Mr. Ergen, the chairman of satellite-TV operator Dish Network Corp., made the offer to LightSquared on Wednesday, one of the people said. Mr. Ergen’s offer is for LightSquared’s so-called L-band spectrum, this person said. Spectrum is the limited pockets of airwaves that telecommunications firms need to operate wireless networks.

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Sound Point Capital Management LP, a small hedge fund run by one of Mr. Ergen’s former bankers, has been buying up LightSquared debt and now holds more than $600 million of the wireless company’s roughly $1.7 billion bank loan, said people familiar with the trades.

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LightSquared reported assets and debts each exceeding $1 billion, according to the petition it filed with the U.S. Bankruptcy Court in Manhattan.

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The two sides still have until 5 p.m. Monday to reach a deal that would keep LightSquared out of bankruptcy court, and there were some indications over the weekend that a final decision hadn’t yet been reached on the company’s fate. Still, the two sides remained far apart and people involved in the negotiations expected LightSquared to begin making bankruptcy preparations in earnest.

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Mr. Falcone’s compromise is expected to prompt LightSquared’s lenders to approve a one-week extension on a debt-term violations waiver that expires Monday morning, the people said.

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The lenders are in talks with representatives of Mr. Falcone, the founder of Harbinger Capital Partners LLC and LightSquared’s main backer, over possibly extending a waiver on debt-term violations that expires Monday, the people said.

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Earlier this month, Mr. Falcone said he was considering seeking bankruptcy protection for LightSquared, a venture that has consumed billions of dollars from his funds. Mr. Falcone began amassing spectrum — or rights to use the nation’s airwaves — last decade in an ambitious plan to build a nationwide, high-speed network from scratch. But the plan hit a roadblock when the U.S. military and others complained that the planned service would disrupt global positioning system equipment.

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Chief backer Phil Falcone acknowledged the possibility in several interviews on Tuesday, including an email to The Wall Street Journal.

“Spectrum value does not decrease in bankruptcy,” he said in the email. Falcone earlier mentioned the possibility of a bankruptcy filing to Reuters.

LightSquared has spent billions to try to build a 4G wireless network that it could lease out to others. However, regulators revoked their tentative approval for the plans amid concerns that there would be unavoidable interference with existing GPS devices.

The company had signed several deals ahead of the regulatory move, including a pact with Sprint that has since been terminated.

“Sprint has been and continues to be supportive of LightSquared’s business plans and appreciates the company’s efforts to find a resolution to the interference issues impacting its ability to offer service on the 1.6 GHz spectrum,” Sprint said in a statement on Friday. “However, due to these unresolved issues, and subject to the provisions of the agreement, Sprint has elected to exercise its right to terminate the agreement announced last summer.”

Sprint said it remains open to a new deal if and when LightSquared resolves the interference issues.

As part of ending the deal, Sprint returned $65 million in prepayments that LightSquared had made to cover Sprint’s future costs.

Earlier this week, LightSquared hired a high-powered legal team to help it fight a potential death blow from regulators who say that the company can’t overcome potential interference issues with GPS devices.

The company has hired Ted Olson, former Bush administration solicitor general, and Eugene Scalia, son of Supreme Court Justice Antonin Scalia, to help it overcome any regulatory setbacks and salvage its more than $4 billion investment in a new national wireless network.

“We will do all we can to ensure that LightSquared does not lose billions of dollars in investments due to a precipitous, arbitrary reversal by the government,” Olson said in a statement.

Which doesn’t necessarily mean LightSquared will sue, though it’s clearly an option.

“[The FCC's] decision to not allow us to go forward isn’t supported by the law or technical policy,” Jeff Carlisle, LightSquared’s executive vice president of regulatory affairs and public policy, told Bloomberg. “We are confident about that and we are eager to prove our case.”

LightSquared CEO Sanjiv Ahuja has resigned.

The move comes as the company is facing major challenges in its effort to build a wholesale 4G cellular network. The FCC and the NTIA, a federal agency that oversees government and military spectrum use, recently ruled that LightSquared’s network would interfere with GPS and other devices.

Shortly afterward, investors sued Philip Falcone’s Harbinger Capital Partners for allegedly squandering billions of dollars in its “all-in” investment in LightSquared.

Meanwhile, wireless rival Clearwire is seeing an opportunity with LightSquared faltering. Not only does the company have valuable holdings in spectrum, it is now working to build its own LTE network, with hopes of having 5,000 sites by the middle of next year, AllThingsD’s Ina Fried reports from Mobile World Congress in Barcelona.

The suit, filed in the Southern District of New York, said Mr. Falcone made “deceptive and misleading statements” by not disclosing that he intended to form the new wireless company, which was told this week by the Federal Communications Commission it couldn’t operate its network because of Global Positioning System interference concerns.

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The possible strategy shift comes a day after the Federal Communications Commission said it wouldn’t allow LightSquared to operate its network because of interference concerns.

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LightSquared made the payments to Sprint last year as part of the companies’ 15-year agreement to share network buildout expenses and wireless airwaves. Sprint Chief Executive Dan Hesse said in January that the carrier had put its investment in LightSquared on hold as it worked to resolve concerns its network interferes with global positioning systems.

