Ministry of Communications
External Affairs Division
May 1998
Introduction
As Israel celebrates its fiftieth anniversary, there are many achievements of which the country can be proud, particularly in the fields of economic policy, science and technology and the development of a modern and creative society.
In the field of telecommunications, progress and achievements to date can serve as an example of the trend within the country as a whole, to create a competitive and free market economy. Israel has successfully modernized its telecommunications market by following a path of corporatization, privatization, liberalization and re-regulation with the controlled introduction of new operators and services, and by opening markets to free competition.
Overview
In looking to the future, the Government has taken upon itself the important task of preparing the country for the challenging and competitive global commercial environment of the 21st century.
The Government is firmly committed to privatizing the Israeli economy and is currently undergoing a process of privatization, liberalization and re-regulation which is creating attractive conditions for foreign investment and generating new employment opportunities.
Privatization and liberalization of the economy have become a major vehicle for attracting foreign capital investment, as the country is perceived as combining the profit potential of an emerging market with the advantages of a sophisticated economy.
The High-Tech Industry
The country's greatest asset is its human resources: the population has approximately 145 engineers and scientists per 10,000 employees. High levels of scientific and technological education as well as a spirit of entrepreneurship and innovation, along with investment in R&D and cooperation between world renowned educational institutions and industry, have placed the country at the forefront of global hightech.
The result is that today there are about 3000 hightech companies in this small country with a population of only five million. Of these companies, approximately 1000 are start-ups (in operation less than ten years) - 150 new ones are registered each quarter.
Israeli companies have an international reputation in telecommunications (wireless and mobile communications, video and image processing, satellite communications, local loop/access, Internet/Intranet, and other areas), data communications, the semiconductor industry and the medical industry.
Exports of high-tech products reached US$ 10.4 billion in 1996 and 12 billion in 1997, accounting for approximately 75% of all industrial exports. High-tech exports are expected to grow at approximately 20% annually.
There are 45 venture capital firms solely dedicated to high-tech industries currently operating in the country, with many more investment funds managing more varied portfolios, proving the international interest.
The Telecommunications Sector
Communications equipment and services account for approximately 39% of the country's electronics industry. The communications sector is leading the country in the push for privatization, liberalization and re-regulation.
In the age of the global information society, communications is a key factor in a nation's infrastructure. Efficient, innovative and competitively priced telecommunications are a necessity for national economic growth, and a major indicator for foreign investors planning to invest in a specific country.
The system of monopolistic telecommunication operators and service providers is becoming anachronistic: competition is now the driving force for change.
The Government is committed to the formulation and implementation of policies which will deliver a new telecommunications environment. The goal is to provide accessible and affordable modern telecommunication services to all citizens.
Telecommunications development to date has followed a successful route. Over a period of ten years, Israel has turned an ailing Government-dominated market into a modern and competitive area of operations, customer-focused and with high service standards. This has been achieved by shifting communication operations responsibility from the Government to the private sector.
Bezeq, the national telecommunications company which holds a monopoly in local telecommunication services, provides 2.6 million direct exchange lines (45% penetration). It also provides leased line and switched data services (e.g. packet switching and frame relay), utilizing 100% modern digital networks while using the latest technologies in digital switching, Signalling System No. 7, fibre transmission, synchronous digital hierarchy (SDH), advanced intelligent network (AIN), integrated services digital network (ISDN), telecommunication management network (TMN), etc.
Liberalization
Liberalization has enhanced service provision through the controlled introduction of new operators and services, and by opening markets to competition areas such as customer premises equipment and business systems, data networks and information technology services, Internet service provision, audiotex services, etc.
Major progress in market liberalization has allowed the population to benefit from competition in the areas of television, radio, cellular telecommunications, and recently, in international telecommunications. The next step is to expand competition in those areas which are already competitive, as well as extending competition to new areas.
Cellular Telecommunications
Israel's two private-sector cellular phone operators have a combined subscription rate of approximately 1.9 million, constituting a market penetration of 31%. The country has one of the world's highest cellular telephone penetration rates, achieved in only two years (see Table 1).
Pelephone, jointly owned by Bezeq and Motorola, was formed after a successful implementation of a BOT (build-operate-transfer) contract by Motorola. Pelephone provides services using NAMPS (advanced mobile phone service - a North American analogue standard) network technology and has also begun implementing CDMA technology.
Cellcom, the second cellular operator, is owned by Bell-South and other foreign and local investors. It received its concession through public tender, and provides services using TDMA network technology (it is currently transforming its network to the modern 1S-136 standard).
Both networks offer countrywide portable coverage and support modern networks with services such as personal numbering plans, calling party identification, international roaming, etc.
In February 1998, the winner of the tender for a third cellular operator in the country was announced, and the new licensee will operate in the 900 MHz range, according to the GSM standard. The new licence was awarded to Partner, owned by Hutchison of Hongkong, along with additional local investors.
| Table 1 |
| Annual growth in cellular telephone subscribers in Israel (April 1998) |
| |
| Year |
Total number
of subscribers |
Growth over
previous year |
annual growth
(%) |
| 1994 |
133,425 |
- |
- |
| 1995 |
445,456 |
312,031 |
234 |
| 1996 |
1,047,582 |
602,126 |
135 |
| 1997 |
1,672,442 |
624,860 |
60 |
| March 1998 |
1,800,000 |
127,558 |
- |
International Telecommunications
The two winners of the tender to operate facility-based international telecommunication services in the country, Barak and Golden Lines, began operations in July 1997, ending the monopoly of Bezeq International - a subsidiary of the national telecommunications company in this field. Major international telecommunication companies including Sprint, SBC, Deutsche Telekorn, SýTET, and France Télécom play an active role and hold significant ownership in both new operators.
