January 2000

Israel Update Memo

The following report outlines new developments in the past three months and the state of on-going developments.

General Background

The implementation of the decision, opening the telecommunications market for competition since June 1^st, 1999 has created an extremely dynamic situation.

The Israeli communications services market reached $3.7 billion at the end of 1998: historical operator (Bezeq): 40%; cellular services, 38%; cable television, 11%; international calls, 7%; Internet, 2%; business systems services, 2%.

In September 1999 there were 2.8 million line telephones (47%); 2.5 million cellular customers (42%) and 1.1 million households connected to a cable company. Forecasts concerning the opening of the market to competition predict continuing rapid growth.

The main players are the historical operator and its subsidiaries; the cable TV companies, which present the major alternative infrastructure for telecommunications; the DBS satellite company whose services are to be launched in April 2000; the providers of international telephony; the cellular telephony companies and specially Cellcom, with the largest customer base; the undersea cable operators and alternative networks expected to enter the market.

In addition we should list the contenders for spectrum in the wireless tender to be published by the Ministry of Communications in February; the main ISPs; the commercial TV Channel concessionaires and the public television channel; the independent TV producers, directors and actors that organized themselves as a pressure group.

Intensive activity can be identified among the banks and large finances groups; investment companies; risk capital investors; national and international technology providers. Besides the present owners of communications operators prospective investors are Koor, the Israel Corporation, Kardan, Zeevi, Delek, Shemen, Maiman;. Arison Investments, owner of the Bank Hapoalim and the ISP Internet Gold.

The main technologies involved include telephony; cellular; multi-channel television; fast Internet and data communications. The historical operator operates a traditional telephony network, fully digitized; WLL and LMDS wireless technologies are expected to enter the market following the spectrum tender to be published in February 2000 for four groups of new operators; Voice over IP is expected to be implemented too.

Three digital technologies are in operation in the cellular Israeli market: GSM, CDMA and TDMA. Multi-channel television consists of cables and digital satellite broadcasts due to start operating in April 2000. Support for fast Internet is expected to come from two way cable, ADSL (via the historical operator copper wire infrastructure), LMDS and digital satellite. Data communications will soon operate through the ATM public network of the historical operator (besides the present traditional data communications technologies) ; two way cable transmission cables (cable TV); and LMDS technology.

The actions of the political actors and regulatory bodies should be understood against this background. These include the Ministry of Communications (the new minister is Benyamin (Fuad) Ben-Eliezer) and the general director Danny Rosenne; the Ministry of Finance and in particular its Budgeting Division; the Commissioner of the Anti-Trust Authority; the Parliamentary (Knesset) Committees in particular the Finance Committee which approved amendments to the Telecommunications Law as part of the State Budget for the year 2000 Lately the decision regarding the tender for extending the Cable TV concessions has been directed to the Attorney-General, who will decide on this matter.

The developments since our last report in middle October are the following:

1. Main lines for a possible settlement of the telecommunications market

In the first week of January 2000 the main lines for a possible settlement of the telecommunications market are being delineated. A settlement will be reached regarding the content market and in exchange the merger of the cable companies will be approved.

The settlement in the content market obliges the cable companies to sell to the DBS satellite broadcasting company YES content from their independent channels. The cable companies are also obliged to increase their original production rate. The tiering arrangement enables YES to offer channel packages for 18-27 months and prohibit cable companies from making such offers; it seems that as part of the arrangement the tiering window will be shortened.

The Minister of Communications announced that as part of the planned settlement the cable TV companies will commit themselves to investing at least 8% of their turnover in original productions (9% in the second year and 10% in the third).

2. Cable TV as an alternative Infrastructure

The differences between the Minister of Communications and the Ministry of Finances regarding the extension of the license to the Cable TV operators (due to expire between 2002 and 2005) haven't been solved. While the Ministry of Finances insist on a tender for a ten-year extension and assess the value of the concessions at $1-1.5 billion. The Ministry of Communications wishes to extend the concessions without a tender in the framework of a comprehensive arrangement for opening up the multi-channel television and communications markets for competition. While failing to reach an agreement the two Ministers agreed to apply to Attorney-General Elyakim Rubinsteing to give a legal decision whether the State is obliged to hold a tender for extending the concessions.

