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The opening salvo has been fired in what could be a protracted dispute between Sprint PCS and its affiliates, with Midwestern wireless provider iPCS simultaneously filing for bankruptcy protection and launching a suit that could force a buyout. Since nine other Sprint affiliates are in various states of financial peril, the situation could take years to resolve. In court pleadings, iPCS claims that Sprint drove it to bankruptcy by violating its affiliate agreement. “Sprint has continually abused the relationship,” said Tim Yager, iPCS’ chief restructuring officer, who expects the bankruptcy case to take six to nine months. The court filings state that Sprint has improperly calculated and underpaid funds due to iPCS, and “drastically reduced the rates paid to iPCS for the use of air time on iPCS’ system. The affiliate says that under the agreement it can require Sprint to buy it out for 88 percent of the company’s value. That value may be hard to pin down. In filings, iPCS stated that valuations could fall in the hundreds of millions of dollars. The company has 236,000 subscribers and its network covers 5.8 million potential customers. Craig Mallitz of Legg Mason Inc. said the company could be valued at $1,000 per subscriber and a little less than $100 per pop, or person of population, which would suggest a range of between $236 million and $580 million. Documents filed by iPCS’ bankruptcy counsel, Atlanta’s Lamberth, Cifelli, Stokes & Stout, in the Northern District of Georgia, listed $253 million in assets and $378 million in debts. The Atlanta-based wireless provider has said it does not expect to need a debtor-in-possession loan. Chicago-based Mayer, Brown, Rowe & Maw is handling the suit against Sprint, which is also in the Atlanta court. Toronto-Dominion Bank leads a group of bank lenders with $130 million in outstanding claims. In court filings, the company said that it has issued $300 million in senior discount notes. While the affiliates expected their costs in areas like customer support to drop as they added customers and achieved economies of scale, an industry source said, they have seen their costs go up. Filings by iPCS state that its cash cost per subscriber totals $61 per month, roughly double Sprint’s costs on its portion of the network. “Sprint has adhered to contractual obligations with iPCS,” countered Sprint PCS spokesman Dan Wilinsky. “The other issue in our mind is the network,” Wilinsky said. “We expect the network to continue to be in operation in the iPCS region.” Other affiliates have also been squeezed by the agreements. One industry observer said that iPCS’ parent, AirGate PCS Inc., could file in 2003 and Alamosa could follow next year. Neither company would comment on the likelihood of a filing. Another source said that bondholder groups are forming at other affiliates but would not indicate which companies or whether they have hired advisers. The banks and bondholders are working consensually, one source close to the affiliates said, adding that the next move is Sprint’s. At a Legg Mason telecommunications conference earlier in February, Sprint PCS president Len Lauer said the company would not renegotiate its agreements with troubled affiliates until their debt is restructured. But it may be difficult for Sprint to negotiate before uncertainty about its chief executive officer position is cleared. Sprint Chairman and CEO William Esrey, who has become ensnared in a scandal involving tax shelters on stock option gains, was due to be replaced by BellSouth Corp. Vice Chairman Gary Forsee. But the Baby Bell has tried to thwart the move in court and the transition has not occurred. “The bottom line from our perspective is Sprint is going to have a couple of choices,” Yager said. “They can live up to their contractual obligations and buy iPCS for 88% of the entire business value or sit down with us and work out a new deal through the bankruptcy process.” Copyright (c)2003 TDD, LLC. All rights reserved.

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