1. 1 ICT 5: Driving demand - Accelerating adoption: Regulator’s role Daniel Rosenne Chairman, Tadiran Telecom Communications Services, Israel October 7 th, 2009

2. 2 Regulation plays key role: setting environment and conditions driving demand and accelerating adoption Telecom regulation key role: free market forces Allowing for innovation, supporting adoption, removing obstacles How to achieve this goal? Harness market power of dominant players Reduce entry barriers for new competitors Assure level playing field What are the critical issues? Interconnection Open access Net neutrality

3. 3 Interconnection is Key: creating “Network of Networks” Major regulatory challenge: Assuring non-discrimination and fairness Preventing abuse of market dominance Promoting competition Avoiding discrimination Assuring transparency Professor Noam, 2001: “The regulation of interconnection is therefore becoming the paramount tool of government into the reasonably foreseeable future, replacing the regulation of telecommunications retail pricing, the rate of return, or competitors’ entry. It provides government with a tool for extensive micromanagement of markets” MIT Press, 2001

4. 4 Open Access is essential: Enabling value added service providers to utilize public networks without discrimination Essential for promoting competition: Small, agile, innovative and hungry for business value added service providers are the main innovators of new ideas and services Pat Longstaff, 2002: Policymakers double voice: “Policymakers in every country have generally been unable to decide if they want the communications sector, and the industries and firms in it, to move towards concentration or toward diversity… Although most governments embrace diversity to promote competition, they are nevertheless willing to allow concentration if that would enable companies to survive a competition they are in danger of losing” MIT Press, 2002

5. 5 Network Neutrality Net neutrality refers to a network open to carry every form of information and support every kind of application Net neutrality deals with a central concern, the power held by access providers - wireline, cable and wireless providers - to select, price or differentiate among Internet information streams passing through their networks Enforcement of net neutrality is considered essential for achieving telecom competition and market development

6. 6 Israel as an example

7. 7 Israel - a “case in point” Broadband - the merits of pro-competitive measures Structural separation enforced 2001 – assuring open access and net neutrality Results: extremely high growth and adoption rate Mobile - the pitfalls of “hands-off” regulation: Mobile service providers enjoy high degree of freedom Results: extremely low mobile non-voice revenues

8. 8 Israel's Telecommunications 7.4 m pop, 1.7m households, US$ 27,200 GDP/capita 3.2 million main telephone lines (43% penetration) Bezeq: 2.6m subscribers HOT (cable): 0.5 m subscribers VoB: 0.1 subscribers 9.3 million wireless customers, on 4 networks (126% penetration) 35% with broadband capability 1.5 million households connected to multichannel subscriber television (88% of households): HOT (cable): 0.9m subscribers, Out of these: 0.4 subscribe to VOD services Yes (satellite): 0.6m subscribers 1.7 million broadband Internet connections Bezeq (ADSL): 1m HOT (cable modem): 0.76m

9. 9 Israeli Example: Broadband Internet Enforcing open access & net neutrality led to enormous growth Since 2001, Bezeq and HOT adhere to “structural separation” rules, are allowed to provide access services only, to Internet service providers, assuring open access and net neutrality Total ADSL Cable Modem

10. 10 Israeli Example: Mobile Wireless Non-Voice services Could it be that discriminatory practices delay adoption of new services? Israel is well suited for growth in non-voice mobile wireless services: Relatively wealthy country (~$20K GDP/cap,~$27K) Technology literate High mobile penetration, extremely high usage However, non voice revenues are rather low Source: Bank of America Securities Merrill Lynch Global Wireless Matrix 2Q09 ARPU [US$] Non voice revenues [%] Wireless penetration [%]

11. 11 Conclusions Competition is essential for high adoption rate for new services Only competition can reduces prices and create market innovation and agility Regulators have a critical role - free market forces: Cost based interconnect regime Open access Net neutrality The Israeli experience demonstrates the effects of regulatory measures on the demand and adoption rate of new services

12. 12 The End Thanks for your attention