While the parties did not agree on the extension of the concessions they seem to have consented on a "small arrangement" including sale of cable content to the DBS company; the shortening of the tiering window provided to the DBS company; and the approval of the cable companies merger.

3. Anti-Trust Commissioner David Tadmor declared Cable TV Companies a Monopoly

The Anti-Trust Authority Commissioner declared (November 8, 1999) the cable companies as a monopoly in the multi-channel television market. The Commissioner states that a complete monopoly is the antithesis to competition. In the area of communications the negative effects for the public welfare of a monopoly are far fetching; the public interest in free competition is of an importance and normative standing similar to other constitutional rights like freedom of occupation and freedom of speech.

As stated in its preamble to the declaration the initial phase in opening a market for competition is critical in allowing new players to emerge; the process of opening a market held so far by a monopoly demands supervision and protection for the new competitors so they are able to consolidate their positions and compete with the monopoly. The Cable TV companies hold companies hold in their respective concession areas of more than 50% of the multi-channel television market, this being the main factual basis for the Commissioner's decision.

4. Anti-Trust Commissioner David Tadmor declared Cable TV Companies a Cartel

The Anti-Trust Authority Commissioner, Dr David Tadmor, established (December 10, 1999) that the agreements signed by the Cable TV companies with the foreign producer companies Warner, Columbia and Fuchs and with the Football Association are a cartel, prohibited by law. The agreements are planned to be implemented after the period of extension of the I.P.C. agreement that allows the Cable TV companies to jointly acquire content. The agreements signed by the Cable TV companies signed with Hotels and Kibbutzim are part of a cartel as interpreted by the Commissioner. The purpose of these agreements is to close the possibility that the DBS YES company enter these markets when it starts its operations. Tadmor stated that he is considering declaring the Cable TV companies a monopoly also in the area of contents; in this case he and the Ministry of Communications may be able to impose on the Cable TV companies the obligation to sell contents to the DBS YES company.

5. Cable Television Companies Merger

Several developments have taken place in the latest months regarding the consolidation of the Cable TV companies into a unified national company. These steps were taken in view of their preparations for a two front fight. On the one hand they compete with the DBS YES company regarding multi-channel television. The other front is that of inland communication licenses. Their preparations include: 1. Upgrading to broadband network 2. Upgrade to a two-way network 4. Preparation of an Internet content system 5. Preparation for telephony services over the cable network (VOIP)

The cable TV companies officially announced (31.12.1999) their merger. They announced their intention to compete with the Bezeq in the provision of inland telephony services. They intend to offer such services in two years and at "half the price of the Bezeq tariffs". The announcement included their intention to mobilize foreign investments and invest into advanced communication infrastructures. They added their intention to connect all educational institutions from the country to their network.

The process of consolidation of the companies began two years ago when Golden Channels (Aruzei Zahav) bought the Eidan Company so that only 4 Cable TV companies remained. In continuation Tevel bouth Gvanim. A month ago it was announced the Eliezer Fishman, Yedioth Aharonot and Tevel will acquire the control of Golden Channels. The approval of this deal will establish a consolidated company.

The division of shares in the unified company will be determined by the number of customers of each company. The Denkner Group has 25%; the Fishman-Yedioth Aharonot 30% and Discount-UPC 45%. The Denkner Group is negotiating the acquisition of a part of the customer base of Discount-UPC. If the deal is completed Discount-UPC will have 40% and the Denkner Group 30% of the customer base. The date for completion of the deal, pending the approval of IRS and the Anti-Trust Commissioner is 31 August 2000.

The Ministry of Communications reacted strongly to the announcement of the merger of the cable TV companies. It said that the information provided in their statement was partial and biased. The Minister is now negotiating with the cable TV companies; the process hasn't been completed so there is no point in issuing biased statements. In any case the Ministry does not intend to allow to any one of the parties any exclusivity in providing communications services for public institutions.

