telecom-israel 2000 international exhibition & conference

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONS

Telecom-Israel 2000International

Exhibition & Conference

The Future is Here

Daniel Rosenne

Director General, Ministry of Communications

[email protected]

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSPresentation Agenda

Telecom Israel 2000 Event

Telecom Networks & Services

Manufacturing Industry

Summary.

STATE OF ISRAEL


Telecom-Israel 2000International

Exhibition & Conference

Tel Aviv, 6 - 9 November, 2000

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSTelecom-Israel 2000

A bi-annual international event: Expectation of 150,000 participants, 6000 foreign

visitors, 20 telecom ministers. Following the remarkable success of Telecom-Israel

1998 - 100,000 participants, 3000 foreign visitors.

Exhibition: 25,000 sqm. Over 100 start-ups stands.

Conference: over 100 industry leading speakers. Combination of market giants with start-up

entrepreneurs guarantees innovative and interesting discussions.

Pre & Post conference tours.

STATE OF ISRAEL


Telecom-Israel 2000

Exhibition (1) Source of telecom innovation - focused on unveiling new

products, services and ideas. Novel products & services:

Wireless Mobile Internet Networking Broadband access Broadband switching Optical networking Multimedia Interactive TV

Network storage Network management Messaging Satellite Test systems E Commerce Tele-learning Tele-medicine

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Telecom-Israel 2000

Exhibition (2) 270 stands in 9 pavilions. 25 foreign companies & 8 national stands

(Austria, Brazil, Canada, Cyprus, Hong-Kong, Italy, Netherlands, Taiwan).

Israel’s competitive advantage showcase: System approach Market driven development Advanced research capabilities Quality production Flexible support.

STATE OF ISRAEL


Telecom-Israel 2000 Conference

7, 8 & 9 November, 2000 Three Plenary sessions:

Telecom in times of change Research & development in Israel Internet - the next generation

Parallel sessions: Multimedia Broadband access Optical networks Mobile networks Messaging IP & ATM Portable Internet Storage & Networking Network security

Industry sponsored sessions & seminars.

Network management Available government Remote learning Telemedicine Interactive TV E-Commerce Telecom competition Advanced telecom services Telecom services marketing

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Telecom-Israel 2000

Start-Ups (1) Israel is one of the largest world centers for

start-up enterprise, with ~2000 active start-ups.

Innovative, technology-intensive systems, equipment and services, representing technology breakthrough.

Major international activity: Strategic alliances and joint ventures. Raising capital - venture, seed & risk investments.

Over 100 start-ups will be located in one central pavilion.

STATE OF ISRAEL


Telecom-Israel 2000

Start-Ups (2) Main Topics of the start-up pavilion:

Internet Billing Internet Security Internet telephony Internet Multimedia Video on Demand E & M Commerce Micro Browsers 3G Cellular Wireless

Assistance in pre-scheduling of one-to-one business meetings.

Brokerage event: www.matimop.org.il/telecom2000.

Satellite Communications Optical Communications Voice recognition Messaging CTI Data Storage In building networking Tele Learning Tele Medicine

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Telecommunications Network & Services

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MINISTRY OF COMMUNICATIONSIsrael's Telecommunications

2.8 million main telephone lines(47% penetration).

3.5 million cellular customers, on three networks: Pelephone, Cellcom & Partner/Orange. (58% penetration).

1.1 million cable-TV connected households. (3 operators, 70% of passed households, 92% household coverage).

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Telecommunications Services Market - 1999

InternationalLong-Distance

CableTV

Terminal Equipment& Business Systems

Internet services

FixedServices 35%

CellularTelephony 44%

10%7% 2%2%

Total telecom services market ~ $ 4.2 billion

STATE OF ISRAEL


The Cellular Boom:Israel Telecommunications Services Revenues, 1995-1999 ($US M)

500

1,000

1,500

2,000

1995 1996 1997 1998 19990

International

CellularFixed

CATV

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The Existing Regulatory Environment

Separation between regulation and operation (since 1984).Regulation responsibility - Ministry of Communications.

