As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/16/07  iPCS, Inc                         10-K       12/31/06    6:4.1M                                   Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                       HTML   2.50M 
 2: EX-21.1     Subsidiaries                                        HTML      5K 
 3: EX-23.1     Consent of Experts or Counsel                       HTML      7K 
 4: EX-31.1     Certification -- Sarbanes-Oxley Act - Sect. 302     HTML     12K 
 5: EX-31.2     Certification -- Sarbanes-Oxley Act - Sect. 302     HTML     12K 
 6: EX-32.1     Certification -- Sarbanes-Oxley Act - Sect. 906     HTML      9K 

TABLE OF CONTENTS

 

FORWARD-LOOKING STATEMENTS

This annual report contains statements about future events and expectations that are “forward-looking statements.” These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or the negative use of these terms or other comparable terminology. Any statement in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. These forward-looking statements include:

·                    statements regarding our anticipated revenues, expense levels, liquidity and capital resources and operating losses; and

·                    statements regarding expectations or projections about markets in our territory.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors with respect to any such forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from our expectations, include, but are not limited to:

·       our dependence on our affiliation with Sprint;

·       the impact and final outcome of our litigation against Sprint, Nextel and Sprint PCS, as well as the impact and outcome of the other litigation involving Sprint, Sprint PCS, and another  PCS Affiliate of Sprint;

·       changes in Sprint’s affiliation strategy as a result of the Sprint/Nextel merger and Sprint’s recent acquisitions of other PCS Affliliates of Sprint;

·       the ability of Sprint PCS to alter the terms of our affiliation agreements with it, including fees paid or charged to us and other program requirements;

·       our dependence on back office services, such as billing and customer care, provided by Sprint PCS, and the costs we incur to obtain such services;

·       changes or advances in technology in general, or specifically related to Sprint and its affiliates;

·       competition in the industry and markets in which we operate;

·       our ability to attract and retain skilled personnel;

·       our potential need for additional capital or the need for refinancing any existing indebtedness;

·       our potential inability to expand our services and related products in the event of substantial increases in demand for these services and related products;

·       changes in government regulation;

·       the competitiveness and impact of Sprint PCS’s pricing plans and PCS products and services on us;

·       our subscriber credit quality;

·       the potential for us to experience a continued high rate of subscriber turnover;

·       inaccuracies in our financial information provided to us by Sprint PCS;

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·       our failure to establish and maintain effective internal controls to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of internal control over financial reporting;

·       our rates of penetration in the wireless industry and in our territories;

·       our significant level of indebtedness;

·       adequacy of bad debt and other reserves;

·       our anticipated future losses;

·       our subscriber purchasing patterns;

·       subscriber satisfaction with our network and operations, including with services provided to us by Sprint, such as billing and customer care;

·       availability of an adequate supply of subscriber equipment to Sprint PCS and to us specifically;

·       risks related to future growth and expansion, including subscriber growth;

·       general economic and business conditions;

·       additional terrorist attacks; and

·       effects of mergers and consolidations within the wireless telecommunications industry, particularly business combinations involving Sprint Nextel or affiliates of Sprint Nextel, and unexpected announcements or developments from others in the wireless telecommunications industry.

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PART I

ITEM 1.   BUSINESS

As used in this annual report on Form 10-K, unless the context otherwise requires: (i) ”Sprint PCS” refers to the affiliated entities of Sprint Nextel Corporation that are party to our affiliation agreements; (ii) ”Sprint” refers to Sprint Nextel Corporation and its affiliates; (iii) a “PCS Affiliate of Sprint” is an entity whose sole or predominant business is operating (directly or through one or more subsidiaries) a personal communications service business pursuant to affiliation agreements with Sprint Spectrum L.P. and/or its affiliates or their successors; (iv) ”Sprint PCS products and services” refers to digital wireless personal communications services, including wireless voice and data services, and related retail products, including handsets, in any case, offered under the Sprint brand name; and (v) ”our subscribers” refers to Sprint PCS subscribers who reside in our territory, excluding reseller subscribers.

Statements in this annual report on Form 10-K regarding Sprint or Sprint PCS are derived from information contained in our affiliation agreements with Sprint PCS, periodic reports and other documents filed by Sprint with the SEC or press releases issued by Sprint or Sprint PCS.

Market data and other statistical information used throughout this annual report on Form 10-K are based on independent industry publications, government publications, reports by market research firms and other published independent sources, as well as information provided to us by Sprint PCS. Some data is also based on our good faith estimates, which estimates are derived from our review of internal surveys and independent sources, including information provided to us by Sprint, the U.S. Census Bureau and Kagan World Media. Although we believe these sources are reliable, we have not independently verified the information.

This annual report on Form 10-K contains trademarks, service marks and trade names of companies and organizations other than us. Other than with respect to Sprint PCS, our use or display of other parties’ trade names, trademarks or products is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, the trade name or trademark owners.

