Israel

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IsraelsTelecommunications

• Towards Competitive Advantage
• Daniel Rosenne
• Director General, Ministry of Communications
• rosenned_at_moc.gov.il

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Presentation Agenda

• Networks Services
• Competitive areas
• Cellular telephony
• International Telecommunications
• The Second Wave of Competition
• Telecommunications
• Broadcasting
• Manufacturing Industry

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Network Services
4
Israel's Telecommunications

• 2.8 million main telephone lines
• (47 penetration).
• 2.5 million cellular customers, on three
  networks Pelephone, Cellcom Partner/Orange.
• (42 penetration).
• 1.1 million Cable-TV connected households.
• (3 operators, 70 of passed households, 90
  household coverage).

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Telecommunications Services Market - 1998
International Long-Distance
Cable TV
Terminal Equipment Business Systems
Internet services
2
2
Cellular Telephony
7
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11
Fixed Services
40
Total telecom services market 3.7 billion
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The Cellular BoomIsrael Telecommunications
Services Revenues, 1995-1998 (US M)
2,000
Fixed
1,500
Cellular
1,000
International
500
CATV
0
1995
1996
1997
1998
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Existing Regulatory Environment

• Separation between regulation and operation
  (since 1984).
• Regulation responsibility - Ministry of
  Communications.
• General operating licenses issued to Bezeq,
  cellular operators facility based international
  long distance service providers.
• Special licenses issued by the Ministry of
  Communications, for value added services.
• Exclusive rights of Bezeq in fixed services
  canceled, as of 1 June 1999.

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BezeqThe Israel Telecommunication Corp Ltd.

• Israels national telecommunications operator.
• Annual sales - NIS 9.3 billion.
• 11,500 employees (8,500 in Bezeq, the mother
  company).
• Bezeq pays 5 royalties on income.
• Regulatory environment
• Price cap tariff regulation (CPI - X formula).
• Universal service obligations.

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Modern Fixed Network

• 100 digital network.
• 7 ISUP signaling.
• Country-wide Euro ISDN.
• AIN features.
• SDH transmission.
• Country-wide fiber deployment.

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Cellular Telephony Competition Introduced
December 1994
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Cellular Operators

• Pelephone 800 MHz NAMPS and CDMA. Operations
  since 1987.
• Bezeq (50), Motorola (50).
• Cellcom 800 MHz TDMA.
• Operations since 1995.
• BellSouth (34), Safra Brothers (34), Discount
  Investments (12.5), PEC (12.5), private
  investors (7).
• Partner/Orange 900 MHz GSM.
• Operations since October 1998.
• Hutchison (46.67), Matab (20.31), Elbit.com
  (16.5), Tapuz (16.5)

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Cellular Telephony

• High growth - 2.5 million subscribers, compared
  to 125,000 in January 1995.
• Key expansion stimulators
• Low tariffs US 0.11 to 0.23/minute air time,
  11 to 29 monthly charge.
• (300 min average monthly bill - 56 to 74)
• Calling Party Pays (CPP), in operation since
  1994.
• Nationwide coverage.
• Competition.

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International TelecommunicationsFacilities
Based Competition Introduced July 1997
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Facilities Based International Service Providers

• Bezeq International (014)
• The incumbent carrier, 100 owned by Bezeq.
• Two new carriers, operating since July, 1997
• Golden Lines (012)
• STET, SouthWestern Bell,
• Aurek, Globscom Meitar/Kahn.
• Barak (013)
• Sprint, Deutsche Telekom, France Telecom,
• Clalcom Matav.

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Dialing Parity Rules

• Per-call carrier-selection prefixes (01X).
• For each of the international service providers.
• Pre-selection - subscribers can choose a
  preferred provider for 00 prefix and 188
  international operator services.
• Pre-selections of existing subscribers that
  didnt choose will be re-allocated between
  operators.
• Competitive practices - services consumers
  data provided by Bezeq to all operators on
  non-discriminatory basis.

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Resulting MarketEnvironment

• Highly competitive market, with low customer
  switching barriers.
• Drastic cuts in retail tariffs (USA - 0.20/min,
  UK - 0.18/min, Japan - 0.30/min).
• International long distance calls - a commodity.
• The incumbent carrier, Bezeq International, lost
  its dominant position (60 gt billed minutes)
  within 70 days.

