Update: July 1999

Israel - Full report

I. General Background

Israel has successfully modernized its telecommunications market by following a path of corporatization, privatization, liberalization and re-regulation with the controlled introduction of new operators and services, and by opening markets to free competition.

Exports of high-tech products reached US$ 10.4 billion in 1996 and 12 billion in 1997, accounting for approximately 75% of all industrial exports. Hi-tech exports are expected to grow at approximately 20% annually.There are 45 venture capital firms solely dedicated to hi-tech industries currently operating in the country.

The Telecommunications Sector

Communications equipment and services account for approximately 39% of the country’s electronics industry. The communications sector is leading the country in the push for privatization, liberalization and re-regulation. Efficient, innovative and competitively priced telecommunications are a necessity for national economic growth, and a major indicator for foreign investors planning to invest in a specific country.

Over a period of ten years, Israel has turned an ailing Government-dominated market into a modern and competitive area of operations, customer-focused and with high service standards. This has been achieved by shiftingcommunication operations responsibility from the Government to the private sector.

Bezeq, the national telecommunications company which holds a monopoly in local telecommunication services, provides 2.6 million direct exchange lines (45% penetration). It also provides leased line and switched data services (e.g. packet switching and frame relay), utilizing 100% modern digital networks while using the latest technologies in digital switching, Signalling System No. 7, fibre transmission, synchronous digital hierarchy (SDH), advanced intelligent network (AIN), integrated services digital network (ISDN), telecommunication management network (TMN), etc.

Liberalization

Liberalization has enhanced service provision through the controlled introduction of new operators and services, and by opening markets to competition areas such as customer premises equipment and business systems, data networks and information technology services, Internet service provision, audiotex services, etc.

Major progress in market liberalization has allowed the population to benefit from competition in the areas of television, radio, cellular telecommunications, and in international telecommunications. From June 1, 1999 the liberalization of the internal communications market is implemented.

Cellular Telecommunications

Israel’s three private-sector cellular phone operators is expected to reach in 1999 a combined subscription rate of approximately 2.7 million. The country has one of the world’s highest cellular telephone penetration rates.

Pelephone, jointly owned by Bezeq and Motorola, was formed after a successful implementation of a BOT (build-operate-transfer) contract by Motorola. Pelephone provides services using NAMPS (advanced mobile phone service - a North American analogue standard) network technology and has also begun implementing CDMA technology.

Cellcom, the second cellular operator, is owned by Bell-South and other foreign and local investors. It received its concession through public tender, and provides services using TDMA network technology (it is currently transforming its network to the modern IS-136 standard).

In February 1998, the tender for a third cellular operator in the country was completed and the new licensee is operating in the 900 MHz range, according to the GSM standard. The new licence was awarded to Partner, owned by Hutchison of Hongkong, along with additional local investors and started operations in early 1999.

These networks offer countrywide portable coverage and support modern networks with services such as personal numbering plans, calling party identification, international roaming, etc.

International Telecommunications

The two winners of the tender to operate facility-based international telecommunication services in the country, Barak and Golden Lines, began operations in July 1997, ending the monopoly of Bezeq International - a subsidiary of the national telecommunications company in this field. Major international telecommunication companies including Sprint, SBC, Deutsche Telekom, STET, and France Telecom play an active role and hold significant ownership in both new operators.

International rates were dramatically reduced: in some instances, they are now less than one quarter of those previously paid by consumers.

Reform in the Domestic Telecommunications Market

The telecommunications sector is on undergoing a major restructuring with licences to be granted to domestic telecommunication operators. The main recommentdations of the Rosenne Committee orienting this process are:

• domestic telecommunication operators will operate in competition with Bezeq and will provide infrastructure, telephony and transmission services;
• personal communications services (PCS) will provide quality portable handheld communications with features including telephony and a large variety of multimedia services;
• the exclusive status of the current facility-based international telecommunications service operators, Barak, Golden Lines and Bezeq International will expire in 2002, allowing the granting of licenses to additional operators.

Television Broadcasting

There are currently three cable television operators, each with a monopoly in specific geographic regions, and covering over 90% of the country. About 70% of homes have subscribed to cable television. The cable television networks are based on 50 channels, 550 MHz systems, utilizing fibre-based feeders and “tree and branch” coaxial distribution systems. The programming includes “off the air” and satellite channels, as well as five self-provided programme channels and six new dedicated orogramme channels to be introduced during 1998. An “open sky” broadcasting policy was a approved in August 1997. The new policy means major changes in broadcasting, among them a total industry restructuring and the introduction of digital radio and television. Five key points are highlighted in the broadcast industry restructuring.

