Regulation of Electronic Communications Services in Israel

This book calls for the establishment of a communications authority in Israel that will be charged with the regulation of both telecommunications and broadcasting (television and radio) in Israel.

The current large number of regulatory authorities—the Minister and the Ministry of Communications, the Second Authority for Television and Radio, the Council for Cable TV and Satellite Broadcasting, the Radio Frequencies Committee, and other bodies—creates a problematic state of affairs in terms of both the structure of the regulatory agency and the substance of the regulatory arrangements. The division of powers among various regulatory bodies and the central role accorded to the political rank and to government officials make it difficult to develop and consolidate a professional, independent regulatory system.

Israel is an anomaly on the global scene. For years, the communications industry in the West (as well as in the industrialized countries in the East, apart from Japan) has been regulated by independent authorities and not by a political minister. This approach treats regulation of the communications industry as a complex matter that requires professional expertise, independent assessment, flexibility, and innovation, all of which are hard to secure without the separation of the regulatory authority from the political echelon and government apparatus. Therefore, a fresh regulatory framework that can offer a coherent answer to the needs of both the industry and the consumer is required. Indeed, the time has come to establish a professional and independent communications authority in Israel.

The first section of this book provides the theoretical background for the discussion, by presenting key terms and technological trends in the communications industry, examining the principles and objectives underlying regulation, and analyzing the nature of regulatory discretion and judgment.

The second section reviews the current communications legislation and the regulatory rules that have been established in the areas of telecommunications services, frequencies for wireless communications, and television and radio broadcasting, thus providing a brief introduction to Israeli electronic communications law.

The third section surveys recommendations proposed by various experts and committees in the past, as well as government decisions and the Israeli Communications Authority Bill drafted by the Ministry of Communications. It also presents an overview of the regulatory framework in the European Union and of the British regulatory body, OFCOM.

Against this background, we offer our model for an independent, professional authority in Israel, which would unite the areas of telecommunications and broadcasting under its charge.

Foundations of Communications Services Regulation

Given the dynamic and ever developing technological environment of the communications industry, regulatory rules must be relevant to a broad range of frequently changing technologies.

There are three key technological processes that currently have a major impact on regulation: digitization (conversion of all media to digital form) and the constant growth in bandwidth used for data transmission (for example, high speed Internet); convergence, whereby a variety of transmission infrastructures can be used to supply a variety of communications services; and the growing variety of wireless services using radio waves (the electromagnetic spectrum).

Government intervention in the communications industry is based on a number of rationales and objectives, which regulation is designed to meet. These include the public good, the correction of market failures, the promotion of competition, consumer protection, distributive justice, solutions for populations with special needs, and the safeguarding of human rights. There are additional justifications for regulation that relate to the nature of the communications industry—technological factors, management of public resources, assurance of pluralism in communications, regulation of broadcast content, national security needs, and global and regional arrangements.

In practice, these reasons and objectives—the rationales for regulation—translate into considerations that the regulator must reckon with when formulating policy or exercising regulatory powers. Different concerns arise in different contexts; some apply to a broad range of issues and others only to a narrow sector; likewise, some are compatible with one another, while others pull in different, or even opposing, directions. The regulator must balance these considerations and decide between them.

Exercising regulatory judgment means making a decision in a given case by choosing between alternative courses of action. In this respect, regulatory discretion differs from judicial discretion. In a case of judicial review, a decision made by another body is typically subjected to examination after the fact, with a focus on verifying whether or not the authority in question acted in a legal manner. Within this framework, the court refrains, as a rule, from interfering in the professional deliberation of the regulator, except in cases in which the latter overstepped his or her authority or drastically exceeded the judicial parameters established in case law—the domain of reasonableness and the domain of proportionality. The notion of "domain" is a tool that, among other things, allows the courts to distinguish between cases of reasonableness and proportionality that may be problematic, albeit to a moderate and tolerable degree—thus passing the test of judicial review—and cases of substantial or extreme unreasonableness and disproportionality, which justify the court's intervention.

