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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Business Opportunities In An Era of Telecommunications
Liberalization
Daniel Rosenne
Director General, Ministry of Communications
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSPresentation Agenda
Israel’s Telecommunications Market: General overview Cellular telephony International telecommunications
Telecom Liberalization: Regulatory reform New frequency allocations The new numbering plan Bezeq in the new era
Competition In Broadcasting Services Summary
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Israel’s Telecommunications Market
General Overview
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSIsrael's Telecommunications
2.8 million main telephone lines(47% penetration).
3 million cellular customers, on three networks: Pelephone, Cellcom & Partner/Orange. (48% penetration).
1.1 million cable-TV connected households. (3 operators, 70% of passed households, 92% household coverage).
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
The 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
The Cellular Boom:Israel’s Telecommunications Services Revenues, 1995-1998 ($US M)
0
500
1,000
1,500
2,000
1995 1996 1997 1998
Fixed
CATV
International
Cellular
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
The 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.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
The 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.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Modern Fixed Network
100% digital. #7 ISUP signaling. Country-wide Euro ISDN. AIN features. SDH transmission. Country-wide fiber deployment.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Internet Services Profile
~30 Internet service providers, 1 million users, 500,000 dial-up & 5,000 directly connected customers, 21,000 domains.
Typical tariffs: ~ $12 monthly fee, including 10 usage hours, ~ $1 for each additional hour. Unlimited access at < $1 per day.
IIX (Israel Internet eXchange) domestic interconnection service.
“Hands-off” overall regulatory policy.
High growth ~ 50% annual.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Cellular Telephony
Competition Introduced December 1994
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Cellular Operators
Pelephone Cellcom Partner/Orange
800 MHz 800 MHz 900 MHz
NAMPS & CDMA TDMA GSM
1987 1995 1999
BellSouth Hutchison Bezeq Safra Brothers Matav
Motorola Discount Investments Elbit.comPEC Tapuz
private investors free float
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Cellular Telephony
Rapid growth - 3 million subscribers, compared to 125,000 in January 1995.
In November 1999 the number of mobiles (2.9 million) exceeded the number of fixed lines.
Key expansion stimulators: Perceived 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). Nationwide coverage. Competition & marketing innovations.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
International Telecommunications
Facilities-Based Competition Introduced in July 1997
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
International Services Regulatory Environment
Three facilities-based international long distance service providers and several call-back & IBS operators.
Regulation covers: Maximum tariffs. Dialing parity. Interconnect agreements. International accounting - accounting
rates, proportionate return. Universal service obligations.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Facilities-Based International Service Providers
Golden Lines (012)Telecom Italia, SouthWestern Bell,Aurek, Globscom & Meitar/Kahn.
Barak (013)Sprint, Deutsche Telekom, France Telecom, Clalcom & Matav.
Bezeq International (014)The incumbent carrier, 100% owned by Bezeq.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSDialing Parity Rules
Per-call carrier-selection prefixes (01X). For each of the international service providers.
Pre-selection - subscribers choose a preferred provider for ‘00’ prefix and ’188’ international operator services.Pre-selections of existing subscribers that did notpre-select, will be blocked up to 1 May 2000.
Competitive practices - service & consumer data provided by Bezeq to all operators on non-discriminatory basis.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Resulting MarketEnvironment
Highly competitive market, with low customer switching barriers.
Drastic cuts in retail tariffs (example: $0.12/min to any destination).
International long distance calls - a commodity.
The incumbent carrier, Bezeq International, lost its dominant position (60% > billed minutes) within 70 days.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
International Traffic[Million Minutes/Year]
0
200
400
600
800
1996 1997 1998 1999
Incoming
Outgoing
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Submarine Optical Cables Infrastructure
LEV
EMOS CIOS
FLAG
Cable RFCS Capacity
EMOS 1990 280 Mb/sCIOS 1994 622 Mb/sLEV 1998 5 Gb/sFLAG 1999 5 Gb/s
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Telecommunications Liberalization
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Regulatory Reform
Competition in fixed services.
Structural change of the telecommunications sector:
Liberalization. Privatization. Re-regulation.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSRe-regulation Includes:
Competition rules - open access & non-discrimination. Universal service - obligations, reciprocal compensation
(if required). Interconnection - tariffs, technical standards. General license owners - obligations, structural regulation,
services, coverage, interconnection. Numbering - administration, portability, new numbering
plan. Policy - regulatory activity. National security.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSCompetition Rules
Three tier market structure: Mobile services (Cellular & PCS). Fixed domestic services (infrastructure, transmission, data
comm’s & telephony). International services.
Facilities-based competition.
Universal service and open access obligations including equal terms service offering requirement, at non-discriminatory tariffs.
Structural separation & Cross-ownership rules, assuring fair competition.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Facilities-Based Competition
New operators are required to set up their own facilities.
No unbundling or co-location requirements on existing operators.
Interconnection & open access regulations: tariffs, technical requirements, equal access and number portability.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Licenses for new operators
General licenses for fixed domestic services (infrastructure, transmission, data services & telephony) will be issued to applicants meeting economic and know-how criteria.