• Liberalization

• Structural Separation

• New Legislation

• Reorganization

• Digitization

Internet

The Internet market currently comprises approximately 520,000 users, and enjoys a high 5% per month growth rate. The licensing of commercial Internet services was begun in 1994 and there are about 30 service providers, four of them with a dominant position in the market. The Israeli Internet service providers (ISP) utilize international leased line interconnections, using fibre-optic routes and satellite links to the United States Internet backbone; they are locally interconnected through the IIX, Israeli Internet eXchange managed by the Israeli Internet Association (ISOC-IL).

WTO Commitments

In 1997, Israel signed the World Trade Organization Agreement on Basic Telecommunication Services, committing itself to opening the local basic telecommunication services market to competition. The country plans to begin competition in the local services market, including infrastructure, data transmission and basic telephony by January 1999.

Privatization

Privatization is a declared policy goal of the Ministry of Communications which is committed to reducing its share of Bezeq. Currently the Government’s holdings are 54%.
Additional shareholders are Cable & Wireless of the United Kingdom with approximately 12.7%, Merrill Lynch holds 6%, and the public holds the remainder of the shares which are traded on the Tel Aviv Stock Exchange. The Government plans to reduce its holdings further, with the intent of eventually pulling out completely.
At this point, almost all of the new players in the telecommunications industry are private corporations.

Re-Regulation

The third pillar upon which the policy of the Ministry of Communications stands is re-regulation The Government plans to establish an independent regulatory authority, thus reducing direct Government involvement in the communications sector, and enabling market restructuring and competition enforcement.

Re-regulation will cover competition rules such as cross-ownership, resale issues and interconnection arrangements, including tariffs and technical standards, universal access definitions, obligations and reciprocal compensation, special provisions and obligations of general licence owners, numbering issues and other related issues.

1. General Telecom Policy

In the last three years several government committees have issued policy recommendations in the areas of telecommunications and broadcasting; these recommendations are being translated into governmental decisions and implementation.

The inter-ministerial Wax-Brodet-Lyon Commission was established to examine the policy in the telecommunications sector and opening it to competition. It presented their findings to the Minister of Finance and the Ministry of Communications in December 1996.

The implementation of its recommendations has been set up by the Rosenne Committees reports of February and September 1998.

The Peled Committee was established by the Minister of Communications in October 21, 1996. It has been given a mandate to prepare recommendations for extending and re-organizing of the broadcasting system for public radio and television and reforming the overall broadcasting map. The scope of the Peled Committee included present and expected broadcasting elements; broadcasting by terrestrial, cables and satellites means.

The Wax-Brodet-Lyon Commission Recommendations

The Committee defined the main aims of the government's telecommunications policy as follows: (1) To provide a wide variety of modern telecommunications services; (2)To assure quality telecommunications services, in line with other well-developed economies; (3)To achieve reasonable tariff levels (4) To ensure universal service; (5) To create a competitive environment, which will, in turn, promote technological innovation, economic efficiency and ample investments; (6) To safeguard vital national interests; (7) To safeguard national security interests.

The Committee perceived competition as the primary means for achieving these policy goals; its main recommendation was to open up domestic fixed telecommunications services (infrastructure, transmission, data communications and telephony) to competition no later than January 1999.

The Committee's recommendations were adopted by the government on January 3, 1997. An Implementation Committee headed by the Director General of the Ministry of Communications (Daniel Rosenne) was appointed and submitted detailed guidelines for the implementation of competition and structural changes in the telecommunications sector (October 30, 1997). The Ministry of Communications turned to the public for an in-depth review and evaluation of these guidelines (February 10, 1998) presenting alternatives regarding the definition of service areas for fixed-service operators. Following this public consultation process updated recommendations of the Rosenne Committee were published in September 6, 1998.

The future Telecommunications Map Envisaged by the Rosenne Committee

The Israeli telecommunications sector will undergo major restructuring set in motion in June 1999 at which time licenses will be granted to domestic fixed-services operators. The changes include development in the following areas:

1. Fixed-service telecommunications operators, competing with the historical operator (Bezeq), will provide infrastructure, transmission, data communications and telephony services. They will probably provide broadband multimedia services for business and household applications, as well as basic telephony; they will set advanced infrastructure, including broadband switching facilities, broadband optical fiber transmission backbone, and modern access network, implementing technologies such as passive and active optical networks, wireless local loop, local multi-point distribution services and satellite communications.
2. Mobile telecommunications operators will supply cellular communications and personal telecommunications services. They will provide quality, feature-rich mobile and personal communication services, supporting a wide variety of portable multimedia devices. These services will be developed by new operators competing with the existing cellular providers: PelePhone, Cellcom and Partner as well by existing operators updating their infrastructure technologies.
3. International long distance facilities-based operators. The exclusivity of the current operators - Barak, Golden Lines and Bezeq International - will expire in 2002 when licenses to new operators may be granted. The international telecom services will develop into technology-rich broadband communications with global coverage.