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Submarine Optical Cables Infrastructure
EMOS
CIOS
Cable RFCS Capacity EMOS 1990 280
Mb/s CIOS 1994 622 Mb/s LEV 1998 5
Gb/s FLAG 1999 5 Gb/s
LEV
FLAG
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Additional Aspects
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Internet Services

• 30 Internet service providers, 800,000 users,
  300,000 dial-up 2,000 directly connected
  customers, 18,000 domains.
• Typical tariffs
• 15 monthly fee, including 10 usage hours,
  1.5 for each additional hour.
• Unlimited access at 1 per day.
• IIX (Israel Internet eXchange) domestic
  interconnection service.
• High growth - prediction for 1.2 to 1.5 million
  users by year end 2000.

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The Israel Internet 2 Network

• Part of the global research network for the NGI
  (Next Generation Internet).
• Connecting Israel to the forefront of scientific
  and industrial RD, through
• StarTap - US NSF/I-2/NGI interconnection point.
• Quantum - EC International test network
  (TEN-155).
• Q-Med - Mediterranean consortia (Cyprus, Greece,
  Israel, Italy) Quantum extension.
• 34 Mb/s connection to London, 45 Mb/s connection
  to Chicago (155/622 Mb/s - planned).
• 10 Mb/s 155 Mb/s domestic connectivity
• (622 Mb/s, 10Gb/s - planned).

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Civilian Satellites

• AMOS-1 TV distribution, SNG VSAT
• launched May 1996.
• Geostationary orbit at 4o West.
• 7 transponders, covering Middle East Central
  Europe.
• Designed, manufactured and controlled by Israel
  Aircraft Industries.
• Gurwin-II TechSAT communications, remote sensing
  research
• Launched July 1998.
• 830 km altitude sun-synchronous circular orbit.
• 50 kg, 3-axis stabilized Earth-pointing microsat.
• Designed, manufactured and controlled by the
• Technion - Israel Institute of Technology.

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The Second Wave of Telecommunications
Competition
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Competitive Environment

• Wide competition in customer premise equipment
  and value added services.
• Limited competition in cellular and international
  services.
• Two monopoly areas
• Bezeq - Domestic fixed services (Infrastructure,
  transmission, data communications telephony).
• Cable TV operators - Multi-channel subscriber
  television.

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New Regulatory Policy(Promoting competitive
Advantage)

• Competition in fixed services.
• Structural change of the telecommunications
  sector
• Liberalization.
• Privatization.
• Re-regulation.

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Competition Rules

• Three tier market structure
• Mobile services (Cellular PCS).
• Fixed domestic services (infrastructure,
  transmission, data comms telephony).
• International services.
• Facilities based competition.
• Universal service obligations - including equal
  terms service offering requirement, at
  non-discriminatory tariffs.
• Cross-ownership limitations, assuring fair
  competition.

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Facilities based competition

• New operators required to set up their own
  facilities.
• No unbundling or co-location requirements on
  existing operators.
• Interconnection rules, including tariffs,
  technical requirements, equal access and number
  portability.

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Israels Telecommunications Map
1994
Mobile Services

• Pelephone

Fixed Services (Infrastructure, Transmission
Telephony)

• Bezeq

International Long Distance Services

• Bezeq

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Proposed New Frequency Bands Allocations

• Band Application Allocation Year
• 800/900 MHz Cellular 30 MHz 1998
• 2 GHz PCS/UMTS 300 MHz up to 2005
• 2 GHz N-FWA/WLL 60 MHz 1999
• 3.5 GHz N-FWA/WLL 90 MHz 1999
• 26/28 GHz B-FWA/LMDS 1300 MHz 1999

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Bezeq in the New Era

• Structural regulation.
• Universal service obligation.
• Tariff controls, until market share in domestic
  services (Infrastructure, transmission, data
  services telephony) falls bellow 60.
• Tariff re-balancing, dealing with access deficit
  and cross subsidies.

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Bezeq Tariff Rebalancing - April 1999

• One step rate rebalancing, almost eliminating
  cross-subsidies between services (voice traffic
  still subsidized telephone access).
• New price-cap regime - productivity gap
  (x-factor) of 7 (6 in 1999, will be adjusted if
  Bezeq output deviates from predictions).
• 6 average rate decrease (21 decrease on voice
  traffic, 16 increase on fixed monthly payment.
  Typical tariffs - NIS 0.208 for local call, NIS
  36.1 monthly payment, 532 NIS for line
  installation).
• ROE (before tax) - 10.5.

