STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Fixed-Mobile Convergence

Regulatory Point of ViewDaniel Rosenne

Director General, Ministry of Communications, Israel

rosenned@moc.gov.il

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSPresentation Agenda

What is Fixed-Mobile Convergence?

Market realities: Mobile versus Fixed

The future: unified regulation

Example: the case of Israel

Conclusions.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

What isFixed-Mobile

Convergence?

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Fixed-Mobile Convergence: Different Meaning from Different Views

Consumers:Seamless Services, regardless of type of network.

Incumbent Operators:One stop shopping/one bill - bundling of fixed and mobile services.

Mobile Operators:Integrated services - cellular service positioning as fixed replacement.

Regulators:Ensuring fair competition - Fixed versus mobile, Mobile versus value added services.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Fixed-Mobile Convergence:It’s All About Competition

Competition for voice minutes: Fixed versus Mobile.

Competition for value added services revenues: Mobile versus value added service providers.

Competition for content revenues: Mobile versus value added service providers versus content providers.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

MobileVersus Fixed:

Market Realities

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Fixed-Mobile Convergence:It’s All About Competition

When mobile offers: Similar tariffs: Additional competition. Similar services: Data services. Same quality: as fixed.

Can mobile substitute fixed? YES!

When will it happen?

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Mobile Tariffs Paradox

Why are mobile tariffs higher than fixed tariffs?

Let’s face reality: tariffs are not pushed down, neither by market forces, nor by regulatory action.

Simple economics: Marginal investment per customer:

Fixed: US $1000-1500. Mobile: US $300-500.

Operating expense: similar for both.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Towards Unified Regulation

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Why Regulation?

Market controlled by limited number of dominant operators.

Abuse of market power by discrimination and unfair practices will eliminate competition.

Regulator’s goal - foster competition, for the ultimate benefit of consumers’.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Fixed-Mobile Convergence: Regulator’s Role

Protect consumers’ interests.

Abolish artificial and historical barriers to competition.

Reduce entry barriers to new entrants, especially for innovative new players.

The meaning of “Fixed-Mobile Convergence” is a need for unified regulation for fixed & mobile markets.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Key Regulatory Action Points (1)

Cost-based interconnection:

eliminating market distortion resulting from different methods for mobile and for fixed interconnection tariff setting.

Symmetrical airtime:

eliminating discriminatory practices resulting from charging different airtime tariffs from mobile subscribers and from fixed subscribers.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Key Regulatory Action Points (2)

Open network access:

allowing long distance and value added service providers access to the mobile network, similar to their fixed network access.

Prevention of discriminatory bundling:

ensuring transparent bundling, in a non-discriminatory manner.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

The Case of Israel

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Israel's Telecommunications

2.8 million main telephone lines(47% penetration).

2.5 million mobile 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).

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Telecommunications Services Market - 1998

InternationalLong-Distance

CableTV

Terminal Equipment& Business Systems

Internet services

CellularTelephony 38%

Fixed Services 40%

11%7%

2%2%

Total telecom services market ~ $ 3.7 billion

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Israel’s Mobile 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 7 October 1998. Hutchison (46.67%), Matab (20.31%), Elbit.com (16.5%), Tapuz (16.5%)

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

The Mobile Boom:Israel Telecommunications Services Revenues, 1995-1998 ($US M)

0

500

1,000

1,500

2,000

1995 1996 1997 1998

Fixed

CATV

International

Mobile

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Israel’s Mobile Services Growth

High growth - 2.5 million subscribers, compared to 125,000 in January 1995.

Key stimulators for the explosive growth: 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.

High quality, nationwide coverage. Fair competition.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Israel’s Regulatory Issues Concerning Fixed-Mobile Convergence

Achievements Structural separation,

preventing discriminatory bundling

Calling party pays

Cost-based fixed interconnect tariffs

Open access, to fixed & mobile networks (including pre-selection/dialing parity to international long distance providers)

Open Issues Symmetrical air time

Cost-based mobile interconnect tariffs

Enhanced competition: Additional mobile

operators 3G frequencies

allocation.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Conclusions

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Summary - Market Related Points

Fixed-Mobile convergence has several meanings: For incumbent Telco: one stop shopping. For competing Celco: fixed substitute. For consumers: additional competition? better service?

more service offerings? lower prices?

Mobile will not be true substitute to fixed, unless: Mobile prices will be similar to fixed. Mobile service offering will be similar to fixed, including

data services. Mobile will offer fixed quality.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Summary - Regulatory Points

Competition in telecommunications services is still limited, and should be promoted.

In the context of “Fixed-Mobile Convergence”, regulators’ role is to prevent abuse of market power by discrimination and unfair practices.

The key issues are: Cost-based interconnection. Symmetrical airtime. Open network access. Prevention of discriminatory bundling.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Regulation - It’s All About Competition

The future - from convergence to integration.

Regulation - uniform rules and principles for fixed and mobile.

Re-alignment of competitive positions - Mobile and fixed Incumbent and new operators.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

The Regulatory Equation

FMC = CBI+ONP

FMC: Fixed-Mobile Convergence

CBI: Cost Based Interconnect

ONP: Open Network Provision

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

For more information about Israel’s

telecommunications:

http://www.moc.gov.il

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

The EndThank you for your attention