In light of the importance of innovation and creativity of SMEs competition in non-infrastructure services will be implemented as much as possible through licenses for value added services in traditional wireless services (paging, two-way radio and trunking) and terminal equipment.

Competition will be facilities based and each telecom operator which provides infrastructure, transmission, data communications and telephony services will be required to set up its own facilities.

Fixed operators will not be permitted to provide services to non-subscribers and those not connected to their facilities by an independent access network under the operator's control.

The competition rules will not impose unbundling of existing services or sale of facilities to competitors. Except for the obligation of every operator to sell its services to anyone who demands them, including competitors, no operator will be compelled to allow competitors to install facilities on its own premises (co-location).

Every telecom operator, fixed or mobile, incumbent or new, will be obliged to meet the following requirements:

1. Interconnection with other operator's networks, enabling all subscribers of any operator to communicate with every subscriber or every service of other operators.
2. Equal access (dialing parity) to the international service providers, enabling every subscriber to select, at her or his discretion, the use of a service offered by any international operator.
3. Number portability, which will enable every subscriber to switch from one operator to another without having to change her or his address or telephone number.

The following conditions for development of competition must be established:

1. Frequency spectrum - re-allocation of the frequency spectrum will ensure efficient competition in telecommunications services. In the first stage, frequencies will be allocated for applications of wireless local loop access and local multi-point distribution services. Later on, frequencies will be allocated for personal communications services (PCS) applications.
2. Telephone numbers - a major change in the Israeli numbering plan will ensure the availability of telephone numbers and dialing codes to the new operators; failing this step, no competition will develop.

Granting Licenses to New Operators

Competition in fixed telecommunications services will be fostered by granting a license to entities which comply to high preliminary qualifications. Licenses requiring the use of a limited resource, such as spectrum where a license can be given to a limited number of operator will be granted by public tender.

Competition in mobile communications services will be fostered by granting licenses through public tenders since the limitations of the frequency spectrum availability do not allow multi-party competition.

In 2002 licenses for the supply of international services will be granted on demand in accordance to assessment of compliance with criteria based on capability, financial soundness and technical skills.

Limitations involving cross-ownership will ensure competition by means of structural separation among bodies operating at various strata - fixed telecommunications, mobile telecommunications and international telecommunications - as well as limiting the capability of any single entity to hold, control, or direct more than one company in each stratum .

Licensing of new fixed-services operators will be long term; twelve years with the option of extension for an additional ten years. Fixed services operators may possible receive legal exemptions and easements, such as rights-of-way, similar to those granted to Bezeq.

Universal Access

Telecommunications operators will provide services to every subscriber and other licensees under equal conditions and without discrimination.

The new fixed-service 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, and will be fully operational 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 twelve "natural regions" based on the administrative division of Israel into 41 such regions by the Central Bureau of Statistics. The expanded area of a cable television concession holder will be a cluster of all his concession regions; Bezeq's expanded demand area will be the entire country.

Bezeq will be obliged to continue to ensure countrywide universal access, i.e. the provision of a wide range of telephony services to every Israeli citizen, as entailed by Bezeq's dominant position and activities in every region of the country.

The contents of the universal access basket provided by Bezeq will be revised every five years. Presently the Committee recommends basing universal access on availability of the following services:

1. Fixed telephony: including basic telephone service, facsimile communication and data communications with a modem, along with a basket of support services including tone dialing, caller identification, call barring, temporary disconnection, repair service, customer support services, telephone directory and directory services, equal access to international communication services, free access to regional and national emergency services, and provision of 16 kHz metering pulse to operate terminal equipment on the custormer's premises.
2. Public telephony service - at uniform national tariffs.

If Bezeq is the sole provider of universal access in certain areas the regulating body will consider participation of other fixed services licensees in funding of universal service, by paying a fixed percentage of their total income.

Bezeq - The Historical Operator

Regulating the activities of the historical operator, the Bezeq, in the early stages of competition is of key significance for the advancement of telecommunications liberalization, as every new operator will have to be linked to Bezeq's network, and Bezeq bears the main burden of providing universal access.

As long as Bezeq 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 the primary operational spheres or sectors it must be closely supervised so as to safeguard fair competition, in particular concerning:

1. Structural separation - it is necessary to continue the policy of structural separation between Bezeq, the parent company, whose business is monopoly fixed services, and its subsidiaries, which supply services in competitive markets.
2. Tariff control - close monitoring and prior aproval of Bezeq's tariffs. As a monopoly Bezeq will be allowed only limited flexibility insetting tariff plans for its customers.

