* Smaller wireless carriers blast lawmakers' spectrum proposal
* Say current legislative language will hurt competition
* AT&T says smaller carriers looking for unfair advantage
WASHINGTON, Feb 8 (Reuters) - Chief executives at eight wireless carriers sent a letter to lawmakers on Wednesday, urging them to preserve the ability of U.S. communications regulators to design airwaves auctions.
The top executives at Sprint Nextel, Deutsche Telekom AG's T-Mobile USA and other smaller carriers took issue with proposed legislative restrictions that would bar the U.S. Federal Communications Commission from setting certain bidding rules in the next wireless spectrum auction.
The letter was sent to the 20-member panel tasked with crafting a year-long extension to payroll tax cuts for 160 million U.S. workers by the end of February.
The panel is mulling language giving the FCC authority to auction some airwaves currently held by TV broadcasters to wireless companies for mobile broadband use. Estimated auction proceeds are for as much as $28 billion, and could be used in part as a source of revenue to help pay for tax cuts.
A provision in the current proposed language would prevent the FCC from restricting those who can bid in the auction.
"Stripping the FCC of its auction design discretion would disserve the public interest by permitting unchecked participation by the two largest, best-funded wireless carriers in future spectrum auctions," the letter said.
The companies, including Atlantic Tele-Network, Bluegrass Cellular, C Spire Wireless, Cricket Communications, NorthwestCell and the Rural Cellular Association, pointed to the FCC's track record conducting some 80 auctions that raised about $50 billion in the last 20 years without such restrictions.
Unchecked participation by top carriers AT&T Inc and Verizon Wireless, a joint venture of Verizon Communications Inc and Vodafone Group Plc, would diminish auction revenues and hurt competition as smaller competitors would be discouraged from bidding, the companies said in the letter.
AT&T, which has supported the measure removing bidder restrictions, accused the smaller carriers of wanting the FCC to stack the deck in their favor.
"What this group proposes could not be called an auction with a straight face. These companies should be prepared to compete in a fair and open auction," Jim Cicconi, AT&T's senior executive vice president of external and legislative affairs, said in a statement.
Wireless carriers have clamored for access to more airwaves to stave off a looming spectrum crunch that would mean clogged networks, more dropped calls and slower connection speeds for wireless customers.
The FCC has called for repurposing TV airwaves for mobile broadband use since 2010, but lacks the Congressional authority to divert funds away from the Treasury to compensate television broadcasters for giving up some of their airwaves.
The communications regulator has said the bidding provision being considered would handcuff its ability to preserve competition in the wireless market.