Deal or die time for LightSquared; Will Dish swoop in?

LightSquared is preparing for a potential bankruptcy filing on Monday as it has made little progress in its negotiations with debtholders, the Wall Street Journal reported on Sunday. If LightSquared does enter into bankruptcy it might find Dish Network(s dish) waiting, eager to relieve it of its spectrum.

At 2 p.m. on Monday, LightSquared will be in violation of its debt terms and will be forced into default, unless it gets another extension from its creditors or files for bankruptcy protection. According to the Journal, lenders want Philip Falcone, whose hedge fund Harbinger Capital is LightSquared’s primary owner, to agree to several terms, including stepping aside to make way for an independent board, ceding a large ownership stake of the company, and assuming personal liability for a future bankruptcy. Falcone has apparently agreed to the first term, but has balked at the others, leaving LightSquared few other options but bankruptcy.

LightSquared attempted to build a nationwide LTE network using satellite spectrum, but failed to get the final green light from regulators after a firestorm of controversy broke out. The GPS industry and many government agencies claimed that LightSquared’s high-power terrestrial 4G network would interfere with millions of commercial, industrial and government GPS devices. LightSquared’s spectrum sits right alongside the global positioning system band.

Without a full terrestrial network waiver, LightSquared’s primary asset, its spectrum, is worth little, but satellite broadband analyst Tim Farrar thinks there may be one interested party: Dish. In his blog, Farrar wrote that Dish might seek to pair its own S-band satellite frequencies with LightSquared’s L-band, creating an LTE network that can span an enormous chunk of airwaves. To make the deal palatable to regulators, Farrar said, Dish likely would need to guarantee the part of the L-band near GPS would remain off limits. But even if it sacrificed those airwaves Dish could still double the size of the downlink capacity.