The major beneficiaries of the new international operators have been the country's consumers. International rates were dramatically reduced: in some instances, they are now less than one quarter of those previously paid by consumers.
In both the national cellular and international calls market, expanded competition has ensured that supply matches increased demand for telephony services, service quality is improved and tariffs are lowered.
Reform in the Domestic Telecommunications Market
The telecommunications sector is on the threshold of a major restructuring that will begin before January 1999 when licences will be granted to domestic telecommunication operators. A special interministerial committee (the Rosenne Committee) appointed by the Minister of Communications, Ms. Limor Livnat, has submitted its recommendations to implement changes in the country's telecommunication sector. The committee's major recommendations were that:
- domestic telecommunication operators will operate in competition with Bezeq and will provide infrastructure, telephony and transmission services;
- personal communications services (PCS) will provide quality portable handheld communications with features including telephony and a large variety of multimedia services;
- the exclusive status of the current facility-based international telecommunications service operators, Barak, Golden Lines and Bezeq International will expire in 2002, allowing the granting of licenses to additional operators.
Television Broadcasting
There are currently three cable television operators, each with a monopoly in specific geographic regions, and covering over 90% of the country. About 70% of homes have subscribed to cable television. The cable television networks are based on 50 channels, 550 MHz systems, utilizing fibre-based feeders and "tree and branch" coaxial distribution systems. The programming includes "off the air" and satellite channels, as well as five self-provided programme channels and six new dedicated orogramme channels to be introduced during 1998.
A new "open sky" broadcasting policy was a approved in August 1997, and a complex implementation process is beginning. The new policy means major changes in broadcasting, among them a total industry restructuring and the introduction of digital radio and television. Five key points are highlighted in the broadcast industry restructuring.
Liberalization
Creation of a competitive open broadcasting market, including the transition from a few franchises to several licences. The introduction of additional commercial channels is a priority. Currently, only one commercial channel operates in the country, but there are plans to introduce a second one by 1999.
The Israeli Parliament recently passed a law enabling multi-channel direct broadcast by satellite (DBS) which is planned to be operational in 1998, providing an alternative to cable television. Other activities include the introduction of new sector targeted commercial channels on cable and satellite.
Structural Separation
Separation between content providers and carrier services. Limitations on ownership concentration (carriers not controlled by content providers, separation between cable and satellite carriers, public and commercial carriers).
New Legislation
Creating a new comprehensive broadcasting act, replacing outdated legislation which currently exists.
Reorganization
Replacing several regulatory bodies with one unified broadcasting authority, and reorganization of public broadcasting, redefining priorities and updating the public broadcasting financing model.
Digitization
Introduction of digital radio and television broadcasting, including digital terrestrial, cable and satellite broadcasting, coupled with a unified access control system and an electronic programme guide. It is envisioned that commercial digital broadcasting will be introduced by the year 2001.
AMOS-1, an Israeli geostationary satellite, located at 4° W, began commercial operations in June 1996, using seven Ku-band transponders. The satellite was built by Israeli Aircraft Industries, and is used mainly for direct-to-home (DTH) television broadcasting, as well as other services such as domestic, commercial VSAT services.
Internet
The Internet market currently comprises approximately 250 000 users, and enjoys a high 5-7% per month growth rate. The licensing of commercial Internet services was begun in 1994 and there are four major service providers. Most Israeli Internet service providers (ISP) utilize international leased line interconnections, using fibre-optic routes and satellite links to the United States Internet backbone.
WTO Commitments
In 1997, Israel signed the World Trade Organization Agreement on Basic Telecommunication Services, committing itself to opening the local basic telecommunication services market to competition. The country plans to begin competition in the local services market, including infrastructure, data transmission and basic telephony by January 1999.
Privatization
Privatization is a declared policy goal of the Ministry of Communications which is committed to reducing its share of Bezeq. Currently the Government's holdings are 54%. Additional shareholders are Cable & Wireless of the United Kingdom with approximately 6%, Merrill Lynch holds 12.7%, and the public holds the remainder of the shares which are traded on the Tel Aviv Stock Exchange. The Government plans to reduce its holdings further, with the intent of eventually pulling out completely.
At this point, almost all of the new players in the telecommunications industry are private corporations.
Re-Regulation
The third pillar upon which the policy of the Ministry of Communications stands is re-regulation. Government regulation is a poor substitute for the benefits to consumers of free market competition, although it is necessary in areas where the market does not operate adequately. In the field of communications, and certainly in communications infrastructure, there will be a continued need for some regulation in the foreseeable future. However, the industry in Israel will benefit from a significant reduction in the scope of current restrictions.
In order to further this objective, the Government plans to establish an independent regulatory authority, thus reducing direct Government involvement in the communications sector, and enabling market restructuring and competition enforcement.
Re-regulation will cover competition rules such as cross-ownership, resale issues and interconnection arrangements, including tariffs and technical standards, universal access definitions, obligations and reciprocal compensation, special provisions and obligations of general licence owners, numbering issues and other related issues.
Conclusion
These successes and future challenges exemplify the progress achieved by Israel's telecommunications industry as it celebrates its fiftieth anniversary.
The time is right for this process to continue moving forward. The Government, which has played an important role in fostering these developments, must now pass the baton to the private sector.
The Ministry of Communications will continue to encourage liberalization and privatization, including foreign involvement in the telecommunications industry, creating a business environment conducive to growth and innovation.
Israel looks forward to the expansion of both international and regional cooperation in the telecommunications field, and believes that it can actively contribute to cooperative efforts, for the benefit of all.