A month ago Minister of Communications Benjamin Ben-Eliezer published a puzzling announcement - he had decided promote the setting up of a tenders committee for a fourth cellular operator in Israel. It was puzzling because the announcement was devoid of news. No one was appointed to the committee or to head it, no date was announced for the tender, and no criteria were announced for participation in the tender - nothing. One important detail was announced - the tender would employ the auction method, i.e. the main criterion in the tender will be a one-time payment to the State, and that, obviously was not new. The impression was that the publicity was intended for public relations to distract attention from the delay in presenting the proposed amendment to the Bezeq Law.

Despite all that, however, the announcement included a disclosure, which may not have been new to professionals in the field, but confirmed the fears of the cellular companies. The Ministry of Communications is allocating one five-Mghz band in the 1800 Mghz frequency range and five Mghz in the UMTS third generation frequency range to each of the three existing cellular companies. The fourth operator, on the other hand, which will operate solely in the 1800 Mghz range and in the third generation range, will receive 15 Mghz in each of them.

The allocation to the fourth operator is reasonable, according to the standards determined by ITU, the international communications organization, but the allocation to the existing operators is too small, and the Ministry of Communications knows it. The limiting factor in this case is the Israel Defense Forces (IDF). It is the IDF that vacates the frequencies for the needs of the cellular networks, and the Ministry of Communications has had an arrangement with the IDF for several years. The IDF is scheduled to vacate 60 Mghz for third generation requirements, and then each operator will be allocated 15 Mghz. The IDF, however, has meanwhile vacated only 30 Mghz, and the remainder will be released only in 2004. The Ministry of Communications knows that the cellular companies will have to content themselves with that.

The solution proposed by the three existing operators for this uncomfortable situation is clear - don't publish a tender for a fourth operator, and give each of them 10 Mghz. The Ministry of Communications, on the other hand, places a higher priority on sophisticated competition, and decided on a minimal allocation to the existing operators. A senior source in one of the cellular companies told "Globes" that this policy is delaying the transition of the Israeli cellular market to third generation at least three years beyond the expected time frame. This may mean that Israel's transition to third generation will only take place in another seven years (instead of three to four years), leaving Israel trailing behind the world cellular market.

WAP is not just for operators

Two weeks before the announcement of the Ministry of Communications, the cellular services company Feather Mobile made its first m-commerce (mobile e-commerce) deal in Israel through Internet surfing on cell phones and response to sale offers.

Feather Mobile was founded in December 1999 by general manager David Rosenberg and Samurai Web Ventures. The company holds the franchise to supply the information services and cellular content of British company Digital Mobility in Israel, through the InHand WAP site.

Every cell phone owner, who has a micro-browser installed working on WAP protocol, can today enter the company's web site, type in his telephone number, and get an access code in the form of a text message enabling him to surf from his cell phone. If the telephone number is an Israeli one, the customer will receive direct access to the Israeli site.

If the customer travels to Britain, for example, and wants to receive the Israeli site's services in Hebrew, he will have a local access point at a much lower cost than that of calling the Israeli number. Through this access point, he will receive both Israeli and local services.

Feather Mobile actually implements data communications migration on the GSM network, parallel to voice communication migration for telephone calls.

A different infrastructure

The amazing thing is the service was not begun by a cellular operator, but by a new entity, called a cellular or WAP service provider planning to profit from commercial transactions and special services. The new entity does not operate in cooperation with the operating company (in this case Partner, since the service is operated using GSM technology), but against its wishes, using its network and in effect competing with the services the operator itself plans to provide to its customers.

This clash is even more prominent, given Partner's current campaign to brainwash the public with the inaccurate, misleading message that the new portal of Partner and Walla! constitutes the first cellular Internet in Israel. The truth is that it involves only simple textual message services, through which the customer receives the requested information on his telephone screen. The service is interactive, since it exists on the GSM networks, which allows interactivity, but any connection between it and Internet service is solely one of public relations.

Partner has developed a theory adapted to the company's current commercial needs, according to which the Internet is not just surfing. Their theory will soon be forgotten, however, when they begin providing the public with WAP services, accompanied by a suitable advertising campaign.

And when will that happen? The current ridiculous situation is that Feather Mobile's WAP services are already available to the public, but the public has no telephones suitable for using them. This is because only Partner sells GSM devices in Israel, while the company is still not selling WAP devices and has not put the service on the air.

