"Being a small country, with almost no natural resources, Israel has been depending on its human resources and intellectual capital, for survival and development. Thus, for Israelis, ever since the creation of their state, the mastery of sophisticated technologies has been more than economic luxury; it has been an existential necessity". This is how Israel’s communications minister Reuven Rivlin begins, before getting down to explaining the current status of the telecom industry.

Israel can be a role model for policy makers as well as telecom manufacturers and service providers, from various countries, in many ways. There are some factors of success which are most often quoted by experts. For instance, Bezeq (the local incumbent operator and a big buyer) is a very advanced and demanding user. That really puts a lot of pressure on the manufacturers. There are 36 Israeli telecom companies on the NASDAQ. The Israeli defence forces produces so many engineers with experience and ideas.

The government is very active and playing a very positive role. While a lot has been done to de-regulate, the Israeli government has been focusing on re-regulating the Israeli telecom market, which is suitable for a multi-operator environment. The other two initiatives are: the granting of competitive local exchange carrier (CLEC) licenses for infrastructure, transmission, data and telephony services; and the sale of the controlling interest in Israel’s incumbent fixed-wire line service provider.

Telecom Services Market 2001

Today, a small country like Israel has over 250 companies involved in design and manufacturing of telecom and datacom equipment, and telecom services. Domestically, Israel’s telephony has been fully digital for several years now; in mobile telephony, it has an impressive penetration rate of nearly 80 percent, and 45 percent of households and 50 percent of businesses are connected to the Internet, with roughly 60 Internet providers (see Box 1 for more details). It’s not only an active industry but is an advanced market too.

The government is also very supportive of start-up business in the country. They have set up a very professional and astute organization to promote technology start-ups. "There are over 2,000 active start-ups, many of whom are developing a variety of new technologies related to telecommunications", claims Rina Pridor, director, Technological Incubators Project. This agency provides up to $ 150,000 as seed money apart from world-class infrastructure to the start-ups, and rears them to a stage where there are private companies ready to invest in it. "Anybody anywhere in the world can come and apply for funding here in Israel", Brenda Zeitlin, of Target Technology Center, a private start-up support company, says.

Several leading multinational telecommunication companies have invested in the Israeli market, including investment in Israeli high-tech companies, R&D and manufacturing facilities in Israel. More than 100 dedicated high-tech venture capital funds operate in Israel. "During 2001, about 526 Israeli companies raised $ 2 billion from VCs, out of which $ 812 million was for communications," Robin Hacke, MD, Portview Communications Partners, a telecom specific VC firm, informs.

The maturing domestic market and the global slowdown are showing impact on Israel. And Telecom Israel 2002, a four-day telecom expo-cum-conference in Israel November this year is one step in the direction to look for new opportunities. According to Amir Hayek, director general, Ministry of Industry and Trade, "In the wake of the slowdown in the US and Europe, our major markets, we are focussing on developing economic relations with new regions such as India and Far Eastern countries".

Already over 200 companies have confirmed participation in the event where over 150,000 visitors are expected. Many Indian companies are also likely to participate this time. According to Gil Shaki, first secretary, economic affairs, in the Israeli Embassy, New Delhi "We look forward to a significant participation from India. We will offer all support to help them participate in the event". Minister Rivlin is expecting a lot from India, saying that Indian communications minister Pramod Mahajan was a very good friend of his.

In the middle of all this, one crucial question is wether Israel is a big buyer or a big seller of telecom. For a country with a small population of 6.5 million people, there are some fears of a saturating telecom market. But the market research agency IDC, predicts that by 2006 the datacom market will reach 1,052 million dollars, international data connections will increase by a CAGR of 20.5 percent and spending will go up by 19.5 percent. As sellers, Israeli companies are clinching some large orders, internationally. Danny Itzigsohn of TTI Telecom said, "We have won the largest NMS order in the world—the Hutchison 3G order for UK, Australia, and Hong Kong". Clearly, those wishing to do business with Israel will find a market there to sell, as well as find products and services to buy too.

Ibrahim Ahmad

Telecom Services in Israel: Basic Cellular ILD