state of israel ministry of communications israel’s telecommunications towards competitive...

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Israel’sTelecommunications

Towards Competitive Advantage

Daniel Rosenne

Director General, Ministry of Communications

[email protected]

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSPresentation Agenda

Networks & Services

Competitive areas: Cellular telephony International Telecommunications

The “Second Wave” of Competition: Telecommunications Broadcasting

Manufacturing Industry

STATE OF ISRAEL


Network & Services

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSIsrael'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).

STATE OF ISRAEL


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


The Cellular Boom:Israel 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


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


BezeqThe Israel Telecommunication Corp Ltd.

Israel’s 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.

STATE OF ISRAEL


Modern Fixed Network

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

STATE OF ISRAEL


Cellular Telephony

Competition Introduced December 1994

STATE OF ISRAEL


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%)

STATE OF ISRAEL


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.

STATE OF ISRAEL


International Telecommunications

Facilities Based Competition Introduced July 1997

STATE OF ISRAEL


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.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSDialing 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 didn’t choose will be “re-allocated” between operators.

Competitive practices - services & consumers’ data provided by Bezeq to all operators on non-discriminatory basis.

STATE OF ISRAEL


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% > billed minutes) within 70 days.

STATE OF ISRAEL


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


Additional Aspects

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSInternet 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.

STATE OF ISRAEL


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 R&D, 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).

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSCivilian Satellites

AMOS-1: TV distribution, SNG & VSAT launched May 1996. Geostationary orbit at 4

o 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.

STATE OF ISRAEL


The “Second Wave” of Telecommunications

Competition

STATE OF ISRAEL


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


New Regulatory Policy(Promoting competitive Advantage)

Competition in fixed services.

Structural change of the telecommunications sector:

Liberalization. Privatization. Re-regulation.

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 obligations - including equal terms service offering requirement, at non-discriminatory tariffs.

Cross-ownership limitations, assuring fair competition.

STATE OF ISRAEL


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.

STATE OF ISRAEL


Israel’s Telecommunications Map

Pelephone

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


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

STATE OF ISRAEL


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.

STATE OF ISRAEL


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%.

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

US cents, $1 = NIS 4.16

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSBezeq Privatization

Bezeq shareholders: Government of Israel - 54 %. Cable & Wireless - 13%. Remaining shares - publicly held.

Government’s holding shall be further reduced, in synchronization with market liberalization.

Government approval required for holding of more than 5%.

STATE OF ISRAEL


Introduction of Competition

Broadcasting

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


“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).

STATE OF ISRAEL


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.

STATE OF ISRAEL


Manufacturing Industry

STATE OF ISRAEL


Israel’s 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.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSTotal 1998 Sales - $ 8.1 billion

Telecommunications40%

Components14%

Industrial &Medical Systems23%

Defense Systems23%

STATE OF ISRAEL


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.

STATE OF ISRAEL


Statistical Highlights

Electronics All OtherIndustries Industries

Exports[% of total sales] 81 25

Added value [%] 68 42

Engineers& technicians [%] 61 14

Employees in R&D [%] 12 2

STATE OF ISRAEL


Major R&D 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 R&D activities: Digital wireless Satellite systems Broadband

telecommunications

Internet & Multimedia Telemedicine Microelectronics Network management

STATE OF ISRAEL


Summary

STATE OF ISRAEL


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


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.

STATE OF ISRAEL


For more information:

http://www.moc.gov.il

STATE OF ISRAEL


The EndThank you for your attention

state of israel ministry of communications israel’s telecommunications towards competitive...

Documents

fixed services

networks services

israel telecommunication

cellular boom

cellular customers

manufacturing industry

cellular operators facility

total telecom services