THE U.S. FEDERAL Communications Commission (FCC) released Thursday a proposal that would free wireless carriers of their obligation to pay $16 billion they bid in a spectrum auction that has been tied up in court for more than a year.

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The proposal would allow carriers, including Verizon Wireless and T-Mobile USA (formerly VoiceStream Wireless), to opt out of bids placed in January 2001 when the FCC reauctioned spectrum licenses originally bought by NextWave Telecom, which later filed for bankruptcy protection.

The status of the bids fell into limbo when the FCC's reauction was nullified in June 2001 by an appellate court, which ordered the FCC to return the licenses to NextWave. A settlement calling for the bankrupt wireless operator to transfer the licenses to the winning bidders in the reauction fell apart last year. Since then, all parties have been waiting for the U.S. Supreme Court to rule on the matter.

The court is scheduled Oct. 8 to hear a key issue in the case regarding the effectiveness of the FCC's automatic cancellation rules with respect to NextWave's licenses.

About half of the obligations in question belong to Verizon Wireless, Verizon Communications's joint venture with Vodafone Group, which bid $8.7 billion for the orphaned spectrum. A Supreme Court ruling against the carriers could have a huge impact because they are liable to pay their bids within 10 days of the ruling, said David Hoover, an analyst with the Washington, D.C.-based investor research firm Precursor Group.

In the case of Verizon, the company has credit lines of $8 billion set aside to cover the liability while the case is going through the courts, Hoover said. That's credit that's not being used for anything else, including network buildout, equipment upgrades, and possible acquisitions, and the government realizes absolving the companies could help the wireless industry.

"Post-WorldCom the sector is not doing particularly well and [the administration] is trying to come up with some ways to kick start the sector," Hoover said. "They believe they can take a one-time hit ... by allowing carriers to walk away from their bids."

The FCC proposal released Thursday would allow a comment period lasting through Oct. 11 on letting the companies free themselves from obligations to pay the money to the government. The FCC, which already gave back billions of dollars in down payments to the bidders, has so far refused to free the carriers from their obligation to pay the remainder of their bids if the government were to regain the NextWave spectrum.

The proposal to fully release the companies from their obligations acknowledges that since the commission issued its partial refund, "the capital markets for entities ... engaged in the provision of wireless telecommunications services, as well as other telecommunications services, has continued to decline rapidly." Specifically, the FCC has received submissions asserting that troubling financial circumstances have led to difficulties in accessing capital, the proposal said.

The wireless companies haven't lost interest in the spectrum, a source close to the situation said. They believe they could acquire the spectrum more cheaply in the future, the source said. The market value of the spectrum is roughly half of the $16 billion bid last year.

If the FCC allows the wireless companies to abandon their bids, the move could be a big boost for the nation's wireless industry, which has been battered by plunging stock prices, brutal pricing wars, and continued investor skepticism about growth prospects.

Tom Wheeler, president and chief executive officer of the Cellular Telecommunications & Internet Association, based in Washington, D.C., said relieving the industry's $16 billion obligation would provided much-needed relief.

"Chairman [Michael] Powell has said previously that the wireless industry faced a 'severe capital crisis;' this decision would do much to ease that crisis," Wheeler said in a statement.