SPRINT NEXTEL BUYS TWO AFFILIATES; ALAMOSA LAWSUIT PENDING

Sprint Nextel, more than three weeks after completing the deal that joined the two wireless giants, is continuing to acquire rural companies that have been licensees in Sprint's seven-year-old wireless affiliates program. Each of the three acquisitions carried out thus far also likely have effectively nullified legal action that each of the acquired affiliates had sought over allegations that the Sprint/Nextel merger breached the contractual conditions of their exiting affiliate agreements.

The carrier giant's most recent affiliate acquisitions were last week's buyouts of Albany, N.Y.-based IWO Holdings for $427 million; and Baton Rouge, La.,-based Gulf Coast Wireless Ltd. Partnership for $287.5 million. Gulf Coast Wireless provides Sprint PCS services in southern Louisiana and Mississippi (incidentally, much of the area ravaged by Hurricane Katrina last week), serving more than 95,000 subscribers. IWO Holdings, through its Independent Wireless One unit, provides Sprint PCS services in upstate New York, New Hampshire, Vermont and portions of Massachusetts and Pennsylvania, serving more than 237,000 direct wireless subscribers.

About a month prior to the IWO and Gulf Coast deals, Sprint acquired US Unwired — another affiliate that had filed a lawsuit in connection with the Sprint/Nextel deal — for $1.3 billion. In all, at least seven of the 18 companies that had joined Sprint's affiliate program since 1998 have filed legal action related to the Sprint/Nextel merger. The last of the injunctions was filed by Alamosa PCS Holdings, on behalf of its AirGate PCS subsidiary, on Aug. 8 — just four days before the Sprint Nextel merger officially closed.

At that point, executives at Alamosa PCS Holdings said Sprint failed to relieve their concerns about how their own operations would be affected. An Alamosa spokesman said last week the case has a court date in the coming weeks.

Not all of the injunctions filed by Sprint affiliates have resulted in acquisition. For instance, affiliate iPCS settled out of court with Sprint.

Meanwhile, Sprint also is embroiled in a dispute with Nextel Partners, the affiliate of Nextel that serves secondary and tertiary markets, over the value of the “put” option that Nextel Partners has in its original contract with Nextel. That option allows for Nextel to acquire its affiliate if certain conditions — such as a merger involving Nextel — change the nature of its affiliate agreement. Nextel Partners filed documents with the SEC last week, saying at least 20% of its shareholders — the minimum required — have expressed desire to hold a proxy vote to exercise that put option. Timing for that vote had not been determined as of press time.

Aside from the buyouts in the shadow of Sprint/Nextel's mega-merger, Sprint's affiliates also have been busy consolidating amongst themselves, a trend that the rural carrier community at large is embracing.

“Essentially, there's a lot of this going on,” said Frank Gallagher, wireless industry analyst at Legg Mason Wood Walker, which advised Gulf Coast Wireless in its acquisition by Sprint. “It was the Cingular/AT&T Wireless deal that set off a wave of consolidation.”