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."

Sprint, which has a calling-card business of its own and pays intrastate and Universal Fund fees, is particularly irked.

"AT&T's petition just won't wash. It hinges on the absurd proposition that transmission of unsolicited 'stored information' during call setup can transform a telecommunications service into an 'information service,' " Sprint told the FCC. It also threatened that if AT&T gets its way, Sprint would seek refunds from the Universal Service Fund as far back as 1998 for its prepaid calling cards.

Rep. John D. Dingell (D-Mich.), ranking minority member on the Energy and Commerce Committee, wrote to the FCC in June, asking the agency to act immediately on the AT&T petition and throw the book at the company.

"And when the Commission finds -- as it must -- that AT&T's actions have violated the Commission's rules, it should require not only that AT&T pay intrastate access charges and make USF payments . . . but also that AT&T make such payments retroactively to the date on which it implemented its self-help cost-avoidance scheme," the letter said.

AT&T, meanwhile, has used the calling cards to lobby its point. The Department of Defense, the United Service Organizations and members of Congress who want to keep calling-card rates low have gotten involved. The Defense Department has a special interest in the price of the cards since Congress authorized it to provide prepaid calling cards or other telecommunications support of up to $40 per month for service members.

"Should AT&T raise their prices for prepaid calling cards, this benefit would be eroded. We request that the impact on military personnel be considered in the Commission's proceedings," said a July 23 letter from Charles S. Abell, principal deputy in the Office of the Undersecretary of Defense, to the FCC.

AT&T said Wal-Mart asked it place a pre-recorded message on the cards, urging users to object to the extra charges. "To tell the White House you want pre-paid card rates to stay low, please call 800-696-6322," said the message that card users heard on July 19.

"If we don't do it, someone will come in behind us and take that business," AT&T's Quinn said. There are dozens of smaller companies that have sprung up to provide the calling card service, and many of them are structured not to pay the fees that AT&T feels it should not have to pay, either.

On July 2, FCC Chairman Michael K. Powell wrote back to Dingell, saying: "I expect that Order to be released in the near future. As a general matter, the burden is on carriers to offer their services in a manner that complies with the Commission's rules. A carrier that provides a service . . . that violates Commission rules may be subject to forfeitures or other enforcement measures."

AT&T's opponents said the lobbying caused the FCC to table the item after it appeared in July that at least two of the five commissioners, including Powell, would vote against AT&T.

FCC spokesman David H. Fiske said the delay wasn't an attempt to push the controversy past the November election. "During the review of the item, a number of additional legal and factual issues were raised and the staff is working on those issues. The item will be recirculated [for a vote] when those issues are resolved," Fiske said.