Financial advisers warned Minister for Finance, Mr McCreevy, there was a "significant" credit risk in deferring payments from mobile phone companies for third-generation (3G) licences, official records show.
The advisers recommended a one-off fee to avoid a risk of 3G technology proving to be a "lemon" and the State being unable to collect deferred fees.
Last month Mr McCreevy sanctioned a proposal by the telecoms regulator that companies should pay for 3G licences over 15 years.
This followed a year-long stand-off between the regulator, Ms Etain Doyle, and Mr McCreevy over the amount and method by which firms should pay for the licences.
The records show Mr McCreevy finally sanctioned a proposal from Ms Doyle that his advisers had initially objected to on the grounds that it may be a "credit risk" for the Government.
A consultants' report also warned that a competition that allowed companies to bid in a non-cash form could pose problems because the State could not enforce a no bankruptcy rule.
There was a risk, in contrast to cash up front, of the industry turning out to be a "lemon borne by the State", not by the shareholders in the companies, the report continued.
However, Mr McCreevy sanctioned deferred fees, which will result in companies paying a total of £310 million (€394 million) over 15 years. On a discounted rate this equals £195.9 million.
In a compromise deal agreed between Ms Doyle and Mr McCreevy, four successful bidders will pay £115 million for the licences in the first year. A moratorium on payments will follow for several years with the remaining £195 million paid over 15 years.
Under law Ms Doyle has the right to design a competition to award licences but she must seek the sanction of Mr McCreevy to set the price of licences.
A spokeswoman for the telecoms regulator said yesterday any unused spectrum would be returned to the Office of the Director of Telecommunications Regulation for allocation at another stage. She said the office was confident the "innovative solution" reached in significantly lower discount fees levels was the best approach.
Government records released under the Freedom of Information Act last week also show Mr McCreevy's advisers strongly opposed the type of competition chosen by Ms Doyle, and the level of fees she proposed.
Mr McCreevy's consultants, DKM Consulting and Prof Len Waverman, favoured an auction and sought significantly higher fees.
The consultants advised Mr McCreevy to seek fees of £150 million for the three B licences and £100 million for the A licence on offer in the "beauty contest" style competition.
In contrast, Ms Doyle sought much lower fees and no minimum bid in her proposed competition.
Letters sent by Ms Doyle to Mr McCreevy and his officials after his decision show the regulator objected strongly to the advice of Mr McCreevy's consultants. They were concerned the experts were using a wrong premise for analyses by using the example of the German auction for licences, which occurred at the height of the technology and telecoms bubble.
One letter shows Ms Doyle tried to break the deadlock by proposing that they hear the advice of a new set of independent advisers.
This was categorically rejected by Mr McCreevy.
The records show Mr McCreevy's advisers were slow to scale back their expectation of the amount that could be raised from the sale of the 3G licences. Despite plummeting valuations in the telecoms sector and the failure of the French 3G contest by early 2001, the Minister's advisers refused to lower their expectations.
To support their case,they argued in February 2001 that successful spectrum auctions in the US validated their proposed fee levels. This caused consternation among the telecoms regulator's officials, who believed strongly that higher prices for licences in the Republic would not attract any bidders. They argued US auctions were "completely irrelevant to the situation in Ireland."
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