Our website address is www.ipcswirelessinc.com. Information contained on our website is not part of this annual report on Form 10-K. We provide public access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed with the Securities and Exchange Commission, or SEC, under the Securities Exchange Act of 1934. These documents may be accessed free of charge on our website at the following address: www.ipcswirelessinc.com. These documents are provided promptly after filing with the SEC. These documents also may be found at the SEC’s website at www.sec.gov.

General

We are a holding company that operates as a PCS Affiliate of Sprint through three wholly owned subsidiaries, each having its own affiliation agreements with Sprint PCS. As a PCS Affiliate of Sprint, we own and are responsible for building, operating and managing the portion of the 100% digital, 100% PCS network of Sprint PCS located in our territory, and we have the exclusive right to provide digital wireless personal communications services, or PCS, under the Sprint brand name in our territory. Our territory consists of 80 markets primarily located in Illinois, Michigan, Pennsylvania, New York, Indiana, Iowa, Ohio and Tennessee. The territory includes key markets such as Grand Rapids (MI), Fort Wayne (IN), the Tri-Cities region of Tennessee (Johnson City, Kingsport and Bristol), Scranton (PA), Saginaw-Bay City (MI), and the Quad Cities region of Illinois and Iowa (Bettendorf and Davenport, IA, and Moline and Rock Island, IL). As of December 31, 2006, our licensed territory had a total population of approximately 15.0 million residents, of which our PCS network covered approximately 11.4 million residents, and we had approximately 561,300 subscribers.

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Our PCS network is designed to offer a seamless connection with the PCS network of Sprint PCS. Sprint PCS, together with third party PCS affiliates of Sprint, like us, operate PCS networks in over 300 metropolitan markets, including 297 of the 300 largest U.S. metropolitan areas where more than 262 million people live or work. We provide nationwide service through a combination of: operating our own PCS network in our territory, affiliating with Sprint PCS, roaming on other providers’ analog cellular networks using multi-mode and multi-band handsets, and roaming on other providers’ CDMA networks. We offer national calling plans designed by Sprint PCS as well as local plans tailored to our markets. We market Sprint PCS products and services through a number of distribution outlets located in our territory, which are comprised of our company-owned retail stores, Sprint co-branded dealers, major national retailers and local third party distributors.

Our History

We were formed in March 2000 as a holding company for iPCS Wireless, Inc. iPCS Wireless, as the successor to Illinois PCS, LLC, became a PCS Affiliate of Sprint in 1999. We were acquired by AirGate PCS, Inc. on November 30, 2001 and, on October 17, 2003, AirGate transferred its ownership of us to trust, the beneficial owners of which were AirGate’s stockholders as of such date. On February 23, 2003, we filed for bankruptcy under Chapter 11 of the Bankruptcy Code and we emerged from bankruptcy on July 20, 2004. On July 1, 2005, we merged with Horizon PCS, Inc., a holding compay that operated as a PCS Affiliate of Sprint through its two wholly owned subsidiaries: Horizon Personal Communications, Inc. (“PerCom”) and Bright Personal Communications Services, LLC (“Bright”). As a result of the merger, PerCom and Bright (collectively, “Horizon PCS”) became our wholly owned subsidiaries. Horizon PCS’s territory—which is now part of our territory—consisted of 40 markets located in portions of nine contiguous states. At June 30, 2005—the last date for which such information was reported by Horizon PCS prior to our merger—Horizon PCS’s licensed territory had a total population of approximately 7.2 million residents, of which its wireless network covered approximately 5.4 million residents.

Our Relationship With Sprint

Sprint directly operates its PCS network in major markets throughout the United States and entered into affiliation agreements with various companies, like us, under which each has become a PCS Affiliate of Sprint and has agreed to construct and manage PCS networks in smaller metropolitan areas and along major highways designed to operate seamlessly with the Sprint PCS network.

Pursuant to our affiliation agreements with Sprint PCS, we offer PCS services using Sprint’s spectrum under the Sprint brand name on a wireless network built and operated to Sprint’s specifications at our own expense. We believe that we have completed the building of our network and we are in compliance with all applicable build-out requirements.

Although we are involved in various disputes with Sprint, we continue to believe that, overall, our strategic relationship with Sprint PCS provides us with significant competitive advantages. In particular, our affiliation agreements with Sprint PCS allow us to offer nationwide, high-quality, nationally branded wireless voice and data services for a lower cost and lower capital requirements than would otherwise be possible, and provide us a high-margin roaming revenue stream from Sprint PCS, wireless resellers and other wireless carriers that contract with Sprint PCS for roaming services in our territory. For example, we benefit from Sprint PCS’s:

·                    Strong brand recognition and nationwide advertising.   We believe that we benefit from Sprint’s national and regional television, radio, print, outdoor and other advertising campaigns.

