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Judge Says Creditors of Bankrupt Wireless Service Can Sue Sprint

Posted on: Thursday, 21 August 2003, 06:00 CDT

Aug. 21--A federal bankruptcy judge has ruled that Sprint Corp. may have "misused" its control over an affiliate that provides wireless service under the Sprint PCS brand name.

In another setback for Sprint's tenuous relations with its wireless phone affiliates, a judge in Atlanta said creditors of bankrupt iPCS Inc. can file a lawsuit against Sprint to try to recoup debts racked up by the Schaumburg, Ill., wireless company.

The ruling allows a lawsuit to be filed by the Official Committee of Unsecured Creditors of iPCS Inc., but the judge did not rule on the merits of such a lawsuit.

Operating the Sprint PCS network in 37 cities in Michigan, Illinois, Iowa and Nebraska, iPCS filed for Chapter 11 bankruptcy protection last February. In a lawsuit filed against Sprint at the time of the filing, iPCS said the financial practices of the Overland Park telecommunications company forced it into bankruptcy.

In the February lawsuit, iPCS said Sprint had added new fees and reduced the rates paid to the company, breaching a 1999 management agreement. The bankrupt company asked the court to order Sprint to buy iPCS or negotiate a new contract. Sprint officials have denied the allegation.

However, in a court order filed Tuesday afternoon, U.S. Bankruptcy Judge W. Homer Drake Jr. of the Northern District of Georgia indicated Sprint might have some culpability in the financial problems of iPCS. Sprint does not hold an ownership interest in iPCS.

"The alleged facts tend to suggest that the Sprint companies misused their control...by essentially rewriting the contracts to gain an unfair advantage over the debtors," Drake said in his order.

A Sprint spokesman said Wednesday that the company wasn't surprised by the judge's ruling.

"After all, if iPCS was not in bankruptcy, it would not have even been necessary to get court approval to file it," spokesman Dan Wilinsky said of the lawsuit.

Wilinsky noted that the court order did not rule on the merits of the lawsuit filed by iPCS, or any potential lawsuit that might be filed by iPCS creditors.

Sprint denies allegations made both by iPCS and by the creditors committee, he said.

The committee on Wednesday renewed its attacks on Sprint.

"We remain convinced that Sprint dominates and controls iPCS, and that Sprint should be found liable for the damages that the creditors have sustained as a result of Sprint's wrongful acts," committee members said in a prepared statement. "Sprint's actions have already cost iPCS' creditors hundreds of millions of dollars."

The committee said iPCS owed $430 million to bondholders, banks and other creditors.

A subsidiary of Atlanta-based Airgate PCS, iPCS has about 230,000 wireless subscribers.

In the late 1990s, Sprint contracted with more than a dozen companies to build and operate parts of the Sprint PCS network in rural areas and smaller cities. The companies pay Sprint for use of the Sprint wireless spectrum, name and other services. Sprint, in turn, pays roaming fees.

The program allowed Sprint to complete its nationwide wireless network more quickly than if it had financed and built the entire network itself.

However, as competition in the wireless industry increased and prices fell, iPCS and several other affiliates contend, Sprint cut fees it agreed to pay the companies. Many of the affiliates are having trouble paying off debts.

Another affiliate, Horizon PCS of Chillicothe, Ohio, filed to reorganize under bankruptcy laws last week. A third affiliate, Louisiana-based US Unwired, has filed a lawsuit against Sprint contending that the Overland Park company is trying to take control of the company.

Sprint's 10 remaining affiliates control about 25 percent of the Sprint PCS network.

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(c) 2003, The Kansas City Star, Mo. Distributed by Knight Ridder/Tribune Business News.

FON, PCSA,

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