General operating licenses issued to Bezeq, cellular operators & facility-based international long-distance service providers.

Special licenses issued by the Ministry of Communications for value-added services.

Exclusive rights of Bezeq in fixed services canceled as of 1 June 1999.

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BezeqThe Israel Telecommunication Corp Ltd.

Israel's national telecommunications operator.

Annual sales - NIS 9.3 billion. 11,500 employees (8,500 in Bezeq, the

mother company). 5% royalties on income. Regulatory environment:

Price cap tariff regulation (CPI - X formula).

Universal service obligations.

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Bezeq Restructuring1995 -2000

Structural separation - promoting fair competition.

Leaner Telco: Improving efficiency & customer

focus. Getting ready for local competition.

Entering new markets.

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GoNextMobile Internet

(51% byPelephone)

BezeqCallCommunications

CPE &BusinessSolutions

(100%)

GoldnetCommunications

B2BeCommerce

(49%)yes

DirectBroadcasting

Satellite(30%)

Walla!Communications

Portal & webhosting

(32.5% by BI)

Bezeq Consortium

BezeqInternational ILD & Internet

(100%)

PelephoneCellular Services

(50%)

BezeqFixed Services& Infrastructure(Holding Company)

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Cellular Telephony

Competition Introduced December 1994

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Cellular Operators

Pelephone Cellcom Partner/Orange

800 MHz 800 MHz 900 MHz

NAMPS & CDMA TDMA GSM

1987 1995 1999

BellSouth Hutchison Bezeq Safra Brothers Matav

Motorola Discount Investments Elbit.comPEC Tapuz

private investors free float

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Cellular Telephony

Rapid growth - 125,000 subscribers in January 1995. In November 1999 the number of mobiles (2.9 million) exceeded the number of fixed lines.

Key expansion stimulators: Perceived low tariffs: ~ US $0.11 to

0.23/minute air time, ~ $11 to 29 monthly charge. (300 min average monthly bill - $56 to 74)

Calling party pays (CPP). Nationwide coverage. Competition & marketing innovations.

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Average Number of Monthly Usage Minutes

1995 1996 1997 1998 1999

FixedBezeq 687 687 679 699 732

MobilePelephone 530 430 320 300 295Partner 427

(Q4)

Source: Bezeq Eurobonds Prospectus, August 2000; Partner annual report 1999

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Cellular Competition: key trends for 2000

New services: SMS, WAP, wireless internet. Content: news, media & data services.

New pricing models: Regional pricing plans. Pay as you use programs. Low cost position for low usage

segments.

Churn reduction plans.

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International Long Distance

Facilities Based Competition Introduced July 1997

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Facilities-Based International Service Providers

Golden Lines (012)Telecom Italia, SouthWestern Bell,Aurek, Globscom & Meitar/Kahn.

Barak (013)Sprint, Deutsche Telekom, France Telecom, Clalcom & Matav.

Bezeq International (014)The incumbent carrier, 100% owned by Bezeq.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSDialing Parity Rules

Per-call carrier-selection prefixes (01X). For each of the international service providers.

CPS (Carrier pre-selection) - subscribers can choose a preferred provider for ‘00’ prefix and ’188’ international operator services.

Competitive practices – CPS balloting. Consumers’ data provided by Bezeq & Cellular

operators on non-discriminatory basis.

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Resulting MarketEnvironment

Highly competitive market, with low customer switching barriers.

Drastic cuts in retail tariffs (example: 0.20$/min to any destination).

International long distance calls - a commodity.

The incumbent carrier, Bezeq International, lost its dominant position (60% > billed minutes) within 70 days.

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International Traffic[Million Minutes/Year]

0

200

400

600

800

1996 1997 1998 1999

Incoming

Outgoing1000

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Submarine Optical Cables Infrastructure

LEV

EMOS CIOS

FLAG

Cable RFCS Capacity

EMOS 1990 280 Mb/sCIOS 1994 622 Mb/sLEV 1998 5 Gb/sFLAG 1999 5 Gb/sMN1 2001 3.84 Tb/s

MEDNautilus 1

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Additional Aspects

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Internet Services Profile

~30 Internet service providers, more than 1 million users, 600,000 dial-up & 5,000 directly connected customers, 30,000 domains.

