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Updated. The Federal Communications Commission on Friday denied Dish Network’s(s dish) request to build a terrestrial LTE network over its satellite airwaves, but it didn’t kill the satellite broadcaster’s proposal outright. Instead the commission is kicking off a lengthy rule-making process that would eventually govern how satellite spectrum could be repurposed for ground-based networks. At the end of the process Dish may well get the waiver permission it needs to launch LTE, but it will have to wait – possibly as much as a year.

After dealing with the political agony of LightSquared for the last year, the FCC clearly is in no rush to re-air that soap opera with Dish. Dish’s S-band spectrum doesn’t have the GPS interference problems of LightSquared’s lower-frequency L-band airwaves, but it’s not exactly controversy-free either. AT&T(s t) and other operators claim that Dish’s 2 GHz frequencies could create interference problems for their mobile networks.

Rather than risk another political firestorm, the FCC is going to explore all of the interference issues of a full-bore LTE network in the satellite bands before it signs off on any new networks. It’s a cautious approach that could delay the launch of new competing mobile broadband networks, but perhaps it’s a step the FCC should have taken from the start.

Update. The FCC said that the approach it is taking to Dish is entirely different than that of LightSquared. Instead of considering a exception to the normal satellite use in the L-band as it did with LightSquared, the FCC wants to do away with satellite in the S-band entirely, converting it to a terrestrial-only band just like cellular or PCS. According to an FCC spokesperson:

Since the release of the National Broadband Plan two years ago, the Commission has been clear and consistent about its intent to remove regulatory barriers in this band through a rulemaking to unleash more spectrum for mobile broadband. In light of the unique characteristics of this spectrum band, including the possibility of converting it to full terrestrial use, and based on the record in this proceeding, the rulemaking process will best serve the public interest and maximize the long-term value of the spectrum for the American economy.

Dish is none too pleased, though it tried to paint a happy face on its predicament. The company released the following statement on Friday:

Although we are disappointed that the FCC did not grant the integrated service and spare satellite waivers that DISH requested, we appreciate the cooperative spirit and diligent efforts of the Commission and its staff in reviewing our applications. We worked hard to demonstrate that the grant of those waivers was in the public interest, and we wish that we had been successful. We believe that the denial of those waivers will delay the advancement of some of President Obama’s and the FCC’s highest priorities — namely freeing up new spectrum for commercial use and introducing new mobile broadband competition. As we review our options, we will continue working with the FCC on the forthcoming 2 GHz Notice of Proposed Rulemaking (NPRM) to achieve those goals as expeditiously as possible. DISH is committed to helping the Administration and the FCC solve the existing spectrum crunch, and DISH believes that new competition is particularly critical given the expanding world of bit caps and restrictive data plans. We expect to close the DBSD and TerreStar transactions as soon as practicable.

At the end of the rule-making process, there’s a good chance Dish will get its waiver network. The obstacles it faces are much smaller than the GPS problems LightSquared had to cope with, and the rule-making process could establish a definite process for overcoming whatever interference problems emerge. Dish would have to wait a year or more, but despite the company’s protests, it had no plans to launch a network in that time frame in the first place.

Dish has claimed it plans to launch an LTE-Advanced network to get a step ahead of the competition, but given the lack of commercial availability of LTE-Advanced gear, it would have to wait for several years before any rollout could begin. Dish is in no hurry to jump into the mobile broadband market, and it’s likely Dish is much more interested in getting its waiver and selling those suddenly highly appreciated airwaves for a quick buck. If that’s the case, the FCC didn’t do the satellite provider any favors last week, though it gave potential buyers like AT&T some useful leverage.

The FCC did, however, give its final approval to Dish’s purchase of TerreStar and DBSD, the two bankrupt entities that hold the S-band spectrum in question. Dish can’t launch a nationwide LTE network over those airwaves, but it does have permission to deploy a much more limited terrestrial network to supplement satellite broadband services. A dual-mode satellite-LTE service is hardly what Dish or any other satellite band speculator want. So expect Dish to either wait out its waiver the rule-making process or unload its airwaves.