Update: July 1999

Israel - International agreements and regulatory framework

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3. International relationships and agreements

Israel is part to several conventions concerning telecommunications. Hereby the complete list.

3.1 Multi-lateral Agreements
 

 
  3.2 Bi-lateral Agreements

The following bi-lateral agreements include general obligations in the area of telecommunications and postal services. The bi-lateral agreement serves as a foundation for developing relationships and cooperation between Israel and the signatory country. The content of most of these agreements is declarative. Israel signed until 1998 19 such bi-lateral agreements with 18 countries.
 

4. Regulatory Framework

4.1 Historical overview

The regulation of the telecommunications and broadcasting in Israel is based on several basic laws and the recommendations of a multiplicity of committees nominated to propose policy recommendations and the way for their implementation. The original Telegraph and Wireless Ordnance from the British Mandate was the basic legal framework until its reform in 1972. The Ministry of Communications was a department at the Ministry of Transport until 1952 when was established as the Ministry of Postal Services until it changed dramatically with the transfer of the telephone services to the Bezeq Company in 1984 and the establishment of the Postal Authority in 1988.

4.2 Present General Legislation

The main laws regulating telecommunications and broadcasting in Israel are:

1. The Wireless Telegraph Ordinance (New Version) from 1972. It updates the British Mandate Ordinance.
2. The Bezeq (Telecommunications) Law of 1982.
3. The Israeli Broadcasting Authority Law of 1965
4. The Law of the Second Authority for Television and Radio of 1990.

The Bezeq Telecommunications Laws provides for the concession of General Licenses for the provision of telecommunications services. A General License in terms of the first item in the law is: "A license provided by law for carrying out telecommunication activities in a national network, to the provision of national telecommunication services through such network or for the provision of international telecommunications services.

The terms of these licenses have been the legal tool in the transition to a liberalized market. For example, the General License for the Bezeq Company of March 1994 authorized only the provision of infrastructure services and telephone services in its own network. All other activities in areas to be opened to competition were to be transferred to subsidiary companies so as to avoid cross subsidy among services. All the services in the area of Cellular, International connections, Terminal equipment and Value Added Services were transferred to subsidiaries.

The following General Licenses have been issued so far:
 

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4.3 Keys legislative measures

The main decision concerning liberalization is the Government of Israel decision of January 3, 1997 opening the internal telecommunications market not later than January 1999.

The corollary of this decision were the recommendations of the Gronau Committee for changes in the tariff structure of the Bezeq and the approval by the Finances Committee of the Parliament (22/03/1999) of an immediate reduction of the Bezeq Company tariffs by 23% starting 1.4.99 following the Minister of Communication proposal to that effect.

The actual opening of the internal marked for competition was set for 1 June 1999.

4.4 Issues

In Israel the government ceased the direct provision of telecommunication services in 1984 with the establishment of the "Bezeq" company. The company inherited the monopoly status of the government but already in the early nineties several governmental committees started to study the possibility of opening the telecommunications market to competition. These recommendations were expressed in the general license for Bezeq that was provided in 1994. The conditions of the license set up the conditions for opening the market for competition.

The two markets in which the competition have had a deep impact are the Cellular and the International Communications.

Motorola began offering cellular services in 1987. Until 1993 the service was provided as a franchise provided by the Government and through an agreement with the Bezeq. The Bezeq Law was ammended in 1992 so that the exclusivity in providing cellular services was abolished as part of opening the market for competition. The PelePhone company was established as a partnership between Bezeq and Motorola and it received a license for 10 years for providing cellular services.

In parallel a tender for licensing an additional operator was published; the main criteria was the tariff. The tariff offered by the winner of the tender, Cellcom, was one of the lowest in the world - 12 cents at peak hours in comparison to 30-45 cents in Europe and the U.S.A.. PelePhone was constrained to lower its tariffs by 35%. The competition between the companies resulted in an extremely fast growth of the market. In January 1995 there were 130 thousand customers and 3.5 years later their number reached 1.9 million.

