Tender launched for 5G next-gen mobile networks, to provide higher speeds

Initiative is sweetened with NIS 500 million worth of incentives to draw local and foreign firms to bid for frequencies, Communications Ministry says

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Communications Minister David Amsalem, left, and Netanel Cohen, director general of the ministry, at the launch of the 5G wireless network tender in Jerusalem, July 14 (Courtesy)
Communications Minister David Amsalem, left, and Netanel Cohen, director general of the ministry, at the launch of the 5G wireless network tender in Jerusalem, July 14 (Courtesy)

Israel on Sunday launched a tender for the deployment of 5th generation (5G) wireless networks, sweetening it with incentives to generate more bids in the hope of bringing faster internet speeds to the so-called Startup Nation.

The terms of the tender will be made available to companies on Monday morning, the Communications Ministry said, with the aim of having winners chosen by December and some high speed networks in place in 2020.

Bidding for frequencies will be open both to local and foreign players, said Tal Elimelech, in charge of the initiative at the ministry, in a briefing with reporters. He declined to disclose if any foreign companies had expressed an interest in bidding.

“No official comment” was forthcoming at the briefing regarding the participation of Chinese companies in the tender or possible limitations on the use of Chinese technologies and components by bidding companies.

Regulators in the US are leading an effort to remove components developed by China’s Huawei and other firms from the telecommunications networks of US firms because of national security concerns.

Netanel Cohen, the director general of the Communications Ministry, right, standing, at a briefing in Jerusalem, July 14, 2019 (Shoshanna Solomon/Times of Israel)

Countries around the world are gearing up to introduce 5G, the next generation of wireless networks, which bring the promise of greatly increased internet speeds — full length movies can be downloaded in 3.6 seconds — and better coverage and responsiveness.

In April, South Korea claimed to have beaten the US in becoming the first country to roll out a 5G mobile network. Verizon’s 5G service was launched in parts of Chicago and Minneapolis that month.

According to a July 3 report of the Global Mobile Suppliers Association, 280 operators in 94 countries are investing in 5G networks in the form of tests, trials, pilots, and planned and actual deployments.

Israel, the so-called Startup Nation, suffers from slow internet speeds that are increasing more slowly than other countries’. The deployment of 5G networks is one of the ways to help boost speeds, which have been held back in Israel by lack of competition in the internet infrastructure market.

At the briefing, the ministry’s Elimelech said he believes the package of incentives offered as part of the tender will be attractive enough to draw companies to the bidding process.

In the tender, Israel will auction frequencies ranging from 700 MHz-2100 MHz, which are also used for 4G services, to 2600-3800 MHz, which is only for 5G services.

Companies that win the bid will be able to delay payment for the frequencies until 2022, so they can more easily invest the significant amounts of money needed to deploy the network. The 5G network, which would be an added layer on existing 4G networks, is estimated to cost around NIS 2 billion ($562 million).

In addition, existing players will be able to join forces with other firms and submit joint bids yo share costs. They will also be able to get a rebate on annual frequency charges for four years upon meeting certain milestones, and can win grants from the ministry of up to NIS 200 million, depending on the speed in which the networks are deployed. The total amount of incentives is some NIS 500 million, the ministry said.

“The digital future of Israel is dependent” on upgrading to 5G as soon as possible, said Netanel Cohen, the director general of the ministry, at the briefing.

Illustrative: A youth checks his cellphone (AP Photo/Andre Penner)

The announcement of the tender with its incentives package comes as a June report by the Communications Ministry warned that a continued decline in revenues at Israel’s cellular firms raises “a real concern” that they will desist from upgrading their wireless networks and bidding in the 5G tender.

In 2011, the Communications Ministry started a reform in the cellular market, which was dominated by three main players, Pelephone, the cellular operator of Bezeq Israel Telecom; Cellcom Israel Ltd.; and Partner Communications Co. The reform enabled customers to more easily switch from one provider to another, keeping their phone numbers, and, more importantly, allowed new entrants into the game.

This generated fierce competition between the firms and has help cut prices of cellphone calls for Israelis by as much as 90 percent. The cellular providers, however, have seen their revenues and profits plunge in the process.

Revenues at Israeli cellular firms declined 5.6% in 2018, the report said, after falling 4.5% in 2017. The decline is due to increased price competition between the firms, the report said. Average new-subscriber revenue has dropped dramatically to NIS 70 a month, compared to an average of NIS 170 a month in the years 2006-2010, before the reform started.

“Israeli cellular companies are so starved for cash that even if they get the 5G frequencies they won’t have any cash to invest in the network,” said Ilanit Sherf, head of research at Psagot Brokerage. Incentives are needed to draw them into the process, she said.

“Where in the world do you have a country with some 8.5 million people where there are six cellular operators competing with each other and a monthly subscription price close to the cost of a falafel,” she said.

Elimelech said the tender would not necessarily seek as top priority the best price for the frequencies, but would focus more on making sure the network is deployed as soon as possible. He said the tender terms were set out through consultations with professionals as well as the existing cellular companies, which will now have an opportunity to comment on the tender before the bidding process starts.

Israel, once a global leader, is now lagging in its internet infrastructure, said newly appointed Communications Minister David Amsalem, a close political ally of Prime Minister Benjamin Netanyahu. In the coming 20 years the world will be completely transformed by the need for higher speeds, with the advent of the Internet of Things, autonomous vehicles and smart-everything.

The tender has “critical importance,” he said, and the ministry intends to advance the process as soon as possible, in order to enable the country to keep up with developments in the world.

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