The regulator, by contrast, must choose the right course of action within the bounds of reasonableness and proportionality. However, when the situation involves exercising judgment internally within the domain of reasonableness and proportionality, the attempt to extract guidelines from case law becomes problematic. On the whole, case law is limited to examining whether the bounds of reasonableness and proportionality have been exceeded, and does not provide guidelines for decision making within the domain. The absence of legal guidance, which would assist in determining what action to take within the domain of reasonableness and proportionality, is one of the more difficult issues facing the regulator as an administrative authority.

In these circumstances, the question arises of how to view the regulator's obligation regarding the implementation of the standards of reasonableness and proportionality in decision making. According to our approach, this obligation should be understood as the need to make the optimal decision, that is, to subject the administrative act to the test of reasonableness and proportionality such that the decision reached is the best and most appropriate under the circumstances. For this reason, the decision must be based on interpreting the parameters of reasonableness and proportionality "in their best light," to quote Ronald Dworkin. It is incumbent on the regulator to use the utmost skill to achieve the most reasonable and proportionate decision it can reach.

Consequently, when exercising judgment in the stage leading up to a regulatory decision, it is not enough to apply the "pass the Supreme Court of Justice" test, namely, to assess that the decision under consideration will not be overturned after the fact through judicial review. Returning to the figurative concept of the domain, when the regulator deliberates a decision, he or she has an obligation to aim for the very center of the domain—the place where reasonableness and proportionality are optimal—and not only to refrain from exceeding its boundaries.

Though it is difficult to establish in advance an exhaustive set of rules for exercising regulatory judgment, it is possible to delineate it and to study its components. In our view, the very act of clarifying its makeup can serve to assist the regulator in the decision making process.

A "Tri-Layer Model" is suggested to describe the path for exercising judgment and classify its elements.

The first layer consists of structural requirements, which include requirements pertaining to the way in which the regulator exercises its judgment: factual basis, judicial foundation, relevance, coherence, independence and impartiality, transparency, and inclusion of other bodies in the decision.

The second layer consists of substantive considerations, which include the range of substantive factors that the regulator must take into account. These are derived from the rationales and objectives of regulation: basic justifications for regulation (such as the public interest), general considerations (for example, promoting competition), and considerations related to the nature of the industry (such as technological aspects).

The third layer relates to assessment, balance, and decision making. At this level, the work of balancing the various considerations is carried out while implementing the standards of reasonableness and proportionality.

An analysis of regulatory judgment is essential to formulating the right structural setup for the regulatory authority. The fundamental argument presented in this work is that a regulatory body whose structure ensures independence and multidisciplinary professionalism will be successful in exercising regulatory judgment and advancing the underlying objectives of regulation.

In this context, there are those who argue that a designated, professional regulatory authority necessarily gives top priority to economic considerations since its aim is, first and foremost, to improve the economic efficiency of the markets in its charge. According to this approach, a professional communications authority would not be able to properly weigh considerations of distributive justice. Moreover, according to the same argument, handing over responsibility for value based considerations to professionals at a communications authority—experts in engineering, economics, and law—goes against the principles of a democratic regime, as such issues must be handled by those who represent the opinions and preferences of the public, who are elected by them and who are accountable to them.

In our view, this approach is erroneous and further misses the opportunity to include values and social considerations as an integral aspect (untainted by partisan interest) of the regulation of the communications industry.

First, with respect to the argument that a sectoral regulator only takes into account considerations of economic efficiency, according to Israeli case law, distributive justice is a fundamental value that must be given proper weight by an administrative authority in any decision regarding the allocation of public resources. This principle would apply to the proposed Communications Authority and would be binding upon it. Moreover, the definition of the Authority's roles and objectives in the law establishing the Authority would explicitly state its obligation to take into account considerations of distributive justice. It would also establish a governing council (the Authority's decision making body, as detailed below), whose members would have expertise in, and understanding of, social issues, which would enable them to faithfully take into account the diverse needs and considerations.

Secondly, with regard to the argument that ethical considerations should be weighed by elected representatives (as opposed to appointed professionals), it is our view that when a government ministry is headed by a political figure, who generally does not represent the worldview of the entire public but rather of the particular sector that forms his or her party's electoral base, regulation is disassociated from its democratic foundation. In the case of a government minister, there is an inherent risk of a potential conflict of interests between his or her role as a politician and his or her professional role as a regulator. 

