AT&T, WorldCom Battle Escalates

Who knew that more than a year after WorldCom closed out one chapter in its sordid history by filing for bankruptcy, its soap opera would revive bigger than ever as it attempts to emerge from Chapter 11.

When we last left you, the company -- which now calls itself MCI -- was faced with a new Justice Department investigation about complaints that it rerouted calls to avoid charges from local phone companies. It was even accused of dumping some calls onto competitors' networks so they would have to pay the charges. That tactic is known as "laundering" calls, and it allegedly affected Verizon Communications (NYSE: VZ  ) , AT&T (NYSE: T  ) , and SBC Communications (NYSE: SBC  ) .

Today, The Wall Street Journal says a WorldCom/MCI internal investigation turned up no evidence of such laundering. What's more, AT&T is now being accused by two companies -- General Communications (Nasdaq: GNCMA  ) and Telefonos de Mexico (Nasdaq: TFONY  ) -- of engaging in similar routing practices.

But while AT&T may be grabbing some of the attention today, its woes are minor compared to the noose tightening around WorldCom. Fed up with its culture of deceit, the U.S. government late last week temporarily banned the company from competing for new federal contracts. "It is important that all companies and individuals doing business with the federal government be ethical and responsible," said General Services Administration's Stephen Perry.

Meanwhile, WorldCom has had its bankruptcy hearing delayed until Sept. 8, and it appears more and more that its efforts to emerge lean and debt-free -- something its competitors are fighting tooth and nail -- are in danger.