Leap Wireless International to Cease Support of Operations in Russia - Company Operations

Cambridge Telcom Report, Oct 4, 1999

Wireless communications carrier Leap Wireless International, Inc. Wednesday announced that one business operating in Russia has begun a liquidation process and that Leap will cease funding another. Leap has a non-controlling, minority interest in both businesses.

Leap stated that the boards of directors of one of the businesses, the Transworld Companies, have voted to liquidate those companies and distribute the assets to the shareholders. In an unrelated development, Leap said that it has ceased funding its loans to Metrosvyaz, a company that is attempting to establish joint ventures in Russia to operate wireless local loop service.

Leap said it expects that the liquidation of the Transworld Companies and withdrawal of support for Metrosvyaz will result in write-offs of approximately $17.7 million and $9.6 million for Transworld and Metrosvyaz, respectively. This represents a write-off of Leap's remaining investment balance in Metrosvyaz. Through holding companies, Leap indirectly owns 35 percent of Metrosvyaz and 21 percent of the Transworld Companies.

The Transworld Companies are a series of companies that have been seeking to establish a domestic long-distance business in Russia. In December 1998, the Transworld Companies launched limited long-distance service between Moscow and Perm, a region of three million people west of Moscow. As Leap previously reported, the Transworld Companies faced a setback when the satellite on which the business relied failed in April 1999. The Transworld boards have reviewed a series of alternate business plans, but the combination of the current Russian economic situation and the absence of a unique business opportunity offered by the original satellite access have led the boards to determine that the proposed plans cannot meet minimum financial performance criteria necessary to pursue the long-distance business at this time.

Leap said it stopped funding loans to Metrosvyaz because Metrosvyaz has not satisfied certain conditions required for funding and is now in default under its loan agreement. In addition, Leap has been prevented from securing full reporting and documentation of performance, results and expenditures of Metrosvyaz in spite of repeated efforts to obtain that information.

Leap said it has begun a detailed special audit of Metrosvyaz's books and contracts. Despite being denied full access to information, Leap said the normal year-end audit of Metrosvyaz and the preliminary results of the special audit have disclosed serious financial irregularities, including unaccounted- for funds and questionable contracts and payments. As a result, Leap has initiated arbitration seeking a full accounting and damages from Metrosvyaz and one of its directors.

"These actions are consistent with the company's commitment to maximize shareholder value and focus on high-growth opportunities," said Harvey P. White, Leap's chairman and CEO. "We intend to direct our energy and resources to those projects."

White said that he believes Russia's demand for wireless communications remains strong, and that the Russian government's plans to add more than 30 million new phone lines under an initiative called the People's Telephone Program is sound policy and will be successful, when conditions are appropriate.

"In the meantime, there are a lot of excellent opportunities for growth available to us in other markets," White said. "We intend to direct our energy and resources to those projects."

In its first year as an independent, publicly traded company, Leap successfully launched commercial PCS service in Latin America and the United States through its operating companies. Internationally, Leap's operating company Chilesat PCS launched nationwide service in Chile, while Leap's joint venture PEGASO PCS began its planned nationwide rollout in Mexico by introducing service in three of the country's four largest markets - Monterrey, Guadalajara and Tijuana. Domestically, Leap's affordable, flat-rate Cricket concept was launched in Chattanooga, Tenn., using Chase Telecommunications' infrastructure and licenses under an agreement that provides that ChaseTel controls the business until Leap's proposed acquisition of ChaseTel is complete. The Cricket concept has been well received, and Leap plans to expand Cricket to markets across the United States over the next several years. "We are pleased with the progress we have made over the past year, in particular with the success in the Western Hemisphere," White said.

Leap Wireless International, Inc., headquartered in San Diego, California, is a wireless communications carrier that deploys, owns and operates wireless networks in domestic and international markets with strong growth potential. Through its operating companies, Leap has launched all-digital wireless service in the United States, Mexico and Chile. Leap is dedicated to bringing the benefits of reliable, cost-effective and high-quality voice and data services to domestic and emerging markets. FMI: www.leapwireless.com.