Small-Town Telecom Provider Battles AT&Tin $60 Million Suit

Posted: 01/2000

Small-Town Telecom Provider Battles AT&T
in $60 Million Suit
By Kim Kelliher

A small-town phone service entrepreneur is making legal headway against
AT&T Corp. (www.att.com) in a $60 million
lawsuit that accuses the industry giant of unfair trade practices, violations of
the Telecommuni-cations Act of 1996, stealing its customers and fraud.

Despite a flurry of motions by AT&T to dismiss or strike the allegations
since the lawsuit was filed in January 1999, a federal court in Los Angeles has
upheld all 11 of the small company’s claims and set a trial date for next fall.

Wholesale Airtime Inc., a reseller of local and long distance service based
in Temecula, Calif., claims that a unit of AT&T, Teleport Communi-cations
Group, sabotaged its attempt to enter the local phone service market in 1996,
despite a contract to provide service and support.

TCG, a $494 million local service provider, merged with AT&T in July 1998
in an $11 billion stock transaction.

According to the lawsuit, Wholesale Airtime lost customers after contracting
to resell local phone service from TCG as a result of lengthy installation
delays and shoddy service that included total service outages, fast busy
signals, static-ridden lines and dropped calls.

"It was Laurel and Hardy phone company," says Whole-sale’s
President Greg Michaels. "It was a joke. We literally had 300 to 400
trouble tickets for a dozen customers over a couple of years."

A spokesman for AT&T in San Francisco, James Peterson, says the company
does not comment on pending litigation. AT&T has countersued Wholesale
Airtime for what it claims are $180,000 in unpaid bills.

Marcello Di Mauro, Wholesale Airtime’s attorney, says according to its own
accounting, the actual amount due AT&T is about $4,000. "Their billing
is absolutely incorrect and has been incorrect for some time," Di Mauro
says.

The David vs. Goliath lawsuit pits a small-town entrepreneur against a giant
in the telecommunications industry. Wholesale Airtime, founded in 1989 as a
cellular and paging company, employs about a dozen people and has annual sales
of less than $10 million. AT&T, with 128,000 employees worldwide, posts
annual revenues of more than $53 billion.

Michaels says he believes AT&T wants the benefit of deregulation without
the burden of additional competition. "After the Telecommunications Act, I
think AT&T said, ‘We’ll let the little guys in, but we’re going to make it
miserable. We’re going to make it so they can’t grow,’" he says.

The lawsuit accuses AT&T and TCG of contract violations, negligence and
unfair trade practices and alleges that, during the difficulties over 2 1/2
years, the defendants approached Wholesale Airtime’s customers with competitive
bids and "stole" clients.

A Los Angeles federal court granted an injunction in February that prevented
AT&T from contacting Wholesale Airtime’s customers or terminating service
while Wholesale Airtime switched clients to other local carriers.

With the loss of about a dozen large customers, Wholes-ale Airtime estimates
its loss in sales and in the value of the company at $15 million. Under
California law, if a jury finds that AT&T and TCG violated fair trade
practices, Wholesale Airtime will be awarded $60 million, or actual damages
times four.

Michaels believes a win against AT&T in the case would be
precedent-setting for the telecommunications industry. "Yes, it’s over
money, but it’s also over protection of the public and for every other
small-town guy who wants to enter into the market," he says. "If
they’re able to roll me over and not get punished for it, why not roll over
every other small carrier?"

Kim Kelliher is a freelance writer based in Temecula, Calif.