MGC files lawsuit against Sprint

Tuesday, Feb. 16, 1999 | 12:13 p.m.

MGC Communications Inc., a Las Vegas-based local telephone company, filed an anti-trust suit in U.S. District Court in Las Vegas accusing Sprint Corp. of monopolizing the local telephone market.

MGC's suit says that Sprint subsidizes its local telephone service with revenues generated by advertising sold in the yellow pages of Sprint's First Source telephone directory. MGC believes the telephone and directory industries operate as monopolies in the local market and that it should be entitled to the benefits of directory advertising.

The suit also names Central Telephone Co. and Cental Directory Co., both Sprint subsidiaries, as defendants.

"Over the years, the directory has operated as a de facto subsidy for Sprint," said Kent Heyman, an attorney for MGC. "It allows Sprint to provide low-price phone service through that subsidy. We are asking the court to level the playing field so we can enjoy the same benefits as Sprint."

The suit was filed on Friday. As of this morning, Sprint officials had not seen the suit and did not want to comment.

In its suit, MGC is asking the court to order Sprint to pay a subsidy amount for each customer MGC has generated and for Sprint to continue to allow the directory "subsidy" to follow the customer if the customer chooses MGC as its local telephone service provider. Heyman did not disclose what amount per customer the company is seeking.

"We feel this will level the playing field and, more importantly, keep all residential phone rates low," Heyman said.

Heyman said MGC does not intend to enter the telephone directory business, but the company believes Sprint has been enriched from revenues generated by MGC customers through the directory.

Those revenues, the suit says, "allow Sprint to maintain a significant profit margin despite the below-cost rates charged for residential service."

MGC began operations in Las Vegas in 1997. The company now serves business and residential customers in Atlanta, Southern California, including San Diego, South Florida and Chicago.

The company has about 35,000 lines in Las Vegas with about a 3 percent market share.

MGC became a publicly traded company last May. After trading at about $20 in late May, the stock price fell to $4 in October. Today, MGC stock is at $6.37, up 37 cents from Friday's closing price.

Nield Montgomery, president and chief executive officer of MGC, said earlier this month that the company added to its network in the markets it serves in the last six months of 1998. That will give the company capacity for additional sales in 1999, he said.