The Israeli Communications Industry

(2001)


Israel requires state-of-the-art telecommunications to maximize the potential of its highly advanced and globally oriented economy. Over the last decade, the telecommunications sector has been transformed from a sluggish state-owned monopoly into a competitive market offering a variety of advanced services, many of them based on innovations developed by local companies. The number of telephone lines, mobile phones and Internet connections places Israel high in world ratings, and for most services, tariffs are relatively low. This has made telecommunications widely and easily available to a population known for its enthusiastic approach to high technology.

A Line from the Past

For more than three decades after the founding of the State in 1948, Israel's telephone network was owned and operated by a government ministry. Over the years, the network grew enormously to meet the needs of a fast-developing economy and a rapidly growing population. By the early 1980s, it was clear that the system could not keep up with burgeoning demand, nor provide the new services expected to be developed over the following years. Local and international calls were prohibitively expensive, service was poor, and the time it took to install a new line or repair a broken one was unacceptably long.

In 1985 a state-controlled company, Bezeq-The Israel Telecommunications Corporation, assumed responsibility for the phone network. It developed rapidly over the next few years, boosted by the large-scale immigration from the former Soviet Union in the 1990s. By the end of 1999, there were 471 phones per 1,000 persons (a growth of 37% in the decade), compared with 661 for the United States and an average of 524 for developed countries. The level of service had improved markedly over the years: the waiting list for telephone lines, which had reached 208,000 in 1980, fell sharply and today is virtually nil. The government sold off a 13.8% stake in Bezeq on the Tel Aviv Stock Exchange in 1991. Today the government owns 54% of the company, but is committed to its total privatization.

The break-up of the telecommunications monopoly began in earnest in 1994, when the government permitted a second, private-sector company, Cellcom, to compete in the cellular telephone market. A third company, Partner Communication, entered in 1999, and the government is now considering terms for permitting third-generation (3G) operators that will offer wireless voice and Internet services. De-monopolization of the cellular market was followed in 1997 by allowing two international calling companies, Barak and Golden Lines, to compete with Bezek. By the end of the decade, Israel boasted some of the world's lowest tariffs for cell phone and international calls. The government is now readying to de-monopolize basic telephone services, thereby opening the entire telecommunications sector to competition.

While the first radio broadcasting transmissions pre-date the establishment of the State, Israel was a relative latecomer to the world of television. The government authorized television only in 1967, and the first shows were aired in 1969 by a single state-owned television network - in black and white (color television did not arrive until the 1980s). Private sector broadcasting only commenced in 1990 with the creation of the Second Television and Radio Authority. The government awarded the first cable television franchises to seven regional broadcasters in the late 1980s.

Telecommunications Today

The total annual telecommunications equipment and services market in Israel was estimated at $4.3 billion in 1999, with 2.9 million main phone lines. The number of cellular phone lines finally surpassed the number of fixed lines by mid-2000, when it reached 3.4 million, and cell phones now comprise the largest portion of the telecommunications market. Some 66% of the Israeli population, or four million people, own a cellular phone, giving Israel one of the world's highest mobile penetration rates.

Bezeq's fully digital system delivers high-quality and innovative services. It offers a state-of-the-art system that employs the most advanced digital switching equipment, fiber transmission, SDH, AIM, ISDN and TMN. The network offers a variety of telephone services, including voice mail, call forwarding, call-back, conference calls, Intelligent Network and interactive services, as well as high-speed, broadband services such as ISDN. Bezeq has plans to expand into ADSL, data communications, satellite-based video conferencing and television broadcasting, and to offer a complete range of communications applications for businesses. Its competitors in international calling, Barak and Golden Lines, are planning similar efforts, once the local market is privatized and they receive the proper government licenses.

Unlike the United States and many other developed economies, Israel does not have an independent regulatory agency for the telecommunications industry. Instead, the Ministry of Communications performs such functions as fixing tariffs, allocating frequencies and setting policy. In addition, the Ministry of Finance, the anti-trust authority and other government bodies are involved in additional aspects of industry regulation. Major regulatory decisions, such as tariff policy or reform of an industry segment, are usually made by specially appointed government committees.

