telecommunications industry in israel august 2002

1

State of Israel

Ministry of Communications

TelecommunicationsIndustry in Israel

august 2002

Ministry of Communications

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State of Israel

Ministry of CommunicationsPresentation Agenda

Israel Demographics & ICT Statistics

Telecommunications Industry

Telecommunications Market Overview

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State of Israel

Ministry of Communications

Israel Demographics&

ICT Statistics

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State of Israel

Ministry of CommunicationsISRAEL Demographics

Population ~ 6.5 million.

Households ~ 1.8 million.

Average family ~ 3.6 persons.

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State of Israel

Ministry of CommunicationsIsrael’s ICT Sector - 2000(Information & Communications Technology)

Israeli ICT GDP grew from NIS 8.7 billion in

1990 to NIS 39 billion in 2000, 20% of business

sector GDP.

ICT GDP is 14.3% of total GDP.OECD highest - compared to 10-11% in US.

Investment in ICT research and

development is 23% of the ICT GDP.OECD highest - compared to 16-17% in Finland.

148,000 employees.Source: CBS, 2001

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State of Israel

Ministry of CommunicationsIsrael's Telecommunications

3.2 million main telephone lines (50% penetration, more than 95% of households)

5.5 million mobile customers, on 4 networks (85% penetration)

1.5 million households connected to multi-channel subscriber television Cable TV: 3 operators, 1.2 million subscribers, 70% of

homes passed, 95% household coverage. Satellite DTH TV: 1 operator, 0.3 million subscribers

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State of Israel

Ministry of Communications

Telecommunications Industry

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State of Israel

Ministry of Communications

Israel's Electronics IndustriesSource: IAEI, 2002

Combined 2001 sales - $14.25 billion, of which $11.75 billion were exports sales.

Highly skilled workforce - 62,000 employees, including over 63% scientists, engineers & technicians.

Sales per employee - over $230,000.

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State of Israel

Ministry of CommunicationsTotal 2001 Sales – $14.25 billion

Source: IAEI, 2002

Defense Systems15%

Components16.7%

Telecommunications29.6%

Software21%

Industrial &Medical Systems

17.7%

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State of Israel

Ministry of Communications

Leading Israeli Telecommunications & Electronics Companies

Company Sales 2001 Line of Business (US$M)

Intel Electronics (Israel) 1614 SemiconductorsMotorola Israel 1278 Communications & SemiconductorsVishay Israel 1182 Electronics & ElectricityE C I 1170 TelecommunicationsComverce 710 Telecommunications & ElectronicsGilat Satellite Networks 505 Satellites CommunicationsTelrad 470 TelecommunicationsCheck Point 425 Software Formula 406 Software R A D 190 Telecommunications & Electronics

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State of Israel

Ministry of CommunicationsIndustry Excellence Areas

Telecommunications – networking & network management, billing, Internet, video & image processing, wireless, satellite communications, access networks, broadband & photonics, network security & VPN’s, messaging, home networking.

Computerized production equipment & imaging.Software.Semiconductors & photonic components.Defense systems – missiles, anti-missiles &

guided weapons, opto-electronics, radars, C4I, EW (Electronic Warfare), simulation, training.

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State of Israel

Ministry of CommunicationsStatistical Highlights

Source: IAEI, 2002

Electronics All OtherIndustries Industries

Exports[% of total sales] 82 25

Added value [%] 68 42

Scientist, engineers& technicians [%] 63 14

Employees in R&D [%] 12 2

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State of Israel

Ministry of CommunicationsMajor R&D Efforts

Stretching 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 & optical

technology

Internet & Multimedia Telemedicine Microelectronics Network management

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State of Israel

Ministry of CommunicationsTechnology Start-ups

Israel is one of the largest world centers for start-up enterprises, with ~2000 active start-ups.

Innovative, technology-intensive activity, representing several technology breakthroughs.

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

investments.

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State of Israel

Ministry of CommunicationsVenture CapitalSource: IVC Research Center (TheMarker, 27 January 2002)

Investments by venture capital funds constitute an added value above financial contributions - in management, world market familiarity, strategic guidance and economic credibility.

During 2001, 526 Israeli companies raised $2.0 billion (compared to 513 companies & $3.1 billion during 2000).