·                    National retailer sales.   National retailers with existing distribution relationships with Sprint PCS market Sprint PCS products and services under the highly recognizable Sprint and Sprint PCS brand names in their stores in our territory.

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·                    Sprint PCS network.   Our subscribers can immediately access PCS networks in over 300 metropolitan markets, including 297 of the 300 largest U.S. metropolitan areas where more than 262 million people live or work.

·                    Handset availability and pricing.   Sprint PCS’s purchasing leverage allows us to acquire the latest innovative handsets more quickly and at a lower cost than we could without our affiliation with Sprint PCS.

·                    National reseller agreements.   We receive additional revenue as a result of Sprint PCS’s relationships with wireless resellers, such as Virgin Mobile, when subscribers of those resellers use our PCS network.

We are currently engaged in the following disputes with Sprint, the outcome of any one of which could have a material adverse effect on us:

·       In July 2005, we filed two lawsuits against Sprint alleging, among other things, that following the consummation of the merger between Sprint Corporation and Nextel Communications, Inc., Sprint’s conduct would breach its exclusivity obligations to us under our affiliation agreements with Sprint PCS. Courts issued rulings that we believe were favorable to us in both lawsuits in September 2006, and Sprint has appealed one of those rulings. Accordingly, the final outcome of our litigation with Sprint arising out of Sprint’s conduct following the merger with Nextel is unknown pending appeal. For a detailed discussion of our litigation against Sprint, see “—Litigation Against Sprint” below. Also, see important risks to our business related to Sprint’s merger with Nextel and our litigation in “Item 1A Risk Factors—The merger between Sprint and Nextel and the outcome of our litigation relating thereto may have an adverse effect on us in ways that would be beyond our control.”

·       In December 2006, we initiated arbitration against Sprint with respect to Sprint’s proposed rates for providing back-office services to us for the three-year period commencing on January 1, 2007. If the 2007 rates proposed by Sprint for these services had been in effect in 2006, we would have incurred additional expenses to Sprint of approximately $4.7 million for the fiscal year ended December 31, 2006. We strongly disagree with Sprint’s proposed rates and, pursuant to the terms of our affiliation agreements with Sprint, elected to submit the determination of the new rates to binding arbitration and continue to obtain the back-office services from Sprint at the amounts the arbitration panel determines. The rates determined by the arbitration panel will be retroactively applied to January 1, 2007. In the meantime, we began paying Sprint’s proposed rates on January 1, 2007. For a detailed discussion of this dispute, see “Affiliation Agreements with Sprint PCS—The services agreements” below.

·       Pursuant to our affiliation agreements with Sprint PCS, we agreed to reciprocal roaming rates with Sprint PCS through December 31, 2006. We also agreed that, effective January 1, 2007, the rates would be reset by Sprint based on its retail yield for the prior year. Sprint has notified us of its proposed reciprocal roaming rates for 2007. Had these reciprocal roaming rates been in effect for 2006, the net effect on our operating loss for the fiscal year ended December 31, 2006 would have been an increase of approximately $8.2 million. We strongly disagree with Sprint’s new roaming rates and intend to vigorously oppose them, including by submitting the matter to arbitration or litigation if necessary. If the matter is submitted to an arbitration panel and the arbitration panel imposes rates different than the ones then in effect, the new rates would be retroactively applied to the appropriate period. However in the meantime, beginning on January 1, 2007, the new reciprocal roaming rates went into effect. For a detailed discussion of this dispute, see “—Roaming” below and “Item 1A Risk Factors—Beginning on January 1, 2007, the reciprocal per-minute and per-kilobyte roaming rate with Sprint PCS was reduced, resulting in us receiving less roaming revenue, which will result in an increase in our operating loss.”

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Litigation Against Sprint

On July 15, 2005, our wholly owned subsidiary, iPCS Wireless, Inc., filed a complaint against Sprint and Sprint PCS in the Circuit Court of Cook County, Illinois. On July 22, 2005, our wholly owned subsidiaries, PerCom and Bright, filed a complaint against Sprint and Sprint PCS and Nextel Communications, Inc. in the Court of Chancery of the State of Delaware, New Castle County. The complaints allege, among other things, that Sprint’s conduct following the consummation of the merger between Sprint and Nextel, would breach its exclusivity obligations under our affiliation agreements, as amended. We sought, among other things, a temporary restraining order (a TRO), a preliminary injunction and a permanent injunction enjoining Sprint and those acting in concert with it from engaging in conduct that would violate our affiliation agreements with Sprint PCS.

On July 28, 2005, we and certain of our wholly owned subsidiaries entered into a Forbearance Agreement with Sprint relating to the complaints filed against Sprint. The Forbearance Agreement sets forth our agreement that we would not seek a TRO or a preliminary injunction against Sprint so long as Sprint operates subject to the limitations set forth in the Agreement. Although the Forbearance Agreement expired on January 1, 2006 in the territory managed by iPCS Wireless and on August 4, 2006 in the territory managed by PerCom and Bright, Sprint committed to continue to abide by the terms of the Forbearance Agreement in the territory managed iPCS Wireless during the pendency of Sprint’s appeal of the Illinois court (discussed below).

