STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Regulation in Transition
Daniel Rosenne
Director General, Ministry of Communications
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Were we stand?
US telecom history: 1984 – MFJ (interexchange competition). 1994 – Cable Act (national framework for cable
regulation). 1996 – Telecom Act (LEC competition).
US reality, 2000: 5% of total local lines served by CLECs. 3.5 million broadband subscribers (2.3 M cable modem,
1.2 M xDSL).
Israel, 2000: September 2000 – LEC competition. “Legal standstill”- restriction on cable entry into LEC
and LEC entry into cable. Law update – on its way.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Israeli Regulation Philosophy
Consumer’s are the focus. Competition is essential. Interconnection is the key. Facility based competition is the preferred way.
Unbundling is interim “competition promotion” method. Cable companies should be regulated as common
carriers. “Hands off” regulation of new services (e.g. internet). Transform from sector specific “ex-ante” to general anti-
trust “ex-post” regulation.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSPresentation Agenda
Telecom Networks & Services Cellular Telephony International Long Distance Internet
Regulatory Reform Incumbent Tariff
Rebalancing Frequency allocations National Numbering Plan
Summary.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSIsrael's Telecommunications
2.8 million main telephone lines(47% penetration).
3.5 million cellular customers, on three networks: Pelephone, Cellcom & Partner/Orange. (58% penetration).
1.1 million cable-TV connected households. (3 operators, 70% of passed households, 92% household coverage).
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Telecommunications Services Market - 1999
InternationalLong-Distance
CableTV
Terminal Equipment& Business Systems
Internet services
FixedServices 35%
CellularTelephony 44%
10%7% 2%2%
Total telecom services market ~ $ 4.2 billion
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
The Cellular Boom:Israel Telecommunications Services Revenues, 1995-1999 ($US M)
500
1,000
1,500
2,000
1995 1996 1997 1998 19990
International
CellularFixed
CATV
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
The 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.
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). 5% royalties on income. Regulatory environment:
Price cap tariff regulation (CPI - X formula).
Universal service obligations.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Cellular Operators
Pelephone Cellcom Partner/Orange
800 MHz 800 MHz 900 MHz
NAMPS & CDMA TDMA GSM
1987 1995 1999
BellSouth Hutchison Bezeq Safra Brothers Matav
Motorola Discount Investments Elbit.comPEC Tapuz
private investors free float
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Average Number of Monthly Usage Minutes
1995 1996 1997 1998 1999
FixedBezeq 687 687 679 699 732
MobilePelephone 530 430 320 300 295Partner 427
(Q4)
Source: Bezeq Eurobonds Prospectus, August 2000; Partner annual report 1999
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Facilities-Based International Service Providers
Golden Lines (012)Telecom Italia, SouthWestern Bell,Aurek, Globscom & Meitar/Kahn.
Barak (013)Sprint, Deutsche Telekom, France Telecom, Clalcom & Matav.
Bezeq International (014)The incumbent carrier, 100% owned by Bezeq.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSDialing Parity Rules
Per-call carrier-selection prefixes (01X). For each of the international service providers.
CPS (Carrier pre-selection) - subscribers can choose a preferred provider for ‘00’ prefix and ’188’ international operator services.
Competitive practices – CPS balloting. Consumers’ data provided by Bezeq & Cellular
operators on non-discriminatory basis.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
International Traffic[Million Minutes/Year]
0
200
400
600
800
1996 1997 1998 1999
Incoming
Outgoing1000
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Internet Services Profile
~30 Internet service providers, more than 1 million users, 600,000 dial-up & 5,000 directly connected customers, 30,000 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) non-profit peering point.
“Hands-off” overall regulatory policy.
High growth ~ 50% annual.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Telecommunications Competition Enhancement
by Regulatory Reform
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Regulatory Reform(Promoting competitive Advantage)
Competition in fixed services.
Structural change of the telecommunications sector:
Liberalization. Privatization. Re-regulation.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSProactive Re-regulation
The end of the access monopoly: Facility-based competition. Alternative infrastructure: fiber, copper, cable,
fixed wireless, satellite. Simple interconnection rules:
Non-discriminatory access, carrier pre-selection & dialing parity.
Non-discriminatory interconnection tariffs. Minimum compatibility requirements.
New numbering plan & frequency allocations.
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%.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Bezeq Tariff Update - May 2000
Annual efficiency factor update (6%).
Elimination of regional tariffs (replacing traditional 3 x 3 tariff matrix [3 distance zones, 3 time zones] with simple tariff matrix – local calls or urban-toll calls during peak hours, unified tariff for off-peak hours).
Per-second billing (replacing traditional “meter pulse” with per second billing and minimum charge per call).
Alternative tariff plans (Customer choice between number of alternative tariff plans, bundling local call minutes in exchange for monthly fee).
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Bezeq’sInterconnection Rates
Termination
Local Urban NationalToll Toll
Peak 1.4 - 2.9 1.5
Interim 0.9 - 0.9 0.9
Off-peak 0.6 - 0.6 0.6
EUbenchmarks 0.7-1 1-2 1.7-3
Per minute rates, per second billing; US cents, $1 = NIS 4.16
Timeof
dayOrigination
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSBezeq Privatization
Government holds 55% of Bezeq shares (remaining shares - publicly held).
In August 2000, government formally approved selling 50.01% of Bezeq shares to a single strategic investor.
Privatization planned to be completed by spring 2001.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Licenses for new operators
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.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSLicense Auctions
Fixed Wireless Access: Broadband (26 GHz) & Narrowband (3.5 GHz). Up to 3 operators, selected in MSR (Multiple
Simultaneous Round) auction. Participation of Bezeq & CATV operators in the
auction will be excluded. Tender process planned to begin october 2000.
Additional Mobile Competition: 2G (DCS-1800) & 3G (UMTS). Allocations for new & existing operators. Tender process timetable - to be announced.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Numbers [Millions] Number Type
Old NNP New NNP
Geographic 56 160 - 320
Mobile 8 80
Logical - 160 - 80New Services 10 100
Future Use - 240 - 160
Will We Have Enough Telephone Numbers?
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 & commercial country-wide radio stations.
Multi-channel subscriber television - direct broadcasting satellite, in competition with cable television, began services in July 2000.
Digital Television - cable & satellite.
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.
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 and balanced regulatory intervention.
Once competitive marketplace is achieved, a strong regulator will provide unnecessary intervention, and should be abolished.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONSFacing Exciting Events
Broadcasting: Tender for second commercial TV channel. Tender for Independent cable/satellite channels.
Telecommunications: Tender for 3 fixed wireless access licenses. Tender for additional cellular operator & 3G frequencies. Broadband – Digital Cable, Bezeq’s ADSL.
Market re-structuring: Bezeq privatization. Further IPO’s.
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
Telecom-Israel 2000Tel-Aviv, 6-9 November, 2000
Important international exhibition & conference.
A showcase of hottest technologies and applications.
The place to see how new technologies, products, services and issues are reshaping the world of communications.
The future is here - Wherever you look, across the globe, Israel’s born products stand up.
We invite you to witness for yourself!
STATE OF ISRAEL
MINISTRY OF COMMUNICATIONS
For more information
Telecom Israel 2000:http://www.telecom-israel.com
Ministry of Communications:http://www.moc.gov.il