The arrangement for the regulation of Bezeq's tariffs set by a committee of experts in 1993 expired at the end of 1998. A new committee of experts, headed by Professor R. Gronau, formulated the regulation determining the level of Bezeq's tariffs and the way those tariffs are updated; it also addressed reduction of cross-subsidization and determination of interconnection tariffs. The committee developed an innovative macroeconomic model that enable it to analyse the structure of the telecom tariffs validating it through traditional analyses carried out in other countries.

The Gronau Committee recommendations were accepted by the Minister of Communications and brought by her for approval by the government and the Finances Committee of the Parliament. From 1.4.199 the tariffs for intra country calls were lowered by 21% .

The Gronau Committee recommended that the tariffs be lowered by a mean rate of 8%; the company estimated that for the household customer the mean lowering of the telephone invoice is about 12% .

The Peled Committee

Recommendations for extending and re-organizing the broadcasting system for public radio and television; reform the overall broadcasting map including present and expected broadcasting elements; broadcasting by terrestrial, cables and satellites means. The recommendations of the committee are the following:

Open Skies

The main recommendation is the pursuing the creation of a free market for electronic communication services based on the principle of "Open Skies". The following steps are necessary:

(a) Immediate decision for a planned and phased regulation of the electronic communication sector including the necessary legislation. (b) The removal of restraining barriers. (c) Implementation of an open market under fair and equal conditions ensuring security and freedom of choice for all branches of the electronic media.

The committee suggest the consolidation of the present legislation throughout the Broadcasting Act in Israel;the Creation of a National Authority for Electronic Communication Services similar to the FCC that will be the Statutory Regulator .It will deal with planning, licensing and supervision of all broadcasting services; they recommend the inclusion of the telecommunication services within the framework of one Authority.

A Commission for Public Complaints will be established and an unified code of ethics for broadcasting and advertising established.

They recommend the transition from Broadcasting Franchises to Broadcasting Licenses preventing future claims of exclusivity or "first rights" which may prevent or limit free competition and technological innovation.

Another aspect of the recommendations aims at a clear separation between carrier services and content services.

The regulation of the carriers services sector will aim at equal competition offering carrier services to content services license holders. No conditions of exclusivity on service provision will be allowed; content license holders may offer their services to the public through any carriers concurr, in part, or in whole.

Regulation of the content services sector will provide for a competitive framework aiming ar: (a) Pluralism and variety of broadcasts; (b) Uniform ethical guidelines in broadcasting and advertising; (c) Safeguarding original Israeli productions and support to Israeli producers and artists.

Content license holders, except for public broadcasting, will be entitled to use all methods of financing available as long as transparency is maintained. Licensees will publish who directly or indirectly holds over 5% of the holding entity. Licenses will be limited to a fixed period of time and the holder abides to the threshold conditions determined in the license; enforcement conditions for the licenses conditions will be included in the law.

Content providers will be able to provide news and information services without limitations as far as the framework of the code of ethis and the prevention of conflict of interests is maintained.

Limitations in ownership in both the carrier and content sectors will be implemented and equal conditions for competition limiting cross ownership.

Recommendations for the reform of the Public Broadcasting sector in Israel are being prepared by the Zuckerman Committee established by the Prime Minister so that the Peled Committee restrains from making recommendations in this area.

One important recommendation is for a planned and phased, transition to digital broadcasting in the television and radio sectors: (a) Three years for digital broadcasts; (b) Five to eight years for all the population to receive digital broadcasts.

The committee recommends examining the expected development of motion and sound through the Internet which will change the Web into a global network providing TV and Radio programs.

Policy in the Interim Period

Due to the complexity of the transition period and the abundance of government authorities and statutory bodies involved it is advised to prepare the Broadcasting Act immediately so that the National Authority is established no later than the end of 1999 and the full "Open Skies" policy is arranged in time from 2003 onwards.

The commission recommended the immediate allocation of licenses for direct satellite broadcasting (DBS). Broadcast licenses will be allocated to one-channel and to multi-channel broadcasts coded as Pay TV. DBS licenses uncoded and free of charge should be allocated only if they do not broadcast commercial advertisements, at leas until 2004. The allocation of such licenses will be carried out through the reform of the Bezeq Law from 1982, Section B.1 which should later be included in the completed Broadcast Act. Unified and obligatory standards for end receiving units to be installed at the consumer's home should be established both for cable as well as for satellite broadcasts.

Dedicated channels: National dedicated channels which will be allowed to broadcast by cable and satellite should be licensed. And financed by advertising. These will be dedicated to: Arabic Language; Amharic and Russian; Israeli Heritage; Israeli Music and Middle-Eastern Music; News and Information Channel. In addition the establishment of an International Israeli Channel dedicated to Jewish and Israeli communities abroad should be considered.

