Israeli Cable to Fight DTH with Digital

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Tel Aviv, Israel -- A very perturbed Israeli cable-TV
industry plans to introduce digital services to fight next year's rollout of
direct-to-home satellite TV in the country.

Four of Israel's five cable operators have agreed to
pool $40 million to purchase the necessary initial digital equipment. And subscriber rates
have been raised by 9 percent to cover the anticipated investments to be incurred in the
switch-over from analog transmission.

The rationale is that only digital cable -- with a greatly
enlarged channel capacity, Internet service and future telephony capabilities -- can fight
DTH.

The cable operators are meeting with technology and
equipment suppliers, but they are reportedly balking at some U.S. vendors because of
costs. Israel's cable operators calculated that most Israelis will shell out only
$200 for digital set-top boxes.

But that didn't stop the president of 3Com Corp., Arik
Ben Hamo, who made a personal pilgrimage to the holy land to preach the virtues of his
system.

The French hardware industry is also busy wooing Israeli
cable executives. Officials from Canal Plus flew to Israel to pitch their digital-cable
technology.

David Pollock, general manager of Satcom, the marketing arm
of Amos Communications Satellite, is naturally pleased by the cable companies'
strategic decision, since the new Internet capability could means lots of downloading via
satellite.

But, he said, the issue of the cost of the boxes will
become more significant than the cable operators realize. "The upcoming DTH operators
realized that Israelis en masse wouldn't go out and buy receivers," he said,
"so they are planning to spend $150 million handing out free dishes. If the cable
operators want to compete with that, they will have to distribute their boxes the same
way. [Cable operators] are in for far more expenses than they realize right now."

Nonetheless, the cable operators are not totally blind to
the kind of investment that is needed.

They are trying to recoup part of the cost by negotiating
with the Israeli Communications Ministry to receive government compensation for the
legalization of DTH four years before the end of the cable operators' license period,
claiming that the period granted them exclusive privileges to provide multichannel
services.

So far, the talks have been fruitless, but the government
has declared its intention to compromise on a compensation figure in time.

On another track, the increasingly desperate cable industry
has petitioned the ICM to allow it to buy into DTH.

Gideon Avital, attorney for the cable companies, claimed,
"It is totally unjustified to block our participation after we have spent more than
$800 million on cable infrastructure over the years. By doing so, the government is
creating a noncompetitive DTH monopoly."

If the government rejects the petition, the cable industry
intends to take further legal steps.

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