Typical tariffs: ~ $12 monthly fee, including 10 usage hours, ~ $1 for each additional hour. Unlimited access at < $1 per day.

IIX (Israel Internet eXchange) non-profit peering point.

“Hands-off” overall regulatory policy.

High growth ~ 50% annual.

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The Israel Internet-2 Network

Part of the global research network for the NGI (Next Generation Internet).

Connecting Israel to the forefront of scientific and industrial R&D, through: StarTap - US NSF/I-2/NGI interconnection point. Quantum - EC International test network (TEN-155). Q-Med - Mediterranean consortia (Cyprus, Greece,

Israel, Italy) Quantum extension.

34 Mb/s connection to London, 45 Mb/s connection to Chicago (155/622 Mb/s - planned).

10 Mb/s & 155 Mb/s domestic connectivity(622 Mb/s, 10Gb/s - planned).

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Civilian Telecommunications Satellites

AMOS-1: TV distribution, SNG & VSAT launched May 1996. Geostationary orbit at 4

o West.

7 transponders, covering Middle East & Central Europe. Designed, manufactured and controlled by Israel Aircraft

Industries.

Gurwin-II TechSAT: communications, remote sensing & research Launched July 1998. 830 km altitude sun-synchronous circular orbit. 50 kg, 3-axis stabilized Earth-pointing microsat. Designed, manufactured and controlled by the

Technion - Israel Institute of Technology.

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Telecommunications Competition Enhancement

by Regulatory Reform

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The Competitive Environment

Wide competition in customer premise equipment and value-added services.

Limited competition in cellular and international services.

Two monopoly areas: Bezeq - Domestic fixed services

(infrastructure, transmission, data communications & telephony).

Cable TV operators - Multi-channel subscriber television.

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Regulatory Reform(Promoting competitive Advantage)

Competition in fixed services.

Structural change of the telecommunications sector:

Liberalization. Privatization. Re-regulation.

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MINISTRY OF COMMUNICATIONSProactive Re-regulation

The end of the access monopoly: Facility-based competition. Alternative infrastructure: fiber, copper, cable,

fixed wireless, satellite. Simple interconnection rules:

Non-discriminatory access, carrier pre-selection & dialing parity.

Non-discriminatory interconnection tariffs. Minimum compatibility requirements.

New numbering plan & frequency allocations.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSCompetition Rules

Three tier market structure: Mobile services (Cellular & PCS). Fixed domestic services (infrastructure, transmission,

data comm's & telephony). International services.

Facilities based competition. Non-discriminatory access - to all networks. Universal service obligations - including equal terms

service offering requirement, at non-discriminatory tariffs. Cross-ownership limitations, assuring fair competition.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSRe-regulation Covers:

Competition rules - ownership, resale. timetable.

Universal service - obligations, reciprocal compensation.

Interconnection – rules, tariffs, terms.

General license owners - obligations, structural regulation, services.

Numbering - administration, portability, new numbering plan.

Bezeq tariff rebalancing

National security.

STATE OF ISRAEL


Licenses for new operators

General licenses for fixed domestic services (infrastructure, transmission, data services & telephony) will be issued to applicants meeting economic and know-how criteria.

General license requiring limited spectrum resources (mobile, FWA) shall be issued through public tenders.

STATE OF ISRAEL


Proposed New Frequency Bands Allocations

Band Application Allocation Year

800/900 MHz Cellular 30 MHz 1998

2 GHz PCS/UMTS 175 MHz up to 2005

3.5 GHz N-FWA/WLL 72 MHz 2000

26 GHz B-FWA/LMDS 1200 MHz 2000

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSLicense Auctions

Fixed Wireless Access: Broadband (26 GHz) & Narrowband (3.5 GHz). Up to 3 operators, selected in MSR (Multiple

Simultaneous Round) auction. Participation of Bezeq & CATV operators in the

auction will be excluded. Tender process planned to begin summer 2000.