Regulatory Rules Governing the Communications Industry

Before proposing a model for the establishment of a communications authority, we must first examine the substantive matters addressed by the regulator. The regulatory system governing the communications industry includes a complex set of rules and regulations set forth in primary legislation, secondary legislation, licenses and franchises, administrative directives, and policy statements. In order to become familiar with the field and to better understand the role of the regulator, an outline of the prevalent normative arrangements should be presented prior to issuing a proposal for the establishment of an authority.

Three laws form the basis of the regulation of the communications industry in Israel: the Communications Law (Telecommunications and Broadcasting), 5742-1982; the Wireless Telegraphy Ordinance (New Version), 5732-1972; and the Second Authority for Television and Radio Law, 5750-1990. Other related laws deal with the Broadcast Authority, subtitles and translation into sign language, classification and labeling of broadcasts, the Knesset Channel, sponsored programs on the IDF (Israeli Army) Radio, and several other issues.

The Communications Law deals with the regulation of telecommunications services, including telephony (domestic or international, fixed or mobile), data communications (including high speed Internet), transmission, and infrastructure. Most regulatory powers in this area lie with the Minister of Communications. In addition, the Communications Law addresses the regulation of multichannel television broadcasts to subscribers via cable or satellite. This law established the Council for Cable TV and Satellite Broadcasting; regulatory powers in this area are vested largely in the Council, and partly in the Minister of Communications.

The Wireless Telegraphy Ordinance controls all uses of the electromagnetic spectrum (radio frequencies). The bodies regulating wireless activity in Israel include the Radio Frequencies Committee, which is charged with the allocation and assignment of frequencies; the Minister of Communications, who has the authority to promulgate regulations; and the Director of the Spectrum Management and Frequency Licensing Division at the Ministry of Communications, who serves as Chair of the Radio Frequencies Committee and holds licensing authority with respect to wireless equipment.

The Second Authority Law regulates commercial television and radio broadcasts, which include TV Channels 2 and 10, regional radio stations, and in the future, nationwide digital radio stations. This law established the Second Authority for Television and Radio, headed by a public council, which holds most of the regulatory powers.

There are numerous rules within the regulation of the communications industry, but the basic structure with regard to the regulation of telecommunications services, of frequencies for wireless communication, and of broadcasting is common: as a rule, all activity is prohibited unless permitted under a license (or franchise) issued by the regulator and in accordance with its provisions, or unless such activity is exempted from licensing. With regard to the three areas cited above, the rules of regulation include detailed provisions as to the types of licenses, the range of permissible services and activities, consumer interest provisions, security and emergency provisions, supervision and enforcement, broadcast content, and additional conditions when applicable. 

Towards an Independent Communications Authority

In early 2003, a government decision to establish a unified authority for telecommunications and broadcasting was approved. Counter to the recommendations of the professional officials in the Ministry of Communications at the time, and in accordance with the demands of the Justice and Finance Ministries, it was determined that a communications authority would be set up as an intragovernmental body and not a statutory corporation. Based on this decision, the Ministry of Communications, the Council for Cable TV and Satellite Broadcasting, and the Second Authority would all be dissolved upon the establishment of the new authority. This government decision has been confirmed in subsequent decisions.

In keeping with this decision, a detailed bill on the establishment of a communications authority was drafted by the Ministry of Communications. According to the bill, the proposed authority would be based on three key principles: first, the bulk of the regulatory powers, which until now had been in the hands of the Minister of Communications, would be transferred to a professional body; second, the regulatory body would be independent in fulfilling its duties; and third, the Authority would be responsible for regulation in the areas of both telecommunications and broadcasting (with the exception of public broadcasting). The bill addresses the structural changes involved in establishing the new authority and the resultant legislative amendments, but in general, it does not deal with changing the basic regulatory norms set forth in the legislation, except on certain issues.