The trial in the Delaware court began in January 2006. On August 4, 2006, the Delaware court issued its decision and, on September 7, 2006 issued a final order and judgment effecting its decision. The final order and judgment provides that:

·                    Sprint will violate the implied duty of good faith and fair dealing if it offers iDEN products and services using the same Sprint brand and marks that plaintiffs (PerCom and Bright) have used or are using in connection with their sale of Sprint PCS products and services (the “Sprint pcs brand and/or marks”) or a brand or mark confusingly similar to the Sprint pcs brand or marks in plaintiffs’ service areas. Sprint may re-brand the legacy Nextel stores in plaintiffs’ service areas, but it must do so in a way that does not create a likelihood of confusion in the minds of consumers as to the sponsor of the store or which products and services are available in it, and it may not use the new Sprint logo.

·                    Within plaintiffs’ service areas, Sprint and those acting in concert with it are enjoined from:

·                     offering iDEN products and services that use the same or confusingly similar brands or marks as the Sprint pcs brand or marks; provided that Sprint is not enjoined or otherwise prohibited from conducting national advertising offering iDEN products and services that use the same or similar brands and marks as the Sprint pcs brands or marks, subject to appropriate disclaimers regarding availability in certain markets; and

·                     re-branding the legacy Nextel stores with the new Sprint logo or the same or confusingly similar brands or marks as the Sprint pcs brand and marks.

·                    In light of certain operational and confidentiality representations made by Sprint, plaintiffs’ claims and requests for relief against such future Sprint behavior were deemed not ripe for adjudication and therefore denied. If, however, Sprint in the future breaches these representations, the court will promptly entertain a request for appropriate relief.

·                    Plaintiffs’ claims for tortious interference and civil conspiracy against Nextel were dismissed with prejudice.

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The trial in the Illinois court was held for 25 days between early March and early July 2006. On August 14, 2006, the Illinois court issued its decision and on September 20, 2006 issued a final order effecting its decision. The final order provides that:

·                    Within 180 days of the date of the final order, Sprint and those acting in concert with it must cease owning, operating, and managing the Nextel wireless network in iPCS Wireless’s territory.

·                    Sprint shall continue to comply with all terms and conditions of the Forbearance Agreement.

On September 28, 2006, Sprint appealed the ruling of the Illinois trial court to the Appellate Court of Illinois, First Judicial District. In early October 2006, Sprint requested a stay of the Illinois trial court’s order pending appeal and an accelerated appeal. On October 13, 2006, the Illinois appellate court denied Sprint’s request for an accelerated appeal and ordered a stay of the Illinois trial court’s order pending appeal on the condition that (i) Sprint continue to comply with the Forbearance Agreement and (ii) Sprint comply with the September 7, 2006 order of the Delaware court. Accordingly, Sprint must comply with the Forbearance Agreement, as well as the order of the Delaware court, in iPCS Wireless’s territory pending a decision from the Illinois appellate court.

As of the date hereof, the parties are in the briefing stage of the appeal, after which the parties may be requested to present oral arguments before the appellate court. We expect a ruling from the appellate court as soon as later this year or early 2008.

Our Markets

The following tables list the location, basic trading area number, megahertz of spectrum licensed and estimated total population for each of the basic trading areas that comprise the territory covered under our affiliation agreements with Sprint PCS as of December 31, 2006. The first table relates to the territory covered under iPCS Wireless’s affiliation agreements with Sprint PCS, while the second table relates to the territory covered under Horizon PCS’s affiliation agreements with Sprint PCS. The number of estimated covered population for each state does not represent the number of our subscribers in such state, nor does it represent the number of subscribers that we expect to be based in such state.

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iPCS Wireless, Inc.

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Footnotes follow the following table.

Horizon Personal Communications, Inc.
Bright Personal Communications Services, LLC

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(1)          Basic Trading Area No. refers to the Basic Trading Area number assigned to that market by the FCC for the purposes of issuing licenses for wireless services.

(2)          Estimated Total Population is based on estimates of 2000 population counts compiled by the U.S. Census Bureau adjusted by population growth rates from third party proprietary demographic databases, and represents the total population in our licensed area within these markets.

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(3)          Estimated Covered Population is based on our actual network coverage (neg 103db) measured by third party proprietary mapping software using the 2000 population counts compiled by the U.S. Census Bureau adjusted by population growth rates from third party proprietary demographic databases.

(4)          For purposes of this table, Estimated Total Population and Estimated Covered Population include all persons in the Basic Trading Area, including those persons who live in neighboring states.

