updated 3/23/2007 8:11:27 AM ET 2007-03-23T12:11:27

AT&T Inc. has sued two rural telephone companies and a provider of group chat-line services, alleging it's being charged exorbitant fees for calls that are made to a small Iowa town.

The suit, filed Thursday in a U.S. District Court in Iowa, fires a new salvo into what's percolating into a fierce debate among Web commentators about AT&T's decision to block calls by its Cingular Wireless customers to certain services with rural phone numbers.

AT&T alleges fraud by Reasnor Telephone, Sully Telephone Association Inc. and a company named "Does 1-10." The suit claims the companies were involved in a scheme to inflate the charges that AT&T is billed to terminate long-distance calls in Reasnor, an Iowa town served by the phone companies.

AT&T alleges that chat services offered by "Does 1-10" with Iowa call-in numbers are a scheme to exploit a system designed by government regulators to help ensure people can get local phone service in sparsely populated areas where the cost of maintaining the local network is harder to cover.

The defendants named in the suit, which seeks damages to be determined at trial, could not immediately be reached for comment.

Other lawsuit
Thursday's suit comes two months after AT&T sued a group of rural Iowa phone companies and Web-based companies that offer cheap or free international calling by having users first call a local number in Iowa.

By advertising a call-in number based in rural Iowa, a service offering chat lines, conference calls or international calling can drive additional phone traffic and revenue for the local carrier, which charges a long-distance company such as AT&T by the minute for each local connection. The local phone company, in turn, may share some of that revenue with the call-in service.

Because a growing number of consumers have unlimited long-distance calling either around the clock or during off-peak hours, users of the call-in services often see no extra charges on their bills even though the long-distance carrier must pay the termination charge.

The debate over whether that's a fair business practice or exploitation of a system devised for other purposes has been percolating in recent weeks amid reports that AT&T had begun blocking calls from Cingular cell phones to a number of these services, including one called FreeConference.com.

Bloggers and some consumer advocacy groups have railed against AT&T's actions as heavy-handed and illegal. Some have argued that AT&T's decision to block calls is designed solely to prevent competition to its own services, and demonstrates how major telecommunications companies can abuse their control over the Internet and the public phone network.

AT&T has argued that a sharp spike in its costs compromise its ability to offer affordable unlimited calling plans and could force it to raise prices for all customers, the vast majority of whom it says do not use such services and would therefore be unfairly harmed. AT&T also says the terms of service in Cingular's contracts allow it to block certain kinds of phone numbers.

According to the new AT&T suit, there are only 275 local phone lines in all of Reasnor, Iowa, and yet its monthly charges for connecting long-distance calls to local numbers in that town have soared from less than $3,000 a month to more than $650,000.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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