General license requiring limited spectrum resources (mobile, FWA) shall be issued through public tenders.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Israel’s Telecommunications Map
Pelephone(Bezeq)
Bezeq
Bezeq
1994
Pelephone Cellcom Partner/Orange
1999
Bezeq
Bezeq International Barak Golden Lines
2000 & onwards
Pelephone Cellcom Partner/Orange PCS operators
Bezeq Competing
Operators: Wireline Wireless
Bezeq International Barak Golden Lines Additional operators
MobileServices
FixedServices
(Infrastructure, Transmission & Telephony)
International
Long DistanceServices
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
New Frequency Allocations
The key for competitive and growing marketplace
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
New Frequency Bands Allocations
Band Application Allocation Year
2 GHz DCS/UMTS 300 MHz up to 2005
2 GHz N-FWA/WLL 20 MHz 2000
3.5 GHz N-FWA/WLL 60 MHz 2000
26/28 GHz B-FWA/LMDS 1600 MHz 2000
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
License Auctions for 2000
Fixed Wireless Access: Broadband (26/28 GHz) & Narrowband (2/3.5
GHz) + Microwave frequencies. Up to 4 operators, selected in MSR (Multiple
Simultaneous Round) auction. Participation of Bezeq & CATV operators in the
auction will be excluded. Tender process planned to begin early 2000.
Additional Mobile Competition: 2G (DCS-1800) & 3G (UMTS). Allocations for new & existing operators. Detailed to be announced during 2000.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
New NNP (National Numbering Plan)
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Existing NNP Adopted by Bezeq in the late 80’s, as part of the
network digitization program.
8 digits number length: Fixed: A NXX XXXX
(area code + exchange code + local number) Mobile: 5X NX XXXX
(network Identification + subscriber number)
Services: variable length, 2 to 10 digits.
Prefixes: 0 - long distance (00, 01X - International)1 - service prefix* - access to network services# - service deactivation.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSNew NNP
Additional digit (9 digits number length): Step 1 - Mobile: 5A [N]XX XXXX
(A = 0,2,4; N = 2,3,8 for Cellcom; 4,5 for Orange, 6,7 for Pelephone)
Step 2 - Fixed: A [N]XXX XXXX
Area codes consolidation: Area code 6 reclaimed for advanced services. Further future consolidation (end up with 2 to 4 areas).
Services numbering re-arrangement : 1XX for life-threatening emergency; 1XXX for other services. 1 YYY XXX XXX logical numbering.
Toll-free number portability.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Numbers [Millions] Number Type
Old NNP New NNP
Geographic 56 160 - 320
Mobile 8 80
Logical - 160 - 80New Services 10 100
Future Use - 240 - 160
Will We Have Enough Telephone Numbers?
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Bezeq In the New Era
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Bezeq in the New Era
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.
Structural separation.
Universal service obligation.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Bezeq Tariff Rebalancing - April 1999
One-step rate rebalancing, almost eliminating cross-subsidies between services (voice traffic still subsidizes 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%.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSInterconnection Rates
Interconnection Israel EUTariff benchmarks
Local 0.8 0.7-1
Urban Toll 1.3 1-2
National Toll 2.5 1.7-3
$1 US = NIS 4.16
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSBezeq Privatization
Government holds 54% of Bezeq shares (remaining shares are publicly held).
Government plans to sell all of its holdings through IPO & private placement. The process shall begin in 2000.
Government approval required for holding of more than 5%.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Competition InBroadcasting
Services
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSBroadcasting 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.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
“Open Sky”Broadcasting 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).
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Competition inMulti-Channel Subscriber TV
License for DBS (Direct Broadcasting Satellite) issued January 1999: Digital system, 60-120 cm receiving antennas. Basic package of ~10 channels. Additional pay channels/channel packages. Local content obligations.
Additional independent cable/satellite channels, based on advertisement revenues.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Broadcasting License Tenders for 2000
Second commercial television channel.
Independent cable/satellite channels: Israeli music. News (2 channels). Jewish heritage. Immigration absorption. Arabic channel.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Summary
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Israel’s 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.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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 and balanced regulatory intervention.
Once competitive marketplace is achieved, a strong regulator will provide unnecessary intervention, and should be abolished.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSProactive Re-regulation
The end of the access monopoly: Facility-based competition. Alternative infrastructure: fiber, copper, cable,
fixed wireless, satellite. Simple interconnection rules:
Open access, carrier pre-selection & dialing parity. Non-discriminatory interconnection tariffs. Minimum compatibility requirements.
New numbering plan & frequency allocations.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Israel’s Telecom Future: Real and Sustainable Growth
Technology-enabled evolution: From simple fixed voice and narrowband to
broadband, mobile, internet & advanced services. From circuit switching to IP based infrastructure.
Rapid growth:Prediction for additional 1 million fixed connections, 1.5 million cellular customers & 1 million Internet users by 2003.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Everything Is Internet!
The Economist, May 2nd 1998
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS1999 Was a Good Year
Successful launch of Partner/Orange (3rd cellular operator).
Balloting for preselection of international long-distance providers.
Issue of DBS license (yes).
Continued CATV industry consolidation.
IPO’s for Partner/Orange & Internet-Gold.
Telecommunications law update (interconnection, numbering, etc.).
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
2000 will be an Exciting Year
CATV/DBS compromise over content/tiering.
Tender for fixed wireless access licenses.
CATV operators become telecom operators.
Bezeq supplies ADSL services.
Bezeq privatization.
Further IPO’s.
Tender for additional cellular operator/s & additional frequencies for existing cellular operators.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Value Creation: The Key for Growth
Key growth drivers: Investments:
Access competition Broadband
User requirements: ‘Internet’ life style ‘Mobile’ culture
Growth is demand driven: Consumer ‘S’ curve Pricing stimulate demand Service differentiation Targeted Packaging
Applications: PC/TV xDSL/Cable Mobile gadgets Home LAN
Competition: Flexible packaging Innovation
Marketing Branding Targeted offerings Loyalty/churn
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
http://www.moc.gov.il
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
The EndThank you for your attention