Our PCS Network

Our PCS network connects to the public switched telephone network to facilitate the origination and termination of traffic between our PCS network and both local exchange and long distance carriers. Through our arrangements with Sprint PCS and Sprint PCS’s arrangements with other wireless service providers, our subscribers have roaming capabilities on certain other PCS networks utilizing similar technology. See “—Roaming” below for a detailed discussion.

As of December 31, 2006, our PCS network included approximately 1,600 base stations, or sites, and five switching centers.

Roaming

Generally, roaming occurs when a subscriber of one wireless service provider uses the wireless network of another wireless service provider. We receive roaming revenue when wireless subscribers based outside of our territory use our PCS network, and we incur roaming expense when our subscribers use a network outside of our territory. Because we are part of the Sprint PCS network, roaming is an important source of revenue for us. For the fiscal year ended December 31, 2006, approximately 33% of our revenue was from roaming. The majority of our roaming revenue (approximately 87% for the fiscal year ended December 31, 2006) comes from Sprint PCS when Sprint PCS subscribers based outside of our territory use our PCS network. Similarly, the majority of our roaming expense is paid to Sprint PCS when Sprint PCS subscribers based in our territory use the Sprint PCS network outside of our territory. We also receive roaming revenue when non-Sprint PCS subscribers use our PCS network and we incur roaming expense when Sprint PCS subscribers based in our territory use a non-Sprint PCS network.

We believe that the markets in which we operate have favorable roaming characteristics that have historically resulted in more Sprint PCS inbound roaming than outbound roaming. Although our ratio of inbound to outbound roaming with Sprint PCS declined in 2006, compared to 2005, and we expect it to decline further in the future, it remained favorable for the fiscal year ended December 31, 2006 at approximately 1.4 to 1. We believe that the following characteristics have contributed to our historically favorable roaming ratio with Sprint PCS:

·                    Our territory is located near or around several large U.S. urban centers, including Chicago, Illinois; New York, New York; Philadelphia, Pennsylvania; Pittsburgh, Pennsylvania; Detroit, Michigan; Columbus, Ohio; Des Moines, Iowa; Indianapolis, Indiana; Knoxville, Tennessee; Omaha, Nebraska; and St. Louis, Missouri.

·                    Our territory includes significant distances of major and secondary highways comprising the principal travel corridors between these large urban centers. As a result of our extensive network coverage of these highways in our territory, we have consistently received significant roaming revenue from wireless subscribers using our PCS network.

·                    Our markets include nearly 60 colleges and universities with a total enrollment of approximately 333,000 students. We believe that colleges and universities in our markets result in increased roaming revenue from wireless subscribers using our PCS network.

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Our affiliation agreements with Sprint PCS set our reciprocal roaming rate with Sprint PCS through December 31, 2006 at $0.058 per minute for voice and 2G data, and $0.0020 per kilobyte for 3G data. Thereafter, our affiliation agreements with Sprint PCS provide that the reciprocal roaming rates are to be calculated based upon Sprint’s retail yield for the prior year. In November 2006, Sprint advised us that its estimate of retail yield for voice and 2G data was $0.045 per minute, and its estimate of retail yield for 3G data was $0.0013 per kilobyte. Based on these estimates,  effective January 1, 2007, the roaming rate for voice and 2G data would have been $0.0405 per minute, and the roaming rate for 3G data would have been $0.0012 per kilobyte. On February 22, 2007, Sprint notified us that the final reciprocal roaming rates that were put in place by Sprint on January 1, 2007, were $0.0403 per minute for voice and 2G data and $0.001 per kilobyte for 3G data.

Had these rates of $0.0403 per minute and $0.001 per kilobyte been in effect for 2006, our roaming revenue from Sprint PCS for the fiscal year ended December 31, 2006 would have decreased by approximately $42.4 million or 43% and our roaming expense payable to Sprint would have decreased by approximately $34.2 million or 49% resulting in a net increase in our operating loss of approximately $8.2 million. We strongly disagree with Sprint’s estimated new roaming rates and intend to vigorously oppose them, including by submitting the matter to arbitration or litigation if necessary. If the matter is submitted to an arbitration panel and the arbitration panel imposes rates different than the ones then in effect, the new rates would be retroactively applied to the appropriate period. However in the meantime, the new rates of $0.0403 per minute and $0.001 per kilobyte went into effect on January 1, 2007.

Resellers

We also recognize revenue from subscribers of various wholesale resellers of personal communications service when those subscribers use our PCS network. These reseller agreements are negotiated and entered into by Sprint PCS, and we receive a per minute rate for each minute that the subscribers of these resellers use our PCS network. These subscribers may be based within or outside our territory. As described below in the discussion of our management agreements with Sprint PCS, through December 31, 2006, we were required to participate in all resale arrangements that met certain pricing minimums. Although we are not required to participate in new resale arrangements after December 31, 2006, we may do so and, in any event, we have certain continuing obligations with respect to existing resale arrangements.

