STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Regulation in Transition Daniel Rosenne Director General, Ministry of Communications [email protected]

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Regulation in Transition

Daniel Rosenne

Director General, Ministry of Communications

[email protected]

STATE OF ISRAEL


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.

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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.

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Telecommunications Network & Services

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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).

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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

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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

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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.

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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.

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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

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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

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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.

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International Traffic[Million Minutes/Year]

0

200

400

600

800

1996 1997 1998 1999

Incoming

Outgoing1000

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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.

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Telecommunications Competition Enhancement

by Regulatory Reform

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Regulatory Reform(Promoting competitive Advantage)

Competition in fixed services.

Structural change of the telecommunications sector:

Liberalization. Privatization. Re-regulation.

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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.

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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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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).

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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

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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.

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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.

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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?

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“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.

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Summary

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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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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


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!

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For more information

Telecom Israel 2000:http://www.telecom-israel.com

Ministry of Communications:http://www.moc.gov.il

STATE OF ISRAEL


The EndThank you for your attention

Documents

STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Regulation in Transition Daniel Rosenne Director General, Ministry of Communications [email protected]