Sprint walked away today from a multi-billion-dollar deal to host LightSquared's spectrum on its network and has returned $65 million in prepayments to the foundering company, whose wireless plans are on the rocks because of problems with GPS interference.

The abandoning of the contract comes weeks after the FCC moved to block LightSquared from using its satellite spectrum for its planned wholesale LTE network, a crushing blow for the company.

Sprint said the "unresolved issues" with GPS prompted it to terminate the agreement.

"We remain open to considering future spectrum hosting agreements with LightSquared, should they resolve these interference issues, as well as other interested spectrum holders," Sprint said.

LightSquared agreed to pay Sprint $9 billion in cash and $4.5 billion in service credits over an 11-year period to deploy and operate its LTE network on Sprint's equipment.

The end of the deal leaves LightSquared without a partner to deploy the 40,000 base stations it planned to use for its network – a strategy LightSquared said would save it $13 billion in operating expenses.

The companies stopped work on the project late last year after it became clear that LightSquared was running into rough waters, and Sprint in February granted LightSquared an extension until mid-March to address the GPS issue, which it was unable to do.

Sprint's own plans to deploy LTE in 10 markets before the middle of this year are still on track, it said.

LightSquared said Sprint's decision "is in the best business interests of both companies and was not unexpected given the regulatory delays." Rumors surfaced last week that Sprint was planning to end the network-sharing arrangement.

LightSquared has doggedly insisted it will find a way to move forward, though it has given no clear indication on how it plans to do so. Its main backer, Philip Falcone's hedge fund Harbinger Capital Partners, stands to lose billions if LightSquared fails.

LightSquared is set to file a lengthy defense of its network with the FCC today but has not yet released the document.

There are some indications that LightSquared may go the legal route. It has reportedly retained two prominent lawyers, one of whom successfully represented former President George W. Bush in the Bush v. Gore Supreme Court case.