Israel’s two cellular operators are working hard to sign up as many customers as possible while the government continues to ponder details for licensing a third cellular operator.

“The (technology) standard of the third license hasn’t been determined yet. The ministry has had a lot on its plate,” said Rebecca Mayer of Pyramid Research Inc. of Cambridge, Mass.

Cellular penetration in Israel increased from 8.2 percent at the end of 1995 to 18.9 percent at year-end 1996. In the country of 5.2 million people, about 1 million are cellular subscribers.

The operator Pelephone is equally owned by the government phone company, Bezeq, and Illinois-based Motorola Inc. Pelephone operates a network that uses Narrowband Advanced Mobile Phone Service radio systems manufactured by Motorola.

Pelephone is testing Code Division Multiple Access technology in suburban Tel Aviv, with hopes of launching CDMA service to accommodate future growth.

Pelephone first launched service in 1986. It provides nationwide service and claims 550,000 customers.

Published reports that Pelephone hopes to make an initial public offering this year have been squashed by statements from its 50 percent owner Bezeq, which wants to be first to offer an IPO.

But an IPO for Bezeq has become a delayed and sticky situation. Bezeq’s majority owner is the Israeli government. When a share offering of Bezeq was made in 1995 on the open market, London-based Cable & Wireless plc unexpectedly snapped up 10.02 percent, paying about $160 million. The government still holds 76 percent of Bezeq.

Pyramid said Bezeq is concerned that the presence of Cable & Wireless as a minority shareholder will discourage other bidders, such as U.S.-based AT&T Corp. or British Telecommunications plc.

And the Israeli government wants to select a strategic investor for Bezeq by using an international competitive bidding process, Pyramid said. Bezeq reportedly has been in negotiations with Cable & Wireless, which has expressed a desire to acquire more of Bezeq.

Other matters have been pressing as well. The Israeli government decided in December to open the country’s domestic telephone market to competition. It hopes to have a tender issued for a Bezeq local phone competitor before year’s end.

In November, the Ministry of Communications accepted the bids for two new international phone carrier licenses. The Barak ITC consortium is comprised of Sprint Corp., Deutsche Telekom, France Telecom Group, Israeli cable company Matav, and Clalcom Ltd., a value-added service provider in Israel. Stet of Italy leads the second joint venture, called Golden Lines, which also includes U.S.-based SBC Communications Inc., the Kahan Group of Israel and Globescom.

The awards have been challenged by the third bidder, the Dolphin Group. The new licensees will compete with Bezeq International.

Israel’s second cellular operator, CellCom, operates a Time Division Multiple Access network and claims 450,000 customers. It is owned by BellSouth International, Discount Investments, the Safra Brothers of Brazil and Israel Aircraft Industries.


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