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Daniel Rosenne Director General, Ministry of Communications, Israel rosenned@moc.gov.il

First Regional Forum on Telecommunications Reform in the MEDA Area Athens, 25-26 April 2001 Liberalization of Markets and New Regulatory Framework The Israeli Case. Daniel Rosenne Director General, Ministry of Communications, Israel rosenned@moc.gov.il. Presentation Agenda.

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Daniel Rosenne Director General, Ministry of Communications, Israel rosenned@moc.gov.il

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  1. First Regional Forum on Telecommunications Reform in the MEDA AreaAthens, 25-26 April 2001Liberalization of Markets and New Regulatory FrameworkThe Israeli Case Daniel Rosenne Director General, Ministry of Communications, Israel rosenned@moc.gov.il

  2. Presentation Agenda • Telecommunications networks & services: • Market overview • Mobile services • International long distance • Fixed services • Regulatory reform: • Regulation overview • License auctions • Tariff rebalancing • New numbering plan • Bezeq’s privatization • Summary.

  3. Telecommunications Network & Services

  4. Israel's Telecommunications • 2.8 million main telephone lines (45% penetration). • 4.8 million mobile customers, on 4 networks (76% penetration). • 1.3 million households connected to multichannel subscriber television • Cable: 3 operators, 1.2 million subscribers, 70% of homes passed, 95% household coverage. • Satellite: 1 operator, 0.1 million subscribers.

  5. Internet Services • ~40 Internet service providers, 1,000,000 dial-up & 10,000 directly connected customers, 50,000 domains. • Penetration ~ 40% of households, 50% of businesses. • IIX (Israel Internet eXchange) non-profit peering point. • “Hands-off” overall regulatory policy. • High growth ~ 50% annual.

  6. Israel Internet DevelopmentGallup Israel survey: Maariv, 30 March 2001, Haaretz, 17 July 2000 Connected households, using more than 1 hour/week 42.0% 29.0% 21.0% 13.2% 5.4% 1997 1998 1999 2000 2001

  7. Telecommunications Services Market - 2000 Cable TV International Long-Distance Internet services Terminal Equipment & Business Systems 2.5% 1.5% 7% 8% Mobile Services 49% Fixed Services 32% Total telecom services market ~ US $5 billion

  8. The Mobile Boom:Israel Telecommunications Services Revenues, 1995-2000 (US $M) 3,000 2,500 Mobile 2,000 Fixed 1,500 1,000 ILD CATV 500 0 1995 1996 1997 1998 1999 2000

  9. The Existing Regulatory Environment • Separation between regulation and operation (since 1984). Regulation responsibility - Ministry of Communications. • General licenses issued to facilities based service providers: • Fixed services - Bezeq, Ofek. • Mobile services - Pelephone, Cellcom, Partner, MIRS. • International long-distance services - Bezeq International, Golden Lines, Barak. • Special licenses issued for value-added services. • Termination of exclusive rights: • Fixed Services - 1 June 1999. • International long distance - 31 December 2001.

  10. Mobile ServicesCompetition introduced in December 1994 • 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.

  11. International LongDistance Services • Competition introduced in July 1997. • 3 facilities based operators: • Golden Lines (012) • Telecom Italia, Fishman. • Barak (013) • Sprint, Deutsche Telekom, France Telecom, Clalcom & Matav. • Bezeq International (014) The incumbent carrier, 100% owned by Bezeq. • Dialing Parity.

  12. Dialing Parity Rules • Per-call carrier-selection prefixes (01X). For each of the international service providers. • CPS (carrier pre-selection) - subscribers choose a preferred provider for ‘00’ prefix and ’188’ international operator services. • Competitive practices - • CPS balloting. • Consumers’ data provided by Bezeq & mobile operators on non-discriminatory basis.

  13. International Traffic[Million Minutes/Year] 1200 Outgoing 1000 800 600 Incoming 400 200 0 1995 1996 1997 1998 1999 2000

  14. Fixed Services CompetitionDriven by Broadband Demand Prolonged Delays: • Politics: May 1999 elections. • Government - 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. • Fixed wireless access tender.

  15. The Birth of New Entrants • Regulation allowing fixed services licensing - published September 2000. • ‘Ofek’ fixed services license - granted February 2001. • Fixed wireless access tender - published October 2000. • Cable companies restrictions removal - Telecom Law update due during 2001. • Roll out of several competitive fiber-based backbones - MedNet, Ofek, Cellcom, Israel Railways.

  16. 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 15 “natural zones” (out of 53). • Will offer wide range of telephony & broadband data services, for business & households. • Plans for US $1Bn investment, 1500 employees.

  17. TelecommunicationsCompetition Enhancement byRegulatory Reform

  18. Regulatory ReformPromoting Competitive Advantage • Competition in fixed services. • Structural change of the telecommunications sector: • Liberalization. • Re-regulation. • Privatization.

  19. Proactive Re-regulation • The end of the access monopoly: • Facilities-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. • “Open access” for value-added service providers. • New numbering plan & frequency allocations.

