1. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS License Auctions Update Daniel Rosenne Director General, Ministry of Communications rosenned@moc.gov.il

2. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Presentation Agenda The Telecommunications Environment: Market overview Fixed services Mobile services License Auctions: Fixed wireless access 2G/3G mobile.

3. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Telecommunications Market Overview

4. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Israel`s 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. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS 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. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Telecommunications Services Market - 1999 International Long-Distance Cable TV Terminal Equipment & Business Systems Internet services Fixed Services 35% Mobile Services 44% 10% 7% 2% Total telecom services market ~ $ 4.2 billion

7. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS The Mobile Boom: Israel Telecommunications Services Revenues, 1995-1999 ($US M) 500 1,000 1,500 2,000 19951996199719981999 0 ILD Mobile Fixed CATV

8. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Fixed services Driven by Broadband Demand Actual competition expected during 2001

9. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS 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. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS 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. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Ofek New World Israel’s 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. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS 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. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Mobile Services Competition Introduced December 1994

14. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Mobile Operators Pelephone Cellcom Partner/OrangeMIRS 800 MHz 800 MHz 900 MHz800 MHz NAMPS & TDMAGSMiDEN CDMA(ESMR) Trunking - 1994 1987 1995 1999Cellular - 2001 BellSouthHutchison BezeqSafra BrothersMatavMotorola MotorolaDiscount InvestmentsElbit.comAmpal (Shamrock)PECEurocom private investorsfree float

15. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS 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) - US$50 to 60. Calling party pays (CPP). Nationwide coverage & “Land-line”quality. Competition & marketing innovations.

16. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Average Number of Monthly Usage Minutes 199519961997199819992000 Fixed Bezeq687687679699732 Mobile Pelephone530430320300295 Partner427361(Q4) Source: Bezeq Eurobonds Prospectus, August 2000; Partner reports

17. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS 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. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS License Auctions

19. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS 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. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS Proposed New Frequency Bands Allocations BandApplicationAllocation 2 GHz2G/3G Mobile175 MHz 3.5 GHzN-FWA/WLL72 MHz 26 GHzB-FWA/LMDS1200 MHz

21. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS 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. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS 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. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS 2G/3G Auction: Frequency Allocations Allocation per License [MHz] : Allocation Date Frequencies [MHz] License A License B License C License D 1710-17852X6.2: 1/20012x6.4: 1/20012x10: 1/20012x10: 1/2002 & 1805-18802x3.8: 1/20042x3.6: 1/2004 1920-19802x5: 1/20012x5: 1/20012x5: 1/20012x5: 1/2001 & 2110-21702x5: 1/20042x4.7: 1/20042x5: 1/20042x5: 1/2004 1900-1920 or 2010-20255: 1/2005 -5: 1/20045: 1/2004

24. STATE OF ISRAEL MINISTRY OF COMMUNICATIONS For more information http://www.moc.gov.il