STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

License Auctions

Update

Daniel Rosenne

Director General, Ministry of Communications

rosenned@moc.gov.il

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSPresentation Agenda

The Telecommunications Environment:Market overviewFixed servicesMobile services

License Auctions:Fixed wireless access2G/3G mobile.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Telecommunications Market Overview

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Israel`s Telecommunications

2.8 million main telephone lines(45% penetration).

4.4 million mobile customers, on four networks: Pelephone, Cellcom, Partner/Orange & MIRS (70% penetration).

1.2 million cable-TV & 0.1 million DBS connected households. (Cable: 3 operators, 70% of passed households, 95% household coverage).

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Internet Services

~40 Internet service providers, 1,000,000 dial-up & 8,000 directly connected customers, 50,000 domains.

Penetration ~ 35% of households, 50% of businesses.

IIX (Israel Internet eXchange) non-profit peering point.

“Hands-off” overall regulatory policy.

High growth ~ 50% annual.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Telecommunications Services Market - 1999

InternationalLong-Distance

CableTV

Terminal Equipment& Business Systems

Internet services

FixedServices 35%

MobileServices 44%

10%7% 2%2%

Total telecom services market ~ $ 4.2 billion

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

The Mobile Boom:Israel Telecommunications Services Revenues, 1995-1999 ($US M)

500

1,000

1,500

2,000

1995 1996 1997 1998 19990

ILD

MobileFixed

CATV

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Fixed servicesDriven by Broadband Demand

Actual competition expected during 2001

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Fixed Services Competition

Prolonged Delays: Politics: May 1999 elections. Cable companies disputes:

Fulfillment of universal service obligation. Competition - DBS services, content. Finance Ministry seeking payment for granting

telecom license. Justice Ministry seeking limits on content control.

Union disputes - safeguarding ‘employee rights’.

Rough Road Ahead: Telecom law change underway, allowing cable

companies entry into telecom.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

The Birth of New Entrants

Regulation allowing fixed services licensing - published September 2000.

FWA tender - published October 2000.

‘Ofek’ fixed services license - granted February 2001.

Cable companies restrictions removal - Telecom Law update due during 2001.

Roll out of several competitive fiber-based backbones - IC1, Israel Railways, Ofek, Shavit, Cellcom.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Ofek New WorldIsrael’s first licensed CLEC

Owned by Eurocom group (50.33%) & Arison investments (49%).

Fixed services general license – as of 1 February 2001.

Plans for modern IP based infrastructure, utilizing 1000 Km fiber cables.

Covering 27 “natural zones” (out of 52).

Will offer wide range of telephony & broadband data services, for business & households.

Plans for $ 1Bn investment, 1500 employees.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

IC-1 (Israel Coasting one)

Repeaterless submarine system along the Israeli coastline.

Seven landing points: Nahariyya Haifa Netania Herzliyya Tel Aviv Rishon LeZion Ashkelon.

48 fibers in a double ring festoon arrangements.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Mobile Services

Competition Introduced December 1994

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Mobile Operators

Pelephone Cellcom Partner/Orange MIRS

800 MHz 800 MHz 900 MHz 800 MHz

NAMPS& TDMA GSM iDEN

CDMA (ESMR)

Trunking - 19941987 1995 1999 Cellular - 2001

BellSouth Hutchison Bezeq Safra Brothers Matav Motorola

Motorola Discount Investments Elbit.com Ampal(Shamrock) PEC Eurocom

private investors free float

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Cellular Telephony

Rapid growth - 125,000 subscribers 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. ARPU (Average Revenue Per User) - US$50 to 60.

Calling party pays (CPP). Nationwide coverage & “Land-line”quality. Competition & marketing innovations.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Average Number of Monthly Usage Minutes

1995 1996 1997 1998 1999 2000

Fixed

Bezeq 687 687 679 699 732

Mobile

Pelephone 530 430 320 300 295

Partner 427 361(Q4) (Q4)

Source: Bezeq Eurobonds Prospectus, August 2000; Partner reports

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Mobile Competition: key trends - 2001

New services: SMS, WAP, wireless internet. Content: news, media & data services. Location based services.

New pricing models: Regional pricing plans. Pay as you use programs. Low cost position for low usage segments.

Churn reduction plans.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

License Auctions

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Licenses For New Operators

General licenses for fixed domestic services (infrastructure, transmission & data, telephony) are issued to applicants meeting economic and know-how criteria.

General licenses requiring spectrum resources (mobile, FWA) shall be issued through public tenders.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Proposed New Frequency Bands Allocations

Band Application Allocation

2 GHz 2G/3G Mobile 175 MHz

3.5 GHz N-FWA/WLL 72 MHz

26 GHz B-FWA/LMDS 1200 MHz

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Fixed Wireless Access Auctions

Up to 3 operators, selected in combined MSR (Multiple Simultaneous Round) auction.

Frequency Allocations, for each operator: 26 GHz Broadband: 2 x 196 MHz. 3.5 GHz Narrowband: 2 x 12 MHz.

Participation of Bezeq & cable operators in the auction is excluded.

Roll-out obligation: 3 years.

Tender published: 12 October 2000.

Applications deadline: 20 March 2001.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

2G/3G Mobile License Auctions

MSR (Multiple Simultaneous Round) combined auction for 4 licenses, allowing usage of the following frequency packages: 2G FDD: 2x10 MHz. 3G FDD: 2x10 MHz. 3G TDD: 5 MHz (for 3 packages only).

Reserve price: US $ 100M. 25% reduction for new operators.

Tender publication: 28 March 2001. Applications deadline: 17 July 2001.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

2G/3G Auction: Frequency Allocations

Allocation per License [MHz] : Allocation Date

Frequencies

[MHz] License A License B License C License D

1710-1785 2X6.2: 1/2001 2x6.4: 1/2001 2x10: 1/2001 2x10: 1/2002

& 1805-1880 2x3.8: 1/2004 2x3.6: 1/2004

1920-1980 2x5: 1/2001 2x5: 1/2001 2x5: 1/2001 2x5: 1/2001

& 2110-2170 2x5: 1/2004 2x4.7: 1/2004 2x5: 1/2004 2x5: 1/2004

1900-1920

or 2010-2025 5: 1/2005 - 5: 1/2004 5: 1/2004

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

For more information

http://www.moc.gov.il