Cable television: preparations should be immediately started for changes in the current franchises, by consensus and legislation. Cable TV carriers should not hold control of systems that exceed 35% of the cable linked household in the country. They will be not allowed to transmit direct broadcasts via satellite (DBS) or control companies in this sector. The current policy of one service package (Super Basic) will be canceled by 1999. A group of separate services (tiering) will be offered to cable television customers; a basic service package at a basic rate (lower than the present) will be controlled; subscribers will then be offered additional coded groups of services (premium channels) provided by content suppliers with prices determined by the market.

Content provision by cable carrier companies will be allowed only through separate subsidiary companies operating under conditions of equal competiton.

The process of transition to tiering should be accelerated through the provision of a license for DBS providing a competitive alternative to cable TV.

Second commercial Television Channel in 1999: A tender should be published for a single corporate holder to establish an additiona commercial channel available to all. It will begin broadcast at the end of 1999 upon completion of the first franchise period of the present Second Channel. If it proves impossible to operate the new channel through terrestrial carriers (like the Second Channel) broadcasting freely by air and operating license will be given to the additional channel via cable (free of charge - Must Carry), via direct satellite broadcast, and will be uncoded. The new channel will enjoy full equality with the existing Second Channel with free and fair competition between the two channels as broadcasters of commercial advertisement. The equality will be based on changes to be effected in the "Law for the Second Authority for Television and Radio, 1990".

Commercial broadcasts in the interim period: by the end of 1999 franchises will be replaced by licenses and license holders will be considered content providers to the public. With the establishment of the National Authority or at the end of the first franchise of the Second Channel (1999) the statutory authority will not be involved in production or broadcasting but act exclusively as a regulatory body. The relevant statutory authority will decrease its involvement in planning broadcasts and supervising contents; it will enforce uniform ethical standards and the positioning original Israeli producions.

The Second Channel at the end of the franchise period will broadcast seven days a week; the franchise of Educational Televison in the Second Channel will be canceled. Broadcasting licenses will include authorization to broadcast news and current event without limitation; the news company of the Second Channel will operate as a separate subsidiary of the license holder under his full control with changes obligating the establishment of an independent news system preventing conflict of interests.

Opening Radio Stations to Competition: free competition will be established with the completion of the transition to digital radio broadcasts. Franchises provided to local radio stations will be transformed into licenses allowing the move to national broadcast. As long as the broadcast range remain a "scarce resource" local station which wish may become part of a national network via the broadcast network of the Second Authority. The 13 local stations will be permitted to create consortia for marketing advertisements; they will be allowed to broadcast news and current events programs (national and international) without limits to local regional broadcast as long as ethics are maintained and conflicts of interest prevented.

The Commission recommends allocating frequency and licenses to national radio stations religious or heritage related; licenses should be allocated through a competitive tender. In the process of regulating radio broadcasts licenses should be allocated to community radio stations on a low power supply with a radius that does not exceed 5 km for the use of universities, schools, small neighborhoods or villages.

Radio broadcast to other countries should be removed from the Broadcasting Authority ("Kol Yisrael") and established as a separate and independent framework budgeted and financed according to the purpose of the broadcast and its need.

The Commission recommends determining by law, immediately, that whoever has been convicted of operating an illegal radio station (pirate) will not be permitted to receive a legal license; this will extend to all who have been convicted of a major crime.

Implementation committee for the recommendations and all-inclusive regulation of broadcasting to the general public should be established as an Administration or Executive Board for Start-up and Regulation in the Ministry of Co. This has already been implemented and Adv. Zvi Hauser heads now this new unit at the Ministry.
 

2. Institutional structures in charge of regulatory issues

The regulator in the area of telecommunications is the Ministry of Communications. For IS purposes we include among the bodies having a regulatory function the Israel Broadcasting Authority (in the Prime Minister’s Office); the Second Authority for Television and Radio (in the Ministry of Education); the Anti-Trust Authority in the Ministry of Industry and Commerce; the Supervisor of the Banks in the Bank Israel (in matters related to electronic banking).

2.1 Ministries in charge of telecommunications issues

Ministry of Communications

Historically, the Ministry of Communications was a division within the Ministry of Transportation, whose responsibilities included post delivery, and telephone and telegraph facilities which had existed since the Mandate period. The Postal division became the Ministry of Posts in 1952, and the Ministry of Communications was established in 1971.

Areas of Responsibility

The Ministry of Communications encompasses a wide and diversified range of activities. Its responsibilities include: formulating telecommunications policies, developing telecommunications infrastructures, supervising Bezeq and other telecommunications service providers, supervising the Postal Authority, setting & auditing Bezeq and Postal Tariffs, managing spectrum allocations, regulating and supervising cable television services and tariffs, approving usage of telecommunications equipment.