40% ($812 million) was invested by Israeli venture capital funds.

The active sectors are communications (42%), software (20%), life sciences (14%) & Internet (9%).

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State of Israel

Ministry of Communications

Telecom Israel 2002 Exhibition and Conference:

The Future is Here

Tel-Aviv, 4-7 November, 2002

For more information

Telecom Israel 2002:http://www.telecom2002.co.il

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State of Israel

Ministry of CommunicationsTelecom-Israel 2002 EventTel-Aviv, 4-7 November, 2002

Important international exhibition & conference: Exhibition: 4-7 November 2002 Conference: 5-7 November 2002

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!

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State of Israel

Ministry of Communications

Telecom Israel 2002 Conference Program (preliminary)

Tuesday, 5 Nov. Wednesday, 6 Nov. Thursday, 7 Nov.

Telecom, IT & Media at the Crossroad: Challenges and OpportunitiesAfter the Hype - Sober View of the IT, Telecoms and Media Industries

Information is PowerCivilian & Military Information Security at the Turn of the Century

BB and 3G - is the Future Bright?The Drivers for Successful Broadband Fixed and Mobile Implementation

Telecom and Content Regulation - Critical Must or Unnecessary Burden?

The New Mobile World - Will Mobile Operators Make the Change From Voice to Multimedia?

Network Infrastructure in a Competitive World - All Optical Core

Broadband Fixed & Mobile Access Networks - Will the Bottleneck Open?

Interactive Entertainment - Is There More than Sex, Shopping and Games?

Delivering Business Services - The New Generation Application Service Provider

Intelligent Buildings and Home Networking - Towards Networked Home?

Government & Business Collaboration - Government Incentives and Business Motivation Support for Technology Development

Network Infrastructure in a Competitive World - Next Generation Network: All IP Switching and Service Delivery

New Horizons for Internet Technology - What is the Next Big Thing?

Fixed Mobile Convergence - Bundling or Bumbling?

Service and Network Security in an Open Broadband World

Consumer and Business Applications - The Future of B2C Retailing and B2B Trading

Managing Customer Relationship - Adding Value Through Customer Management

The Future of Fixed Services Competition - Is There Opportunity for CLEC’s?

Israel Telecommunications Market - Will the Growth Continue?

Startups and Venture Capital - Investments in the Future of Israel’s Technology

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State of Israel

Ministry of Communications

Telecommunications Market Overview

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State of Israel

Ministry of Communications

Telecommunications Services Market - 2001

InternationalLong-Distance

Cable TV

Terminal Equipment& Business Systems

Internet services

FixedServices

52%MobileServices

26%

9%7%

2%4%

Total telecom services market ~ US $5 billion

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State of Israel

Ministry of Communications

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Percentage of the population who have personally used the Internet during the past month

State of Israel

Ministry of CommunicationsBroad Band

100,000 ADSL lines, 15,000 Cable modems.

Competition launched January 2002.

Subscribers growth ~175% in the last 8 month.

Households penetration ~6%.

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State of Israel

Ministry of CommunicationsRegulatory Policy

Public interest - the main issue

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

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

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State of Israel

Ministry of CommunicationsRegulation Ideology

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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State of Israel

Ministry of Communications

From Monopoly to Competition

Pelephone(Bezeq)

Bezeq

Bezeq

MobileServices

1994 2000 2002 +

PelephoneCellcomPartner

PelephoneCellcomPartnerMIRS

FixedServices

(Infrastructure, Transmission & Telephony)

Bezeq

BezeqCable CompaniesOthers:

WirelineWireless

InternationalLong

DistanceServices

Bezeq-InternationalBarakGolden-Lines

Bezeq-InternationalBarakGolden-LinesAdditional operators

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State of Israel

Ministry of Communications

Fixed servicesDriven by Broadband Demand

Actual competition started Q2 2002

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State of Israel

Ministry of Communications

Bezeq CallCommunications

CPE &BusinessSolutions

(100%)

yesDirect

BroadcastingSatellite(44.9%)

Bezeq Consortium

BezeqInternational ILD & Internet

(100%)

PelephoneMobile Services

(50%)

BezeqFixed Services& Infrastructure(Holding Company)

Walla!Communications

Portal & web

hosting

(36.7% by BI)

Bezeq Online

Call Center

(100%)

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State of Israel

Ministry of Communications

Bidding for Majority Stake in Bezeq Israel’s incumbent telecommunications operator. annual sales ~2 billion US $.11,000 employees (8,500 in Bezeq, The parent

company).Government holds 54.6% of Bezeq shares

(remaining shares - publicly held). Government issued a formal tender, for private

sale of 50.01% of the share capital of Bezeq. Six groups filed applications at 13 February 2002.The process is planned to be completed in 6

months.

