iPCS Goes On Offensive Vs. Sprint Over Ties

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iPCS Goes On Offensive Vs. Sprint Over Ties
By Wireless Week Staff
February 24, 2003
news@2 direct
Second-tier wireless carrier iPCS is going to war with Sprint PCS over their affiliation agreements, putting itself into bankruptcy reorganization, suing Sprint for damages and moving to force Sprint to buy iPCS.

A lawsuit filed in federal bankruptcy court as part of iPCS' request for Chapter 11 protection from creditors accuses Sprint of violating terms of its affiliate agreement with iPCS, which blames the larger company for its current financial straits.

Atlanta-based iPCS, an independent subsidiary that accounts for about 40 percent of overall subscribership at parent company AirGate PCS, filed for Chapter 11 bankruptcy protection from creditors on Sunday and concurrently sued Sprint for allegedly causing it severe financial damage by violating their agreements.

Sprint now faces a messy and potentially expensive battle over iPCS at the same time it deals with an equally messy leadership succession, which for now is tied up in a Georgia state court. Sprint, which indicated it believes it has lived up to its affiliate agreements, has said previously it did not plan to rescue any affiliates at the cost of its own financial health.

The iPCS lawsuit filed in federal bankruptcy court for the Northern District of Georgia accuses Sprint of trying to muscle the financially weak iPCS by erroneously or improperly calculating and paying money it owes to the affiliate. The lawsuit accuses Sprint of damaging iPCS and its creditors by failing to pay all the money it owes its affiliate and of unilaterally changing terms of their basic business agreements, causing cash flow problems that led to iPCS breaching some of its creditor covenants.

'Sprint has forced iPCS into this position by abusing the power it holds over us as an affiliate,' says Tim Yager, iPCS' chief restructuring officer.

Just before filing for Chapter 11 protection, iPCS also invoked a clause in the affiliation agreement to demand that Sprint buy out the company, for 88 percent of its entire business value, and asked the bankruptcy court to enforce the so-called 'put' provision.

As part of the legal action, iPCS is asking the court to order an accounting of all money, accounts and transactions effected by Sprint PCS since the two began their relationship, a potentially major disclosure of financial information that the company keeps closely guarded.

Also, iPCS is asking for payment of all money it says is owed to it by Sprint plus damages to be determined at trial.

The carrier - which notes that it is an unrestricted, separate subsidiary of AirGate PCS with its own funding sources - says it should have sufficient capital to continue operating while in Chapter 11. iPCS serves nearly 237,000 customers in 37 mainly rural markets in Illinois, Iowa, Michigan and Nebraska.

The companies earlier this month reported a net loss of $47.7 million in the three months ended Dec. 31, compared with a $29.6 million net loss in the same period a year earlier. AirGate noted that its standalone AirGate PCS operations in the Southeast had positive operating cash flow of $2.5 million in the December 2002 quarter and said the standalone carrier would meet is second-quarter lender agreements, which will require it to generate about $10.4 million of operating cash flow for the six months ending March 31.

Overall, the company has about 539,000 subscribers, including net adds of about 34,600 in the latest quarter.

iPCS Goes On Offensive Vs. Sprint Over Ties

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AirGate PCS Subsidiary iPCS, Inc. Files Chapter 11 Reorganization Proceeding

ATLANTA, Feb 24, 2003 (BUSINESS WIRE) -- AirGate PCS, Inc. (NASDAQ/NM[img]i/expressions/face-icon-small-tongue.gif[/img]CSA) today announced that its wholly-owned unrestricted subsidiary, iPCS, Inc. and its subsidiaries, iPCS Wireless, Inc. and iPCS Equipment, Inc., have filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Northern District of Georgia for the purpose of effecting a court-administered reorganization. As an unrestricted subsidiary, iPCS is a separate corporate entity from AirGate with its own independent financing sources, debt obligations and sources of revenue. Furthermore, iPCS lenders, noteholders and creditors do not have a lien or encumbrance on assets of AirGate, and AirGate cannot provide capital or other financial support to iPCS. The Company believes AirGate operations will continue independent of the outcome of the iPCS bankruptcy. However, it is likely that AirGate's ownership interest in iPCS will have no value after the restructuring is complete.
As previously announced, the Company took total impairment charges totaling $817.4 million in the fiscal year ended September 30, 2002, associated with the impairment of goodwill, tangible and intangible assets related to iPCS. As of December 31, 2002, the carrying value of iPCS on the books of AirGate was a negative amount of ($169.8) million.