Organizational Structure

Office of the Minister - Mr. Benyamin Ben-Eliezer - Telephone: 972-2-6706301

Office of Director General - Mr. Daniel Rosenne - Telephone: 972-2-6706310

Deputy Director General - Adv. Menachem Oholy -Telephone: 972-2-6702250

Office of the Spokesperson and Media Advisor to the Minister - Ms. Tamy Shenkman

Engineering and Licensing Division - Mr. Avi Rahav

Telecommunications Equipment Department- Mr. Haim Sakharovich

Integrated Licensing - Ms. Ruth Cohen

Spectrum Management Division - Mr. Moshe Galili

Wireless Equipment Licensing Department - Mr. Alon Bar-Sela - Telephone: +972-3-5198277

Telecommunications & Post Supervision and Control Division - Mr. Haim Habib

Supervision of Consumer Services offered by Telecommunications Operators - Mr. Zeev Keidar

Posts Supervision - Mr. Igal Levy

Legal Division - Adv. Yizhar Tal

Economics & Planning Division - Mr. Alex Weissman

External Affairs Division - Ms. Naama Henig

Council for Cable and Satellite Broadcasting - Adv. Zvika Hauser

Cable Television Service Division - Mr. Zeev Raz

The Broadcasting Regulatory Administration - Adv. Zvika Hauser

Office of the Chief Scientist - Mr. Rafi Hoyda

2.2 National Regulatory Authorities

The main national regulatory authority in the area of telecommunications is the Ministry of Communications. Additionally in the area of Broadcasting there are two Authorities: the Israel Broadcasting Authority (in the Prime Minister’s Office); the Second Authority for Television and Radio (in the Ministry of Education);

The Israel Broadcasting Authority

Established by the Broadcasting Authority Law of 1965 it has both operational as well regulatory tasks. It operates two television channels, one terrestrial, the First Channel and another by satellite and broadcast only for cable subscribers (Channel 3 or in Channel 33 in the Cables). It operates several radio stations under the name of Kol Yisrael: the A, B, C, D and E (short waves) networks; a foreign languages radio (Immigrants Absorption); a road security channel in the north part of the country (The Gal Batuach); a road and business channel in the central part of the country (Kol HaDerech LeAssakim).

The budget for the IBA comes from the TV duty paid by TV sets owners; income from services broadcasts and sponsorships; the radio and the car radio duty; direct subsidies from the Finance Ministry for the direct broadcast through Channel 3 of the Parliament deliberations.

The bodies in charge of overseeing and supervising the IBA are:

The Plenary of the Broadcasting Authority: composed by 31 members. They are nominated by the President of the country - 30 of them indicated by the government and 1 by the Jewish Agency. They are nominated for a mandate of three years.

The Executive Board composed by 7 members of the plenary nominated by the government. The chairman and vice chairman are nominated by the government. The Executive Board has executive authority as the law states in item 19 "To discuss and decide on matters of concern of the Authority".

The Minister in charge of the executing the law is now the Prime Minister. In the past this task has "migrated" between the Minister of Education and Culture and other Ministers nominated by the Prime Minister to carry out this task.

The Second Authority for Television and Radio

An statutory body established by the Law of the of the Second Authority for Television and Radio from 1990. It is in charge of commercial broadcasts (Television and Radio) financed by income from the broadcast of commercial advertising.

The Second Authority is in charge of the Second Channeof TV. It started broadcast in November 1993. Its broadcasting hours through the 7 week days were divided equally among 3 licensees which are three different commercial consortia occupying 84% of the broadcast time. The Educational TV received a franchise for 14.3% of the broadcast time at the Second Channel. The News Broadcasts at the Second Channel are not directly broadcasted by the franchise operators but by an autonomous body, the "News Company" which has the standing of an independent franchise. The budget of the "News Company" is covered by the three commercial franchise holders (Establishment, Acquisition and Maintenance) and by the Second Authority which is supposed to cover the current expenses of the News Company from the income it receives from the license holders.

The Regional Radio

Radio commercial broadcasts are regulated by the Law of the Second Authority for Television and Radio. It provided in 1995 franchises for 13 regional radio stations that broadcast in pre defined geographical areas. The content of their broadcast is not different from the national radio channels except for some programs that are supposed to deal with local issues. They are financed by broadcasting commercial advertisement. In contrast to the Second Channel that is the only one authorized to broadcast advertisement, the regional radio stations are in competition with the National Radio Channels which broadcast commercial advertisement already for many years.

The regulatory functions for the Second Channel and the Regional Radio Stations is exercised by the Second Authority for Television and Radio.