Partner's WAP trial can be observed on CNN in English by entering the Walla! cellular portal, where it can be seen that Partner is still stuck in its March 20 trial. In addition, the trials of start-ups considered to be cooperating with Partner can be entered. In comparison with InHand's working services operated by Feather Mobile, Partner's trial seems to be far behind.

The very existence of Feather Mobile and the InHand service raises the question of who should provide cellular services and the content contained in the services: the cellular companies or companies specializing in those services. Feather Mobile general manager David Rosenberg's answer is unequivocal: "Along comes a company knowing nothing of the Internet or WAP, and decides that it is the Bezeq of WAP and a service provider to boot. It doesn't have to be that way."

Partner: pseudo-Internet

Partner is in a bad fix these days. The company is having trouble increasing its new customer enlistment rate, and is trailing far behind its two rivals, Pele-Phone and Cellcom, who snipe at each other in giant advertisements, while ignoring the smaller company.

Partner knows that in a few weeks, Pele-Phone will launch the cellular Internet services of its Go Next subsidiary to great fanfare. These are real Internet services, and Partner is trying to play down the size of the achievement in advance. One method it is using is the development of information services based on a smart card, called a SIM card, in telephones using GSM technology. This is another way of transmitting data besides SMS and WAP, and Partner's competitors, who do not work with smart cards, do not have it.

Partner has developed software located on the SIM card, which allows interaction on the network similar to surfing. From the customer's viewpoint, the software simulates Internet surfing, although he is not really surfing.

Partner calls this application STK browsing. STK is the capability to implant software on the SIM card, thereby improving its processing capacity.

The great advantage of STK browsing in comparison with WAP is its immediate availability. Since the first half of 1999, all the telephones sold by Partner have included STK software. The SIM cards do not include the software, but they can be replaced without difficulty. The cards are already available at Partner, and are waiting for the development to be completed. The second great advantage is data security. The new 1.1 version of WAP protocol is still not secure.

In spite of all this, this is still a kind of toy. With all its advantages, the visual format of STK browsing still resembles SMS, and is actually SMS service leverage, not true Internet surfing.

Cellcom - leading isn't easy

Cellcom, which currently leads the market, is expected to find itself in an inferior position. Due to the limitations of its technology, its current network cannot be upgraded. The company decided to upgrade its network from TDMA to an intermediate generation technology called edge, which makes possible data communications at the rate of 384 Kbps. This decision, which was made only recently, requires the replacement of most of the company's infrastructure components, at an investment of hundreds of millions of dollars.

Cellcom's only remaining alternative is to replace its infrastructure in a manner compatible with one of the two third generation technologies, which are based on GSM and CDMA. Cellcom appear to have chosen GSM.

For this reason, the Ministry of Communication's announcement two weeks ago that it is allocating only a five Mghz band in the 1800 Mghz frequency range, which is the frequency range in which edge technology operates, is particularly critical for Cellcom. These frequencies are designated both for expanding its current network, which suffers from severe capacity problems, which in turn create problems in the quality of service; and for upgrading the network to edge technology. For Cellcom, five Mghz is a derisive sop, a drop in the ocean.

Cellcom's salvation in the data communications field will apparently come from a different direction. The company is currently negotiating with Net2Wireless for purchase of its Gate3 product. The product will be commercial at the end of the year, and will accelerate data communications speed by a 5-10 times for any cellular operator, in any technology whatsoever, of any generation. If it acquires Gate3, Cellcom will be able to enter the Internet world. As of now, the system of Net2Wireless is experimentally installed at Partner, and is about to be installed at Pele-Phone also. Cellcom, which needs this product more than its competitors, for some reason has been in no hurry to decide in the matter.

MIRS is leading, but who's paying attention?

A few weeks ago, MIRS Communications signed a cooperation agreement with the VALIS start-up. Under the agreement, MIRS will receive a three-year option to purchase 10% of the shares of VALIS at a 30% discount on the realization price at the time of purchase.

VALIS has developed software for instant messaging, based on the cell phone location, with an emphasis on entertainment content, chiefly interactive games. The company was founded in December 1999. The British NVC fund acquired 40% of its shares for $1.4 million at a company value of $3.5 million, after money.

