Confirming its own earlier prediction, NII Holdings, which runs mobile operations in three Latin American markets under the Nextel brand, has filed for Chapter 11 bankruptcy protection.

NII Holdings recently warned it was facing bankruptcy following another set of disappointing quarterly results which showed it was losing customers in Mexico. It also offers a service in Brazil and Argentina.

“As NII was racing to complete the buildout of its 3G network, it was experiencing increasing turnover of its customer base as customers were offered more attractive services by its competitors on their 3G networks,” Daniel Freiman, the company’s treasurer, said in court papers, seen by Bloomberg.

Freiman’s comments indicate the company got caught in a vicious spiral whereby it was forced to reduce prices and relax credit policies to stem subscriber losses, which had the effect of lowering ARPU and pushing up bad debt.

In addition to competitive factors, NII said in the court papers that it received a notice earlier this year from hedge fund Aurelius Capital Management alleging it was in default on $500 million of unsecured notes, reported Reuters.

The hedge fund, which argued a 2009 restructuring of NII’s unsecured notes represented a fraudulent transfer, has presented a plan that would convert NII’s debt into equity and raise fresh capital by selling new shares. Meanwhile, the hedge fund’s plans would see certain disputes deferred until after NII emerged from bankruptcy.

However, Aurelius said its proposal was opposed by another group of bondholders.

NII said it anticipated negotiations with Aurelius and its other creditors so that it could exit Chapter 11.