Suit seeks to block Clearwire, Sprint deal

Phone-giant affiliate iPCS cites exclusivity agreement

By Wailin Wong | Tribune reporter

May 13, 2008

A local wireless-service provider and three subsidiaries on Monday filed a suit to block a deal between Sprint Nextel Corp. and Clearwire Corp. to build a nationwide network allowing access to the Internet from anywhere at high speeds.

Last week, Sprint and Clearwire said they were combining their wireless broadband businesses into a $14.5 billion venture. The new wireless company is to operate a next-generation network using WiMax technology, which blankets large metropolitan areas with coverage, allowing Internet access from mobile phones and other gadgets at speeds similar to what is available for residential broadband service.

According to terms of the deal, Sprint would own 51 percent of the new company, but the firm would carry the Clearwire name.

Sprint executives say Chicago would be one of the first markets to get commercial WiMax service by the end of the year. But the lawsuit by Schaumburg-based iPCS Inc., a Sprint affiliate, puts up a potential hurdle to the WiMax agreement. It is the latest tangle between iPCS and Sprint, which have been in litigation since 2005 over whether Sprint violated agreements on allowing iPCS to operate exclusively in certain geographic areas.

As an affiliate, iPCS built and operates a wireless network, selling Sprint-branded services in parts of Illinois, Iowa, Michigan and Nebraska. The network operates at a slower speed than what has been promised with WiMax.

Overland Park, Kan.-based Sprint handles billing, customer service and marketing, and takes 8 percent of iPCS' revenue, according to the complaint filed Monday with the Cook County Circuit Court. The affiliate said it has invested more than $650 million in its network since 1999 and had more than 600,000 subscribers at the end of 2007.

When Sprint announced the Clearwire venture Wednesday, the company also filed a request with a Delaware court seeking a judgment that the WiMax deal would not breach the exclusivity provisions. Sprint argued that because the WiMax network runs on a different frequency, the Clearwire deal would not conflict with iPCS' exclusive right to provide services.

"This latest action by iPCS is simply a response to our request of the court," Sprint spokesman Matthew Sullivan said.

But iPCS said in a statement Monday that Sprint is making "yet another attempt … to breach the exclusivity provisions of the iPCS affiliation agreements," and that the WiMax services would pose a competitive threat. IPCS also said it received no advance warning from Sprint on the Clearwire deal and is asking the court to block the agreement until it is modified to resolve the competition issues.

Sprint eventually might acquire iPCS to put an end to the legal disputes, Jefferies analyst Jonathan Schildkraut said in a Monday report, but "we view the current operating weakness and capital limitations at Sprint as obstacles" to such a deal in the short term.

Sprint has suffered from heavy subscriber defections and financial losses. On Monday, the company reported that it lost more than 1 million customers in the first quarter, and sales were down 7.5 percent from a year ago.

The decision on the Clearwire-related lawsuit could hinge on how the WiMax service is branded, and whether the court considers the new company a "related party" of Sprint, Schildkraut said. The agreements between Sprint and iPCS bar the larger carrier or "related parties" from operating in iPCS territories.

Sprint's stock fell 14 cents, to $9.24, in Monday trading. Shares of iPCS jumped 7.8 percent, to $29.26.

In 2005, iPCS sued Sprint, claiming that the carrier's acquisition of Nextel violated the exclusivity agreements. A Cook County Circuit Court judge issued a ruling in 2006 that ordered Sprint to stop offering Nextel services in areas where iPCS operates. The Illinois Appellate Court upheld that decision in March, but Sprint has asked the Illinois Supreme Court for permission to appeal.

Tim Yager, iPCS chief executive, told analysts in an earnings conference call last week that he doesn't expect a ruling from the high court until at least the fall.

wawong@tribune.com