November
2000
Israel
Update Memo
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Israel Update Memo |
The following report outlines new developments in the past three months and the state of on-going developments.
1. The Interaction between business and regulatory constraints
1.1 The regulatory background
The telecommunications market was opened to competition in October, 4 2000. Some of the new contenders are expected to participate in the frequencies allocation tender for the LMDS technology last mile home access. Others will renting infrastructures either from the historical operator the Bezeq or from cable TV companies following the unbundling rule of the directives opening the market.
A tender for third generation cellular telephone provision is expected for next December while the actual services are expected to become operational not earlier thant 2003-5.
Cable TV concessions are expected to expire by 2003-5. The matters related to the ways to extend this concession or, instead, carry out a new tender have impinged on the concession of a license to these companies to provide broadband fast Internet access and IP telephony.
The Attorney General ruled that the payment for the extension of the Cable TV concession will be determined by an independent arbiter. He also ruled that temporary licenses for these companies to offer broadband fast Internet access and IP telephony could be issued only after an ammendment of the Telecommunications Act. Lately, at the request of the Prime Minister the Attorney General is considering the possibility of allocating such temporary licenses. To this effect he is carrying extensive consultations and has asked the Cable TV companies to express their position regarding several matters: payment of the license as will be determined by the independent arbiter; access of competitors to the infrastructure; the demand of the second to the Attorney General, Davida Lehman-Messer, that the provision of content and communications services be structuraly separated from the provision of infrastructure access.
These developments have delayed the provision of ADSL services by the historical operator, the Bezeq. In view of the delay of the provision of broadband fast Internet access by the Cable TV companies there is fear that provision of ADSL services will severely curtail competition.
1.2 Regulatory constraints on the Use of the Infrastructures of Israel Railways
The Attorney General, Elyakim Rubinstein, decided that Israel Railways will be able only to rent its optical fiber network but not to operate it by itself. The companies renting this infrastructure will need to install by themselves the exchanges and operational equipment that may tranform the "dead" optic fiber into a communications route.
The Attorney General is afraid that under the conditions of the license issued by the Ministry of Communications to Israel Railways it may become an inland telecom provider. Thus it may compete unfairly in the new open market due to the subsidies it enjoy being a governmental company.
The management of the Israel Railways announced that they start operating within these limitations but will try to change the Attorney General ruling. Haaretz, 20.9.2000, C2.
1.3 The Electricity Company is considering the establishment of a communications company
Following the ruling by the Attorney General allowing the Israel Railways to rent its optic fiber infrastructure the Electricity Company announced it will consider establishing a subsidiary to market the use of her own optic fiber network. The network that runs for hundreds of kilometers in parallel to the electricity cables may be adapted with additional investments for transmiting fast communications. They considered renting it but concluded that this wouldn’t be approved by the Anti Trust Commissione, the Electricity Company being a monopoly. However now they think that there is no reason for not establishing a subsidiary that will collect user fees; the fee will not be determined by the Electricity Company but by the Authority for Electricity Public Services, an independent body which also determines today the price to be paid for electricity. Haaretz, 20.9.2000, C2.
1.4 Business constraints and entry barriers
The provision of licenses for new Inland telecommunications providers is conditioned by: incorporation of the company asking the license in Israel and that at least 20% of the ownership is held by Israeli citizens living in Israel; the general manager as well most of the directors should be Israelis. The company should have experience in managing telecommunications systems and in servicing, in Israel, at least 50,000 customers; its capital should be at least $60 million and it should be able to start providing services 12 months from the date the license is issued. The Finance Committee of the Parliament ruled that no payment for the license will be required in contrast to the demand of NIS 16 million for the license proposed by the Ministry of Communications.
1.5 Attitude of the incumbent operator towards alternative network providers
The decision opening the telecommunications market to competition was simultaneous to the decision to privatise the incumbent operator. Being a governmental company it is subject to several limitations regarding investments, the hiring of personnel and more. The incumbent asked that in the transitional period, until the privatisation, these limitations be lifted enabling to better compete in the new open market with alternative network providers.
The incumbent and its Workers Committee applied their best efforts to get through political pressure on the government the best possible conditions while the market is opened.
1.6 On-going regulatory developments concerning alternative network providers
See 1.1 above.
2. Inventory of the major "public" utilities with a potential for use in I.S. applications
2.1 Types of companies offering networks
The companies that in the near future will be able to offer alternative network services are the following:
2.2 Types of operators using the networks
The operators expected to use the networks are the new candidates for Inland telecommunications provisions.
It is already clear that the YES DBS company will be unable to provide satellite based Internet access in the next two years due to the present satellite limitations. It has asked the Anti Trust Commissioner to approve its agreement with Cable TV companies for installing a joint cable at the home of its customers enabling them to get Internet services from its competitor the Cable TV companies.
Other new operators are those not participating in the LMDS tender and have no other alternative for last mile access to households or such operators that may not succeed in the tender. Thse are natural candidates to use the unbundling rule and rent infrastructures.
2.3 Types of services offered by the operators on the networks
The unbundling rule was incorporated into the regulations opening the market for competition. Now it is expected that both the historical operator the Bezeq and the cable TV companies will need to offer their infrastructure for the new operators. New license still haven’t been allocated as the opening occurred last October 4 (the date of this report).
The new services expected to be provided are broadband fast Internet access; Voice over IP telephony; several modalities of interactive television.
3. Synoptic tables
The ownership composition of the candidates for establishing such netwoks follows:
Cable TV: Aruzei Zahav (Aureq -12%; Fishman/Bar-On and Yediot Aharonot - 66%; Tevel - 22%); Matab (Denkner - 43%; Maariv - 16%; Hanania Gibstein - 7%; Shimeon & Ali Hefetz - 6%; the public - 28%); Tevel (I.D.B - 48.5%; UPC - European Cable Company - 46.5%). (Globes, 16.12.1999, p.8).
MED-1: Telecom Italia (23.17%); Telecom Cyprus CYTA (9.22%); Clalcom (owner of Barak) (23.17%) ; Aureq (14.39%) ; Globscom (14.39%) (owned by Golden Lines, private investors, Telrad and Kama); Zohi (15.66%) (Shay Livnat). It was announced ( 30.1.2000) that Telecom Italia is buying control of MED-1 by acquiring 29% of the shares hold by the Israelis for US $ 70 million expressing a value of 240 for the company. Following this agreement Telecom Italia will own 52% of the shares of MED-1. (Yedioth, 30.1.2000).
YES - DBS (Direct Broadcasting Satellite) Companies: Eurocom (40%); Bezeq (30%); Gilat (10%); Lidan (5%); Cardin (5%); Poalim Investments (10%). (7.2.2000).
Israel Railways: owned by the Government of Israel
Israel Electric Company: owned by the Government of Israel, to be privatised in the future.
Cross Israel Road: The concessionaire is the Derech Eretz group led by Africa-Israel (25%) and includes CHIC of Canada (25%); Hughes from the USA (20%); Societe Generale d'Enterprise of France (20%).