Observers say that approval for the establishment of such a company by the Ministry of Communications will depend on several conditions: 1. Significant enlargement of the rate of original Israeli productions among the cable broadcasts; 2. Compliance with the demand of extending cable TV services to all the peripheral regions. 3. Outsourcing of production of content 4. Free access to the cable TV infrastructure for the broadcast of the Special Content Channels; 5. Access to the cable TV infrastructure to independent providers of Internet Access; 6. Commitment not to run tariff wars that may endanger competition; 7. Commitment to allow the DBS company YES access to the content that the cable TV companies acquired with exclusivity from the main international and local providers.

6. Minister of Communications will not allow the Historical Operator and Cable TV companies to participated in the wireless spectrum tender

The Ministry of Communications is about to publish the tender for 4 spectrum bands for the technologies WLL and LMDS. In the Israel Business Conference (13-14 December 1999) the Minister announced his decision that the historical operator, its subsidiaries and the cable TV companies will not be allowed to participate in this tender. He explained that the communications market includes an high concentration of cross ownership and therefore there is a need to diversify the composition of the players in the market.

7. Privatization of the historical operator - the Bezeq

The Minister of Communications approved the acquisition of 20% of the shares of the historical operator by the Gad Zeevi businessman from Cable and Wireless (6.12.1999). Zeevi is paying 630 million dollars for all the Cable interests of the Bezeq. C&W first invested in the Bezeq five years ago when it bought 7% of the company; later it enlarged its share to 13% and at the end of October to 20%. The government remains with 54% and intends to sell control of the company during the year 2000.

Zeevi enjoyed for this deal from financing provided by a consortium of Israeli banks of $ 600 million; the shares serve as collateral. Zeevi Investments pledged to comply with the Telecommunications Law directives regarding the privatization of the company and with national security.

Several investment groups announced they have taken steps in preparation for the privatization of the Bezeq, The Denkner Investments Group nominated a vice director for Technological Development (Herzl Halali, a reserve brigadier general who served as Chief Communications Officer of the IDF); the Denkner group has significant interests in the Cable TV company Matav and it is up to the regulator to establish the rules of the game. Koor and the Israel Company have established a joint company in view of acquiring the core ownership of the Bezeq and participating in the tender for the fourth cellular operator. The initial capital of the new company is 100 million dollars. Koor has significant interests in the area of telecommunications.

The Ministers' Committee for Privatization decided in October that the Board of Directors of the historical operator should inform the Governmental Companies Authority on his standing regarding the privatization, the proportion of shares that should be sold (more than 50% or 40-45%). the Board of Directors should express its position regarding the experience in telecommunications expected from the those groups wishing to buy the company. The Bezeq director general Ilan Biran expressed his position that present constraints impinge on the managerial flexibility and on the capacity of the company to reward its workers appropriately.

The head of the Bezeq Worker's Association, Shlomo Kfir and the chairman of the Syndicates Federation (Histadruth) appearing before the Finance Committee of the Knesset demanded that the opening of the telecommunications market for competition and the privatization of the Bezeq be carried out in consultation with them. The Minister of Communications, Benyamin (Fuad) Ben-Eliezer said that while there were promises from former prime minister Benyamin Netanyahu regarding the process of privatization no such promises were made regarding the process of opening the market to competition.

7.1 The Reaction of the Historical Operator to the Opening of the Market

Ilan Biran the new CEO of Bezeq, the historical operator reacted to the recent developments in the telecommunications market with four demands: 1. Acceleration of the privatization process 2. Demand for a license to provide Internet services 3. Universal service demands from the competitors 4. End to the structural separation from the subsidiaries. The Bezeq complains to the Anti-Trust Commissioner and appeals the process of merger among the cable companies; the business convergence of the two main groups that dominate the cables market Fishman-Yedioth Aharonot and Discount Investments. On the other hand in a letter to the Director General of the Ministry of Communications the Bezeq states that if they receive a license for providing Internet services and the limitations of the structural separation from their subsidiaries are annulled it will not oppose the merger of the cable companies. They have the judicial option of appeals to the Supreme Court of Justice that can slow the process of opening the market..

