By Hadar Horesh

The Communications Ministry is considering allowing Israel's cellular providers to defer paying the enormous costs the state demands for spectrum.

The ministry had previously insisted on an immediate minimum payment of $100 million for each of four spectrum packages being auctioned.

The additional frequencies will enable the companies to expand their network capacity and to provide broadband third-generation Internet service.

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(Nasdaq, LSE:PTNR) and Pelephone say they have no immediate need for more spectrum. In any case, they note, third-generation does not actually exist yet.

The spectrum auction compels them to spend a large amount of money prematurely, they argue.

The Finance Ministry has supported the companies' argument. Treasury Budgets Division chief Ohad Marani wrote to Communications Minister Reuven Rivlin, demanding that the auction be postponed.

But the Communications Ministry insisted on proceeding with the auction as planned. It argues this is the only way to promote development of third-generation systems in Israel.

Cellcom, which has run short of frequencies, is the only company eager for the auction to be held soon. Cellcom is also a very profitable cellular company, and will have less difficulty than the others in financing the cost.

But although the Communications Minister supports holding the auction as planned, he may be swayed by the opposition to the tender requirements and ease the terms of payment.

One idea under consideration is to begin collecting payment for the frequencies only when they used. According to the ministry's plans, the frequencies will be handed over gradually, with some only being provided to the cellular firms in two or three years.

Communications DG stepping down

Meanwhile, Communications Ministry director-general Danny Rosenne has decided to step down after more than four years on the job.

Minister Rivlin is expected to tap his advisor Uri Olnick to replace Rosenne, who is expected to complete his tenure in July.

Rosenne's resignation did not come as a surprise and is not due to any differences of opinion with Rivlin, according to ministry sources.

Rosenne had already talked about stepping down at the end of last year, but was expected to stay on through September to oversee two of his main initiatives: the auctions for wireless frequencies.