License Auctions

1
License Auctions

• Update
• Daniel Rosenne
• Director General, Ministry of Communications
• rosenned_at_moc.gov.il

2
Presentation Agenda

• The Telecommunications Environment
• Market overview
• Fixed services
• Mobile services
• License Auctions
• Fixed wireless access
• 2G/3G mobile.

3
Telecommunications Market Overview
4
Israels Telecommunications

• 2.8 million main telephone lines
• (45 penetration).
• 4.4 million mobile customers, on four networks
  Pelephone, Cellcom, Partner/Orange MIRS
• (70 penetration).
• 1.2 million cable-TV 0.1 million DBS connected
  households.
• (Cable 3 operators, 70 of passed households,
  95 household coverage).

5
Internet Services

• 40 Internet service providers, 1,000,000 dial-up
  8,000 directly connected customers, 50,000
  domains.
• Penetration 35 of households, 50 of
  businesses.
• IIX (Israel Internet eXchange) non-profit peering
  point.
• Hands-off overall regulatory policy.
• High growth 50 annual.

6
Telecommunications Services Market - 1999
International Long-Distance
Cable TV
Terminal Equipment Business Systems
Internet services
2
2
7
Fixed Services
35
10
Mobile Services
44
Total telecom services market 4.2 billion
7
The Mobile BoomIsrael Telecommunications
Services Revenues, 1995-1999 (US M)
2,000
Mobile
Fixed
1,500
1,000
ILD
500
CATV
0
1995
1996
1997
1998
1999
8
Fixed servicesDriven by Broadband DemandActual
competition expected during 2001
9
Fixed Services Competition

• Prolonged Delays
• Politics May 1999 elections.
• Cable companies disputes
• Fulfillment of universal service obligation.
• Competition - DBS services, content.
• Finance Ministry seeking payment for granting
  telecom license.
• Justice Ministry seeking limits on content
  control.
• Union disputes - safeguarding employee rights.
• Rough Road Ahead
• Telecom law change underway, allowing cable
  companies entry into telecom.

10
The Birth of New Entrants

• Regulation allowing fixed services licensing -
  published September 2000.
• FWA tender - published October 2000.
• Ofek fixed services license - granted February
  2001.
• Cable companies restrictions removal - Telecom
  Law update due during 2001.
• Roll out of several competitive fiber-based
  backbones - IC1, Israel Railways, Ofek, Shavit,
  Cellcom.

11
Ofek New WorldIsraels first licensed CLEC

• Owned by Eurocom group (50.33) Arison
  investments (49).
• Fixed services general license as of 1 February
  2001.
• Plans for modern IP based infrastructure,
  utilizing 1000 Km fiber cables.
• Covering 27 natural zones (out of 52).
• Will offer wide range of telephony broadband
  data services, for business households.
• Plans for 1Bn investment, 1500 employees.

12
IC-1 (Israel Coasting one)

• Repeaterless submarine system along the Israeli
  coastline.
• Seven landing points
• Nahariyya
• Haifa
• Netania
• Herzliyya
• Tel Aviv
• Rishon LeZion
• Ashkelon.
• 48 fibers in a double ring festoon arrangements.

13
Mobile Services Competition Introduced
December 1994
14
Mobile Operators
Pelephone Cellcom Partner/Orange MIRS 800
MHz 800 MHz 900 MHz 800 MHz NAMPS
TDMA GSM iDEN CDMA (ESMR) Trunking -
1994 1987 1995 1999 Cellular - 2001
BellSouth Hutchison Bezeq Safra
Brothers Matav Motorola Motorola Discount
Investments Elbit.com Ampal (Shamrock) PEC Euroco
m private investors free float
15
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.
• ARPU (Average Revenue Per User) - US50 to 60.
• Calling party pays (CPP).
• Nationwide coverage Land-linequality.
• Competition marketing innovations.

16
Average Number of Monthly Usage Minutes

• 1995 1996 1997 1998 1999 2000
• Fixed
• Bezeq 687 687 679 699 732
• Mobile
• Pelephone 530 430 320 300 295
• Partner 427 361
• (Q4) (Q4)
• Source Bezeq Eurobonds Prospectus, August 2000
  Partner reports

17
Mobile Competition key trends - 2001

• New services
• SMS, WAP, wireless internet.
• Content news, media data services.
• Location based services.
• New pricing models
• Regional pricing plans.
• Pay as you use programs.
• Low cost position for low usage segments.
• Churn reduction plans.

18
License Auctions
19
Licenses For New Operators

• General licenses for fixed domestic services
  (infrastructure, transmission data, telephony)
  are issued to applicants meeting economic and
  know-how criteria.
• General licenses requiring spectrum resources
  (mobile, FWA) shall be issued through public
  tenders.

20
Proposed New Frequency Bands Allocations

• Band Application Allocation
• 2 GHz 2G/3G Mobile 175 MHz
• 3.5 GHz N-FWA/WLL 72 MHz
• 26 GHz B-FWA/LMDS 1200 MHz

21
Fixed Wireless Access Auctions

• Up to 3 operators, selected in combined MSR
  (Multiple Simultaneous Round) auction.
• Frequency Allocations, for each operator
• 26 GHz Broadband 2 x 196 MHz.
• 3.5 GHz Narrowband 2 x 12 MHz.
• Participation of Bezeq cable operators in the
  auction is excluded.
• Roll-out obligation 3 years.
• Tender published 12 October 2000.
• Applications deadline 20 March 2001.

22
2G/3G Mobile License Auctions

• MSR (Multiple Simultaneous Round) combined
  auction for 4 licenses, allowing usage of the
  following frequency packages
• 2G FDD 2x10 MHz.
• 3G FDD 2x10 MHz.
• 3G TDD 5 MHz (for 3 packages only).
• Reserve price US 100M. 25 reduction for new
  operators.
• Tender publication 28 March 2001. Applications
  deadline 17 July 2001.

23
2G/3G Auction Frequency Allocations

• Allocation per License MHz
  Allocation Date
• Frequencies
• MHz License A License B License C License
  D
• 1710-1785 2X6.2 1/2001 2x6.4 1/2001 2x10
  1/2001 2x10 1/2002
• 1805-1880 2x3.8 1/2004 2x3.6 1/2004
• 1920-1980 2x5 1/2001 2x5 1/2001 2x5
  1/2001 2x5 1/2001
• 2110-2170 2x5 1/2004 2x4.7 1/2004 2x5
  1/2004 2x5 1/2004
• 1900-1920
• or 2010-2025 5 1/2005 - 5 1/2004 5
  1/2004

24
For more informationhttp//www.moc.gov.il