7.2 Billing:

The annulment of the contract for a billing system with the AMS company may have consequences for the preparations of the Bezeq for competition. It seems that the company will continue to use its old system for the private/home sector and introduce the new system it is acquiring from the AMDOCS company for the business sector. This will limit its capacity to offer the public complex campaigns and products.

7.3 ADSL:

The Bezeq is carrying out a limited experiment offering ADSL broadband services in four of its central exchanges in each of its regional divisions. It asked the regulator for permission to extend the experiment to 18 of its sub-regions.

The Bezeq intends to start in February 2000 the deployment of the ADSL service across the whole national territory (200 exchanges). This service offers an 8 Megabit dowload channel using the regular copper line connection to the customers place. The price should be around 15 dollars a month for a guaranteed fixed band of half a megabyte per second. There will be differential rates for business and home customers and for the different arrangements regarding the download and upload bands.

The Bezeq says that the Ministry of Communications approved the experiment. The Ministry stated that the authorization for deployment of the service hasn't been guaranteed yet. Elements in the Ministry adopted the position that authorization for the full deployment of the service should wait until the DBS YES company and the Cable TV receive their licenses for the provision of Internet services over broadband channels.

8. Universal Service

The Telecommunications Law was amended in the legislative process approving the new State budget for 2000. The law demands the new telecommunications providers for the internal market provide their services in at least 15 of the 52 regions of the country defined by the Central Bureau of Statistics. The new amendment demands the new operators choose from among the 15 regions at least three "non-attractive" regions in which the expected profits are low. In all the chosen regions the providers will need to provide universal services. The Minister of Communications was authorized by the amendment to enforce the universal service requirements; the amendment enable the operators to subsidize the services in the peripheral regions through an special fund in case of operational deficit; the amendment establishes that the tariff established by the operators in any one of the populated regions will be automatically extended to the peripheral regions so that they enjoy the same conditions of urban areas.

9. Cellcom: another contender in the inland telecommunications market

Cellcom is the largest cellular telephony company in the Israeli market with more than 1,2 million subscribers. Among the cellular companies it is the best positioned to compete with the historical operator in the inland telecommunications market. It applied to the Ministry of Communications for a license to start providing Internet access services based on its existing infrastructure. It intends to provide these services through all the present methods: fixed point-to-point lines, ISDN, ordinary telephone, Bezeq's 135 and broadband services to be provided in the future by Bezeq and the cable companies. It will set up an Internet support centre based on its existing customer service centre.

Cellcom started laying fibre optic token rings between its various switches all over Israel. Its purpose is to reduce dependence on Bezeq inter-switch transmission and to build the infrastructure backbone for its future inland communications network. The company's strategy is to reach the business sector by optic fibers and other areas by means of wireless technology. It is investing $20 million in the project which it plans to recoup within two years

10. Competition in International Telephony

The Ministry of Communication decided in the middle of June 99 to arbitrarily allocate customers who have not so far chosen a specific international operator among the different operators. As a reaction, Bezeq Beinleumi, appealed to the Supreme Court of Justice. In the SCJ (July 18, 1999) the companies reached a compromise that establish that a survey will be carried out among the customers asking them for their preferred company for international calls.

In the last few months a fierce publicity campaign has been carried out by the international telephony operators competing for the assignment of unaffiliated customers. The estimate is that this campaign is the most intensive so far in the Israel publicity market and will cost the companies involved about $ 20 million. There were appeals to the court due to the allegations of the competitors, Barak and Golden Lines, that the historical operator subsidiary, Bezeq Beinleumi, frightened the customers into assigning themselves to it.

Due to the mutual accusations between the companies the Ministry of Communications has engaged the services of an independent accountancy firm to oversee the assignment process.

11. Energetic Actions by the Associations of Producers, Directors regarding the Content Market

The Association of Cinema and TV Directors; the Association of Screenplay Writers and the Association of Creative Documentary Producers enacted a series of actions in regard to the process of opening the telecommunications market to competition. They carried out a protest in the hotel in which the seminar on "The New Age in Communications" organized by Maariv Congresses was taking place; the organizers of the protest were arrested; the forum organized a large demonstration in Tel-Aviv, going from the Culture Palace to the offices of Eliezer Fishman and Leon Recanati (Discount) , owners of large shares of the Cable TV companies.

