|Africa and the Middle East 2005
|Communications in Israel – growth through competition, accessibility and development
|Minister of Communications
Dalia Itzik is the Minister of Communications of Israel. She has also served as Minister of the Environment and Minister of Trade and Industry. Ms Itzik, a member of the Labour Party, was elected to the 13th, 14th and 16th sessions of the Israeli Knesset and has sat on a variety of parliamentary committees, including Constitution, Law and Justice, Internal Affairs and Environment and Science and Technology. Ms Itzik has served as Deputy Mayor of Jerusalem, where she resides, and was educated at the Hebrew University of Jerusalem.
Israel has one the of highest digital access levels in the world. It opened its telecommunications and broadcasting sectors to competition in the last decade. Now, almost 100 per cent of the population has fixed and mobile phone services and 50 per cent of the residences and 75 per cent of the businesses have broadband Internet. The Ministry of Communications has fostered the sector’s development through legislation creating a multi-operator environment, by licensing competitive multi-service, “triple play”, operators and by privatising the government’s incumbent fixed operator.
The issue of intelligent positioning for growth is a constant concern for the Ministry of Communications, Israel’s primary telecom regulator. Israel is a relatively small country of just under seven million people, with a small land area and few natural resources. As such, we have always had to rely on the human factor, and especially intellectual resources, for survival and growth. It is this factor that has helped to make the country a technological leader at the global level. The telecommunications and broadcasting sectors in Israel are a particularly strong example of Israeli technological adeptness and capacity for solid growth. Although some major challenges are still before us, these two sectors are proving their resiliency and capacity for innovation. Moreover, Israeli consumers continue relating to innovation in a positive and supportive way. The intense and dynamic Israeli telecommunications and broadcasting sectors both opened up to competition in the last decade. Today, our fixed and mobile telephony markets have penetration rates of nearly 100 per cent, and Internet penetration is approximately 55 per cent for households and 75 per cent for businesses. The broadband market showed a 50 per cent subscriber growth rate in 2004 and residential penetration reached 50 per cent. The ITU has recently ranked Israel at the highest level, globally, for overall digital access. Market structure and regulatory changes The substantial changes that have taken place in Israel’s communications market during the past few years are due, in part, to a basic change in regulatory policy. The Ministry has removed the exclusivity of Israel’s incumbent telecom operator and has opened the sector to competition and market forces. This change in policy has proven successful; it has facilitated the development of a wide variety of high-quality telecommunications services and has proved to be very beneficial to consumers. The Ministry is continuing to implement this overarching policy at three main levels: √ Legislation: a regulatory regime has been implemented that is suitable for a multi-operator environment; √ Licensing: CLEC (Competitive Local Exchange Carrier) licenses are being issued for infrastructure, transmission, data and telephony services; the merged cable companies have become Multiple Service Operators (MSO), providing “triple play”; √ Privatisation: the government’s controlling interest in Bezeq – Israel’s incumbent fixed – wire line service provider, which together with its subsidiaries supply mobile telephony, international long-distance/ISP, satellite direct-to home, and multi-channel TV – was recently sold to a private consortium. Market liberalisation In 1984, the regulatory and operational functions in Israeli telecommunications were separated. All government-operated telecommunications facilities were transferred to the newly established Bezeq company, which was granted a tightly regulated monopoly to provide services. The ICT revolution in the 90s, the wish of carriers to utilise new technologies and provide enhanced services and a desire to pass along the benefits of competition to consumers, led the Ministry to initiate strategic amendments to the existing regulatory structure. In 1994, the first significant step towards a competitive telecommunications market was taken: the incumbent Bezeq was required to form separate, subsidiary companies in order to provide services in market sectors other than domestic, fixed-wire line telephony. By the end of 1994, the mobile market sector became more competitive when Cellcom began operations after winning a Ministry tender. Competition grew further in 1998, as Partner stepped in – again through a public tender – and in 2001 when MIRS was licensed. The international telephony and data market saw the entry of competition in 1997, as Barak and Golden Lines began operations and quickly became fully competitive market actors. In addition, just recently, three additional international telephony licenses have been awarded. An amendment of the Telecommunications Act in 1997 enabled the licensing of a DBS (Digital Broadcast Satellite) TV service provider, “Yes”, which began operation in July 2000. “Yes” currently competes with the cable companies in the multi-channel broadcasting market. Bezeq’s legal monopoly of fixed telephone services ended in June 1999. Subsequently, in September 2000, the Minister enacted regulations for the licensing of new operators in the fixed services market, any entity meeting the licensing criteria may receive a license. In February 2001, a tender was issued for the assignment of additional 2G and 3G mobile frequencies. The tender for additional mobile services using 2G or 3G frequencies was concluded successfully and frequency bands were allocated for future use by the three major mobile telephone operators. Currently, the mobile companies are launching advanced 3G networks to enable faster Internet surfing, video chats and other value-added services. In August 2001, an amendment to the Act replaced the existing cable television franchises with regular licenses, allowing the use of the cable infrastructure for telephony and advanced fixed telecommunications services, in addition to the multi-channel subscriber television they already provide. In May 2003, another amendment permitted CLEC to compete by offering fixed telecommunications services, but without the incumbent’s USO (Universal Service Obligation). While Bezeq remains Israel’s leading domestic, fixed-service operator and retains a general operating license, we anticipate that this fundamental change in the regulatory regime, together with the privatisation of Bezeq, will further invigorate competition in the field of fixed domestic services. Furthermore, in November 2004 the Ministry published a preliminary policy paper regarding the regulation and licensing of Voice over Internet Protocol/Voice over Broadband (VOIP/VOB) services, enabling the introduction of such services in mid-2005. Altogether, Israel has made great strides in opening up its telecommunications and broadcasting sectors to competition and thus nurturing overall intelligent growth. Since the mid-90s, four domestic mobile operators, six international service providers, three regional monopoly cable television providers, as well as a satellite television provider, have been issued general, facility-based licenses and more than 200 special licenses have been issued for the provision of value-added services. As of January 2005, the Communications (Telecommunications and Broadcasting) Act was amended to provide for “class license” or exemptions from licensing in telecom services previously provided under special license. Privatisation of the incumbent Bezeq remains the dominant player in Israeli telecommunications. Regulating Bezeq’s activities in the early stages of competition is highly important to the liberalisation of telecommunications since most new operators will have to interconnect with Bezeq’s network and Bezeq bears the main burden of providing universal access. Following the recent sale of most of the state’s holdings, private actors rather than the government will determine the sector’s activities and future. The privatisation is expected to provide the managerial flexibility required by the company in an era of competition and to strengthen its standing in financial markets. Mobile telephony The birth and development of the mobile market in Israel is a special case of successful and intelligent growth. Four privately held mobile operators provide countrywide digital coverage for 99 per cent of the Israeli population and sophisticated network services. Pelephone uses CDMA technology. The second operator, Cellcom, uses IS-136 TDMA technology and a GSM network, while Orange, the third operator, uses GSM technology. The last licensed (February 2001) mobile operator is MIRS, which uses iDEN ESMR technology. The mobile phone penetration rate is presently at 97 per cent; there are 6.5 million mobile subscribers on four networks. The introduction of competition in 1995 brought an extremely high subscriber growth rate, one of the highest in the world. This rapid growth was achieved by a combination of careful regulation and solid entrepreneurship, providing nationwide coverage, low tariffs, the introduction (1994) of Calling Party Pays (CPP), high network quality and effective marketing. The Israeli mobile market continues to experience accelerated growth. In December 2001, tenders were concluded for licenses for additional 2G and 3G mobile frequency bands in order to expand network capacities and enable use of broadband mobile applications employing DCS-1800 and UMTS technologies. Cellcom, Pelephone and Partner participated in these tenders and a total of 115 MHz has been assigned them in exchange for US$240 million in license fees. The new frequencies enable the operators to provide GSM1800 modern services and third generation UMTS features. 3G services have been launched in recent months. In 2004, after conducting an analysis that revealed that the mobile call termination tariff was excessive, the government published regulations that will gradually lower tariffs by almost 50 per cent in the years 2005–2008. Internet and broadband Internet penetration is also growing quickly in Israel. Five major – and some 70 smaller – ISPs (Internet Service Providers) serve more than two million users. Mobile phone companies introduced wireless Internet access during 2001. Bezeq began offering ADSL (Asymmetric Digital Subscriber Line) wireline broadband services in 2000 and the cable companies started to provide broadband cable modem access in 2002. A crucial element of the high penetration rates for broadband Internet access is the cable companies’ and Bezeq’s licensing requirements regarding universal deployment of the broadband Internet access services. Bezeq deployment was almost fully completed (99 per cent of direct lines) by the end of 2004. Broadband penetration rates are quite promising. There are 720,000 ADSL subscribers and 350,000 cable modem subscribers. As of today, this translates to penetration rates of more than 50 per cent of the households and 16 per cent of the inhabitants, placing Israel among the leading countries in the world in terms of broadband penetration. Subscriber growth rate is also very high, with an approximate growth rate of 50 per cent through 2004. Factors encouraging this growth include the competition between Bezeq and the cable companies, competition among the five major ISP’s, widespread computer use, the advanced telecommunications infrastructure and a regulatory policy of minimal intervention. Several sophisticated Hebrew-language portals and more than 60,000 web pages also contribute to ubiquitous Internet use. Israel is a world leader in developing Internet technologies and applications and Israeli companies have marked several international successes. The country’s strong tradition of academic inquiry and research has placed Israel on the global research network for the NGI (Next Generation Internet), linking Israel to the world’s seekers of scientific and industrial knowledge through StarTap (Chicago), to the US Internet 2 Network, through the Point of Presence (London), to the EU GEANT Network and to Q-Med (Mediterranean consortium Quantum extension). In addition to the broadband Universal Service Obligation, Israel has also given priority to the deployment of broadband Internet access in outlying and rural areas as part of the national effort to encourage maximum access to the electronic information society. Public Internet Access projects such as Tapuach, which establishes rural Internet community centres, and Lehava, bridging the digital divide at a variety of levels, have augmented the successful penetration of broadband Internet throughout the country. Several challenges still lie ahead for Israeli communications and broadcasting sectors, a major one of which is to uphold existing Ministry and government policy that has in the past successfully supported market forces. Our objectives for the near future include: √ Furthering the merger of the cable companies and the entrance of these companies to the field of domestic fixed telephony; √ Opening the fixed telecommunications service market to new competitors without USO; implementing new policy on VoIP/VOB communications based on a public consultation; √ Promoting the deployment of advanced mobile services; ensuring the existence of original Hebrew media productions; √ Completing the process of turning the Postal Authority into an independent corporation while gradually opening the postal market to competition; √ Setting policy for digital radio broadcasting, implementing number portability; safeguarding service quality for the consumer; √ And, as always, encouraging advanced telecommunication services. Continued competition, accessibility and development in the sector are, I believe, dependent upon high-quality regulatory processes together with solid entrepreneurship. We shall continue to aim for these benchmarks in the future.