The draft bill was submitted to the Ministerial Committee for Legislation (two versions were submitted, the first in July 2003 and the second in April 2004), but it was not debated. In subsequent years, the Ministers of Communications abandoned the initiative to establish a communications authority. In 2009, a government decision was made to establish an intragovernmental authority for commercial broadcasting that would combine the activities of the Second Authority and the Council for Cable TV. This decision indicates that there is no intention of taking steps to establish a communications authority, at least in the next few years, meaning that the move will be delayed for an indefinite period.

In our view, this is an erroneous course of action. The communications industry needs a professional, independent regulator that will be responsible for the joint areas of telecommunications and broadcasting, and will have multidisciplinary professional capabilities and expertise. In this era of convergence, when infrastructures are ceasing to be identified with specific services, there is no longer any reason for the division of regulatory powers among various bodies according to the type of service or infrastructure; thus, concentrating regulatory powers in the hands of one regulatory body is the appropriate, logical move. At the same time, the structure of the regulatory body must also reflect the special needs of content related regulation, first among them, the need to ensure cultural pluralism.

With regard to the structure and characteristics of the Communications Authority, the following are the main points of the proposed model:

a) Legal Status. A fundamental question concerning the status of the Communications Authority is whether to set up a government body—that is, part of the array of government ministries and allied agencies—or a statutory corporation that exercises executive powers outside the framework of the government service and enjoys separate legal status from the State.

The relative flexibility afforded to an extra governmental corporation (inter alia with regard to budget, recruiting of personnel, and legal proceedings) and the lessening of dependence on the government service, as well as the separation of the Authority from the political echelon, can contribute significantly to the independence and professionalism of the regulator. For this reason, the model that we propose is that of a public authority outside the government apparatus, similar to the status granted to the British regulatory authority, OFCOM, for example. If it emerges, in practice, that there is little prospect that such a model will garner the support of the relevant government ministries required to advance it as a bill, it will be possible to propose the alternative solution of an intragovernmental authority, provided that measures are taken to bolster its independence.

b) Objectives and Functions. The Authority's functions will consist of setting policy and rules, granting licenses, supervision, and enforcement. The laws governing the operation of the present regulatory bodies—the Communications Law, the Second Authority Law, and the Wireless Telegraphy Ordinance—already include provisions relating to the functions and powers of the Minister of Communications, the Council for Cable TV, and the Second Authority Council, and these can continue to serve as the basis for delineating the duties and powers of the Communications Authority. It would be right to include in the law that establishes the Communications Authority several additional considerations and objectives, which the Authority should take into account when making decisions. For example, it is suggested that the principle of providing services to the entire public (universal service) be set forth explicitly, including the obligation to offer solutions to the special needs of particular populations, such as people with disabilities or limited means.

c) Organs. A key question with regard to the structure of the Authority is that of who will head it, acting as the repository of its regulatory powers. According to the proposed model, the Authority will be headed by a governing council that will be responsible for setting down the Authority's policy, handling primary and secondary legislation, licensing, issuing guidelines to operators, supervision, and enforcement. The council, headed by the Chair of the Communications Authority, will guide the Authority's professional staff.

The Governing Council will consist of five members: the Communications Authority Chair, who will hold a full-time position; the Chair of the Broadcast Content Council (as detailed below), who will also serve as the Deputy Chair of the Authority; and three additional members representing the public. The preference for a model with a governing council over one with a single director general is intended to create the conditions required to achieve a balanced regulatory approach that gives expression to a range of opinions and disciplines, and to the combination of a variety of voices. Members of the Governing Council will represent, as much as possible, different approaches and areas of expertise. Such integration will enhance the decision making process, thereby increasing the likelihood of reaching the best decisions.

An issue of principle with regard to the composition of the Governing Council is the requirement set by the Ministry of Finance at the time as a precondition for supporting the bill: one of the council members will be the Director of the Budget at the Finance Ministry or his deputy, given the Authority's function of managing public resources and the importance of budgetary and state revenue considerations in determining the regulation of the communications industry. In our view, this demand is problematic due to its obvious infringement of the Authority's independence. The Director of the Budget (or his deputy) holds one of the most powerful, high-ranking positions in public service, and in this capacity, one's commitment is first and foremost to budgetary considerations and to the policies of the Finance Ministry.