Marketing Strategy

Our marketing strategy is to complement Sprint’s national marketing strategies with techniques tailored to each of the specific markets in our territory.

Use of Sprint’s brand.   We feature exclusively and prominently the nationally recognized Sprint brand name in our marketing and sales efforts. From the subscribers’ point of view we are Sprint in our markets and, they use our PCS network and the rest of the Sprint PCS network as a unified network.

Advertising and promotions.   Sprint promotes its products through the use of national as well as regional television, radio, print, outdoor and other advertising campaigns. In addition to Sprint’s national advertising campaigns, we advertise and promote Sprint PCS products and services on a local level in our markets at our cost. We have the right to use any promotional or advertising materials developed by Sprint and only have to pay the incremental cost of using those materials, such as the cost of local radio and television advertisement placements, and material costs and incremental printing costs. We also benefit from any advertising or promotion of Sprint PCS products and services by third party retailers in our territory, such as RadioShack and Best Buy. We must pay the cost of specialized Sprint print advertising by third party retailers. Sprint also runs numerous promotional campaigns which provide subscribers with

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benefits such as additional features at the same rate or free minutes or kilobytes of use for limited time periods. We offer some of these promotional campaigns to potential subscribers in our territory.

Sales force with local presence.   We have established local sales forces to execute our marketing strategy through our company-owned retail stores, local distributors, direct business-to-business contacts and other channels.

Sales and Distribution

Our sales and distribution plan is designed to mirror Sprint’s multiple channel sales and distribution plan and to enhance it through the development of local distribution channels. Key elements of our sales and distribution plan consist of the following:

·                    Sprint PCS retail stores.   As of December 31, 2006, we operated 38 Sprint PCS stores within our territory. These stores provide us with a local presence and visibility in certain markets within our territory. Following the Sprint PCS model, these stores are designed to facilitate retail sales, subscriber activation, bill collection and customer service.

·                    Co-Branded Dealers.   We enter into agreements with third party agents that operate Sprint PCS stores and kiosks in our territory to further expand our distribution channels. These “branded stores” function similarly to our company-owned stores but are operated by a third party. These third parties purchase equipment from us, resell it to the consumer and receive compensation from us in the form of commissions. As of December 31, 2006, we had 93 of these branded stores and kiosks operating in our territory.

·                    National third party retail stores.   Sprint PCS has national distribution agreements with various national retailers for the sale of Sprint PCS products and services. These national agreements cover retailers’ stores in our markets and include RadioShack, Best Buy, Costco, Staples, OfficeMax, Office Depot, and Wal-Mart. As of December 31, 2006, these retailers had approximately 410 locations in our territory.

·                    Local third party distributors.   We contract directly with local third party distributors in our territory. These retailers are typically local businesses that have a presence in our markets. Local third party distributors purchase handsets and other PCS retail equipment from us and market Sprint PCS services on our behalf. We are responsible for managing this distribution channel and as of December 31, 2006, these local third party distributors had approximately 115 locations within our licensed territory. We compensate local third party distributors through commissions for subscriber activations.

·                    Other.   Sprint maintains an internet site, www.sprint.com, and an 800 number from which customers can order and pay for a handset and select a rate plan. We recognize the revenues generated by wireless subscribers in our territory who purchase Sprint PCS products and services over the Sprint internet site or via the Sprint maintained 800 number. Additionally, Sprint maintains a business-specific sales team that generates sales in our territory.

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Distribution mix.   The approximate percentage of our gross subscriber additions that originated from each of our distribution channels for the years ended December 31, 2006 and September 30, 2005 is as follows:

 

Technology

The entire Sprint PCS network, including our PCS network, uses code division multiple access, or CDMA, technology, which is a digital spread-spectrum wireless technology that allows a large number of users to access a single frequency band by assigning a code to all speech bits, sending a scrambled transmission of the encoded speech over the air and reassembling the speech into its original format.

We have upgraded our entire PCS network to 1xRTT, which is the name for the first phase of CDMA’s evolution to third generation, or 3G. We believe that 1xRTT technology provides high capacity and outstanding quality. In addition, 1xRTT enables subscribers to access enhanced data services, such as Sprint PCS’s “PCS Vision.”  PCS Vision allows subscribers to use their PCS Vision-enabled devices to check e-mail, take and receive pictures, play games with full-color graphics and polyphonic sounds and browse the Internet wirelessly with speeds of up to 144 kilobytes per second with average throughput speeds in the range of 50-70 kilobytes per second.

Although we are not required to do so, we have selectively deployed a new wireless high-speed data technology—called Evolution Data Optimized (“EV-DO”)—across a limited portion of our PCS network covering approximately 500,000 residents, principally in Grand Rapids, Michigan. EV-DO increases average mobile-device data speeds up to 10 times faster when compared to the prior generation technology. In addition, this technology delivers applications and services available only on EV-DO-capable handsets and laptops equipped with EV-DO-capable Sprint PCS Connection Cards. The services supported by this technology, marketed by Sprint and us as “Power Vision”, give consumer and business customers access to numerous sophisticated applications using EV-DO-capable devices, including mobile desktop, data messaging, imaging, entertainment and location-based applications. Sprint has stated that it plans to have EV-DO coverage across the majority of its PCS network by the end of 2007.  As of December 31, 2006, Sprint’s EV-DO technology covers 200 million people.

