1. State of Israel Ministry of Communications 1 Telecommunications Industry in Israel august 2002 Ministry of Communications

2. State of Israel Ministry of Communications 2 Presentation Agenda Israel Demographics & ICT Statistics Telecommunications Industry Telecommunications Market Overview

3. State of Israel Ministry of Communications 3 Israel Demographics & ICT Statistics

4. State of Israel Ministry of Communications 4 ISRAEL Demographics Population ~ 6.5 million. Households ~ 1.8 million. Average family ~ 3.6 persons.

5. State of Israel Ministry of Communications 5 Israel’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

6. State of Israel Ministry of Communications 6 Israel'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

7. State of Israel Ministry of Communications 7 Telecommunications Industry

8. State of Israel Ministry of Communications 8 Israel's Electronics Industries Source: 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.

9. State of Israel Ministry of Communications 9 Total 2001 Sales – $14.25 billion Source: IAEI, 2002 Defense Systems 15% Components 16.7% Telecommunications 29.6% Software 21% Industrial & Medical Systems 17.7%

10. State of Israel Ministry of Communications 10 Leading Israeli Telecommunications & Electronics Companies Company Sales 2001 Line of Business (US$M) Intel Electronics (Israel) 1614 Semiconductors Motorola Israel 1278 Communications & Semiconductors Vishay Israel 1182 Electronics & Electricity E C I 1170 Telecommunications Comverce 710 Telecommunications & Electronics Gilat Satellite Networks 505 Satellites Communications Telrad 470 Telecommunications Check Point 425 Software Formula 406 Software R A D 190 Telecommunications & Electronics

11. State of Israel Ministry of Communications 11 Industry 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, C 4 I, EW (Electronic Warfare), simulation, training.

12. State of Israel Ministry of Communications 12 Statistical Highlights Source: IAEI, 2002 Electronics All Other Industries Exports [% of total sales]8225 Added value [%]6842 Scientist, engineers & technicians [%]6314 Employees in R&D [%]122

13. State of Israel Ministry of Communications 13 Major 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

14. State of Israel Ministry of Communications 14 Technology 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.

15. State of Israel Ministry of Communications 15 Venture Capital Source: 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%).

16. State of Israel Ministry of Communications 16 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 http://www.telecom2002.co.il

17. State of Israel Ministry of Communications 17 Telecom-Israel 2002 Event Tel-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!

18. State of Israel Ministry of Communications 18 Telecom Israel 2002 Conference Program (preliminary) Tuesday, 5 Nov.Wednesday, 6 Nov.Thursday, 7 Nov. Telecom, IT & Media at the Crossroad: Challenges and Opportunities After the Hype - Sober View of the IT, Telecoms and Media Industries Information is Power Civilian & 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

19. State of Israel Ministry of Communications 19 Telecommunications Market Overview

20. State of Israel Ministry of Communications 20 Telecommunications Services Market - 2001 International Long-Distance Cable TV Terminal Equipment & Business Systems Internet services Fixed Services 52% Mobile Services 26% 9% 7% 2%4% Total telecom services market ~ US $5 billion

21. State of Israel Ministry of Communications 21 Internet Users Across The World 2001 Country average (31%) Source: Tayler Nelson Sofres Interactive – Global eCommerce Report 2001 Percentage of total adult population Percentage of the population who have personally used the Internet during the past month

22. State of Israel Ministry of Communications Broad Band 100,000 ADSL lines, 15,000 Cable modems. Competition launched January 2002. Subscribers growth ~175% in the last 8 month. Households penetration ~6%.

23. State of Israel Ministry of Communications 23 Regulatory Policy Public interest - the main issue Competition - the key for innovation, entrepreneurship, investment & growth. Key action areas: Liberalization. Re-regulation. Privatization.

24. State of Israel Ministry of Communications 24 Regulation 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.

25. State of Israel Ministry of Communications 25 From Monopoly to Competition Pelephone (Bezeq) Bezeq Mobile Services 1994 20002002 + Pelephone Cellcom Partner Pelephone Cellcom Partner MIRS Fixed Services (Infrastructure, Transmission & Telephony) Bezeq Cable Companies Others:  Wireline  Wireless International Long Distance Services Bezeq-International Barak Golden-Lines Bezeq-International Barak Golden-Lines Additional operators

26. State of Israel Ministry of Communications 26 Fixed services Driven by Broadband Demand Actual competition started Q2 2002

27. State of Israel Ministry of Communications 27 Bezeq Call Communications CPE & Business Solutions (100%) yes Direct Broadcasting Satellite (44.9%) Bezeq Consortium Bezeq International ILD & Internet (100%) Pelephone Mobile Services (50%) Bezeq Fixed Services & Infrastructure (Holding Company) Walla! Communications Portal & web hosting (36.7% by BI) Bezeq Online Call Center (100%)

28. State of Israel Ministry of Communications 28 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.

29. State of Israel Ministry of Communications 29 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.

30. State of Israel Ministry of Communications 30 Cable TV firms - the new entrants Fully digitized HFC networks (750MHz). Cable Modem broadband Internet services (64Kb/s – 2Mb/s). Interactive TV T- mail, T- commerce. Future plans – IP telephony and data services over cable.

31. State of Israel Ministry of Communications 31 Mobile Services Competition Introduced December 1994

32. State of Israel Ministry of Communications 32 Mobile Operators Company PelephoneCellcomPartnerMIRS Licensed1987199419982001 Market share 28%40%28%4% Frequencies (Mhz) 800, 2000800, 1800, 2000 900, 1800, 2000 800 Technology (present) NAMPS & CDMA TDMA & GSM GSMiDEN (ESMR) FutureCDMA & UMTS UMTS iDEN

33. State of Israel Ministry of Communications 33 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).

34. State of Israel Ministry of Communications 34 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.

35. State of Israel Ministry of Communications 35 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.

36. State of Israel Ministry of Communications 36 International Long Distance services Facilities Based Competition Introduced July 1997 1 state – owned, 2 privately – owned service providers

37. State of Israel Ministry of Communications 37 Submarine Optical Cables Infrastructure LEV EMOS CIOS Cable RFCSCapacity EMOS1990280 Mb/s CIOS1994622 Mb/s LEV19985 Gb/s MN120013.84 Tb/s MED Nautilus 1

38. State of Israel Ministry of Communications 38 The 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

39. State of Israel Ministry of Communications 39 Civilian 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.

40. State of Israel Ministry of Communications 40 Amos 2 Satellite Launch Planned for Q2 2003. Geostationary orbit at 4 o 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.

41. State of Israel Ministry of Communications 41 The End Thank you for your attention For more information http:/www.moc.gov.il