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February 2001

Alternative Networks
Israel
Master Report

Rosenne report of September 1998 proposed that the telecommunications market in Israel be opened for competition in June 1999. The process was delayed and the market was opened in October 2000. Legislation enabling Cable TV companies to participate as telecom operators and fast Internet providers still has to be completed. Special licenses for alternative transmission services have been already awarded and general licenses are expected very soon with the completion of the spectrium tender for LMDS services. We followed this process in our ESIS reports which we now summarize.

1. Regulation and actors

1.1 Regulation of telecommuniations and alternative networks

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 rent infrastructures either from the historical operator the Bezeq or from cable TV companies. This became possible due to the inclusion of unbundling procedures in the regulations 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 than 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 amendment of the Telecommunications Act. Such legislation is under way (Amend 24 to the Telecommunications Act), and was approved in the first of three votes; a joint committee from the Economics and the Science and Technology Committees are now preparing the final text of the amendment for the second and third (last) votes.

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 the regulator was afraid that provision of ADSL services will severely curtail competition. At the end a license was provided for the provision of ADSL services. Soon afterwards the Anti-Trust Commissioner announced that the Bezeq (the historical operator) is a monopoly in the market for fast Internet connection services. Bezeq appealed, stating that through unbundling other providers can compete with her and that in any case the Cable TV companies are carrying extensive experiments offering fast Internet with a substantial number of customers.

1.2 Regulation and status of public utilities and public organizations regarding a potential entry in the alternative networks industry

      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.

      The Israel Railways Network

      The Attorney General, Elyakim Rubinstein, decided that Israel Railways will be able only to rent the optical fiber network but not to operate it by itself. The companies renting this infrastructure will install the exchanges and operational equipment that transform "dead" optic fiber into a communications route.

      The Attorney General is afraid that under the license issued by the Ministry of Communications Israel Railways may become an inland telecom provider. It may then compete unfairly in the new open market due to the subsidies it enjoys, being a governmental company.

      The management of the Israel Railways announced that they will begin operations within these limitations; they will also try to change the Attorney General ruling. Haaretz, 20.9.2000, C2.

      The Electricity Company 

      The 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.
1.3 The actors and their strategies

1.3.1 The Incumbent, historical operator

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, hiring personnel and more. The incumbent asked that in the transitional period, until privatization is completed, these limitations be lifted enabling to better compete in the new open market with alternative network providers.

Bezeq began to offer ADSL services, broadband permanent Internet connection.

1.3.2 Other actors

The director of the Ministry of Communication, in his presentation in the conference "Broadband Communications" of October 2000 listed the following alternative actors:

  • MED-1: Investments of 500 million dollars in the submarine optical cable Mediterranean Nautilus with a transmission capacity rate of 3.8 Terabits/s.
  • Bezeq International: Announced an investment of 1.5 billion dollars in a submarine optical cable with transmission capacity of the order of several Terabits/s.
  • Pelephone, Cellcom and Patner: Announced "Cellular Internet" services through the WAP and the GPRS technologies.

Cable TV Companies: they are digitasing and expanding their networks; they established the Tevel Telecom company in preparation to their merging and the provision of telecommunication services.

  • Ofek: announced that it will invest a billion dollars in an IP infrastructure based on the LMDS network.
  • Barak- (presently it provides international call and Internet access): announced its intention to become a general telecom provider focusing on broadband services. Their immediate investments should be of the order of 500 million dollars.
  • Cellcom: this is the larges cellular telephony operator. It announced that intends to become a fixed telephony provider based on its present broadband backbone.
  • Winstar: is carrying negotiations with the ITN group headed by Dov Tadmor (Maariv, 4 September 2000).
  • UPC: is considering the possibility of entering the Israeli market with Priority Wireless technology (Maariv, 4.9.2000).

The policy of the Ministry aims at a substantial increase of competition in the transmission services. Special licenses for transmission services have been awarded to the following bodies:

  • MED-1 – that established an fiber optic cable network in parallel to the Israel coast.
  • Israel Railways – to use the fiber optic cable network that is part of the railway.
  • Cellcom – for its optic cable backbone.

Other programs (press announcements):

  • Derech Eretz – the company that got the concession for the Cross Israel Road is setting up an fiber optic cable infrastructure along the planned site of the road. (Haaretz, 19.7.2000).
  • MED-1 – Is negotiating with the company administrating the Joshua Park to lay out a fiber optic cable along the Yarkon river against investment for enhancing the park and establishing bicycles paths in the park (Maariv, 19.7.2000).
  • Moshe Haba and Poalim Investments – are negotiating the establishment of a national fiber optic cable network with Africa Israel and the American IDT company. It should extend from Beer Sheva to Rosh Hanikra with an investment of 21 million dollars and carried out in 18 months. The price for laying out a kilometer of fiber optic cable is about 36 thousand dollars (Maariv, 19.7.2000).
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 not be able 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:


Please note that this report has been prepared under the sole responsibility of the ESIS II contractors.
It does not necessarily reflect the views of the Commission, nor does the Commission accept responsibility for the accuracy or completeness of information contained herein.
The ESIS Team of contractors welcomes any additional information or corrections.

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