Additional Mobile Competition: 2G (DCS-1800) & 3G (UMTS). Allocations for new & existing operators. Tender process planned to begin during 2001.

STATE OF ISRAEL


Israel's Telecommunications Map

Pelephone(Bezeq)

Bezeq

Bezeq

1994

Pelephone Cellcom Partner/Orange

2000

Bezeq

Bezeq International Barak Golden Lines

Post 2000

Pelephone Cellcom Partner/Orange PCS operators

Bezeq Competing

Operators: Wireline Wireless

Bezeq International Barak Golden Lines Additional operators

MobileServices

FixedServices

(Infrastructure, Transmission & Telephony)

International

Long DistanceServices

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Bezeq Tariff Rebalancing - April 1999 One step rate rebalancing, almost

eliminating cross-subsidies between services (voice traffic still subsidized telephone access).

New price-cap regime - productivity gap (x-factor) of 7% (6% in 1999, will be adjusted if Bezeq output deviates from predictions).

6% average rate decrease (21% decrease on voice traffic, 16% increase on fixed monthly payment. Typical tariffs - NIS 0.208 for local call, NIS 36.1 monthly payment, 532 NIS for line installation).

ROE (before tax) - 10.5%.

STATE OF ISRAEL


Bezeq Tariff Update - May 2000

Annual efficiency factor update (6%).

Elimination of regional tariffs (replacing traditional 3 x 3 tariff matrix [3 distance zones, 3 time zones] with simple tariff matrix – local calls or urban-toll calls during peak hours, unified tariff for off-peak hours).

Per-second billing (replacing traditional “meter pulse” with per second billing and minimum charge per call).

Alternative tariff plans (Customer choice between number of alternative tariff plans, bundling local call minutes in exchange for monthly fee).

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSInterconnection Rates

Interconnection Israel EUTariff benchmarks

Local 0.6 – 1.4 0.7-1

Urban Toll - 1-2

National Toll 0.6 - 2.9 1.7-3

US cents, $1 = NIS 4.16

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSBezeq Privatization

Government holds 55% of Bezeq shares (remaining shares - publicly held).

In August 2000, government formally approved selling 50.01% of Bezeq shares to a single strategic investor.

Privatization planned to be completed by spring 2001.

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New NNP (National Numbering Plan)

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Existing NNP Adopted by Bezeq in the late 80’s, as part of the

network digitization program.

8 digits number length: Fixed: A NXX XXXX

(area code + exchange code + local number) Mobile: 5X NX XXXX

(network Identification + subscriber number)

Services: variable length, 2 to 10 digits.

Prefixes: 0 - long distance (00, 01X - International)1 - service prefix* - access to network services# - service deactivation.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSNew NNP

Additional digit (9 digits number length): Step 1 - Mobile: 5 [N]XXX XXXX

(N = 2 for Cellcom, 4 for Orange, 6 for Pelephone) Step 2 - Fixed: A [N]XXX XXXX

Area codes consolidation: Reclaim area codes 6 & 8 (end up with 5 areas).

Services numbering re-arrangement : 1XX for life threatening emergency; 1XXX for

other services. 1 YYY XXX XXX logical numbering.

Toll-free (1-800) number portability.

STATE OF ISRAEL


Numbers [Millions] Number Type

Old NNP New NNP

Geographic 56 160 - 320

Mobile 8 80

Logical - 160 - 80New Services 10 100

Future Use - 240 - 160

Will We Have Enough Telephone Numbers?

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Competition InBroadcasting

Services

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MINISTRY OF COMMUNICATIONSBroadcasting Networks

Radio - Public radio - 7 national AM/FM radio stations,

AM Arabic channel & world-wide short-wave service.

Commercial radio: 14 local FM radio stations.

Television - Public channel (Channel 1). Commercial channel (Channel 2).

Multi-channel subscriber TV - 3 regional cable TV operators. 1 direct broadcasting satellite operator (yes).

