iPCS files for Chapter 11, sues Sprint

Sprint PCS affiliate iPCS has filed for Chapter 11 bankruptcy protection and is suing Sprint for violating the terms of their partnership.

The company’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.

“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,” the suit says.

Many of iPCS’ complaints center around Sprint’s performance of billing for iPCS. According to the affiliate, Sprint is required to remit 92% of iPCS’s “collected revenue” 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 “within the bounds of commercial reasonableness,” and that iPCS’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 iPCS’ suit, citing the company’s need to review the filing. He did, however, comment on the relationship Sprint has had with its affiliate.

“Generally speaking, Sprint believes we have adhered to the contractual obligations we had with iPCS,” he said.