1. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Fixed-Mobile Convergence Regulatory Point of View Daniel Rosenne Director General, Ministry of Communications, Israel rosenned@moc.gov.il

2. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Presentation Agenda l What is Fixed-Mobile Convergence? l Market realities: Mobile versus Fixed l The future: unified regulation l Example: the case of Israel l Conclusions.

3. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS What is Fixed-Mobile Convergence?

4. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Fixed-Mobile Convergence: Different Meaning from Different Views l Consumers: Seamless Services, regardless of type of network. l Incumbent Operators: One stop shopping/one bill - bundling of fixed and mobile services. l Mobile Operators: Integrated services - cellular service positioning as fixed replacement. l Regulators: Ensuring fair competition - Fixed versus mobile, Mobile versus value added services.

5. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Fixed-Mobile Convergence: It’s All About Competition l Competition for voice minutes: Fixed versus Mobile. l Competition for value added services revenues: Mobile versus value added service providers. l Competition for content revenues: Mobile versus value added service providers versus content providers.

6. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Mobile Versus Fixed: Market Realities

7. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Fixed-Mobile Convergence: It’s All About Competition When mobile offers: n Similar tariffs: Additional competition. n Similar services: Data services. n Same quality: as fixed. l Can mobile substitute fixed?YES! l When will it happen?

8. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Mobile Tariffs Paradox l Why are mobile tariffs higher than fixed tariffs? l Let’s face reality: tariffs are not pushed down, neither by market forces, nor by regulatory action. l Simple economics: n Marginal investment per customer: S Fixed: US $1000-1500. S Mobile: US $300-500. n Operating expense: similar for both.

9. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Towards Unified Regulation

10. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Why Regulation? l Market controlled by limited number of dominant operators. l Abuse of market power by discrimination and unfair practices will eliminate competition. l Regulator’s goal - foster competition, for the ultimate benefit of consumers’.

11. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Fixed-Mobile Convergence: Regulator’s Role l Protect consumers’ interests. l Abolish artificial and historical barriers to competition. l Reduce entry barriers to new entrants, especially for innovative new players. The meaning of “Fixed-Mobile Convergence” is a need for unified regulation for fixed & mobile markets.

12. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Key Regulatory Action Points (1) l Cost-based interconnection: eliminating market distortion resulting from different methods for mobile and for fixed interconnection tariff setting. l Symmetrical airtime: eliminating discriminatory practices resulting from charging different airtime tariffs from mobile subscribers and from fixed subscribers.

13. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Key Regulatory Action Points (2) l Open network access: allowing long distance and value added service providers access to the mobile network, similar to their fixed network access. l Prevention of discriminatory bundling: ensuring transparent bundling, in a non-discriminatory manner.

14. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS The Case of Israel

15. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Israel's Telecommunications l 2.8 million main telephone lines (47% penetration). l 2.5 million mobile customers, on three networks, Pelephone, Cellcom & Partner/Orange. (42% penetration). l 1.1 million Cable-TV connected households. (3 operators, 70% of passed households, 90% household coverage).

16. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Telecommunications Services Market - 1998 International Long-Distance Cable TV Terminal Equipment & Business Systems Internet services Cellular Telephony 38% Fixed Services 40% 11% 7% 2% Total telecom services market ~ $ 3.7 billion

17. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Israel’s Mobile Operators l Pelephone: 800 MHz NAMPS and CDMA. Operations since 1987. Bezeq (50%), Motorola (50%). l Cellcom: 800 MHz TDMA. Operations since 1995. BellSouth (34%), Safra Brothers (34%), Discount Investments (12.5%), PEC (12.5%), private investors (7%). l Partner/Orange: 900 MHz GSM. Operations since 7 October 1998. Hutchison (46.67%), Matab (20.31%), Elbit.com (16.5%), Tapuz (16.5%)

18. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS The Mobile Boom: Israel Telecommunications Services Revenues, 1995-1998 ($US M) 0 500 1,000 1,500 2,000 1995199619971998 Fixed CATV International Mobile

19. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Israel’s Mobile Services Growth l High growth - 2.5 million subscribers, compared to 125,000 in January 1995. l Key stimulators for the explosive growth: n Low tariffs: ~ US $0.11 to 0.23/minute air time, ~ $11 to 29 monthly charge. (300 min average monthly bill - $56 to 74) n Calling Party Pays (CPP), in operation since 1994. n High quality, nationwide coverage. n Fair competition.

20. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Israel’s Regulatory Issues Concerning Fixed-Mobile Convergence Achievements l Structural separation, preventing discriminatory bundling l Calling party pays l Cost-based fixed interconnect tariffs l Open access, to fixed & mobile networks (including pre-selection/dialing parity to international long distance providers) Open Issues l Symmetrical air time l Cost-based mobile interconnect tariffs l Enhanced competition: n Additional mobile operators n 3G frequencies allocation.

21. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Conclusions

22. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Summary - Market Related Points l Fixed-Mobile convergence has several meanings: n For incumbent Telco: one stop shopping. n For competing Celco: fixed substitute. n For consumers: additional competition? better service? more service offerings? lower prices? l Mobile will not be true substitute to fixed, unless: n Mobile prices will be similar to fixed. n Mobile service offering will be similar to fixed, including data services. n Mobile will offer fixed quality.

23. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Summary - Regulatory Points l Competition in telecommunications services is still limited, and should be promoted. l In the context of “Fixed-Mobile Convergence”, regulators’ role is to prevent abuse of market power by discrimination and unfair practices. l The key issues are: n Cost-based interconnection. n Symmetrical airtime. n Open network access. n Prevention of discriminatory bundling.

24. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Regulation - It’s All About Competition l The future - from convergence to integration. l Regulation - uniform rules and principles for fixed and mobile. l Re-alignment of competitive positions - n Mobile and fixed n Incumbent and new operators.

25. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS The Regulatory Equation FMC = CBI+ONP FMC: Fixed-Mobile Convergence CBI: Cost Based Interconnect ONP:Open Network Provision

26. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS For more information about Israel’s telecommunications: http://www.moc.gov.il

27. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS The End Thank you for your attention