TelecomIsrael 2000 International Exhibition

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Telecom-Israel 2000InternationalExhibition
Conference

• The Future is Here
• Daniel Rosenne
• Director General, Ministry of Communications
• rosenned_at_moc.gov.il

2
Presentation Agenda

• Telecom Israel 2000 Event
• Telecom Networks Services
• Manufacturing Industry
• Summary.

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Telecom-Israel 2000InternationalExhibition
ConferenceTel Aviv, 6 - 9 November, 2000
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Telecom-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.

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Telecom-Israel 2000Exhibition (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 2000Exhibition (2)

• 270 stands in 9 pavilions.
• 25 foreign companies 8 national stands
  (Austria, Brazil, Canada, Cyprus, Hong-Kong,
  Italy, Netherlands, Taiwan).
• Israels competitive advantage showcase
• System approach
• Market driven development
• Advanced research capabilities
• Quality production
• Flexible support.

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Telecom-Israel 2000 Conference7, 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 2000Start-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.

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Telecom-Israel 2000Start-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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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).

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Telecommunications Services Market - 1999
International Long-Distance
Cable TV
Terminal Equipment Business Systems
Internet services
2
2
7
Fixed Services
35
10
Cellular Telephony
44
Total telecom services market 4.2 billion
13
The Cellular BoomIsrael Telecommunications
Services Revenues, 1995-1999 (US M)
2,000
Cellular
Fixed
1,500
1,000
International
500
CATV
0
1995
1996
1997
1998
1999
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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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Bezeq Consortium
Bezeq International ILD Internet (100)
Pelephone Cellular Services (50)
Bezeq Fixed 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.com PEC 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
• 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

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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 DistanceFacilities 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.

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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.

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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 gt billed minutes)
  within 70 days.

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International TrafficMillion Minutes/Year
1000
Outgoing
800
600
Incoming
400
200
0
1996
1997
1998
1999
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Submarine Optical Cables Infrastructure
EMOS
CIOS
Cable RFCS Capacity EMOS 1990 280
Mb/s CIOS 1994 622 Mb/s LEV 1998 5
Gb/s FLAG 1999 5 Gb/s MN1 2001 3.84 Tb/s
LEV
MED Nautilus 1
FLAG
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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 lt 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 RD, 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 4o 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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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.

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Competition 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.

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Re-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.

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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.

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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

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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 summer 2000.
• Additional Mobile Competition
• 2G (DCS-1800) 3G (UMTS).
• Allocations for new existing operators.
• Tender process planned to begin during 2001.

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Israel's Telecommunications Map
1994
Mobile Services

• Pelephone
• (Bezeq)

Fixed Services (Infrastructure, Transmission
Telephony)

• Bezeq

International Long Distance Services

• Bezeq

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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.

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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).

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Interconnection Rates

• Interconnection Israel EU
• Tariff 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
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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.

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New NNP (National Numbering Plan)
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Existing NNP

• Adopted by Bezeq in the late 80s, 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.

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New NNP

• Additional digit (9 digits number length)
• Step 1 - Mobile 5 NXXX XXXX
• (N 2 for Cellcom, 4 for Orange, 6 for
  Pelephone)
• Step 2 - Fixed A NXXX 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.

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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
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Competition InBroadcastingServices
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Broadcasting 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).

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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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Total 1999 Sales - 8.6 billion
Industrial Medical Systems 21
Telecommunications 42
Components 15
Defense Systems 22
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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 Other Industries
Industries Exports of total
sales 82 25 Added value 68 42 Engineers
technicians 62 14 Employees in RD 12 2
60
Major RD 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 RD 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.

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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, Bezeqs ADSL.
• Market re-structuring
• Bezeq privatization.
• Further IPOs.

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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, Israels born products stand up.
• We invite you to witness for yourself!

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For more informationTelecom Israel
2000http//www.telecom-israel.comMinistry of
Communicationshttp//www.moc.gov.il
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The End

• Thank you for your attention