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Regulation in Transition

Regulation in Transition. Daniel Rosenne Director General, Ministry of Communications rosenned@moc.gov.il. Were we stand?. US telecom history: 1984 – MFJ (interexchange competition). 1994 – Cable Act (national framework for cable regulation). 1996 – Telecom Act (LEC competition).

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Regulation in Transition

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  1. Regulation in Transition Daniel Rosenne Director General, Ministry of Communications rosenned@moc.gov.il

  2. Were we stand? • US telecom history: • 1984 – MFJ (interexchange competition). • 1994 – Cable Act (national framework for cable regulation). • 1996 – Telecom Act (LEC competition). • US reality, 2000: • 5% of total local lines served by CLECs. • 3.5 million broadband subscribers (2.3 M cable modem, 1.2 M xDSL). • Israel, 2000: • September 2000 – LEC competition. • “Legal standstill”- restriction on cable entry into LEC and LEC entry into cable. Law update – on its way.

  3. Israeli Regulation Philosophy • Consumer’s are the focus. • Competition is essential. • Interconnection is the key. • Facility based competition is the preferred way. Unbundling is interim “competition promotion” method. • Cable companies should be regulated as common carriers. • “Hands off” regulation of new services (e.g. internet). • Transform from sector specific “ex-ante” to general anti-trust “ex-post” regulation.

  4. Presentation Agenda • Telecom Networks & Services • Cellular Telephony • International Long Distance • Internet • Regulatory Reform • Incumbent Tariff Rebalancing • Frequency allocations • National Numbering Plan • Summary.

  5. Telecommunications Network & Services

  6. Israel'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).

  7. Telecommunications Services Market - 1999 Cable TV International Long-Distance Internet services Terminal Equipment & Business Systems 2% 2% 7% Fixed Services 35% 10% Cellular Telephony 44% Total telecom services market ~ $ 4.2 billion

  8. The Cellular Boom:Israel Telecommunications Services Revenues, 1995-1999 ($US M) 2,000 Cellular Fixed 1,500 1,000 International 500 CATV 0 1995 1996 1997 1998 1999

  9. 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.

  10. 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.

  11. Cellular Operators PelephoneCellcomPartner/Orange 800 MHz 800 MHz 900 MHz NAMPS & CDMA TDMA GSM 1987 1995 1999 BellSouthHutchison Bezeq Safra Brothers Matav Motorola Discount Investments Elbit.com PEC Tapuz private investors free float

  12. Average Number of Monthly Usage Minutes 1995 1996 1997 1998 1999 Fixed Bezeq 687 687 679 699 732 Mobile Pelephone 530 430 320 300 295 Partner 427 (Q4) Source: Bezeq Eurobonds Prospectus, August 2000; Partner annual report 1999

  13. 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.

  14. Dialing 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.

  15. International Traffic[Million Minutes/Year] 1000 Outgoing 800 600 Incoming 400 200 0 1996 1997 1998 1999

  16. 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.

  17. Telecommunications Competition Enhancement by Regulatory Reform

  18. Regulatory Reform(Promoting competitive Advantage) • Competition in fixed services. • Structural change of the telecommunications sector: • Liberalization. • Privatization. • Re-regulation.

  19. Proactive 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.

  20. 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%.

  21. 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).

  22. Bezeq’sInterconnection Rates Time of day Termination LocalUrbanNational Toll Toll Peak 1.4 - 2.9 1.5 Interim 0.9 - 0.9 0.9 Off-peak 0.6 - 0.6 0.6 EU benchmarks 0.7-1 1-2 1.7-3 Origination Per minute rates, per second billing; US cents, $1 = NIS 4.16

  23. Bezeq 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.

  24. Licenses for new operators • Generallicenses 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.

  25. License 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 october 2000. • Additional Mobile Competition: • 2G (DCS-1800) & 3G (UMTS). • Allocations for new & existing operators. • Tender process timetable - to be announced.

  26. Will We Have Enough Telephone Numbers? Numbers [Millions] Number Type Old NNP New NNP Geographic 56 160 - 320 Mobile 8 80 Logical - 160 - 80 New Services 10 100 Future Use - 240 - 160

  27. “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.

  28. Summary

  29. 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.

  30. 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.

  31. Facing 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.

  32. 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!

  33. For more informationTelecom Israel 2000:http://www.telecom-israel.comMinistry of Communications:http://www.moc.gov.il

  34. The End Thank you for your attention

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