Sprint puts parts of Nextel network up for sale

Sprint (NYSE:S) revealed today that it is selling parts of its Nextel iDEN network in parts of Illinois, Iowa, Michigan and Nebraska to comply with a court order ruling it cannot offer cellular service in the same markets as its affiliate iPCS (NASDAQ:IPCS). After dismissing Sprint’s final appeal in February, the Illinois Supreme Court gave Sprint a year to shut down or get rid of its iDEN operations in the 81 markets in which it overlaps iPCS. With seven months now left on the clock, Sprint is putting those assets on the market.

In a statement issued this afternoon, Sprint said its financial advisor CIti has prepared information on the 81 markets Sprint must invest, and interested buyers should contact the financial group for more details. Sprint said it plans to fully complete the transaction in advance of its Jan. 25, 2010 deadline. It also made a point of stating that any deal would have no impact on current iDEN subscribers in those markets, would not involve any of its CDMA operations and would have “de minimis”—legalese for ‘trivial’—impact on its financial results.

“Sprint Nextel customers in the geographical areas associated with this divestiture will continue to enjoy service provided on the Nextel National Network during the sale process and the company will work with any future provider to offer a seamless transition,” Sprint’s statement read. “The company does not anticipate any interruption or degradation of service during or following any transaction.”

The long legal saga began in 2005, when iPCS and several more of Sprint’s PCS affiliates sued the company before it merged with Nextel. As affiliates, they had agreements with Sprint awarding them sole rights to offer service under the Sprint name in their territories, which were primarily rural, small and mid-sized markets where Sprint had no CDMA service. But with the acquisition of Nextel’s network, Sprint found itself offering iDEN services in the same markets its affiliates offered CDMA service under Sprint brand. Though the affiliates were unable to stop the $36 billion merger, they continued to press their lawsuits. Sprint solved the problem, in most cases, by literally buying the plaintiffs off.

Between 2005 and 2007 Sprint spent more than $12 billion acquiring its former partners, including Alamosa Holdings, which cost it $5.2 billion in cash and assumed debt, and US Unwired and Ubiqutel, each $1.3 billion deals. Several operators held out longer—Sprint purchased Northern PCS as recently as June of 2007—but iPCS held out longest, winning its injunction and fighting Sprint’s appeals up through the courts.

Sprint’s iDEN network became a drag on its subscriber numbers soon after it completed the Nextel merger, shedding customers even as its CDMA network gained them. That trend was reversed last quarter, though, when Sprint reported a modest gain in iDEN subscriptions, driven by 764,000 new Boost Mobile customers, most of whom signed up for the prepaid unit’s new $50 monthly unlimited plan. CEO Dan Hesse said that during the current economic recession, its iDEN-based prepaid offer turned out to be a huge advantage. “It’s been a very long time since we’ve reported the number of iDEN network subscribers actually increasing,” Hesse said.

With the court ruling in place though, Sprint is put in the odd position of being forced to invest in networks it must then divest. Sprint is in the process of rebanding the Nextel network, which involves retuning all of its iDEN networks to new frequencies. Nextel shares its portion of the 800 MHz band with public safety agencies, but their individual channels are interleaved with Sprint’s, resulting in interference. In exchange for additional licenses, Nextel agreed to pay for both itself and public safety to relocate to either side of the band. Sprint inherited the rebanding order when it bought Nextel.

Last October, the FCC gave Sprint an 18 month extension to complete the rebanding. The final deadline is now in March on next year, three months after the court’s deadline to sell the Midwestern networks. That means Sprint must either pay to retune networks in those markets—if it hasn’t done so already--and then turn around and sell those upgraded networks, or it must find a buyer willing to immediately sink capital into its new networks to comply with the FCC order.

Even after Sprint completes the sale of the 81 Nextel markets, it may not see the last of iPCS. The operator has filed other suits against Sprint pertaining to yet another network: WiMAX. Last year, it sued to block Clearwire (NASDAQ:CLWR) and Sprint’s deal to merge WiMAX assets, claiming, again, that Sprint was violating its affiliate agreement by offering a wireless service in iPCS’s territory. The merger went through, but a planned WiMAX launch, Grand Rapids, Mi., in iPCS’s territory also disappeared from Clearwire’s list of market rollouts this year. iPCS is now claiming that Sprint should have offered to sell its WiMAX assets to iPCS before merging them with Clearwire.

iPCS and Sprint’s history of litigation goes back further than the Nextel and Clearwire fights. In 2003, iPCS claimed in court that Sprint abuses of their partnership helped force the carrier into Chapter 11 bankruptcy.