state of israel ministry of communications israel’s telecommunications towards competitive...
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Israel’sTelecommunications
Towards Competitive Advantage
Daniel Rosenne
Director General, Ministry of Communications
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSPresentation Agenda
Networks & Services
Competitive areas: Cellular telephony International Telecommunications
The “Second Wave” of Competition: Telecommunications Broadcasting
Manufacturing Industry
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Network & Services
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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).
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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
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Modern Fixed Network
100% digital network. #7 ISUP signaling. Country-wide Euro ISDN. AIN features. SDH transmission. Country-wide fiber deployment.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Cellular Telephony
Competition Introduced December 1994
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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%)
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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 - $56 to 74)
Calling Party Pays (CPP), in operation since 1994.
Nationwide coverage. Competition.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
International Telecommunications
Facilities Based Competition Introduced July 1997
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Facilities Based International Service Providers
Bezeq International (014)The incumbent carrier, 100% owned by Bezeq.
Two new carriers, operating since July, 1997: Golden Lines (012)
STET, SouthWestern Bell,Aurek, Globscom & Meitar/Kahn.
Barak (013)Sprint, Deutsche Telekom, France Telecom, Clalcom & Matav.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSDialing Parity Rules
Per-call carrier-selection prefixes (01X). For each of the international service providers.
Pre-selection - subscribers can choose a preferred provider for ‘00’ prefix and ’188’ international operator services.Pre-selections of existing subscribers that didn’t choose will be “re-allocated” between operators.
Competitive practices - services & consumers’ data provided by Bezeq to all operators on non-discriminatory basis.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Resulting MarketEnvironment
Highly competitive market, with low customer switching barriers.
Drastic cuts in retail tariffs (USA - 0.20$/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.
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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
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Additional Aspects
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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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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).
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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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
The “Second Wave” of Telecommunications
Competition
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
New Regulatory Policy(Promoting competitive Advantage)
Competition in fixed services.
Structural change of the telecommunications sector:
Liberalization. Privatization. Re-regulation.
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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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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%.
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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
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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%.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Introduction of Competition
Broadcasting
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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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
“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).
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Manufacturing Industry
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSTotal 1998 Sales - $ 8.1 billion
Telecommunications40%
Components14%
Industrial &Medical Systems23%
Defense Systems23%
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
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
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Summary
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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.
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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 regulatory intervention.
Once competitive marketplace is achieved, strong regulator will provide unnecessary intervention, and should be abolished.
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
For more information:
http://www.moc.gov.il
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STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
The EndThank you for your attention