IASPS

Quarterly Report
Spring 2000

Comments of the President

The Director's Column

Media Focus on Fellows' Research

Koret Fellows Form a Corps of Teachers

The Internet/Telcom Corner

Institute Hires Executive Director 

Reality: Israeli Citizens Against Government Waste

Dignitaries Discuss Mideast at IASPS

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The Internet/Telcom Corner

Opening of the Domestic Communications Market to Competition - Update 
by Amir Etzioni

We will begin with a short quiz for our readers. Following are several quotations. Who is being quoted and in what context? 

1. "The opening of the domestic communications market to competition should not be delayed [there has been a delay in the granting of permission to use the cable infrastructure for this purpose - A.E.] since tenders can be published for national communications services based on wireless access networks." 
2. "The assumption of the Ministry of Finance that the introduction of competition can be achieved through infrastructures other than cable is incorrect." 
3. "Real competition in the supply of wide bandwidth services in Israel, especially fast Internet access, will not be achieved without the principal and most accessible `export facilities' - the cable infrastructure." 

Answer: All the quotes are taken from the attorney general's opinion on the subject of communications and broadcasting through the cable infrastructure. More specifically, the attorney general's opinion is quoting, respectively:

1. Legal opinion given by the Ministry of Finance. 
2. Legal opinion given by the Ministry of Communications. 
3. Reaction to the Ministry of Communications to the Ministry of Finance's legal opinion. 

Confused? Is the connection between the various legal opinions and decisions as to advanced communications and wide bandwidth unclear to you? You are not alone. 

The domestic communications market in Israel, which according to a 1997 government decision was required to be competitive by January 1999, is still controlled by the government-protected Bezek monopoly. Anyone interested in understanding why should read the unending memos between the Ministry of Communications, the Ministry of Finance and the office responsible for business cartels at the Ministry of Industry and Trade.

The fact that this flow of memos continues unabated demonstrates the sad situation of the Israeli regulatory authorities. We would be more understanding if we were speaking of children fighting on a school playground. However, the case before us involves the all-powerful regulator of the Israeli communications market. Moreover, these internal arguments have delayed the introduction of competition and have led to hundreds of millions of dollars in damage to the Israeli economy. IASPS Policy Studies No. 43, which this writer authored, examines the Internet market in Israel, and in fact documents damages in the amount of approximately $100 million per year as a result of the lag in Internet infrastructure in Israel. The damage is of course much greater if we consider the whole communications market. Furthermore, this figure doesn't even begin to measure the damage done to the economy due to the fact that most high-tech, Internet-based companies flee Israel for more efficient pastures overseas. While Israeli taxes and corporate law play a role in this brain-drain, the fact remains that Israel's failure to embrace a free market regimen for Internet infrastructure similarly plays a significant role. 

Back in the Israeli regulatory trenches, the attorney general was asked to make a ruling on several of the issues of disagreement between the various ministries. His opinion was presented at the end of April at a meeting of the Knesset Economics Committee (which, along with the Finance and Science Committees, deals with the issue): 

This is a sensitive issue [i.e. communications services through the cable infrastructure - A.E.] and many private interests are involved. However, the public should know that the lawmakers have presented their opinions even if the present situation continues for a few more months. 

If reforms were the effect and lawmakers presenting their opinions on various issues were the cause, then we would be in a marvelous situation since Israeli parliamentarians have been doing this for years. In fact this is all that has been done. There has been no practical outcome. 

So what now? As things appear at present, the vision of competition in the domestic communcations market, particularly in the area of fast Internet access, is not going to become a reality in the coming months. The reason is clearly not technological since the cable companies have already set up subsidiary companies which are ready to provide fast Internet service through the cable system as soon as permission is given.

Other technologies such as satellite and wireless were in operation on a limited scale in Israel several years ago but were halted by order of the Ministry of Communications. The reason is the differences of opinion between the various government ministries and it is unclear why these differences were not resolved years ago.

The government ministries are squabbling, the MKs present their opinions, the communications giants continue to enjoy government protection and the public, whose interest everyone claims to represent, continues to pay high prices for the use of a primitive communications infrastructure. 

We can only hope that in the next edition of the Quarterly we will be able to report news from the communications sector not about unending power struggles among government ministries, but rather the struggle for the Israeli consumer's patronage.

About the author:
Amir Etzioni is an IASPS Koret Teaching Fellow who has become one of Israel's leading experts and commentators on the Internet infrastructure in Israel. His professional work in this area started as a Koret Fellow during his internship with Member of Knesset Michael Eitan. Mr. Etzioni publishes widely in journals and newspapers on various matters relating to the Internet and has been a keynote speaker at Internet conferences. Given the Institute's move into the Internet Age, we feel it fitting to provide our readers with an ongoing analysis of Israel's struggle to find its way into the New Internet Economy