These actions seem to have achieved significant results insofar that the issue of guaranteeing resources for original local content production became part of the agenda for the settlement of the market for competition. In wake of the meeting of the leaders of the movement with the Minister of Communications they have got his pledge to take their claims in consideration.

The forum asked the Anti-Trust Court (December 22) to correct the conditions of the interim authorization given to the Cable TV companies (from 24.10.99) regarding common contents (I.P.C.). They demand that the Cable TV and the DBS Satellite company deposit a million dollars each month from July 1999 for supporting local original production. They also demand to be part of any additional proceedings after the present interim I.P.C. agreement is concluded (February 1^st, 2000).

The forum expressed his opposition to the content agreement by which the Cable TV companies will be obliged to sell content to the DBS YES company. In a letter to the Anti-Trust Commissioner he states that he hasn't made the necessary distinction between local original content and imported content. They express their position that the proposed agreement will put control over the content in a very few hands. They add that the content they have sold to the Cable TV companies is their property and cannot be resold without their consent.

The forum demanded that at least 10% of the turnover of Cable TV companies be invested in original production in Hebrew (drama and documentaries) and that at least 75% of the production be channeled to independent producers. They further demand that an supervision and enforcement institution be establish to care for the implementation of these arrangements by the Cable TV companies.

12. Privacy, data protection, consumer protection

12.1 IDF pays 50 million NIS to Microsoft for Software Licensing

The IDF and Microsoft Israel reached a licensing agreement regarding the use of Microsoft software. The agreement is for 3 years and in its framework all computer users in the IDF will be able to install the operating systems NT and Windows '98, the application packages Office and the database manager BackOffice. This is the first agreement of this kind in Israel allowing the use of the latest update of the Microsoft software packages in all computers of a given organization without the need to manage the number of licenses.

12.2 A billion NIS a year is the damage caused by the falsification industry to companies in Israel.

The president of the Chambers of Commerce Association, Dani Gilerman, estimates that the damage caused by falsifications to companies and concessionaires in Israel reach a billion NIS an year. The direct loss of income reaches 500 million NIS from non-payment of VAT, income and import taxes. The producers are investing $ 3 million fighting the falsification and Gilerman asked for more severe sanctions against the culprits. The Palestine Authority is providing sanctuary to a growing falsification industry that may erode the Israeli economy.

13. Electronic protection, legal protection and security (encryption, electronic commerce)

13.1 A thousand customers of the Bank Leumi joined the Internet commerce service for shares of American companies.

Bank Leumi is the first bank in Israel offering such a service. The Investec Bank signed an agreement with the a brokers house in New York for commercialization of shares starting in early 2000. The International Bank (Bank Beinleumi) is planning to offer a similar service. Customers of the Bank Leumi are requested to open an special account for the commercialization of foreign shares. The service is provided through the E*Trade company a subsidiary of the Online american company. A new site was established for this service calle Leumi Trade that provides updated information on the american market, information on the companies being traded, and general economic news.

13.2 Israel is remaining behind regarding banking services in the network

The director of the division for direct banking services from the Bank Hapoalim, Edith Luski, said that the fact that the central Israel Bank doesn't approve direct transfers between accounts by customers using the Internet is the reason for the delay in Internet banking developments in Israel. The data from Bank Hapoalim indicates that 58% of the operations carried out through the Internet are for closing deposits; 1% for ordering credit cards; 5% for ordering checks; 36% are operations for buying and selling shares in the Stock Exchange. Irit Berger, the director of direct banking services at the Bank Discount said that customers who do not discuss prices in the regular bank branches compare prices and services and demand discounts on the banking operations; she added that Internet bank customers are very sophisticated and many times they knew more than the bank's branches officers.