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The NTIA, a federal agency that oversees government and military spectrum use, ruled on Tuesday that LightSquared will inevitably interfere with other devices, including GPS products, that use frequencies neighboring the spectrum licensed to the company.

As a result, the Federal Communications Commission said it was planning to revoke its conditional permission for LightSquared to operate and reject the application to operate the network.

“NTIA … has now concluded that there is no practical way to mitigate potential interference at this time,” the FCC said in a statement. “Consequently, the commission will not lift the prohibition on LightSquared.”

The FCC, while hoping LightSquared might help with the ongoing spectrum crunch, has said all along that any commercial operations would be conditioned on being able to operate without interference to existing devices.

“The commission clearly stated from the outset that harmful interference to GPS would not be permitted,” the FCC said.

For its part, LightSquared maintained that the NTIA findings were based on flawed studies and said it “remains committed to finding a resolution with the federal government and the GPS industry to resolve all remaining concerns.”

“LightSquared is confident that the parties will continue the ongoing efforts to explore all engineering options and alternatives to find a solution to this difficult issue,” the company said.

LightSquared has asked the FCC to find that the interference is not its fault and allow it to proceed, though that argument appears to be having little sway.

Getting FCC clearance is a condition of a 15-year fourth-generation spectrum-and-equipment-sharing accord between the two companies. LightSquared has said the Sprint accord will help it save $13 billion through the end of this decade.

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LightSquared aims to build a 4G network, and to offer that network to other companies on a wholesale basis. Among the hurdles it faces are complaints that such a network will interfere with millions of GPS systems already on the market. In a petition filed on Tuesday, LightSquared reiterated its position that the problem is that GPS systems “look into” the spectrum that has been licensed to LightSquared.

“The one inescapable conclusion from two rounds of independent testing is that the incompatibility problem is not caused by LightSquared’s network,” LightSquared Executive Vice President Jeff Carlisle said in a statement. “It is clear that GPS devices are purposefully designed to look into LightSquared’s licensed spectrum, and given this evidence, we believe decision-makers should consider LightSquared’s legal rights as the licensee.”

Even though it is asking the FCC to rule that it is the proper licensee of the spectrum in question, LightSquared said it still wants to work with the GPS industry to minimize potential problems. LightSquared has maintained that navigation-system makers can design systems that filter out any potential interference from devices that would run on its network.

“While we ask the FCC today to confirm our legal rights, LightSquared remains fully committed to cooperate with all parties — the GPS industry, GPS users, and the federal government — to ensure that LightSquared’s network is deployed in a way that is compatible with GPS users,” said Carlisle. “LightSquared has always recognized the critical importance of the GPS system, and we firmly believe that GPS devices can peacefully co-exist adjacent to our network.”

The GPS issue isn’t the only one facing the company. Reuters reported this week that LightSquared also faces a potential cash crunch. A company representative did not confirm or deny the authenticity of the data in the Reuters report, but told AllThingsD that LightSquared has enough cash for the next several quarters.

While the carrier gets valuable spectrum, a roaming agreement and $3 billion in cash, the future of the No. 4 U.S. carrier is cloudier than ever, now that AT&T has called off its planned purchase.

T-Mobile has been operating as something of a lame duck since AT&T first proposed its $39 billion acquisition in March. Consumers, employees and potential partners have all been writing the carrier off, assuming that it would soon be swallowed up by its far-larger rival.

The abrupt turn of events will send T-Mobile and its parent company back to the drawing board, which will include soliciting new buyers, figuring out a strategy for its next-generation network and coming up with some inducements to avoid losing even more customers.

The blow of the breakup is only softened by the fact that the Bellevue, Wash.-based carrier will be handed a huge chunk of spending money to ride out the near-term bumps.

As T-Mobile looks to come up with Plan B, here are some potential options:

Spectrum sharing: As part of the breakup, AT&T has entered a mutually beneficial roaming agreement with Deutsche Telekom. Terms of the agreement have not yet been shared, but there could be some pretty compelling outcomes.

In Europe, it is common for carriers to share spectrum and even the cost of maintaining the network and towers. From the consumer’s perspective, it’s two different networks and two different brands. The carriers only end up competing on handset offerings, price and features — not coverage.

Another merger: T-Mobile will entertain any and all offers. Most recently, Dish said it was interested in partnering with T-Mobile if its merger with AT&T fell apart. Other candidates could include Sprint, or other companies from the media industry that are always sniffing around wireless, such as cable operators.

A bid from a company like Google or Microsoft would definitely make things interesting. While both are less likely candidates, they could use the network to push their agenda, including handsets and applications.

A total overhaul: The $4 billion breakup fee could give Deutsche Telekom the confidence to take another shot at the U.S. market. Probably not, but there’s always a chance. The company’s roots have been entrepreneurial and scrappy, but it’s been awhile since it has been able to make an impact on the market.

Worst-case scenario: Deutsche Telekom passes out the cash as a dividend to stockholders. It has always leaned on the U.S. as a moneymaker, and this could be no exception.