It is the aim of government policy to promote "managed competition" in the telecommunications sector. Instead of throwing open the market to unbridled competition, the government sets strict ground rules concerning the number of competitors permitted into each segment, limits licensing, prevents or restricts players from competing in more than one market segment, and regulates tariffs in certain segments.

The cell phone market is served by four companies, all of which cover the entire country. Pele-Phone, founded in 1990 as a joint venture of Bezeq and Motorola Israel, today has about 1.5 million subscribers. Pele-Phone uses NAMPS network technology and has also begun implementing the more advanced CDMA technology. It also offers a cellular Internet service, known as GoNext. Cellcom, the second cellular operator, is partly owned by Bellsouth Corp. of the U.S., the rest by other foreign and local investors. It provides services to its 1.85 million customers using TDMA technology. A third provider, Partner, has 800,000 subscribers, and uses the GSM standard; it is controlled by a consortium led by Hong Kong's Hutchison.

A fourth company called MIRS (Motorola Integrated Radio Services) uses an advanced form of two-way radio communications to provide a service that combines radio dispatch, cellular phone, pager and mobile PC services. MIRS' iDEN (integrated digital enhanced network) or Tetra technology runs at 95 kilobytes per second, enables users to e-mail and access some Internet portals. The company, which is two-thirds owned by Motorola Israel, boasts some 155,000 subscribers, or 2.5% of Israel's population - the world's highest penetration rate for this kind of technology.

The Internet

Well over one million Israelis use the Internet on a regular basis, and the number is growing annually at a rate of roughly 30%. However, while the number of PCs per household is a high 60%, the Internet penetration rate at the end of 1999 was 164 per 1,000 people, relatively low compared to 213 in Britain and 398 in the United States. Industry experts variously ascribe Israel's relatively low rate to language barriers (most of the Internet is in English), high tariffs and the absence of high-speed Internet access in private homes.

The first Internet Service Provider (ISP), Netvision, began selling access to the Internet in 1994. There are now more than 30 Israeli ISPs with four companies leading the market: at the end of 1999, Internet Gold had 175,000 subscribers, Netvision 140,000, Bezeq International 60,000 and Barak 40,000.

The number of Internet hosts, while high by overall world standards, is relatively low for such an advanced economy. With 24.5 hosts per 1,000 inhabitants in 1999, Israel is ahead of Japan (20.8) and France (20.9), but well behind leaders like the U.S. (193) and Britain (125). Industry experts attribute the low figure to the fact that standard web browsers were not designed for right-to-left languages like Hebrew. Companies took a long time to agree on a standard technology to deliver Hebrew content online, and even this requires users to set up their browsers to read Hebrew characters. Seven local Hebrew-language portals exist, but these gateways to the Internet are generally tailored to foreign markets around the globe, not necessarily local e-commerce.

Internet usage in Israel is also quite expensive. Until relatively recently, Israel's leading ISPs did not offer unlimited monthly surfing packages, nor was there a flat fee for local telephones calls. With more ISPs on the way, tariffs should come down, and cable television companies Tevel and Matav, as well as Israel's first multi-channel digital satellite provider, YES, are also aiming to provide Internet services.

Changing Channels

Parallel with telecommunications, Israel's television industry has evolved from a state-controlled monopoly into a highly competitive market that has media companies competing for the country's viewers with offerings ranging from traditional terrestrial TV, to cable and satellite.

The state-owned segment of the television and radio broadcasting industry is in the hands of the Israel Broadcasting Authority (the IBA). The IBA's flagship television station Channel 1 airs both news and entertainment programming - about 70% of it produced locally - including dramas and comedies, talk shows, variety shows, documentaries and sports events. Channel 1 broadcasts mainly in Hebrew, but breaks in the early evening for programs in Arabic and English. Channel 1 does not air commercials, and as a result its programming priorities are not swayed by audience ratings (which are rather low). It is funded by a television tax (currently about $125 per year for every household with one or more TV sets), with additional revenue coming from fees for public service announcements and commercials on the state-owned radio network, which does take advertising. The IBA also provides about 60 hours a week of satellite television to the Middle East, North Africa and parts of Europe.