  20. Regulation Philosophy • Consumers are the focus. • Competition is essential. • Interconnection is the key. • Technology neutral regulation is an important concept. • Facilities based competition is the preferred way. Unbundling is interim “competition promotion” method. • Structural separation & cross-ownership limitations are important to assure fair competition. • 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.

  21. Re-regulation Covers: • Competition rules - ownership, resale. timetable. • Universal service - obligations, reciprocal compensation. • Interconnection - rules, tariffs, terms. • General license owners - obligations, structural regulation, services. • Numbering - administration, portability, new numbering plan. • Tariff rebalancing. • National Emergency & Security issues.

  22. Fixed Wireless Access Auctions • Up to 3 operators, selected in MSR (Multiple Simultaneous Round) combined 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. • Reserve price: US $1.5 million. • Roll-out obligation: 3 years. • Tender published: 12 October 2000. Applications deadline: 3 April 2001.

  23. 2G/3G Mobile License Auctions • MSR (Multiple Simultaneous Round) combined auction. • Frequency packages, for 4 licenses: • 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 published: 28 March 2001. Applications deadline: 17 July 2001.

  24. Bezeq Tariff Rebalancing • Price-cap regime - productivity gap (x-factor) of 3.5%. • One step rate rebalancing in April 1999, almost eliminating cross-subsidies between services Further adjustments were made on May 2000 & March 2001. Voice traffic still subsidizes telephone access. • Simpler tariffs: Simple tariff matrix Local calls or urban-toll calls during peak hours (0800-1800, Sunday to Thursday), unified tariff for off-peak hours. • Per-second billing, as of May 2000 per-second billing with minimum charge per-call, replacing traditional “meter pulse”. • Special Internet promotion dialup tariffs, as of May 2000Customer choice between number of alternative tariff plans, bundling local call minutes in exchange for monthly fee.

  25. Bezeq’sInterconnection Rates Time National of Day Termination Origination Peak 1.53 1.56 Interim 0.9 1.56 Off-peak 0.6 1.56 Weighted Average 1.16 1.56 Per minute rates, per second billing; US cents, $1 = NIS 4.116, $1 = 1.11 € EU 2000 “Best current practice” termination charges, US ¢: Local: 0.45-0.81, single transit (metropolitan): 0.72-1.35, double transit (>200km): 1.35-1.62.

  26. Mobile CPP Tariff Regulation [Sept. 2000] • Cost-based CPP (Calling Party Pays) mobile call termination tariffs, as of September 2000. • Eliminating discriminatory and anti-competitive practices resulting from subsidizing outgoing calls by incoming calls revenues. • CPP mobile call termination tariffs: Year Tariff [US ¢/minute] 2001 12 2002 11 2003 10

  27. New NNP (National Numbering Plan) • Additional digit (9 digits number length): • Step 1 - Mobile: 5 [N]XXX XXXX (N = 2 for Cellcom, 4 for Partner, 6 for Pelephone, 7 for MIRS). • Step 2 - Fixed: A [N]XXX XXXX • Area codes consolidation: • Area codes 6 & 7 reclaimed December 2000. • Services numbering re-arrangement : • 1XX for life threatening emergency; 1XXX for other services. • 1 YYY XXX XXX logical numbering. • Toll-free (1-800) number portability.

  28. Will We Have Enough Telephone Numbers? Numbers [Millions] Number Type Old NNP New NNP Geographic 56 160 - 320 Mobile 8 80 Logical - 160 – 80 New Services 10 100 Future Use - 240 - 160

  29. BezeqThe Israel Telecommunication Corp Ltd. • Israel's incumbent operator (ILEC). • Annual sales – US $2.05 billion. • 11,000 employees (8,200 in Bezeq, the parent company). • Government holds 55% of Bezeq shares (remaining shares - publicly held). • Government formally approved selling 50.01% of Bezeq shares to a single strategic investor. • Government plans to complete privatization during 2001.

  30. Summary

  31. 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.

  32. 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.

  33. The Future of Regulation: Open Communications Infrastructure • A system of largely free-market competition with just enough governmental oversight to ensure that competitors stay within bounds. • Best combination of the benefits of government oversight with those of laissez-faire. • The bounds are the basic essentials: • Open access. • Universal access. • Interconnection. • Fair competition. • Public safety & security.

  34. 2000 Post 2000 • Pelephone • Cellcom • Partner • MIRS • Others • Pelephone • Cellcom • Partner • Bezeq • Ofek New World • Others: • Wireline • Wireless • Bezeq • Bezeq-International • Barak • Golden-Lines • Additional operators • Bezeq-International • Barak • Golden-Lines Israel's Telecommunications Map 1994 Mobile Services • Pelephone (Bezeq) Fixed Services (Infrastructure, Transmission & Telephony) • Bezeq International Long Distance Services • Bezeq

  35. Thank you for your attentionFor more informationhttp://www.moc.gov.il

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