"It is unfortunate that a bankruptcy filing became necessary to effect a restructuring of iPCS," said Thomas M. Dougherty, president and chief executive officer of AirGate PCS. "I am pleased, however, that Tim Yager has taken the role of chief restructuring officer for iPCS, responsible for iPCS's restructuring effort and day-to-day operations. With Tim leading iPCS, AirGate PCS' management will be able to focus more on our Southeast operations and implement our 'smart growth strategy' to increase the percentage of higher value prime credit quality subscribers in our subscriber base and improve operating cash flow through cost reductions and other initiatives."

As a result of the bankruptcy filing, the Company anticipates that the financial results of iPCS will no longer be consolidated with those of AirGate subsequent to the bankruptcy. Accordingly, the primary focus of the Company's financial statements and disclosures will be on AirGate's operations in the Southeast.

In connection with appointment of an iPCS chief restructuring officer, AirGate PCS also amended its Services Agreement with iPCS to, among other things, (i) eliminate certain management services provided by AirGate as of February 1, 2003, and (ii) generally permit either party to terminate individual services upon 30 days notice.

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Sprint PCS affiliate iPCS has filed for Chapter 11 bankruptcy protection and is suing Sprint for violating the terms of their partnership.
The companyâ??s network will remain operational during the proceedings, and customers should see no change in service.

According to iPCS, a subsidiary of AirGate PCS, which is also a Sprint PCS affiliate, Sprint has violated the affiliate agreement in an effort to soften the effects of the poor economy.

â??Over the past two years, as financial conditions have become more difficult general in the telecommunications industry, Sprint has increasingly sought to insulate itself against those worsening conditions by abusing the power it has over its affiliates,â?� the suit says.

Many of iPCSâ?? complaints center around Sprintâ??s performance of billing for iPCS. According to the affiliate, Sprint is required to remit 92% of iPCSâ??s â??collected revenueâ?� to iPCS, the amount of which should be determined by a formula agreed upon in the partnership contract. However, Sprint has unilaterally changed that formula, resulting in iPCS being shorted almost $2.3 million in payments, the company claims.

In addition, iPCS, which operates in 37 Midwest markets, argues that Sprint reduced the roaming rates it pays to iPCS by more than 70% over the initial three years of their partnership. While iPCS acknowledges that Sprint does have the right to reduce these rates, it also says that these reductions have be â??within the bounds of commercial reasonableness,â?� and that iPCSâ??s business plan, which was approved by Sprint, forecasted only a 5% reduction per year over the first ten years of the contract.

iPCS is seeking compensation for these and other alleged contractual violations, and is seeking a more extreme form of relief as well.

According to iPCS, these alleged breaches of contract have led it to exercise a clause in its contract with Sprint that would force the carrier to purchase the iPCS business and network. The value of that acquisition will be determined by a an already-formulated method. Under this formula, the company estimates its likely value to be several hundred million dollars.

A spokesman for Sprint PCS decline to comment on the specifics of iPCSâ?? suit, citing the companyâ??s need to review the filing. He did, however, comment on the relationship Sprint has had with its affiliate.

â??Generally speaking, Sprint believes we have adhered to the contractual obligations we had with iPCS,â?� he said.

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CHICAGO, Feb 25 (Reuters) - Sprint PCS (NYSE[img]i/expressions/face-icon-small-tongue.gif[/img]CS - News), the fourth-largest U.S. wireless telephone company, said Tuesday a lawsuit filed by its affiliate iPCS Inc., claiming that Sprint PCS breached agreements, was "without merit."
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Sprint PCS blamed the problems of iPCS, which filed for bankruptcy protection on Monday, on its heavy debt.

"IPCS' financial problems are due to its debt load and have nothing to do with Sprint's actions," said Sprint PCS spokesman Dan Wilinsky. "It is in everyone's best interest for iPCS to work through its debt issues and to continue wireless service to customers in the territories in which it operates."

Sprint PCS is a unit of Kansas-based Sprint Corp. (NYSE:FON - News)

IPCS, which sells wireless telephone service under the Sprint PCS brand in the Midwest, on Monday filed a lawsuit against Sprint, alleging Sprint took advantage of its position and broke agreements that forced it into bankruptcy.

The move by iPCS, which was acquired by AirGate PCS Inc. (NasdaqNM[img]i/expressions/face-icon-small-tongue.gif[/img]CSA - News) for $744 million in stock more than a year ago, was widely expected as the unit had been struggling to meet loan conditions.

Sprint PCS had initially declined to comment on the lawsuit until it had seen the complaint.

Sprint PCS' affiliate partners sell wireless telephone service using Sprint PCS' airwave licenses. Sprint PCS maintains the brand image, provides national advertising and handles customer care and billing in exchange for a fee.

The companies also have reciprocal agreements to allow customers' calls to roam on each other's networks.

"To blame Sprint for economic conditions and the competitive nature of the wireless industry is ludicrous," Wilinsky said. "Sprint looks forward to iPCS resolving this issue and continuing to provide the clear wireless service that its customers expect and deserve."