The Ministry of Education produces and broadcasts television programming through its Educational Television. Most of its schedule of pedagogical programming is geared to an audience ranging from toddlers to teenagers, including a Hebrew version of Sesame Street. It is aired on Channel 1 during the day and is also carried on commercial broadcast and cable television. The Israel Defense Forces (IDF) runs its own radio stations, which air some of the country's most popular music and talk programs.

Channel 2, as the commercial television network is called, went on the air in 1993 and is operated by three franchisees who each broadcast slots of two or three days a week in half-year rotations. The three also jointly operate Israel's highest-rated television news show. The government imposes certain standards on the broadcasters (for instance, 40% of all programming must be local, a certain amount geared to children and quotas on various genre segments are imposed). The three franchises must pay 8% of their revenues to the State in royalties. Channel 2 is supported by advertising and takes nearly a quarter of all advertisement spending in Israel. The Second Authority also overseas 14 privately operated radio stations around the country.

In April 2001, the government announced the creation of Channel 3 (a second national commercial channel), and an all-news commercial channel, Israel 24, both of which are set to begin broadcasting by the end of 2001.

Cable Television

The original seven cable TV broadcasters have now been slimmed down through mergers to three - Matav, Tevel and Golden Channels - each with a monopoly in its own geographic area. Some 70% of households subscribe to cable television, which provides scores of channels, offering a mix of local and foreign programming, much of it catering to select audiences (children, English, Russian and Arabic speakers, and the like).

The cable TV sector employs about 1,000 people, and over the years has invested some $600 million in infrastructure, including 800 kilometers of fiber-optic cable. The three cable television operators offer 50-channel, 550/750Mhz systems to their customers that utilize fiber-based feeders and "tree and branch" coaxial distribution systems. Matav and Tevel's cable transmission networks are capable of supporting both broadcast transmission and two-way data transmission, for telecommunications and computer networking. Their return channels will allow for interactive services such as Internet access. The cable companies are expected to become major players in the newly de-monopolized domestic fixed-line arena. Cable companies are already upgrading their networks for the new era.

Satellite TV

Israel is one of the few countries in the world to design, build, launch and operate its own satellites. AMOS, the first commercial telecommunications satellite, was designed and manufactured by Israel Aircraft Industries Ltd. in cooperation with foreign companies. Successfully launched in 1996, it provides domestic services for television, radio, and data transmission using 7 KU band transponders.

The AMOS satellite has two beams, one focused on Israel and the Middle East, the other on Eastern Europe. AMOS currently provides transmission of three local television channels, and leasing agreements with programmers in Hungary, Poland and Romania have been signed.

Israel's first direct broadcast satellite (DBS) station began operating in 2000 and a second commercial broadcast channel is due to go on the air at the end of 2001, after franchises have been awarded. The government also intends to introduce five commercial channels with specialized programming geared to foreign language speakers, religiously observant Jews and others.

A Few Good Ideas

Still Time to Write

Even at the beginning of the 21st century, not all communication is carried out electronically. The Israel Postal Authority, which split off from the Communications Ministry as a separate agency in 1987, delivered some 632 million postal items in Israel and around the world over the following decade - a 70% increase - more than double the 33% growth in Israel's population over that period.

Some two million letters are handled by the Postal Authority daily, fed through 700 branches and postal agencies around the country. The system is fully computerized and maintains direct computer links with some 30 countries. Over the last decade, it has cut average local delivery time from five days to just 1.5 days, with 89% of all letters and packages arriving within 48 hours. Express Mail delivery has grown since 1987 from just 20,000 items to 3.2 million annually.

The Postal Authority had an estimated income of nearly $400 million in 2000; it employs 5,380 people, including 2,000 delivery people, and operates a fleet of 1,100 vehicles. In addition to traditional mail delivery services, the Postal Authority has messenger and security courier services, a postal bank for the payment of bills and other financial services, and an electronic message transfer service, with access to business databases.


Source: Israel Ministry of Foreign Affairs
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