Legal troubles could threaten Sprint/Clearwire deal

Sprint Nextel's plan to spin off its WiMax network and form a $14.5 billion joint venture with Clearwire may have hit a speed bump.

On Monday iPCS, Sprint Nextel's largest affiliate, said it will try to block the deal that was announced last week. iPCS, which serves 640,600 subscribers in seven states, said three of its subsidiaries have filed suit in Cook County Circuit Court in Illinois against Sprint for violating an exclusivity contract.

Sprint Nextel is spinning off its 2.5 GHz assets to form a joint venture with Clearwire. The new company, called Clearwire, will sell 4G wireless services using a technology called WiMax. Comcast, Time Warner Cable, Intel, Google, and Bright House Networks have invested $3.2 billion in the new company.

iPCS , which sells wireless services under the Sprint brand in states like Illinois and Iowa, says it has the exclusive right to sell services under the Sprint brand in 81 markets. In its lawsuit, the company says that the new Clearwire service would compete against its iPCS's service, violating the exclusivity contract it has had with Sprint since 1999.

iPCS has already sued Sprint once before for violating the same exclusivity contract when it bought Nextel Communications in 2005. Earlier this year, an appellate court in Illinois upheld a lower court ruling that found Sprint in violation of this contract. And it ordered Sprint to divest itself of all Nextel assets in the iPCS territory. Sprint is appealing the decision.

Sprint and Clearwire, which value their new company at $14.5 billion, said they expect the deal to close in the fourth quarter of this year. But the current legal troubles could slow down the process.

In anticipation of legal challenges, Sprint last week asked a Delaware Chancery Court to rule that the Clearwire transaction doesn't violate the exclusivity arrangement with iPCS.

A Sprint representative said that iPCS's lawsuit was in response to this filing.

Since the Nextel merger, Sprint has bought at least seven affiliates to resolve legal issues. And some analysts believe the company may try to acquire iPCS to ensure the WiMax spin-off goes smoothly. But with Sprint's core customer base dwindling and its losses widening, it may be difficult for the company to put a deal together any time soon.

Also on Monday, Sprint announced it had lost another 1.1 million customers. The company also reported a quarterly loss of $505 million.