The 4G conundrum: Regardless, T-Mobile still does not have enough spectrum to update its network to the next generation. It may gain access to AT&T’s 4G network as part of the roaming agreement with AT&T, but both companies will arguably need more spectrum to keep up with demand.

The only two options will be to partner with Clearwire or LightSquared, or to wait until the next government auction. Both Clearwire and LightSquared are always in need of more cash, and have their difficulties. A deal with Clearwire would be additionally complicated by the fact that Sprint owns nearly half of the company.

AllThingsD’s Ina Fried contributed to this report.

Preliminary data from recent government and industry tests of LightSquared’s network suggest that the start-up hasn’t solved concerns that its network would knock out a large number of personal or military GPS devices, the report said, according to the aide.

LightSquared, a startup funded largely by hedge fund Harbinger Capital Partners, wants to build a national wireless broadband network and offer wholesale Internet access to companies including Leap Wireless International Inc. and Best Buy Co.

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A November deadline is approaching for federal regulators to finish their interference tests, raising the stakes for a project already confronting financial hurdles and political resistance.

Amid complaints by GPS users, company officials say they realize the bar will be high for the start-up to show its network won’t disrupt other traffic.

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CNET reports that Sprint is actually more than open to LTE — it’s already testing gear and planning to launch an LTE network early next year. Sprint is scheduled to talk about its network future at an event next week and a representative declined to comment ahead of that.

Sprint has already taken some steps into LTE, including signing a deal with LightSquared, which is looking to build a wholesale LTE network of its own.

Verizon has already launched LTE widely and AT&T has just launched its own LTE network in several markets. T-Mobile has said its long-term future would be LTE, but it currently lacks the spectrum it needs to offer such a network — part of the reason it is hoping its deal to be acquired by AT&T goes through.

While adding LTE would be costly for Sprint, trying to get handset makers to support WiMax with their latest devices could become harder over time as the world centers on a different technology. Many of the signs of such a move are evident, including partner Clearwire saying that it is also looking to support LTE.

“We’re going to come out with a great story this fall around 4G, and it’ll all become clear,” Hesse told Engadget.

So while anything’s possible and the iPhone could figure prominently in whatever announcement Sprint plans to make in October, the meat will almost certainly be the company’s 4G roadmap and the evolution of that nationwide LTE network it’s working on with LightSquared. Remember, when it reported earnings in late July, Sprint said explicitly that it would talk more about its 4G plans at an Oct. 7 investor day event.

The company said it lost $847 million, or 28 cents per share, on revenue of $8.3 billion for the three months ended June 30. That compared to a net loss of $760 million, or 25 cents per share, on revenue of $8 billion in the year-ago quarter.

Shares of Sprint were trading lower in premarket trading, changing hands recently at $4.53, down 63 cents or more than 12 percent.

On the customer side, much of Sprint’s gains were via wholesale and prepaid customers, with the company reporting a loss of about 101,000 net postpaid subscribers during the quarter. Though still losing postpaid customers, Sprint cut the rate by more than half from what it was posted in the second quarter of 2010. The company said its postpaid churn rate for the quarter was a best-ever 1.75 percent, smaller than the 1.85 percent from a year ago, and 1.81 percent in the first quarter of this year. The lower churn came as nine percent of Sprint’s core postpaid customers upgraded their phones during the quarter.

The company reaffirmed its full-year forecast issued in April, saying it expects to add postpaid subscribers for the full year and to add more wireless customers overall this year than it added last year. Capital expenses excluding interest should be about $3 billion, and the company said it expects positive cash flow for the second through fourth quarters and for 2011 as a whole.

As for the LightSquared deal, it’s a 15-year agreement that has each making a number of commitments and giving Sprint additional options when it comes to offering high-speed wireless services to customers. LightSquared will pay Sprint about $9 billion in cash for providing 3G roaming, spectrum hosting and network services, and will give Sprint $4.5 billion in credit for use on LightSquared’s forthcoming satellite and LTE networks.

Sprint has the option of using up to 50 percent of LightSquared’s expected 4G capacity in the so-called “L band.”

With the agreement, LightSquared said it expects to have its first 4G LTE services available in the second half of 2012. Sprint said it will talk more about its 4G plans at an Oct. 7 investor day event.

Dan Hays, a partner at management consulting firm PRTM, said the deal should benefit both companies, as LightSquared can host its 4G network within Sprint’s next-generation cell sites.

“For Sprint, this will defray a significant portion of its planned capital investment and deliver increased cash flow while providing an opportunity to tap into LightSquared’s competitive 4G technology,” Hays said in a statement. “For LightSquared, this deal will dramatically reduce the cost and time required to deploy its nationwide, mobile broadband network to hundreds of millions of Americans.”

Hays also said the 3G roaming piece of the deal should help LightSquared, as it allows the company to offer partners nationwide service from the outset.

LightSquared still faces significant financial and regulatory challenges in building its network, including concerns that it poses interference with GPS systems. LightSquared has said it has a plan that should significantly reduce such interference.