Sprint Affiliate Files for Bankruptcy - TheStreet


( FON) wireless affiliate


has filed for bankruptcy, casting doubt over whether Sprint can shield itself from its ailing affiliate network.

The debt-strapped rural wireless carrier is one of 10 Sprint affiliate companies that serve 2.5 million customers across the country. iPCS is a division of publicly traded

Airgate PCS


. Over the years, Sprint's affiliate network has helped the Overland Park, Kansas, carrier broaden its reach across the nation in rural settings. Airgate PCS's coverage includes parts of Illinois, Michigan, Iowa and Nebraska.


( UPCS) is another publicly traded affiliate.

In the past, Sprint's struggling affiliates have alleged that the carrier has remained indifferent their financial woes, as the company focused on getting its own house in order. Sprint's wireless division,

Sprint PCS


, suffered one of the worst quarters in its history at the tail end of last year, but has shown some signs of improvement in the fourth quarter. Sprint PCS currently carries about $15.6 billion in long-term debt on its books.

"Sprint has refused to help the affiliates financially, resting on arms-length deals with the partners that shield Sprint from economic exposure to their own potential financial problems," said Kaufman Brothers telecom analyst Vik Grover in a note to clients. Doing more, he wrote, "would have potential implications for its own weak credit rating." Kaufman Brothers has a sell rating on Sprint PCS stock.

Affiliates have been seeking to renegotiate certain parts of their contracts with Sprint, including fees that affiliates pay to Sprint. Sprint provides branding, customer care and billing services to the affiliates for a fee. Sprint and its affiliates also have struck roaming agreements, which let subscribers make calls in each other's territories.

As growth has sputtered over the last two years, Sprint affiliates have sought more favorable agreements from Sprint. While Sprint has so far refused to budge, Kaufman's Grover said the company may have little choice over the long term. "We believe that the financial problems of iPCS and other affiliates raise questions about whether Sprint will have to expend additional capital to ensure the seamless operation of the portion of its wireless network it does not own directly or surrender some of the fees affiliates generate as part of its financial restructuring," said Grover.

In conjunction with the bankruptcy filing, Airgate also filed a complaint that alleges Sprint is in violation of its affiliate agreement. According to the agreement, if Sprint defaults on its agreement, it is obligated to purchase iPCS at 88% of its value.

Sprint PCS spokesman Dan Wilinsky said, "We can't comment on the complaint. We haven't seen it yet. Sprint believes it has met its contractual obligations with iPCS. The affiliate network will continue to operate in the affiliate territory

even with this action."

Airgate PCS shares sank 3 cents, or 9.7%, to 28 cents in early trading. Sprint PCS shares fell 4 cents, or 1%, to $3.96. Sprint shares fell 22 cents, or 1.7%, to $12.88. UbiquiTel shares gained 4 cents, or 12.9%, to 36 cents.