13.3 Bank Israel is considering approval of account to account transfers.

The Superintendent of the Banks at Bank Israel is considering enlarging the kind of banking operations that may be carried out through the Internet. A team nominated by the bank, headed by Gad Marx, the vice-superintendent, is carrying out a series of meetings with the chief officers of the banks. Bank Israel now allows customers to receive information on their accounts and carry out a limited number of operations: closing of deposits in NIS and foreign money; to buy and sell foreign money and shares in the Stock Exchange. They cannot receive credit, to open saving accounts and to make money transfers from account to account. The clarifications being carried out by Gad Marx include: a proposal that the banks sign an agreement enabling transfers from account to account; the kind of contracts needed to be signed between the banks and their customers; the issue of the rate of commissions; limits on the amounts to be transferred; and other technical matters.

13.4 Israel expected to adopt the OECD guidelines regarding taxes over ecommerce.

Yael Katz, from the Breitman-Almagor Law office published an analysis regarding taxation of ecommerce. The present legislation does not include specific guidelines regarding this matter. Israel is expected to adopt the OECD guidelines and in the IRS there is a team headed by the vice-superintendent, Frieda Israeli, that is studying all aspects of this matter.

13.5 21 million dollars the volume of ecommerce in Israel in 1999.

Gil Sharon, vice director for Sales and Business Development at the Barak International Telephony Company said that the volume of online sales in Israel rised from $ 1.5 million in 1998 to $ 21 million in 1999. He added that 43% of the surfers said they use the ecommerce site due to the economy of time; 30% due to the good prices; 12% to buy merchandise unavailable in Israel. The main obstacles to the use of ecommerce sites is lack of enough information regarding the products and the site; additional obstacles are that surfers are afraid from providing their personal credit card information and "lack of human buying experience". From the research carried out at the ecommerces site of Barak, the 522 site, indicate that direct human assistance would convince at least 33% of the surfers to buy online.

Ecommerce in Israel to reach $ 100 million in 2003. Jacob Gelber the director of the ecommerce company of the Discount Investments group expects that the volume of ecommerce in Israel will reach $ 100 million in 2003. He says that Israel is behind the United States by 4 years in this area. He says that ecommerce demands the integration of skills from traditional commerce and from the Internet and those that are unable to do so should not deal with it. He listed acquisition skills; pricing; stock management; logistics and distribution; customers service; marketing and publicity - just as in traditional commerce. In addition to user interface; virtual buying trolley; search engine; secure exchanges; and Internet marketing. He added that successive and rapid technological changes will demand large investments from the companies involved in ecommerce.

13.6 Cars trade-in through the Internet.

The "Buy and Drive" company that manages the trade-in for the Colmobile Motors company will start selling cars using the Internet. They have established a passive web site for experimental purposes and intend to offer a secure web site in coming months that will enable customers to offer the company used cars, get an offer from the company, to browse through the company car's stock, to reserve a car and even to pay for it using the Internet.

14. Freedom of expression and information

14.1 The Freedom of Expression Law is effective also for private companies

The law that imposes on public institutions the obligation to provide the information requested by any citizen is effective also in regard to private companies that act in the name of or as a proxy for a public institution. A decision on this matter was taken by Judge Dr Drora Pilpel; she said that there is no doubt that the law is not to be applied on private companies but it is unacceptable that the citizen should ask for information from a public institution and the institution will send him to a third party that is not subject to the law but acting in the name of the institution and on his behalf. The company working for the Israel Lands Authority was obliged to comply and provide the requested documents.

15. Media and telecommunication markets

15.1 The Division of Logistics and Technology of the IDG will carry most tenders through the Internet.

Starting in the year 2000 the division will stop acquiring products from providers which do not implement business ecommerce practices. Most of the tenders will be carried out through the Internet. Only a few tenders, related to highly classified issues, will continue to be carried out by traditional means. The Division of Logistics and Technology make annual acquisitions of the order of 10.5 billion NIS a year.

15.2 Exports of Hi-Tech and Electronics will reach $ 7 billion in 1999

The exports of the electronics and hi-tech industries reach 50% of total Israeli exports. This year the rate of increase of exports was the lowest for 8 years (7% less). From '90 to '91 (with the exception of '92 - year of the Gulf War) exports rised annually by 15%-20% . Mean sales by worker in the electronics industry reached $ 185 thousand up by 2.7% from last year.

