Sprint Nextel Files Lawsuit To Halt Fraudulent ’Traffic Pumping’ Schemes

Company Takes Aggressive Action to Protect Consumers’ Unlimited Long-Distance.

Sprint Nextel (NYSE: S) announced today that it is taking legal action against a number of companies involved in a wide-ranging scheme to abuse the intercarrier compensation system. This illegal scheme abuses a system intended to keep the price of basic telephone service affordable for rural consumers.

After a long and thorough investigation, Sprint Nextel has determined that at least ten rural local exchange companies (RLECs) in Iowa have conspired with the providers of so-called “free” conferencing and international calling services, as well as “free” adult chat lines, to defraud Sprint Nextel and other long distance companies by driving voice traffic to certain local phone companies that charge extremely high rates to Sprint Nextel.

Here’s how the scheme works:

1. Sprint Nextel’s long distance arm pays “access charges” to local telephone companies for every long distance call its wireless and long-distance customers place to customers in the local company’s territory.

2. Over the past year, a number of RLECs in Iowa have adopted significantly higher access charges - up to 13 cents per minute – for every minute of every call a Sprint Nextel customer makes to the RLEC’s local calling area. That’s about 26 times the access charges typically charged by other local phone companies.

3. At the very same time the RLECs were raising their rates, a number of unscrupulous companies obtained phone numbers in the territories of these RLECs, despite being located far from rural Iowa in cities like Los Angeles. These businesses then began to advertise their “free” services to the public.

4. Drawn by the promise of “free” services, consumers have placed large numbers of calls from around the country that are routed through the RLECs in Iowa, even though few, if any, of the parties to such calls are anywhere near the RLEC’s territory. This artificial spike in calls is known as “traffic pumping.”

5. The RLEC then turns around and bills Sprint Nextel’s long distance arm inflated access charges to deliver its traffic to the conference line provider or other service. The local telephone company bills so much in inflated charges that it is able to share this windfall with its unscrupulous business partners.

It’s understandable that an offer of “free” conference calls or other services would appeal to consumers, as few are aware of the abuses that make such services possible. Unfortunately, such schemes endanger all consumers – even those who have no use for conferencing or other services – because they threaten the unlimited long-distance service that many consumers have come to expect as part of their calling plans. Since the scheme began, the Iowa RLECs have artificially increased their billing as much as 26,000 percent. Left unchecked, such schemes will grow and force carriers to abandon the unlimited long distance pricing plans that consumers have embraced and benefited from over the past decade.

“Make no mistake – this is not just a billing dispute among phone companies,” said Kent Nakamura, vice president for telecom management for Sprint Nextel. “We’re taking a stand for our customers and for ourselves against a continued pattern of illegal arbitrage on the part of certain companies – a scheme that attempts to pick our pockets and threatens our customers’ access to unlimited long-distance service.”

In its court filings, Sprint Nextel contends that “pumped traffic” cannot be legitimately considered “terminating access traffic” as defined by FCC regulation, or by the interstate access tariffs filed by the RLECs themselves. If pumped traffic is not legitimate access traffic, then any attempt by the RLECs or their partners in this arbitrage to collect money from long-distance providers is illegitimate.

Sprint Nextel’s complaint was filed yesterday in Federal District Court for the Southern District of Iowa, Central Division. The 14 named defendants include the following RLECs in Iowa: Superior Telephone Cooperative; the Farmers Telephone Company of Riceville, Ia.; Reasnor Telephone Company; Farmers and Merchants Mutual Telephone Company; Aventure Communication Technology; Dixon Telephone Company; Great Lakes Communication Corporation; Interstate 35 Telephone Company; Mediapolis Telephone Company; and Spencer Municipal Utilities. The complaint also includes Global Conference Partners, LLC, operator of FreeConference.com; Keenan Communications Inc., operator of QualityConferenceCall.com; Future Fone Services Inc., and FuturePhone.com LLC, operator of FuturePhone.com. Sprint Nextel has also reserved the right to add additional defendants as its investigation continues.