Beginning in 2007 we intend to selectively deploy the next version of EV-DO technology, EV-DO Rev. A, across portions of our PCS network covering approximately 2.0 million people, and we have entered into an agreement with Nortel Networks to purchase EV-DO Rev. A equipment and services (see “Item 7—Contractual Obligations”). We expect EV-DO Rev. A to further increase wireless data use as subscribers will be able to use the upgraded network to utilize applications such as IP video telephony, high-performance push-to-talk (walkie-talkie service), multi-user video conferencing, real-time gaming and video streaming of both content and live web cams simultaneously as they become available. Subscribers with enabled devices in these markets should experience significantly faster average upload speeds of 300-400 kbps (compared with 50-70 kbps on EV-DO networks). Average download speeds should also increase to 450-800 kbps (compared with 400-700 kbps on EV-DO networks). Sprint has begun deploying EV-DO Rev. A across its PCS network and has stated that it plans for coverage across the majority of the

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footprint of its PCS network by the end of 2007. As of December 31, 2006, of the 200 million people covered by Sprint’s EV-DO network, 75 million were covered by EV-DO Rev. A.

Competition

Competition in the wireless telecommunications industry is intense. We principally compete with existing wireless service providers and providers of traditional communications services (such as conventional landline telephone companies). We believe that in our territory our primary competition is with national and regional wireless service providers, such as ALLTEL, Centennial, AT&T (formerly known as Cingular), U.S. Cellular, Nextel/Nextel Partners, T-Mobile and Verizon. Although Sprint and Nextel merged in August 2005, and Nextel Partners (previously an affiliate of Nextel present in many of our markets) is now a wholly owned subsidiary of Sprint, we continue to compete with Nextel and Nextel Partners in our markets. See “—Litigation Against Sprint.”

Additionally, as potential subscribers find that their communications needs may be satisfied by other technologies, we are increasingly competing for subscribers with providers of other services, such as cable television, internet companies, satellite-based communications and wireless cable networks. For example, Verizon launched an internet-linked phone and Sprint and various cable companies have formed a partnership that may utilize cell phones designed to connect wirelessly to broadband internet connections using wireless fidelity, or Wi-Fi, technology. As these new technologies develop, the level of competition that we face becomes more difficult to anticipate and, therefore, compete against.

We also face competition from resellers who provide wireless services to customers but do not hold FCC licenses or own facilities. Instead, the resellers buy blocks of wireless telephone numbers and capacity from a licensed carrier and resell services through their own distribution network to the public. Additionally, as the FCC auctions off additional spectrum, we may face additional competition.

We compete to attract and retain subscribers principally on the basis of:

·       the strength of the Sprint brand name, services and features;

·       Sprint PCS’s network, including its evolving technology;

·       our network coverage and reliability; and

·       the benefits of CDMA’s 3G technology.

Our ability to compete successfully will also depend, in part, on our ability to anticipate and respond to various competitive factors affecting the industry, including:

·       new services and technologies that may be introduced;

·       changes in consumer preferences;

·       demographic trends;

·       economic conditions; and

·       discount pricing strategies by competitors.

Employees

As of December 31, 2006, we employed approximately 500 employees. Our employees are not represented by any labor union. We believe that we have a good relationship with our employees.

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Affiliation Agreements with Sprint PCS

Each Sprint PCS Affiliate enters into the following four major affiliation agreements with Sprint PCS:

·       a management agreement;

·       a services agreement; and

·       two trademark and service mark license agreements with different Sprint entities.

Our affiliation agreements with Sprint PCS consist of three sets of the foregoing agreements, one set between Sprint PCS and each of iPCS Wireless, Inc., Horizon Personal Communications, Inc. and Bright Personal Communications Services, LLC. Except as described herein, the material terms of each set of affiliation agreements with Sprint PCS are substantially the same.

Under our affiliation agreements with Sprint PCS, we have the exclusive right to provide wireless mobility communications services using the 1900 MHz frequency range under the Sprint brand name in our territory. Sprint PCS holds the spectrum licenses. The affiliation agreements with Sprint PCS require us to interface with the Sprint PCS network by building our network to operate on the 10, 20 or 30 MHz wireless personal communications services frequencies licensed to Sprint in the 1900 MHz range.

The following is a description of the material terms and provisions of our affiliation agreements with Sprint PCS.