The Second Authority is subordinated to a Public Council ("The Authority's Council"). The Council is composed by 15 members including the chairman; they are nominated by the government for a mandate of four years. The Director General is nominated by the Council following the recommendation of the Minister and authorized by the government for a period of five years

The Minister in charge of the Second Authority for Television and Radio is the Minister of Education Culture and Sports. With the establishment of the new government in June 1999 it will be transferred to the Ministry of Communications.

The Educational Television and the IDF Radio Station

The Educational Television is directly subordinated to the Ministry of Education Culture and Sports and is not regulated by an statutory body.

The IDF Radio Station subordinated to the Ministry of Defense and its civil broadcasts should be supervised by the IBA as determined by item 48 of the IBA Law.

Cable Television

There are three companies with franchises for Cable TV broadcasts in Israel. The penetration rate is very high reaching more than 70% of the households in the areas covered (which cover 90% of the households in the country).

The Council for Cable Television at the Ministry of Communications is the regulatory body for Cable Television in Israel. The Council serves also as the tender committee for the allocation of licenses. The licenses themselves are provided by the Minister of Communications who has the authority to issue the regulations.

The Council determines the rules concerning the services to be provided through the the cable system. The technological area of establishing and running the cable network is supervised by the Director of the Service of Cable Television and Subscribers who is head of Division at the Ministry of Communications.

The Minister in charge of Cable Television is the Minister of Communications.

2.3 Frequencies allocation authorities

Ministry of Communications, Spectrum Management Division - Mr. Moshe Galili

Managing spectrum in Israel and granting broadcasting licenses including planning, allocation, licensing, supervising and monitoring. Telephone: +972-3-5198281

2.4 Office for the protection of economic competition

The Anti Trust Authority in Israel was established to protect the competition in the Israeli economy through the enforcement of the Anti Trust Law of 1988 in cooperation with the Anti Trust Court of Law and the Tribunals System. All the units of the Authority, legal, economic, investigative work in coordination to achieve the above goal. The specific tasks are: (a) Supervision over monopolies to limit their market power; (b) Supervision of mergers to avoid the establishment of monopolies or monopoly centers of power; (c) Supervision over limiting arrangements to avoid arrangements that contravene competition.

The Legal Department start legal proceedings against those who infringe the Anti Trust Law; announcing monopoly owners, legal consultancy, provide exemptions. The Economic Department provide economic analysis on matters concerning cases being dealt by the Authority. The Investigation Department investigate suspicion of contravention of the Anti Trust Law and to establish evidence in cases being dealt by the Authority.

The target populations of the Authority are: (a) Companies, business and directors suspect of contravening the Anti Trust Law; (b) Monopolies; (c) Companies wishing to merge and asking for authorization; (c) Companies asking for exemption for establishing limiting arrangements.

The Authority is managed by the Anti Trust supervisor, Dr David Tadmor, +972.2.6556111

2.5 Consultative Councils

The regulatory bodies described in item 2.2 above serve as consultative councils for telecommunications policy. In addition, almost all the Committees that have been established in recent years for policy planning and implementation have asked for comments and recommendations from the public. These public policy committees have invited in many cases those providing thoughtful comments to appear frontally in the committee.

2.6 Public Telecommunications operators

The following is the ownership composition in the Israeli telecommunications market:

Historical Operator - Bezeq: Government of Israel - 54%; Cable & Wireless - 13%; the remaining shares are publicly held.

Cellular operators: Pelephone (Bezeq - 50%, Motorola - 50%); Cellcom (BellSouth -34%; Safra Brothers - 34%; PEC - 12.5%; Discount Investments - 12.5%; Private investors - 7.0%); Partner/Orange (Hutchinson - 46.5%; Matab - 20.31%; Elbit - 16.5%; Tapuz - 16.5%).

International long distance: Bezeq International (Bezeq - 100%); Golden Lines (STET; SouthWestern Bell; Aureq; Globscom; Meitar/Kahn); Barak (Sprint; Deutsche Telekom; France Telecom; Clacom; Matab).

Cable TV: Aruzei Zahav (Aureq - 70%; Yediot Aharonot - 30%); Matab (Denkner - 37%; Maariv - 13.3%; Mosat-Gosinski - 10%; Hanania Gibstein - 6.2%; Shimeon & Ali Hefetz - 5.1%); Tevel (I.D.B - 48.5%; UPC - 23.3%; TCI - 23.3%).

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:
 

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 between them and subscribers or between them and special license holders.
 

5. Freedom and Protection

5.1 Copyright and intellectual property rights

The following is based on the article by Adv. Brian D. Negin, Database Protection in Israel. Adv. Negin is the General Counsel to the Israel Central Bureau of Statistics; Legal Advisor to the Israel Government Internet Committee and member of the Database Working Group of a Parliament (Knesset) sub-committee.

