Israel's Business Arena - Globes
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Communications Features 

Band Getting Broader 
By Efi Landau 

How well prepared is Bezeq for the expected competition
in the inland communications market about to be opened up
to competition? This is the million-dollar question being
asked in and out of Bezeq. It is also one of the main
questions to be raised in the telecommunications session
next week at the Israel Business Conference in Tel Aviv.

Bezeq is preparing for competition in many and diverse
areas, but its first important test is the "ADSL test",
or "the broadband subscription war". ADSL technology is
broadband digital technology that facilitates high-speed
data transmission and Internet surfing on regular copper
telephony lines, up to 8 Mbps.

The technologies competing with ADSL will be cable modems,
which can reach a speed of 52 Mbps; satellite modems, which
are capable of reaching similar speeds in DBS services;
and wireless broadband technology, combined with optic
fibers (LMDS).

Broadband services, especially Internet broadband services,
are perceived as a test stage in inland communications.
Here competition begins and will develop in different
directions. Bezeq, at least in theory, is in the best
take-off position, six months ahead of the competition.
The question is whether Bezeq can exploit its advantage
(a matter of some doubt) and whether the Ministry of
Communications will allow it to do so. For now, Bezeq is
beginning trial marketing among several hundred friendly
users in five exchanges around the country, after completing
a technological test with 100 Bezeq employees. The trial
involves modems of three companies that reached the final
stage of the tender: Alcatel (together with Bynet Data
Communications), Orckit, and ECI Telecom.
Bezeq is inclined to choose at least two suppliers, and it
is certainly possible that the final choice will be all
three. That is worldwide practice.
In the US, a telecommunications company usually chooses a
supplier, and later a second one. In Europe, companies choose
two suppliers in advance. The final choice is expected in
January, towards the beginning of commercial service in February.

Keeping the customer

Bezeq's tender defined the system in such a way that the
customer will stay with Bezeq rather than passing to the
ISP company. The customer will choose services from Bezeq,
which will perform the billing, collect payment, and settle
accounts with the ISP companies and various content providers.
Service will be through BezeqNet 135. The customer will enter
the opening screen, choose a supplier, and surf. Some Internet
companies offer only surfing, while some will offer content
services. There will also be content companies, which will
receive an ISP license for service purposes from the Ministry
of Communications. The only one not to receive an ISP license
will be Bezeq itself. Despite the company's renewing its request
in the matter in the context of the Ministry of Communication's
intention to grant ISP licenses to the cable companies, the
Ministry of Communications is expected to reject the request.

At what speeds will users surf? A user surfing the Internet
currently reaches a regular modem speed of 56 Kbps, or an
ISDB modem speed of either 64 Kbps or 128 Kbps. If the user is
a business or a private household with means and extensive
surfing requirements, he can be hooked up through Bezeq to a
frame relay line at 64 Kbps, 128 Kbps, 256 Kbps, and so forth.
This service allows a permanent presence on the Internet,
but the cost is high. In addition, surfing speed is not
guaranteed to reach the speed of the connecting line. The speed
depends on the number of simultaneous users on the same line.
With ADSL, Bezeq has the possibility of offering surfers
speeds beginning at 0.5 Mbps (500 Kbps) in a downstream direction 
(downloading). A company can offer statistical speed dependent
on the number of users (as with frame relay) or a guaranteed speed.
Bezeq chose the guaranteed speed system, which means that it is
selling a 0.5 Mbps line, guaranteeing the user this speed,
no matter when he surfs. It is reasonable to assume that users
will receive higher speeds when surfing, but they will not pay for
the added speed.

Bezeq's advantage

The motif of guaranteeing bandwidth will be central to Bezeq's
ADSL marketing campaign, which will be called "magic service".
The cable companies will be unable to guarantee bandwidth and
surfing speed using their own infrastructure. Their users' speed
will consequently always depend on the number of surfers at a
given point in time, and on the bandwidth that the company
allocates to a given number of theoretical users. That is the
great advantage of ADSL over cables, and Bezeq intends to exploit
it in full.

The price as currently determined by Bezeq will be in the
vicinity of $15 per month for guaranteed bandwidth of 0.5 Mbps.
In comparison, Internet companies currently offer unlimited
surfing for $25-$35 a month. To this price must be added the
cost of call units to Bezeq during surfing. The comparison
is to the advantage of Bezeq's ADSL, which is much cheaper
than any current Internet offer. Bezeq also offers the
advantage of being online 24 hours a day, without the need
of dialing to be connected, plus much higher surfing speed,
which yields a tremendous saving in working time, for those
using the Internet for work.
In addition to normal surfing, Bezeq will offer, through
external suppliers, some of which will be ISP companies,
diverse content. The content, which will involve an added
charge, will range from computer games to information services
to video movies. A speed of 0.5 Mbps is insufficient for
watching movies, so users wishing to receive this service
will purchase 4 Mbps or more from Bezeq. This service will be
more expensive than the basic service. 

Bezeq: We're authorized;
Communications Ministry: No, You're Not

These rates have not yet been approved by the Ministry of
Communications. Bezeq is sure that the Ministry of
Communications has already given final approval for adding the
commercial service, while only the rates remain to be settled.
The Ministry of Communications, on the other hand, is sure
that the approval in Bezeq's hands is only for a trial, and
that Bezeq must present a separate request for its commercial
service. The matter of rates is also unclear, mostly in the
area of control. If it is decided that ADSL rates will be
controlled by the state, then the rates must be submitted to
the Knesset Finance Committee. If the rates are not controlled,
then approval by the Ministry of Communications will suffice.

Bezeq the entertainer

In Bezeq's teleprocessing division, headed by Yoni Sapir, who
is responsible for ADSL services, optimism reigns. A content
department has been set up, and packages full of content are
planned for the beginning of the third quarter. Bezeq does not
perceive its future as that of an Internet provider, but as a
provider of content and entertainment. In this way, Bezeq's
services can be distinguished from those of its competitors.
This situation will give any content supplier the possibility
of market entry almost without cost, as Bezeq did with its
Internet services through BezeqNet 135. The investment in the
Infogate content company constitutes part of this strategy.
Infogate will be Bezeq's tool for arousing and directing the
content market to the Internet.

Waiting for DBS

If it depends on Ministry of Communications director general
Danny Rosenne, Bezeq will receive approval for commercial
ADSL service the moment it is requested. Bezeq's greatest
current problem, however, is that Minister of Communications
Binyamin Ben-Eliezer has decided in principle not to grant
communications licenses to the cable companies, as long as
DBS is not on the air. This is expected to happen around May.
There are also requests from additional potential competitors,
Cellcom and Eurocom, not to allow the cable companies to
commence provision of Internet services before they can do so,
in order to ensure fair competition.
In that case, what about Bezeq? Will Ben-Eliezer adopt
Danny Rosenne's approach and allow Bezeq to launch ADSL service,
without regard for the launching date of Internet services by
the cable companies and other competitors? Or will he endorse
a level starting line for all competitors, including Bezeq?
If the minister adopts this line, he can expect a sharp
confrontation with Bezeq general manager Ilan Biran.
Bezeq will not easily surrender the advantage it considers
that it has.
Published by Israel's Business Arena on December 7, 1999