STATE OF ISRAEL


“Open Sky” - NewBroadcasting Policy

Creating competitive broadcasting market. Key policy ingredients -

Public broadcasting - new definitions (goals, structure, finance).

Commercial broadcasting - introduction of second commercial television channel & commercial country-wide radio stations.

Multi-channel subscriber television - direct broadcasting satellite, in competition with cable television, began services in July 2000.

Digital Television - cable & satellite.

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Competition inMulti-Channel Subscriber TV

License for DBS (Direct Broadcasting Satellite) issued January 1999: Digital system, 60-120 cm receiving antennas. Basic package of ~10 channels. Additional pay channels/channel packages. Local content obligations.

Additional independent cable/satellite channels, based on advertisement revenues.

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Manufacturing Industry

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Israel's Electronics Industries

Combined 1999 sales - $8.6 billion, of which $7.1 billion were exports sales.

Highly skilled workforce - 46,000 employees, including over 28,000 engineers & technicians, 18,000 of them university graduates.

Output per employee - over $187,000.

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MINISTRY OF COMMUNICATIONSTotal 1999 Sales - $ 8.6 billion

Telecommunications42%

Components15%

Industrial &Medical Systems21%

Defense Systems22%

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Industry Excellence Areas

Telecommunications - Internet, data communications, local area networks, wireless, video & image processing, satellite communications, access networks, broadband, network security.

Computerized production equipment.

Defense systems – Missiles, anti-missiles & guided weapons, opto-electronics, radars, C4I, EW (Electronic Warfare).

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Statistical Highlights

Electronics All OtherIndustries Industries

Exports[% of total sales] 82 25

Added value [%] 68 42

Engineers& technicians [%] 62 14

Employees in R&D [%] 12 2

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Major R&D EffortsStretching Boundaries of Imagination & Ingenuity

Innovative synergistic industry-academy cooperation, supported by the Chief Scientist, Ministry of Industry & Trade.

Over 100 industrial & academic participants.

Focused on establishment of the technological infrastructure for the next generation.

Key telecommunications R&D activities: Digital wireless Satellite systems Broadband

telecommunications

Internet & Multimedia Telemedicine Microelectronics Network management

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Summary

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Israel's Regulatory Policy

Structural changes - achieving strategic advantage in competitive global markets.

Competition - the key for innovation, entrepreneurship, investment & growth.

Key action areas: Liberalization. Re-regulation. Privatization.

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Regulation Philosophy

Free and competitive markets promote growth, efficiency, customer satisfaction & economic advantage.

Market restructuring, in transition from monopoly to open and free market, during a short time period, requires active and balanced regulatory intervention.

Once competitive marketplace is achieved, a strong regulator will provide unnecessary intervention, and should be abolished.

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Israel's Telecom Future: Real and Sustainable Growth

Technology enabled evolution: From simple fixed voice and narrowband to

broadband, mobile, internet & advanced services. From circuit switching to IP based infrastructure.

Rapid growth:Prediction for additional 1 million fixed lines, 1 million cellular customers & 1 million internet users by 2003.

STATE OF ISRAEL

MINISTRY OF COMMUNICATIONSFacing Exciting Events

Broadcasting: Tender for second commercial TV channel. Tender for Independent cable/satellite channels.

Telecommunications: Tender for 3 fixed wireless access licenses. Tender for additional cellular operator & 3G frequencies. Broadband – Digital Cable, Bezeq’s ADSL.

Market re-structuring: Bezeq privatization. Further IPO’s.

STATE OF ISRAEL


Telecom-Israel 2000Tel-Aviv, 6-9 November, 2000

Important international exhibition & conference.

A showcase of hottest technologies and applications.

The place to see how new technologies, products, services and issues are reshaping the world of communications.

The future is here - Wherever you look, across the globe, Israel’s born products stand up.

We invite you to witness for yourself!

STATE OF ISRAEL


For more information

Telecom Israel 2000:http://www.telecom-israel.com

Ministry of Communications:http://www.moc.gov.il

STATE OF ISRAEL


The EndThank you for your attention

telecom-israel 2000 international exhibition & conference

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