Israel is a signatory to the TRIPS agreement and the WIPO Copyright Treaty adopted by the Diplomatic Conference on December 20, 1966.

Israel is now drafting new copyright legislation to replace the 1911 Copyright Law and the Copyright Ordinance. These laws, in force since the time of the British Mandate, have been amended extensively throughout the years by Israel to meet its obligations under international treaties and to keep up with modern needs.

A committee of experts, chaired by Adv. Meir Gabbai, past General Director of the Ministry of Justice to propose a new Copyright Law. The Committee (referred to as the Gabbai Copyright Committee) has submitted its recommendations to the Ministry of Justice for consideration. In the context of databases is proposed that copyright protection will be given to original works which are compilations of data only, although such protection does not apply to individual facts or data.

The Gabbai Committee has also recommended that the existing State copyright be limited and should not be extended to the following: anything published in the official State Gazette (including laws, regulations, officila notices and more); and in the Knesset Records; administrative guidelines and judicial decisions; and official translations of this material.

The Working Group report of the Knesset subcommittee on "Israel's Preparation for the Information Age" recommended the creation of Government databases containing a "basic basket" of information which will be provided free of charge to the public. The Working Group also recommended that such databases not enjoy copyright protection. It made also a distiction between dissemination of database information pursuant to principles of freedom of information and the dissemination of entire databases to the private sector for the purpose of private marketing. In the latter case the Working Group recommended that such databases be made available on an equal and competitive basis to private sector businesses.
 

5.2 Privacy, data protection, consumer protection

The Protection of Privacy Law, 1981 is the legal framework created for consumer, data and privacy protection in Israel. This indicates a relatively long history relating to the protection of privacy vis a vis identified and identifiable information contained within databases.

The Law established a Registrar for databases and any data collection containing data on individuals needs to be registered; in the registration process the entity registering the data collection needs to nominate a Database director responsible for data protection and privacy and who should incur the penalties of Law in case of infringement.

Private data provided by an individual cannot be used for any other purpose than the original one for which the data has been provided. The use of such data or its transference to a third party may incurs a of up to five years in prison.

Ammendment concerning direct mailing

An ammendment to the Protection of Privacy Law, 1981 was enacted in May 1997 (Ammendment 4 , 1996). It establishes the right of any person to request, in writing, from the owner of a direct mailing database that the information concerning himself be deleted from the database. The information to be deleted should include the name, address, phone number, fax number and any other information concerning that person. Direct mailing includes mailing in writing, printing, telephone, fax and by computer mediated communication. The ammendment establishes that the owner of a database used for direct mailings should include in any mailing he sends the registration number of the database in the Databases Registrar (at the Ministry of Justice); the identity and address of the owner of the database that served for sending the direct mailing. Persons whose personal data has been included in such database may request the deletion of the information from the mailing list as well from the database which served for the creation of such list. The owner of the list and the database have 30 days to comply and provide a written reply stating that the personal data indeed has been deleted.
 

5.3 Electronic protection, legal protection and security (encryption, electronic commerce)

Lately the regulations concerning data encryption in Israel have been eased. Until a few months ago the transmission of encrypted data in Israel was forbidden, including both mathematical devices and algorithms as well as secret languages.

The ordinance called "Order concerning the occupation with encoding devices" was issued in 1974 following the Yom Kippur War by the Chief Communications Officer in the IDF. The ordinance established that to be able to deal with any encoding devices one should have an explicit license issued by the Director and only according to the conditions established in the license. The purpose was to ensure that only official bodies use encryption and to avoid its use for civilian purposes.

The use of computers in Israel in the seventies in Israel was already well advanced and so the use of encrypted networks, specially in the financial sector so it was quite hard to enforce these guidelines. The hi-tech industry, the academia and others attempted to change this ordinance pointing out to the economic price and the consequences for technological development.

The Minister of Defense, Yitzhak Mordechai changed lately the regulations. He decided that encryption matters will now be handled by a Consulting Board of five members including a public represenative. The officer in charge will be a civilian, the General Director of the Ministry of Defense; the Ministry designated Mr. Meir Shalit, the officer in charge of security related exports, to coordinate all matters related to licensing and supervising the use of encryption related technologies and activities in Israel. The Shalit Office already published a list of products that include encryption devices that can be freely used without need of a license; the list includes the two popular Web browsers widely employed by Internet users….

The new regulations have been wellcomed by the hi-tech industry in Israel; Gil Shweid, the C.E.O. of CheckPoint, one of the leading producers and exporters of encryption devices, praised the Ministry of Defense for the willingness to adapt to the new conditions.
 

5.4 Freedom of expression and information

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