Under the agreement with MIRS, the only wireless network operator in Israel offering cellular Internet services, VALIS will supply the platform for the technological and marketing testing of the system. MIRS will receive VALIS products free of charge, and will have the exclusive rights to those products for six months.

VALIS cofounder Oded Napchi says that the idea is to view cellular Internet as a means of entertainment.

"Globes": Why did you choose MIRS?

Oded Napchi: "It's a pleasure to work with the MIRS people. Their system allows a beta site WAP test with packet switching, and that is a big advantage over the three cellular companies. The basis of the agreement is that they build the system and upgrade it, and they have the right to market the software for a commission. The business model mentions royalties of 10% of revenues. For WAP, the operator will collect NIS 0.01-0.02 per query. SMS will be more expensive."

The three cellular companies are playing down the fact that while cellular Internet already exists in Israel, they don't have it, but MIRS Communications does have it at a speed of 19.6 Kbps, using packet switching technology allowing a continuous connection to the network without dialing. MIRS began providing the service already in September 1999, and today 15,000 customers are hooked up to it.

Pele-Phone - more luck than brains

It could be said that Pele-Phone has more luck than brains. Its luck lies in the commercial antennae of SUNY Electronics president and CEO Ilan Ben Dov, who did not settle for being a cell phone dealer and slave to cellular operators, but wanted to be part of the market. He recognized the potential of the connection between Pele-Phone, which set up a digital network using CDMA technology, and giant Korean concern Samsung. He gave Pele-Phone, which had been in thrall to its parent company Motorola's product line, the variety it never had. Ben Dov imported cellular telephones for Pele-Phone (and, of course, primarily for himself) that many said were better than those of Motorola, and opened the door to cellular Internet for Pele-Phone.

Samsung developed all this because it is located in Korea, and the Korean government was the only one in the world that decided as early as 1996 that its digital cellular technology would be CDMA. That was even before the great contest between CDMA and TDMA for the US market was decided, while GSM had already won the global contest. Korea wanted CDMA, and gave QUALCOMM, which developed the technology and owned the rights to it, the keys to its local market.

The Korean government decision forced the giant Korean companies, headed by Samsung, to invest huge efforts in developing advanced equipment. The Korean market is large enough to make the investments worthwhile. The sales of Samsung to Pele-Phone's Next network are a by-product, and both parties are satisfied. Ben Dov also persuaded Samsung to invest in putting Hebrew into its telephones, before Partner obliged telephone manufacturers to do the same.

The meeting with Go Next general manager Herzl Ozer also included Sunycom.com's general manager Eilon Ginsburg. The general manager of Sunycom.com's partner in Go Next, Yigal Bar Yosef, was not there. The company has been operating for four months and employs 30 staff, half of whom deal with technology, not with marketing and sales. Sunycom.com's people are also there, and even a Korean team, which began with nine people, and currently numbers five. The company has an array of servers, based on Sun Microsystems, and broadband lines of 2.5 Gbps going to both Pele-Phone and to the Internet. The system that Go Next operates is Korean and has been converted for use in Israel.

Go Next has a license to provide Internet services, and has announced that it will serve not only Pele-Phone customers, but also Pele-Phone's competitors. These, however, are not the only customers in Go Next's sights. The company will also offer its regular computer Internet connection and surfing service to new customers joining in order to receive Internet surfing services through their cell phones. Pele-Phone intends to attract customers through deals on cell phones, for which NetVision and Internet Gold will have no answer. If cellular Internet takes off, it can pose a serious threat to the regular Internet market. Go Next is building its business model on this possibility, among others.

In principle, Go Next will function like the MSN site of Microsoft and Internet Gold, signing agreements with a collection of content providers of various sorts. Go Next will of course offer surfing through WAP protocol, in order to serve owners of Motorola devices and customers of the companies competing with Pele-Phone, but those possessing Samsung devices will receive cellular Internet cell most closely resembling regular computer Internet, and in the same HTML language.

This is Pele-Phone's great advantage over its future competitors. Samsung has provided it with the chance to offer something that could be the killer application, which its competitors don't have. Its other advantage, no less important, is the distance from the market. Even if Partner and Cellcom were prepared at the level of content - and they are not - they still do not have the telephone devices suitable for working on WAP protocol. Pele-Phone has the almost inexhaustible resource of Samsung.