As for the ongoing activity of the Authority, it will be conducted within a network of professional departments. The Authority's personnel will provide the necessary professional infrastructure for decisions made by the Governing Council and the Broadcast Content Council. To this end, the professional staff must include individuals with knowledge and experience in the fields of engineering, economics, law, administration, culture, and society.

The Broadcast Content Council, which will regulate aspects related to the content of programs, will operate alongside the Governing Council. This Council will be headed by a full-time Chair who will also serve as the Deputy Chair of the Authority; the remaining members will be representatives of the public, and not Authority employees. The aim is that the council members will be capable of giving voice to the cultural and social diversity of Israel in all its variations, and to answer the needs of the various groups. In shaping the regulatory rules, it is particularly important that there be a special body whose decisions or recommendations (as applicable, see below) will not hinge on professional expertise alone, but will be drawn from the range of worldviews and multitude of voices and social strata in Israel.

With regard to the powers of the Broadcast Content Council and its relationship with the Governing Council, according to the proposed model, the Broadcast Content Council will serve as an advisory body to the Governing Council in matters of broadcasting, in general, and will have decision making power in areas specifically related to program content - for example, broadcast ethics, original productions obligations, classification and labeling of programs, subtitles and sign language, and so forth.

The relationship between the spheres of responsibility of the two councils is based on the concept that one regulator—the Governing Council—will be charged with regulating the domains of telecommunications and broadcasting. This body will determine policy, lay down rules, and grant licenses. However, broadcasting will receive special attention within this framework and, thus, with regard to core issues of program content, the Broadcast Content Council will set the rules, and for other general matters, it will act as an advisor to the Governing Council.

Regarding powers related to frequency management (allocation and assignment of frequencies), it is proposed that there be a dedicated body for spectrum-related issues—the Radio Frequencies Committee, whose members will include representatives of the Communications Authority, the Israel Defense Forces, and the Ministry of Finance. However, the Committee will operate from within the Authority, as an organ of the latter with statutory powers, and will receive professional support from the Authority's departments.

d) Qualifications and Method of Appointment. It is proposed that, as a rule, an academic degree be required (in special cases in which the personal profile of the candidate justifies it in terms of knowledge and experience, it will be permissible to appoint someone who lacks an academic degree), along with at least five years of cumulative experience related to the fields of telecommunications or broadcasting in one or more of the following areas: economics, law, engineering, administration, culture, or society.

The composition of the councils must allow for a broad range of professional input on the part of all the members, so that both councils may weigh a variety of considerations and points of view.

It is proposed that the members of the Governing Council and of the Broadcast Content Council be government appointees. Candidates for the former would be proposed by the minister responsible for the Communications Authority, and in the case of the Broadcast Content Council, by the minister responsible for the Authority and by the Minister of Culture. Government appointments allow relative independence in comparison with appointments by a minister, inasmuch as the council member is less obligated to a particular minister.

As for compiling the list of candidates for submission by the minister to the government, it is possible to employ the accepted mechanism of a search committee headed by a retired judge (though this method also has its flaws). In the case of the Broadcast Content Council, since the intent is that it reflect the Israeli public in its diversity, we propose that the method of appointment be based on consultations between the minister and organizations that deal with areas related to the Council's spheres of activity (writers, journalists, artists and teachers, institutions of high learning, consumer organizations, and other public and community bodies).

e) Budget. With regard to financing the Communications Authority's activities, we propose the creation of a budgetary framework that combines ongoing payments from media franchises with funds from the state budget. This formula can meet the need for an effective Authority and, at the same time, can strengthen its independence. If the Authority that is ultimately established is intragovernmental, the financing of its activities will derive in full from the state budget.

To summarize, it is difficult to overstate the importance of radio and television broadcasts, or of telephony, data communications, and the Internet, and their impact on our lives, collectively and as individuals. The considerations that the regulator must take into account in setting policy and making decisions require professional skill and expertise in numerous fields: engineering and technology, economics and law, society and culture. This is a task inherently suited to an independent, professional regulatory body that will be responsible for both telecommunications and broadcasting.

It is our hope that this book will spark a fresh debate on the question of a communications authority for Israel, as well as contribute to its establishment.