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Interconnection Rates

• Interconnection Israel EU
• Tariff benchmarks
• Local 0.8 0.7-1
• Urban Toll 1.3 1-2
• National Toll 2.5 1.7-3

US cents, 1 NIS 4.16
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Bezeq Privatization

• Bezeq shareholders
• Government of Israel - 54 .
• Cable Wireless - 13.
• Remaining shares - publicly held.
• Governments holding shall be further reduced, in
  synchronization with market liberalization.
• Government approval required for holding of more
  than 5.

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Introduction of CompetitionBroadcasting
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Broadcasting Networks

• Radio -
• Public radio - 7 national AM/FM radio stations,
  AM Arabic channel world-wide short-wave
  service.
• Commercial radio 14 local FM radio stations.
• Television -
• Public channel (Channel 1).
• Commercial channel (Channel 2).
• Multi-channel subscriber TV - 3 regional cable TV
  operators, providing service over 550 MHz (50
  channels) systems, including 7 self provided
  program channels.

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Open Sky - NewBroadcasting Policy

• Creating competitive broadcasting market.
• Key policy ingredients -
• Public broadcasting - new definitions (goals,
  structure, finance).
• Commercial broadcasting - introduction of second
  commercial television channel private
  country-wide radio stations.
• Multi-channel subscriber television -
  introduction of direct broadcasting satellite, in
  competition with cable television.
• Broadcasting digitization - radio Television,
  terrestrial, cable television satellite
  (DAB/DVB).

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Competition inMulti-Channel Subscriber TV

• DBS (Direct Broadcasting Satellite)
• Digital system, 60 cm receiving antennas.
• Basic package of 10 channels.
• Additional pay channels/channel packages.
• Local content obligations.
• Local production of additional cable/satellite
  channels
• Israeli music.
• News (2 channels).
• Jewish heritage.
• Immigration absorption.
• Arabic channel.

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Manufacturing Industry
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Israels Electronics Industries

• Combined 1998 sales - 8.1 billion, of which 6.6
  billion were exports sales.
• Highly skilled workforce - 45,000 employees,
  including over 27,000 engineers technicians,
  17,000 of them university graduates.
• Output per employee - over 180,000.

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Total 1998 Sales - 8.1 billion
Industrial Medical Systems 23
Telecommunications 40
Components 14
Defense Systems 23
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Industry Excellence Areas

• Telecommunications - Internet, data
  communications, wireless, video image
  processing, satellite communications, access
  networks, broadband, etc.
• Semiconductor manufacturing equipment.
• Defense systems - self developed main platforms,
  opto-electronics, radars, C4I, UAV (Unmanned Air
  Vehicles) avionics.

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Statistical Highlights
Electronics All Other Industries
Industries Exports of total
sales 81 25 Added value 68 42 Engineers
technicians 61 14 Employees in RD 12 2
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Major RD EffortsStretching Boundaries of
Imagination Ingenuity

• Innovative synergistic industry-academy
  cooperation, supported by the Chief Scientist,
  Ministry of Industry Trade.
• Over 100 industrial academic participants.
• Focused on establishment of the technological
  infrastructure for the next generation.
• Key telecommunications RD activities

• Digital wireless
• Satellite systems
• Broadband telecommunications

• Internet Multimedia
• Telemedicine
• Microelectronics
• Network management

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Summary
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Israels Regulatory Policy

• Structural changes - achieving strategic
  advantage in competitive global markets.
• Competition - the key for innovation,
  entrepreneurship, investment growth.
• Key action areas
• Liberalization.
• Re-regulation.
• Privatization.

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Regulation Philosophy

• Free and competitive markets promote growth,
  efficiency, customer satisfaction economic
  advantage.
• Market restructuring, in transition from monopoly
  to open and free market, during a short time
  period, requires active regulatory intervention.
• Once competitive marketplace is achieved, strong
  regulator will provide unnecessary intervention,
  and should be abolished.

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For more informationhttp//www.moc.gov.il
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The End

• Thank you for your attention