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Sprint Affiliate Files for Bankruptcy, Lawsuit

Fresh from the loss of its leadership and a battle over its replacement CEO, Sprint is facing trouble from a new direction: one of its wireless unit's largest independent affiliates filed for Chapter 11 bankruptcy protection Sunday and levied a lawsuit against Sprint which accuses the carrier of breaching agreements.

iPCS, a wholly-owned, unrestricted subsidiary of Atlanta, Ga.-based AirGate PCS, filed for protection Sunday in Federal Bankruptcy Court for the Northern District of Georgia. iPCS, picked up by AirGate in November 2001, operates the Sprint PCS network in large parts of Illinois, Michigan, Iowa and Nebraska, serving more than 235,000 customers.

The company had been on shaky ground for months, and had sought assistance from Sprint to stave off its creditors. According to the company, Sprint's refusal forced the company to seek bankruptcy protection and to claim violations of the affiliate agreement between the two.

"Sprint has forced iPCS into this position by abusing the power it holds over us as an affiliate," claimed Tim Yager, iPCS' chief restructuring officer. "Sprint has taken advantage of its position to force us to bear the brunt of a weak economy and a declining wireless industry, which is putting its national network at risk. This is a problem of tremendous scope that cannot be ignored."

Sprint, the fourth-largest mobile carrier in the U.S., does not own its entire network. Instead, it relies on 10 independent affiliates which own and operate parts of the network which cover about 25 percent of the population Sprint serves. Another affiliate, Conshohocken, Pa.-based UbquiTel, which boasts about 257,000 subscribers, posted a fourth quarter 2002 loss in the range of $2 million and $5 million in January and faces the specter of NASDAQ delistment.

iPCS charged that Sprint fell down in three areas:

  • The company alleged that Sprint failed to properly calculate and pay money it owed to the company, with its reconciliation practices causing payments that were due to be improperly withheld.
  • It also claimed that Sprint breached its duties of good faith and fair dealing and abused its discretion -- including failure to pay the company all it was due under the agreements -- causing damage to the company and its creditors.
  • It also alleged that Sprint unilaterally made changes to the basic business agreements between the two companies, reducing the rates paid iPCS and hurting the company's cash flow.

"As a result of these various breaches, iPCS has suffered direct damages so severe that it is not possible for the company to remain financially viable without a significant restructuring and reorganization," the complaint said.

The company also noted that the alleged breach of the management agreement between the two companies triggered a contractual obligation which would force Sprint iPCS for 88 percent of its value. iPCS said Sprint failed to comply with the demand, and has asked the bankruptcy court to force Sprint to live up to its end. iPCS is also asking the court to force Sprint to pay everything it claims Sprint owes; to order an accounting of all revenues, fees, charges, accounts and transactions administered by Sprint PCS since 1999; and to award damages.

Sprint could not immediately be reached for comment.

iPCS noted that it submitted First Day Motions to the bankruptcy court which will allow it to continue operating its network.