Sprint Nextel has terminated a spectrum hosting agreement with LightSquared. The company is struggling against decisions by regulators who claim its LTE network interferes with GPS devices. If the issues are somehow resolved, Sprint Nextel could reach another agreement with LightSquared.

“Sprint has been and continues to be supportive of LightSquared’s business plans and appreciates the company’s efforts to find a resolution to the interference issues impacting its ability to offer service on the 1.6 GHz spectrum,” Sprint said in a statement.

“Late last year, both companies agreed to halt deployment design and implementation of LightSquared’s network to ensure that Sprint’s Network Vision project remained on schedule,” the statement added. “While unfortunate, termination of the agreement will have no impact on Sprint’s current customers and is not material to Sprint’s ongoing business operations. Network Vision remains on schedule and on budget, and we look forward to begin launching our 4G LTE network mid-year.”

In addition, Sprint Nextel will give back $65 million to LightSquared – which was part of the deal between the two companies.

LightSquared was not surprised by Sprint's actions, given how regulators responded to the network, the Associated Press reported. LightSquared wants to build a network for 260 million users. The company says it has invested more than $4 billion.

In a related matter, LightSquared claimed the Federal Communications Commission can’t block the wireless service, according to Bloomberg Businessweek. “We are not going away,” Jeff Carlisle, a LightSquared executive vice president, was quoted by Bloomberg.

GPS manufacturers and users claim the proposed network leads to interference, Bloomberg adds. But LightSquared contends the GPS equipment is “defective,” Bloomberg said. In addition, regulators “relied upon flawed and biased tests,” LightSquared told the FCC, according to Bloomberg. “No scientifically valid evidence exists that even 1 percent of GPS receivers would experience adverse performance consequences as a result of LightSquared’s operations.”

Several politicians and business leaders have sided with LightSquared. Wholesale service from LightSquared “will enhance competition significantly by facilitating the ability of new providers to enter local, regional and nationwide markets and serve customers,” Randolph Kantorowicz-Toro, chairman and CEO of iBanco Corp, said in a LightSquared statement. “Hundreds of millions of American consumers would benefit from the greater competition that would be made possible by LightSquared’s network,” Jerome S. Kaiser, vice president and chief financial officer of AirTouch Communications, added in the LightSquared statement.

LightSquared could bring the issue to a court battle, according to news reports.