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State of Israel

Ministry of Communications

Incumbent main services & technologies

100% digital exchanges & transmission (mainly SDH).

Interconnection with mobile & ILD operators.

ISDN & ADSL Access.

Data Network – TDM, F.R, ATM, 64Kb/s – 622Mb/s.

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State of Israel

Ministry of Communications

Cable TV firms - the new entrants

Fully digitized HFC networks (750MHz).

Cable Modem broadband Internet services (64Kb/s – 2Mb/s).

Interactive TVT- mail, T- commerce.Future plans – IP telephony and

data services over cable.

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State of Israel

Ministry of Communications

Mobile Services

Competition Introduced December 1994

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State of Israel

Ministry of CommunicationsMobile Operators

CompanyPelephoneCellcomPartnerMIRS

Licensed1987199419982001

Market share28%40%28%4%Frequencies

(Mhz)800, 2000800, 1800,

2000900, 1800, 2000

800

Technology (present)

NAMPS & CDMA

TDMA & GSM

GSMiDEN

(ESMR)

FutureCDMA & UMTS

UMTSUMTSiDEN

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State of Israel

Ministry of Communications

Mobile Technologies: key trends

New services: SMS (interoperable), WAP, SHTML

wireless internet. Content: news, media & data services. Location based services. M(obile) – Commerce

(vending machines, parking,

gas station,etc).

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State of Israel

Ministry of Communications

2G/3G Mobile License Auctions

MSR (Multiple Simultaneous Round) combined auction.

Frequency packages: 4 Bands: 2G FDD, 2x10 MHz. 4 Bands: 3G FDD, 2x10 MHz.

3G TDD: 5 MHz (for 3 packages only).

Reserve price: 2G: US $45M. 3G: US$55M. Tender published: 28 March 2001. 18 December 2001 auction produced NIS

1,026 million.

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State of Israel

Ministry of Communications

Why Will 3G Succeed in Israel?

Israel is well suited for 3G: Relatively wealthy country (~$20K GDP/cap). Technology literate. High mobile penetration, extremely high usage.

Favorable auction price - $42/pop Germany $544, UK $537, France $287, Italy $211, Ireland $211, Austria $91, Denmark $80.

Light rollout requirements: Operators do not have to launch services unless they

are sure they will succeed. Each service country-wide availability - 24mo after

initial commercialization.

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State of Israel

Ministry of Communications

International Long Distanceservices

Facilities Based Competition Introduced July 1997

1 state – owned, 2 privately – owned service providers

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State of Israel

Ministry of Communications

Submarine Optical Cables Infrastructure

LEV

EMOS CIOSCable RFCS Capacity

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

MEDNautilus 1

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State of Israel

Ministry of CommunicationsThe 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. Géant – The pan-European Gigabit research network.

45 Mb/s connection to Géant (London), 45 Mb/s connection to StarTap (Chicago).

10 Mb/s & 155 Mb/s IP, ATM & SDH domestic connectivity.

http://www.internet-2.org.il

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State of Israel

Ministry of CommunicationsCivilian 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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State of Israel

Ministry of CommunicationsAmos 2 SatelliteLaunch Planned for Q2 2003.

Geostationary orbit at 4o West (co-located with AMOS 1).

11 active transponders & 3 backup transponders, 72 MHz bandwidth each.

High power - planned for DTH TV distribution, two-way Internet services and broadband VSAT networks.

3 spot beams: Middle East - supporting up to 11 transponders. Europe - supporting up to 6 transponders. US East coast - supporting up to 8 transponders.

Designed, manufactured and controlled by Israel Aircraft Industries.

Owned & operated by Spacecom Ltd.

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State of Israel

Ministry of Communications

The EndThank you for your attention

For more informationhttp:/www.moc.gov.il