LightSquared, the beleaguered satellite company that plans to revolutionize the wireless industry as a new competitor, could spring back from the dead with an alternative plan it has been quietly shepherding through the regulatory process over the past year. Most industry observers considered LightSquared's fate sealed when it filed for bankruptcy back in 2012 after failing to receive government approval to launch its cellular network in the face of interference concerns with GPS. But the company has been diligently pursuing an alternative path to bring its business plan to market.

The government has yet to green-light the company’s new plan, but LightSquared faces a new threat: Dish. At this stage of the bankruptcy proceeding, LightSquared’s assets are on auction to the highest bidder and Dish is looking to capitalize. With $2.2 billion on the table, the pay-TV operator currently has the leading offer.

Dish’s gambit to purchase LightSquared is part and parcel of the company’s broader strategy to transform itself into a broadband company. Last fall the company launched DishNET, a satellite-based Internet service targeting rural and underserved areas. The Internet branch of the company is helping to stem the tide of customers leaving its other services. In the last quarter Dish lost 78,000 pay-TV subscribers, but it gained 61,000 DishNET customers.

Dish Chairman Charlie Ergen has ambitions to build a nationwide wireless network. But to get in that game, he needs more airwaves that power mobile connectivity. That’s where LightSquared comes in. The hopeful Internet provider isn’t going down without a fight, however. LightSquared founder Phil Falcone, a high-profile hedge fund operator, has sued Ergen, alleging that he broke the law by secretly buying up the company’s debt—a credit agreement prohibits direct competitors from doing so. Ergen is now one of the principle holders of LightSquared’s debt.

On the surface it’s a business battle between two billionaires, Ergen and Falcone, but at the end of the day it’s really about the future of the wireless industry. If LightSquared emerges victorious, the market could see a new entrant with an innovative business model. If Dish wins, the impact is less clear, as Ergen has left everyone guessing on what he plans to do. In his most recent earnings call, Ergen left the door open to a wide number of possibilities, including merging with T-Mobile or DirecTV, making a network sharing agreement with another carrier, or simply selling the airwaves.

To understand where this is going, it’s worth taking a look at how this all began.

LightSquared history

Back in 2010, Falcone acquired the mobile satellite provider SkyTerra through his hedge fund Harbinger Capital and announced his grand plans to build a nationwide wireless network.

He dreamed of building a nationwide 4G wholesale network that would enable device manufacturers and regional cell phone carriers to purchase connectivity to the Internet at a reduced rate. LightSquared promised to offer the same quality of broadband as the current national players—AT&T, Verizon, Sprint and T-Mobile—at a lower price point since they wouldn’t be competing in the retail space.

In order to execute, the company needed government approval to use its airwaves to power cellular communication, the infrastructure that supports mobile phones, iPads, and the like. Those signals are land-based and operate through a network of towers; satellite service signals travel from ground to space.

In January of 2011, LightSquared got initial approval from the Federal Communications Commission(FCC) to move ahead with its vision. But the agreement came with a major caveat. The approval (or waiver, in FCC parlance) was conditioned on resolving interference concerns with the GPS industry.

In the following months, the GPS industry and LightSquared engaged in a bitter public battle over the extent of the possible harm and how and whether it could be resolved. The issue became a political firestorm resulting in a number of hearings on Capitol Hill and accusations that the Obama administration was guilty of capital cronyism for its so-called support of this dangerous plan.

LightSquared and the GPS industry blamed one another for the interference problems.

The satellite company accused the GPS industry, which operates in airwaves adjacent to those licensed by LightSquared, of “squatting” in its territory. Simply put, LightSquared claimed that the GPS industry was using its neighbor’s land. But according to the GPS industry, the real problem lay in the power of the network it wanted to build. The strength of such land-based signals was never meant to exist alongside satellite, it argued. And in order to be able to hear signals from the satellite, noise in the area couldn’t be too loud.

Regardless of who was to blame, the interference problems were real, and the FCC was not going to let the satellite company move forward without a solution to the problem. After more than a year of testing and more verbal sparring than anyone involved probably cares to remember, the federal government put the kibosh on LightSquared in February of 2012.

That May, the besieged satellite operator filed for bankruptcy and most people wrote it off for dead. However, it continues to offer satellite-based voice and data services, primarily to public safety, through a network of providers such as Infosat Communications and International Satellite Services.

