Israeli Industry Cool on Proposed DTH Plans

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Tel Aviv, Israel -- Industry reaction to Israel's
much-delayed publication of the conditions for obtaining satellite-broadcasting licenses
to start the country's first direct-to-home service suggested that the
government's "Open Skies" policy is not doing enough to live up to its
name.

Rules for applying for the new DTH licenses were published
June 16 by Limor Livnat, Israel's minister of communications, who decided that
cable-TV licensees and their owners and subsidiaries will not be allowed to apply for
satellite licenses. Affiliated companies can only own up to 20 percent of equity and have
10 percent of voting rights.

Those limits are intended to encourage Israeli companies
that aren't already involved in multichannel TV through cable to participate through
DTH, while also encouraging competition and preventing a conflict of interest between
cable and DTH.

Gustavo Traiber, general manager of the Israel TV Cable
Association, said cable is ready to meet the DTH challenge by introducing tiering.

"We will offer more choice, more channels and more
digital services," he said. "We will be ready before DTH."

Foreign investors will be allowed to own up to 74 percent
of local satellite companies, and up to 49 percent of the boards of directors may come
from abroad. However, only enterprises that are Israeli-registered and managed, with their
main businesses in Israel, may become the actual licensees.

The three "Channel 2" licensees operating
commercial TV in Israel will be able to obtain licenses, but they will be prohibited from
holding more than 25 percent of voting rights in the satellite company and from having
control of it.

However, Channel 2 licensee Tel-Ad's CEO, Uzi Peled,
reacted coolly to the DTH market, saying that his franchise hasn't even considered a
bid. "Israel is a small country. I'm afraid that we have much too much
[television] on offer already," he said. "DTH doesn't have much to offer at
this time."

Israeli companies Newsat, Bezeq, Eurocom, Stargate and
Gilat -- as well as Prosper Abitbol, a private investor -- would disagree with him. All
have expressed interest in DTH licenses, according to local press reports.

Applicants will be required to show assets of $40 million,
and they must pay $10 million to $15 million in license fees. The government believes that
the additional cost of setting up a satellite-broadcasting company here -- about $200
million -- will exclude all but the most wealthy and determined. No limit has been set on
the number of licenses, which will be awarded at the beginning of 1999.

Packages will have to offer at least 10 channels, three of
which must be in Hebrew.

David Pollack, managing director of Spacecom, welcomed the
announcement of the rules as a "brave and important step to liberalize the
medium," but he blasted the government's slow pace.

"Every month closes windows of opportunity for
DTH," he said. "The cable industry's stalling tactics have given them time
to introduce tiering and to connect places that were previously unconnected. Our message
to the government is to move faster, or DTH is in danger."

Cable-industry insiders raised another issue, saying that
the rules limiting cross ownership between cable and DTH seem to be set on "intending
to close the market," as one source put it. "Every big company here has a
connection with cable," the source said.

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