• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Another Sprint Corp. Affiliate Sues Over Merger With Nextel

Posted on: Friday, 15 July 2005, 21:00 CDT

Jul. 16--KANSAS CITY, Mo. -- Another Sprint Corp. affiliate filed suit Friday, saying the pending merger between Sprint and Nextel Communications Inc. threatened to destroy its business.

The affiliate, iPCS Wireless Inc., asked for a court order blocking Sprint from selling Nextel products that would compete in an exclusive territory granted to iPCS. The Schaumburg, Ill., carrier, sells Sprint-branded service to about 443,000 subscribers, primarily in the Midwest.

IPCS filed the lawsuit in the Circuit Court of Cook County, Ill.

A Sprint representative said the company was reviewing the suit.

It was the third such lawsuit that Sprint has faced in recent weeks as it moves to combine with Nextel in a deal that would create a wireless-focused company valued at about $74 billion. In a fourth suit, Nextel affiliate Nextel Partners Inc. argues that it is being unfairly shut out of key planning for the merger.

Sprint essentially ended litigation with another affiliate by announcing Monday that it would buy US Unwired Inc. for $1.3 billion. The next day, UbiquiTel Inc., another affiliate, filed suit.

Some Wall Street analysts have speculated that Sprint will have to make additional acquisitions to settle these matters.

The legal challenges, including some seeking to block the merger, stem from arrangements that Sprint and Nextel made to encourage other companies to build networks to sell service under the Sprint and Nextel brands. As of the end of March, Sprint affiliates served about 3.4 million subscribers, primarily in rural areas and smaller cities. Nextel Partners served 1.7 million subscribers as of the end of the first quarter.

Such arrangements allowed affiliate companies to win access to prominent national brands, while Sprint and Nextel gained a lower-cost way to gain subscriber revenue in a highly competitive industry.

Since reaching an agreement with Sprint in 1999, iPCS said it had raised more than $500 million to build a wireless network and establish itself in portions of states such as Illinois, Michigan, Pennsylvania and Ohio.

"IPCS made this enormous investment in reliance on a promise by Sprint that it would not compete against iPCS in that territory," the company stated in its lawsuit.

Sprint, which keeps about 8 percent of iPCS' subscriber revenues, has received about $46 million through this arrangement over the past six years, iPCS said.

The litigation is coming as the affiliate companies raise concerns about how they will fare after the merger, when Sprint and Nextel unify their brands and begin selling each other's products and services. iPCS said it considers Nextel to be one of its most significant competitors.

As a result of its merger with Nextel, Sprint is expected to re-brand Nextel stores with the Sprint name, iPCS said. These stores, including some in the iPCS territory, are to sell Sprint and Nextel products and services "in direct competition with iPCS," the company said.

In addition, iPCS said, Sprint has an insider's view of its business and could use this information against the affiliate company.

"Sprint will have an incentive to steer customers to its wholly owned subsidiary, Nextel, over iPCS," the company stated. "Sprint will retain 100 percent of the revenue derived from the former Nextel operations, whereas it only receives 8 percent of the revenue derived from iPCS."

These actions would breach the company's contract with Sprint and destroy iPCS' business, iPCS said.

Sprint has had a contentious relationship with some of its affiliates, including iPCS. In an earlier lawsuit, iPCS contended that Sprint's financial practices had contributed to the company's need to seek bankruptcy protection in 2003.

Sprint later renegotiated its affiliate contracts.

Gary Forsee, Sprint's chairman and chief executive officer, said Wednesday that Sprint's affiliate program would remain an important part of his company's business. Sprint began discussions with its affiliates soon after the Nextel merger plans were announced in December. Those talks, Forsee said, will continue.

Sprint shares closed Friday at $25.47, down 6 cents.

-----

To see more of The Kansas City Star, or to subscribe to the newspaper, go to http://www.kansascity.com.

Copyright (c) 2005, The Kansas City Star, Mo.

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

FON, NXTL,

Source: The Kansas City Star (Kansas City, Missouri)

More News in this Category