCI. By contrast, under the rules of the nation's largest arbitration firm, the American Arbitration Association, "an award shall not be made solely on the default of a party."

The MCI rules also limit evidence it must provide, saying it "shall not be required to produce the invoices or call detail provided to the customer in the normal course of business."

MCI's Hassett said MCI's default rules are no different from what would happen if MCI took the disputes to court: "If you don't show up in traffic court, small-claims court or divorce court, you're considered in default." And she added that providing a detailed bill "could result in hundreds of boxes of information."

"We don't do that as a matter of efficiency," she said.

ITEC complains that MCI's requirement that the proceeding be kept completely confidential, along with the ban on a stenographic record, serves only "to foreclose something MCI does not want--an open proceeding."

But MCI says those rules are to everyone's benefit. "You're protecting all parties" and their privacy, Hassett said.

CAPTION: MCI lists arbitration rules in a largely unknown document, its annual FCC tariff filing, a portion of which is shown here.

CAPTION: George Hopper refused arbitration with MCI and was found in default.