15.3 Concentration of publicity budget in a small number of companies.

The Chairman of the Cable and Satellite TV Council, Zvi Hauser, stated that 25 companies in the Israeli market acquire 50% of the publicity time at the TV Channel 2 (Commercial Channel). Hauser used this datum to provide an example of the deleterious consequences of the monopoly on publicity by the Channel 2 concessionnaires and the high concentration in the publicity market. 137 companies acquire 80% of the publicity time at Channel 2. He added that the control of cable TV companies of the content market has negative consequences for quality and for cultural pluralism, and will cause this market to have only an handful of players.

15.4 MIRS (closed business wireless communications company) demands a license similar to the cellular companies.

The MIRS company that provides wireless communication services asked the Ministry of Communications that the conditions of its special license be changed. The Ministry is afraid that such changes may spark opposition from the cellular companies and they may appeal to the Supreme Court of Justice. MIRS asked for the abolition of the invoice for incoming calls as is used by cellular companies; it asked for a lower tariff for interconnection with the Bezeq to make it similar to that recommended by the Grunau Report. MIRS pays an higher tariff as the Grunau Report referred only to "General License Holders" and MIRS is an "Special License Holder". MIRS states that it doesn't intend to compete with the cellular companies and that it will remain in the business market.

15.5 AOL invest in the E-SIM Software Company

The software company E-SIM mobilized 9 million dollars from a group of investors. Among them is the largest Internet company, AOL (American Online) which invested $ 2 million. The company developed a software package that enables the simulation of products sold through the Internet so as to experiment with the use of the intended product to be bought. For example, a buyer interested in a telephone will be able to use it using the E-SIM package.

15.6 Motorola Israel will supply a secure cellular telephony system to the IDF.

Motorola Israel won a tender of $ 85 million to supply an encrypted cellular telephony system to the IDF. The projec will be financed by the american military aid program and is to be concluded in 2003. Elisha Yanai, Motorola Israel CEO announced that the system, the most advanced of its kind and will enable conversations, telephony conferences and the secure transmission of encrypted data and voice.

15.7 Orkit received an order of $ 100 from Deutsche Telecom.

The Orkit high speed modem corporation specializes in the development of solutions for the high speed transmission of data over existing telephony networks. It is one of the leaders in the production of modems based in the HDSL and ADSL technologies. The company announced that it signed a contract with Deutsche Telecom by which it will supply, in cooperation with Fujitsu, solutions for high-speed access to the Internet. The supply will be carried out through 2002 and the contract is of the order of $ 100 million.

15.8 $ 716.6 million dollar risk capital investments by the third quarter of 1999.

The Giza Company announced that risk capital investments in Israeli companies reached by the third quarter of 1999 $ 716.6 million in comparison to $ 600 million for all the year 1998 (due to the international crisis in the financial markets). The larger risk capital funds prefer mature companies in comparison with the smaller risk funds that try to identify promising young companies in their very early stages.

15.9 Cost of R&D in Israel is a third than that in the United States.

The MoneyTree Survey found that the cost of R&D in Israel is a third than in the United States. The interpretation of these findings should be limited by the fact that 90% of the companies surveyed in the US are technology companies and in Israel 100%. In the US communications (29%) and software (24%) lead the investments in risk capital. In Israel the trends are similar to those in Silicon Valley were software leads (44%of the investments in Israel and 33% in the Silicon Valley) and in second place communications (correspondingly 29% and 24%).

15.10 CheckPoint develops secure ecommerce solutions for the home market.

Checkpoint announced the establishment of a new company Sofa Ware Technologies that will develop secure ecommerce solutions for the home and private market. Gil Shweid, Checkpoints Chairman, said they intend to make the broadband connections to the Internet that are now becoming widely available in the home market simple and secure. Sofa Ware will provide solutions to be integrated in the terminal equipment of the customer like cable modems and digital DSL modems. The hardware solution, now in the process of patenting will not need any additional configuration or additional installation. The first product will be Home Secure, a home firewall and is based on the Stateful Inspection technology of Checkpoint. In the future HomeSecure will support Virtuan Private Networks (VPN) and band management (QoS - Quality of Service).