Transcript Israel's Telecommunications 1997

STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Business Opportunities In An
Era of Telecommunications
Liberalization
Daniel Rosenne
Director General, Ministry of Communications
[email protected]
STATE OF ISRAEL
Presentation Agenda

Israel’s Telecommunications Market:

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General overview
Cellular telephony
International telecommunications
Telecom Liberalization:


MINISTRY OF
COMMUNICATIONS
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
Israel's Telecommunications
MINISTRY OF
COMMUNICATIONS

2.8 million main telephone lines
(47% penetration).

2.9 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).
The 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’s 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
The 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.
The 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.
STATE OF ISRAEL
Modern Fixed Network

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MINISTRY OF
COMMUNICATIONS
100% digital.
#7 ISUP signaling.
Country-wide Euro ISDN.
AIN features.
SDH transmission.
Country-wide fiber deployment.
Internet Services
Profile
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

~30 Internet service providers, 1 million users,
400,000 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
Cellular Operators
MINISTRY OF
COMMUNICATIONS
Pelephone
Cellcom
Partner/Orange
800 MHz
800 MHz
900 MHz
NAMPS & CDMA
TDMA
GSM
1987
1995
1999
BellSouth
Safra Brothers
Discount Investments
PEC
private investors
Hutchison
Matav
Elbit.com
Tapuz
free float
Bezeq
Motorola
Cellular Telephony
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

Rapid growth - 2.9 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)

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Calling party pays (CPP).
Nationwide coverage.
Competition & marketing innovations.
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
International
Telecommunications
Facilities-Based Competition
Introduced in July 1997
International Services
Regulatory Environment
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

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.
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 will not
pre-select up to 31 December 1999, will be blocked.

Competitive practices - service &
consumer 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
(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.
International Traffic
[Million Minutes/Year]
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
800
Outgoing
600
Incoming
400
200
0
1996
1997
1998
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
Telecommunications
Liberalization
Regulatory Reform
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

Competition in fixed services.

Structural change of the
telecommunications sector:
 Liberalization.
 Privatization.
 Re-regulation.
STATE OF ISRAEL
Re-regulation Includes:
MINISTRY OF
COMMUNICATIONS
 Competition rules - open access & non



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
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
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 and open access obligations
including equal terms service offering
requirement, at non-discriminatory tariffs.

Cross-ownership rules, assuring fair
competition.
Facilities-Based
Competition
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

New operators are required to set up
their own facilities.

No unbundling or co-location
requirements on existing operators.

Interconnection regulations: tariffs,
technical requirements, equal access
and number portability.
Licenses for new
operators
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
 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.
New Operators’ Universal
Service Obligations
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Service offers will be defined by the
licensee, at his will.
 All services will be available throughout
the ‘service area’ within 36 months after
license award.
 The ‘service area’ will be defined by the
licensee. The minimum is 15
‘administrative zones’ (out of 52), of
which at least 3 are from a list of 37
‘periphery area’ zones.

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
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
New Frequency
Allocations
The key for competitive
and growing marketplace
New Frequency
Bands Allocations
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Band
Application Allocation
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
Year
2000
License Auctions
for 2000
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

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 begins January 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)
Existing NNP
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

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.
New NNP

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Area code 6 reclaimed for advanced services.
Further future consolidation (end up with 2 to 4 areas).
Services numbering re-arrangement :

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
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:


MINISTRY OF
COMMUNICATIONS
Additional digit (9 digits number length):


STATE OF ISRAEL
1XX for life-threatening emergency; 1XXX for other
services.
1 YYY XXX XXX logical numbering.
Toll-free number portability.
Will We Have Enough
Telephone Numbers?
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Numbers [Millions]
Number Type
Old NNP
New NNP
Geographic
56
160 - 320
Mobile
8
80
Logical
1
114
New Services
-
80
Future Use
-
320 - 160
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
Bezeq In the New Era
Tariff Rebalancing, Structural
Separation & Privatization
Bezeq in the
New Era
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
 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
regulation.
 Universal
service obligation.
Bezeq Tariff
Rebalancing - April 1999
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

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
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
$1 US = NIS 4.16
STATE OF ISRAEL
Structural Separation
MINISTRY OF
COMMUNICATIONS

Structural regulation:
 One can hold or control only one dominant
entity in each tier (mobile, domestic &
international).
 Separation between ISP’s and major
infrastructure owners (Bezeq, cable
companies).

Bezeq:
Permitted to be active in areas other than
domestic (infrastructure, transmission &
telephony) only by subsidiaries.
STATE OF ISRAEL
Bezeq Privatization
MINISTRY OF
COMMUNICATIONS

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 In
Broadcasting
Services
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”
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
 License for DBS (Direct Broadcasting
Satellite) issued January 1999:


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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.
Broadcasting License
Tenders for 2000

STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
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
Israel’s Regulatory Policy
STATE OF ISRAEL
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 and
balanced regulatory intervention.

Once competitive marketplace is achieved,
a strong regulator will provide unnecessary
intervention, and should be abolished.
STATE OF ISRAEL
Proactive Re-regulation
MINISTRY OF
COMMUNICATIONS

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.
Israel’s Telecom Future:
Real and Sustainable Growth
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

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.
Everything Is Internet!
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS
The Economist, May 2nd 1998
Value Creation:
The Key for Growth

Key growth drivers:
 Investments:
STATE OF ISRAEL
MINISTRY OF
COMMUNICATIONS

PC/TV
xDSL/Cable
Mobile gadgets
Home LAN
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:

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 End
Thank you for your attention