A new plan: Spectrum swap

Last fall, LightSquared unveiled a new plan involving a spectrum swap. If the company can share 5MHz of airwaves currently used by the National Oceanic and Atmospheric Administration (NOAA), it will give up its right to use terrestrial signals in the 10MHz closest to GPS. The ability to use the NOAA spectrum, coupled with another 25MHz the company has, will be enough to get its network off the ground, LightSquared said.

To help steward this plan forward, Falcone has maintained a handsome stable of lobbyists and government affairs executives. So far this year, the company has spent $1.3 million on federal lobbying alone.

LightSquared has some reason to be hopeful. The FCC granted it authority to test the feasibility of sharing with NOAA, an indication of the seriousness to explore this possibility. What’s more, it could help the government in other ways if this works out. “There is much more interest to prove now that spectrum sharing among federal and commercial users is possible,” said Harold Feld, a senior executive at the consumer interest group Public Knowledge.

The mantra from the administration, following the release of a presidential advisory committee report last summer, is that government and commercial users will have to find ways to share this finite resource in the long run.

It also helps that a handful of major trade associations—including CTIA, the Competitive Carrier Association, and the Computer and Communications Industry Association—have expressed some support for the new proposal.

Perhaps most notably, the GPS industry has not kicked up a fuss about LightSquared’s new vision, but it also hasn't given its blessing.

According to GPS sources, the industry is having conversations with LightSquared about the characteristics and possible interference arising out of handset use of airwaves close to GPS.

The FCC, Dish, and LightSquared declined to comment for this story.

But time is working against the company. The bankruptcy court judge plans to rule on a reorganization scheme this December, and Dish has already put enough money on the table to make the lenders whole.

When it comes to the bankruptcy proceeding, “the one overarching factor is how much money people are going to pay and how much money do the creditors get and when,” said Madlyn Gleich Primoff, a partner at Kaye Scholer who specializes in bankruptcy law. “The 'when' piece is really dependent on FCC approval.”

“It seems that the lenders are willing to let the assets go, and that means that there should be a sale,” Primoff added. “Unless there is something that Falcone can put on the table that has some chance of success.”

To that end, the folks at LightSquared are hoping that their Hail Mary, the plan to use the NOAA spectrum, will get the FCC’s blessing.

The end game

In all likelihood, the FCC will only push to make sure the spectrum goes to good use, not to help any particular company.

“Getting it out in the marketplace will be the first priority, and ensuring competitiveness will be the second,” a former FCC official said. It may not even be Dish or LightSquared. A third candidate could emerge, as anyone is now free to make an offer on the assets.

Blair Levin, principle author of the National Broadband Plan, argues that it will be tough for either company to make a splash now.

“Now a lot of people have 4G; it will be much more difficult for a new entrant to successfully compete,” Levin said. “I don’t think either of the plans Dish and LightSquared have really involve creating a new competitor. I think for both of them it’s an adjunct niche market strategy.”

Others see an opportunity for a meaningful impact.

“What we are hoping is that LightSquared would still emerge with at least a 10 by 10MHz wholesale network,” said Michael Calabrese, director of the Wireless Future Project at the New America Foundation. “The concept of a wholesale-only network; that’s what consumer groups were particularly excited about.”

Feld argues that Dish could also bring some healthy competition that would benefit consumers.

“If Dish were able to offer a terrestrial wireless service my sense is they would do it in combination with their video service,” Feld said. “It would be a good competitor to cable.”

The consensus among industry observers is that both companies will need a partner to successfully monetize the spectrum. A likely candidate for both is T-Mobile, the weakest of the big four.

“The FCC is very wary of the market positions of AT&T and Verizon,” said Jeff Silva, telecommunications analyst at Medley Global Advisors. With Sprint’s recent merger with SoftBank, a Japanese telecommunication company, “that leaves T-Mobile as a partner, or to acquire.”

One factor boosting Dish’s position is that most of their spectrum holdings do not have major interference issues to resolve.

“It wouldn’t surprise me if Charlie Ergen prevails in the bankruptcy proceeding,” Silva said. “He is very persistent and I think he is playing to win.”

The heated battle over this troubled asset demonstrates just how starved the industry is for this infrastructure.

"One thing that hasn't changed [in recent years] is the rapid ongoing increase in mobile data usage and so the demand for spectrum by the entire mobile market,” former FCC Chairman Julius Genachowski said. “Federal agencies must push forward on all possibilities for freeing up spectrum for commercial use."

Eliza Krigman is a freelance writer based in Washington, DC. She has written extensively about technology policy, and her work has appeared in The New York Times, The Washington Post, Slate, and The Atlantic.