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

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.

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