Transcript Israel's Telecommunications 1997

STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Israel’s
Telecommunications
Towards Competitive Advantage
Daniel Rosenne
Director General, Ministry of Communications
[email protected]
STATE OF ISRAEL
Presentation Agenda

Networks & Services

Competitive areas:



Cellular telephony
International Telecommunications
The “Second Wave” of Competition:

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MINISTRY OF
COMMUNICATIONS
Telecommunications
Broadcasting
Manufacturing Industry
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Network & Services
STATE OF ISRAEL
Israel's Telecommunications
MINISTRY OF
COMMUNICATIONS

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).
Telecommunications
Services Market - 1998
Cable International
Internet
TV Long-Distance services
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Terminal Equipment
& Business Systems
2% 2%
11%
7%
Fixed
Services
Cellular
Telephony
38%
40%
Total telecom services market ~ $ 3.7 billion
The Cellular Boom:
STATE OF ISRAEL
Israel Telecommunications Services
Revenues, 1995-1998 ($US M)
MINISTRY OF
COMMUNICATIONS
2,000
1,500
Fixed
Cellular
1,000
International
500
0
CATV
1995
1996
1997
1998
Existing Regulatory
Environment

STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
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.
Bezeq
The Israel Telecommunication Corp Ltd.
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

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

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
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
MINISTRY OF
COMMUNICATIONS
100% digital network.
#7 ISUP signaling.
Country-wide Euro ISDN.
AIN features.
SDH transmission.
Country-wide fiber deployment.
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Cellular
Telephony
Competition Introduced
December 1994
Cellular Operators

STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
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
MINISTRY OF
COMMUNICATIONS

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 - $56 to 74)
 Calling Party Pays (CPP), in operation
since 1994.
 Nationwide coverage.
 Competition.
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
International
Telecommunications
Facilities Based Competition
Introduced July 1997
Facilities Based International
Service Providers

STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Bezeq International (014)
The incumbent carrier, 100% owned by Bezeq.

Two new carriers, operating since
July, 1997:

Golden Lines (012)
STET, SouthWestern Bell,
Aurek, Globscom & Meitar/Kahn.

Barak (013)
Sprint, Deutsche Telekom, France Telecom,
Clalcom & Matav.
STATE OF ISRAEL
Dialing Parity Rules

MINISTRY OF
COMMUNICATIONS
Per-call carrier-selection prefixes (01X).
For each of the international service providers.

Pre-selection - subscribers can choose a
preferred provider for ‘00’ prefix and ’188’
international operator services.
Pre-selections of existing subscribers that didn’t choose
will be “re-allocated” between operators.

Competitive practices - services &
consumers’ data provided by Bezeq to all
operators on non-discriminatory basis.
Resulting Market
Environment
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

Highly competitive market, with low
customer switching barriers.

Drastic cuts in retail tariffs (USA - 0.20$/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.
Submarine Optical
Cables Infrastructure
EMOS
Cable
RFCS
Capacity
EMOS
CIOS
LEV
FLAG
1990
1994
1998
1999
280 Mb/s
622 Mb/s
5 Gb/s
5 Gb/s
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
CIOS
LEV
FLAG
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Additional Aspects
STATE OF ISRAEL
Internet Services
MINISTRY OF
COMMUNICATIONS

~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


MINISTRY OF
COMMUNICATIONS
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
Civilian Satellites

AMOS-1: TV distribution, SNG & VSAT

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MINISTRY OF
COMMUNICATIONS
launched May 1996.
o
Geostationary orbit at 4 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
MINISTRY OF
COMMUNICATIONS
The “Second Wave” of
Telecommunications
Competition
Competitive
Environment
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

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.
New Regulatory Policy
(Promoting competitive Advantage)
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

Competition in fixed services.

Structural change of the
telecommunications sector:
 Liberalization.
 Privatization.
 Re-regulation.
STATE OF ISRAEL
Competition Rules
MINISTRY OF
COMMUNICATIONS

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 nondiscriminatory tariffs.

Cross-ownership limitations, assuring fair
competition.
Facilities based
competition
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

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.
Israel’s
Telecommunications Map
1994
Mobile
Services
1999


Pelephone


Pelephone
Cellcom
Partner/Orange
Fixed
Services
(Infrastructure,
Transmission
& Telephony)
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
2000 & onwards

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Bezeq
International
Long
 Bezeq
Distance
Services

Bezeq

Bezeq International
Barak
Golden Lines




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Pelephone
Cellcom
Partner/Orange
PCS operators
Bezeq
Competing
Operators:
 Wireline
 Wireless
Bezeq International
Barak
Golden Lines
Additional operators
Proposed New Frequency
Bands Allocations
Band
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Application Allocation
800/900 MHz
Cellular
30 MHz
Year
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
Bezeq in the
New Era
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
 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.
Bezeq Tariff
Rebalancing - April 1999
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

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
Interconnection Rates
Interconnection Israel
Tariff
MINISTRY OF
COMMUNICATIONS
EU
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
Bezeq Privatization
MINISTRY OF
COMMUNICATIONS

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
MINISTRY OF
COMMUNICATIONS
Introduction of Competition
Broadcasting
STATE OF ISRAEL
Broadcasting Networks
MINISTRY OF
COMMUNICATIONS

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.
“Open Sky” - New
Broadcasting Policy
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
 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).
Competition in
Multi-Channel Subscriber TV
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
 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
MINISTRY OF
COMMUNICATIONS
Manufacturing Industry
STATE OF ISRAEL
Israel’s Electronics Industries
MINISTRY OF
COMMUNICATIONS

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
Total 1998 Sales - $ 8.1 billion
MINISTRY OF
COMMUNICATIONS
Telecommunications
40%
Industrial &
Medical Systems
23%
Components
14%
Defense Systems
23%
STATE OF ISRAEL
Industry Excellence Areas
MINISTRY OF
COMMUNICATIONS

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
MINISTRY OF
COMMUNICATIONS
Electronics All Other
Industries Industries
Exports
[% of total sales]
81
25
Added value [%]
68
42
Engineers
& technicians [%]
61
14
Employees in R&D [%]
12
2
Major R&D Efforts
Stretching Boundaries of Imagination & Ingenuity
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

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
 Internet & Multimedia
 Satellite systems
 Telemedicine
 Broadband
 Microelectronics
telecommunications  Network management
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Summary
STATE OF ISRAEL
Israel’s Regulatory Policy
MINISTRY OF
COMMUNICATIONS

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
MINISTRY OF
COMMUNICATIONS

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
MINISTRY OF
COMMUNICATIONS
For more information:
http://www.moc.gov.il
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
The End
Thank you for your attention