In July 1997 a tender for a third operator in the cellular was published. The main criteria now was the payment offered for the license. The winner, Partner, offered 1.4 Billion NIS and the technology adopted was GSM.

In October 1995 the tender for licensing the provision of international telephone services was published. The tariffs played again a central role in the choice of the winners . The two licensees, Barak and Golden Lines were chosen at the end of 1996 and started operations in July 1997. The tariffs dropped dramatically, by 70%, and the number of outgoing calls grew by 70% . The share of the Bezeq subsidiary, Bezeq International dropped in a few months under the line of 60%; the regulatory framework was changed when this limit was trespassed from minimal tariffs to a ceiling on maximun tariffs..

In 1994 the network end point market was opened to competition. This market includes services of installation, connection, activation and servicing the communication equipment at the customers location and its connection to the Bezeq network. In this market the competition hasn't progressed as the main point of contention is the price for the transfer of ownership of the infrastructure at the customer's location from the Bezeq to the customer.

The last step in the process of liberalization undertaken by the government is the opening of the internal market to competition. The recommendations of the Vax-Brodet-Lyon Committee and the implementation guidelines of the Rosenne Committees ensured the opening of this market beginning June 1999.
  
 

4.4.1 Liberalisation

Israel has followed an energetic liberalization policy and has signed in 1997 the WTO Agreement on Basic Telecommunications Services.Following the Rosenne Committee report it has liberalized its telecommunications market beginnin June 1, 1999. Domestic telecommunications operators will operate in competition with Bezeq, the historical operator and will provided infrastructure, telephony and transmission services. The exclusive status of the current, facility-based international telecommunications services will expire in 2002 allowing the granting of licenses to additional operators.

4.4.3 Universal Service

New telecommunications operators will be permitted to provide their services throughout the country but will be obliged to do so in the "expanded demand area". This will be enforced gradually within three years of granting of the license. The expanded area will be defined in advance in the license of each operator and will include at least 12 "natural regions" based on the administrative division of Israel into 41 such regions by the Central Bureau of Statistics.

4.4.4 Tariffs policies

Regulating the activities of the historical operator in the early stages of competion is considered by the government as being of key significance for the success of the liberalization process. As long as it remains a monopoly in the fixed market (infrastructure, transmission, data networks and telephony) with revenues of more than 50% of the market in at least one of these primary sectors it will remain closely supervised to safeguard fair competition.

In view of opening the market to competition a committee of experts headed by Prof. Gronau formulated the regulation determining the level of Bezeq's tariffs and the way those tariffs are to be updated; it addressed also the process of elimination of cross subsidization and determination of interconnection tariffs. The Gronau Committee recommendations were approved by the Minister of Communications and approved by the Finance Committee of the Parliament (Knesset). From 1.4.1999 the tariffs for intra country calls were lowered by 21%.

4.4.5 Quality of Service

Quality of Services requirements are included among the conditions of the general licenses provided to telecommunications operators. Their implementation is supervised by the regulator, the Ministry of Communications, through its different departments (see above).

4.4.6 Interconnection

The recommendations of the Rosenne Committee (implementing the liberalization of the telecommunications market) regarding interconnection are the following:

Recommendation 16: During the first stage of competition General License holders (GLH) will be required to reach and agreement regarding interconnection. Such agreements should ensure reasonable and non-discriminatory conditions for each operator, including commercial conditions, billing and collection arrangements, availability of installations and quality of service. A GLH will provide services to another GLH under equal conditions including the provisions of infrastructure installations and network services, and including the implementation of changes to switching, installations, protocols and network interfaces. If the two are not able to reach an agreement the Minister of Communications will rule on these issues after the sides have been given the opportunity to present their views. In the future the Telecommunications Law will be amended so as to enable the regulatory agency to formulate the rules and impose them in every license.

Tariffs for interconnection between GLH will be determined in accordance to the economic model which will be determined by the regulatory agency. These interconnection arrangements will apply only between GLH and not b

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