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Israel Gets Competitive: Bezeq's monopoly may be in its final days
Tele.Com / June 26, 2000

By Larry Luxner

TEL AVIV -- Israel, which leads the world in cellphone usage, boasts dozens of cutting-edge telecom manufacturers and enjoys the Middle East's highest Internet penetration rate, still suffers from one major Third World deficiency: a monopoly on basic local phone service.

However, that could quickly come to an end.

In mid-June, the Knesset Finance Committee gave preliminary approval to draft regulations submitted by the ministry of communications that would open the domestic phone market to competition for the first time since Israel's establishment in 1948 -- ending the fixed-line monopoly long enjoyed by Bezeq Telecommunications Corp. Ltd. (Tel Aviv).

The move follows a ruling April 10 by Israel's attorney-general, Elyakim Rubenstein, that cable TV companies do not have to compete in a tender to offer telephony and rapid Internet services.

This is significant because, at present, Israeli subscribers and even the ISPs themselves can access the Internet only through Bezeq. If cable companies are allowed to offer their subscribers Internet access independently, it will establish a precedent, opening up competition.

Rubenstein's decision was heartily endorsed by Communications Minister Binyamin Ben-Eliezer, who has been pushing for open-market access for years.

"I don't intend to allow any more delays in creating real competition in these services," Ben-Eliezer said in a recent statement. "We mustn't allow a situation in which Bezeq has a monopoly in broad-banded Internet, and without competition, the economy will suffer severely."

Bezeq, which was partially privatized two years ago, is Israel's largest company, with $2.2 billion in 1999 revenues. The government owns 55% of Bezeq, with the remainder split among Cable & Wireless (13%) and the general public (32%).

Bezeq currently has 2.85 million fixed lines in service, translating into a telephone density of 46 percent -- the highest in the Middle Eastern countries and ahead of many European countries. It also has 50% ownership of Israel's leading cellular provider, Tel Aviv-based Pelephone Ltd. (Motorola has the other half). So many Israelis have cellphones today that Bezeq pay phones at shopping malls and major intersections in Tel Aviv and Jerusalem often go unused for hours at a time.

Yet entrepreneurs say the lack of competition in basic phone service stifles growth within Israel.

"Bezeq has a monopoly on local service," says Ami Amir, CEO of RADVision Ltd. (Tel Aviv), one of the country's leading high-tech companies. "At the end of the day, the wire to your home is owned by Bezeq."

The telecom giant makes no secret of the threat it sees coming from new rivals.

"Thinking short-term can turn you into a dinosaur feeding off vanishing turf and headed for extinction," notes Israel Tapoohi, Bezeq's chairman of the board. "Bezeq's privatization, I am convinced, is the key to transforming the state monopoly into an agile, cost-conscious, market-driven company, capable of delivering sustained growth in earnings and add shareholders value. We must therefore, while planning for the next 5-10 years, also ensure that our decisions can be leveraged for success in the following decades."

In addition to its stake in Pelephone, Bezeq has also acquired ISDN-Net and Trendline, two popular ISPs. Also, a consortium in which Bezeq is the major shareholder (30%) has been awarded a license for the introduction of DBS services in Israel. At the turn of the century, Bezeq will introduce public pay phones working on smart cards; it's also exploring e-commerce opportunities.

While Bezeq didn't have any immediate comment about the new legislation, company spokesman Rami Mintz did say that by the end of next year, the company plans to add an eighth digit to all Israeli fixed phone numbers, and a seventh digit to all Israeli cellular numbers, "in order to create the possibility for other companies to enter the market."

The Eurocom Group, a telecom holding company based in the Tel Aviv suburb of Ramat Gan, says it's ready to apply for an operator's license "within a few days" after the Communications Ministry gives the green light.

Eurocom's new subsidiary, Ofek, announced that it has already invested $15 million in preparations to enter the market, and will spend around $1 billion to build its telecom infrastructure and hire up to 1,500 employees over the long term. The company will base its infrastructure on the latest Internet protocol (IP) and local multichannel distribution service (LMDS) broadband technologies.

"Ofek will be a leading provider of advanced telephony services in Israel, as well as an attractive alternative for customers who currently use Bezeq," Noga Barak, Ofek's vice-president for marketing, told The Jerusalem Post. "We will be competitive in price, and will offer more services than Bezeq presently does."

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