The management agreements.   Under the management agreements with Sprint PCS, we have agreed to:

·       own, construct and manage a wireless personal communications services network in our territory in compliance with FCC license requirements and other technical requirements contained in the management agreements;

·       distribute Sprint PCS products and services;

·       use Sprint PCS’s and our own distribution channels in our territory;

·       conduct advertising and promotion activities in our territory; and

·       manage that portion of the wireless subscriber base assigned to our territory.

Sprint PCS has the right to monitor our wireless personal communications services network operations and the right to access our PCS network, including the right to test and monitor any of our facilities and equipment.

·       Exclusivity.   We are designated as the only person or entity that is a manager or operator for Sprint PCS in our territory. Sprint PCS is prohibited from owning, operating, building or managing another wireless mobility communications network using the 1900 MHz frequency range in our territory while our management agreements are in place and no event has occurred that would permit such agreements to terminate. Sprint PCS is permitted to make national sales to companies in the covered territory and to permit resale of the Sprint PCS products and services in the territory. Our complaints against Sprint alleged, among other things, that the merger between Sprint and Nextel and the operation of the combined companies after the merger would result in a breach of the exclusivity provisions of our affiliation agreements with Sprint PCS.

·       Network build-out.   The management agreements specify the terms of the Sprint PCS affiliation, including the required network build-out plan. We have agreed to cover a specified percentage of the population within each of the markets that comprise our territory by specified dates. Sprint PCS has notified us that, based on the information we have provided to Sprint PCS, as of March 26, 2004, iPCS Wireless has completed the required build-out of its network, including those aspects

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of the build-out that were not required to be completed until a future date, and we are in compliance with all applicable build-out requirements in iPCS Wireless’s territory. We believe that Horizon PCS is in compliance with all applicable build-out requirements for its networks. If Sprint PCS decides to expand our territory, Sprint PCS must provide us with written notice of the proposed expansion and we have 90 days to determine whether we will build-out the proposed area. If we do not exercise this right, then Sprint PCS may build-out the coverage itself, or it may allow another Sprint PCS Affiliate or another third party to do so on terms and conditions that are no more favorable than those that were offered to and rejected by us. Sprint PCS has the right, in new coverage that it constructs, or that is constructed by another Sprint PCS Affiliate or another third party, to manage the network or hire another Sprint PCS Affiliate to manage the network in the new coverage. We may choose to build-out additional coverage in our territory that is not required by Sprint PCS; provided, however, that we may not elect to build-out additional coverage for areas with respect to which we previously declined to build.

·       Products and services.   The management agreements identify the products and services that we are required to offer in our territory. These services include, but are not limited to, PCS consumer and business products and services from Sprint PCS available as of the date of the agreement, or as modified by Sprint PCS. Sprint PCS will use commercially reasonable efforts to provide adequate quantities of any equipment necessary for us to offer, sell, promote and support the Sprint PCS products and services. We are allowed to sell wireless products and services that are not Sprint PCS products and services if the offer of those additional products and services does not violate our obligations under our affiliation agreements with Sprint PCS, cause distribution channel conflicts, materially impede the development of the Sprint PCS network, cause consumer confusion with Sprint’s PCS products and services or violate the trademark license agreements. We must provide Sprint PCS with notice that we intend to offer such products or services and Sprint PCS may object if it believes that such products or services are confusingly similar to Sprint PCS products or services, or if Sprint PCS plans to introduce such products or services as Sprint PCS products or services within the following six months. We may also cross-sell services such as specified types of long distance service, Internet access, handsets and prepaid phone cards with Sprint and other Sprint PCS Affiliates. If we decide to use third parties to provide these services, we must give Sprint PCS an opportunity to provide the services on the same terms and conditions. We cannot offer traditional telephone services based on wireless technology specifically designed for the competitive local exchange market in areas where Sprint owns the local telephone company unless we name the Sprint-owned local telephone company as the exclusive distributor or Sprint PCS approves the terms and conditions.

·       National sales programs.   We are required to participate in the Sprint PCS wireless sales programs for sales to Sprint PCS’s corporate accounts and will pay the expenses and receive the compensation from Sprint PCS relative to sales to customers of those accounts located in our territory. We are also required to use Sprint’s long distance service for calls made from within designated portions of our territory to areas outside those designated portions and to connect our network to the national platforms Sprint PCS uses to provide services under the management agreements and services agreements. Sprint PCS will purchase such long distance service from Sprint on our behalf at a price and terms at least as favorable to Sprint PCS as the best prices and terms Sprint Corporation offers to any similarly situated wholesaler. However, we may purchase private line capacity for call routing directly from Sprint Corporation, if we can obtain more favorable terms, and Sprint Corporation has agreed to provide us with such capacity at the best price offered to similarly situated third parties. Under the management agreements, we are prohibited from reselling long distance service to other carriers; however, we may (1) transport long distance calls for customers, (2) transport long distance calls for resellers when such resale is subject to FCC mandate or when Sprint chooses to make such resale available, or (3) transport long distance calls for purposes of roaming.

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