Israel’s information and communication technology (ICT) developments were initially fueled by geopolitical needs. Defense-related research and development (R&D) had a significant impact on the start of Israel’s industrial sector, the higher educational system in the areas of science and engineering, the research community, and the structure of the ICT industry work force.
The government invested significant funding to develop defense-oriented equipment and capabilities. Demand for highly skilled workers, scientists, and engineers affected public resources allocated to universities and research institutions. However, not all investment in this area stem from the defense sector. Today, multinational companies account for a significant portion of the research spending in the Israeli industry. With more than 300 R&D centers in Israel, American companies constitute about 55% of all R&D centers in the country. Corporations such as Intel, IBM, Google, Cisco, Motorola, Philips, Apple, Microsoft, and many others have invested and set up research centers in Israel to take advantage of the local talent.
There are more than 6,000 startups in Israel’s small and connected economy, 5 times the concentration of startups per capita in the European Union. There are 80 Israeli unicorns (private companies valued at $1 billion or more) with 42 companies joining the Unicorn club in 2021 alone. A noted shift for this year, is the increase in Artificial Intelligence (AI) related startup companies.
While Israel has just 0.1% of the world’s population, the nation attracts 13% of global investment in cybersecurity, ranks number one globally in R&D expenditures per GDP, and attracts the second-highest rate of venture capital funding per capita in the world, after Singapore.
Many of the companies in the ICT ecosystem are software companies. The United States is the number one source for Israel’s imports of software and Information Technology (IT) equipment and services.
Israel is considered a vital player in the digital world, especially in IT, software and the internet, with a market that has increased by almost 400% in the last decade. Israeli software helps power everything from PC motherboard chips to cell phones and is deployed in business, consumer, and technical applications around the world. More than 100 Israeli software companies are active in cloud computing and the delivery of business and consumer services over the internet, which is considered the next revolution in the IT market.
Israel’s software industry has attracted attention from global technology leaders. Many companies, including HP, IBM, Microsoft, and Oracle, have established operations and manufacturing centers in the country. Additionally, American companies have identified Israel as a prime destination to establish R&D centers. Having an R&D presence in Israel offers an opportunity for the American company to leverage local talent and enhance their existing technologies by collaborating with Israeli companies in various software fields.
Israel’s telecommunication market is characterized by high mobile penetration and a significant number of service providers including Bezeq International, Pelephone, HOT Mobile, Cellcom, 013 NetVision, Partner, 012 Smile, Golan Telecom, Rami Levi Telecom, and others. Israel’s telecommunication network is considered to be one of the most sophisticated in the world.
In September 2020, 5G network officially launched across Israel. Partner, Hot Mobile and Pelephone were the first to offer the 5G network to their clients. The process was delayed due to ongoing financial challenges in the industry. As a result, several companies have formed strategic partnerships now jointly own 5G frequencies: Partner and Hot Mobile have joined forces; Cellcom, Xphone and Golan Telecom have united; while Pelephone competed alone and owns its own frequencies.
The Ministry of Communication announced it will be shutting down the 2G and 3G networks in order to accommodate the new technology and the 5G cellular network. Doing so will enable the development and growth of small industries and businesses in various areas. The process began in early 2022 and is scheduled to end by the end of 2025.
In addition, during 2020 the Ministry of Communications focused on improving the telecom infrastructure. In June 2021, the Ministry announced that the fiber optics infrastructure plan is now operating. Israel is making significant strides toward the full deployment of fiber optic infrastructure all over the country. Bezeq, one of the primary telecommunication companies in Israel, announced the plan to deploy fiber optic infrastructure in 92% of households in Israel. The Ministry of Communications is promoting the deployment of fiber optic infrastructure in areas lacking economic viability and is publishing a clarion call for subsidized deployment in these areas. The Ministry of Communications has set a goal to achieve 60% of homes connected to fiber optic by the end of 2022 and 92% connected to fiber optic by 2025.
The development of 5G creates an opportunity for U.S. companies to supply the 5G ecosystem, starting with components to integrate with the 5G infrastructure, including, but not limited to mobile chipsets, modems, data center equipment, routers, fiber connectivity, IoT devices and more.
Additional opportunities are expected to arise as the 5G network expands, in areas such as smart cities, transportation, digital hospitals, and industry production and manufacturing.
Artificial Intelligence (AI)
The Israeli government aims to make Israel one of the top five countries for developing Artificial Intelligence technology. To achieve that goal, the government intends to invest 1-2 billion shekels in this industry. Former Prime Minister Netanyahu established a committee composed of academic, industry and government leaders to develop this initiative further. Israel remains a leader in terms of talent and in the number of AI startups with an ecosystem that includes more than 1,500 companies operating in the space. Researchers predict that revenues in the AI sector are set to triple over the next four years.
The government’s focus on AI, creates opportunities for collaboration between U.S. and Israeli advanced AI companies, especially in the field of defense, where we see a significant increase in analytics development and Artificial Design Intelligence.
Growth in the ICT market will rely on a combination of new services and networks. Over the next years, most of the growth in the Israeli telecom market will arise from mobile broadband, VoIP, and pay-tv. As the ability to offer multiplayer services becomes more important in the Israeli market, operators look for mergers or partnerships that will allow them to expand their product range.
The entry of mobile virtual network operators (MVNO) to the mobile sector has created competition and has driven down retail prices for consumers. The demand for high-bandwidth applications, such as HDTV, and growing rates of internet data traffic have contributed to the telecom industry’s most pressing need: bigger pipes.
Issues such as network management, providing support for new applications and creating innovative ways to better monetize subscribers and decrease operating expenses are becoming critically important. These challenges provide substantial opportunities for U.S. companies interested in expanding in Israel’s telecom sector.
- Ministry of Communication
- Israel Advanced Technology Industries
- Israel Innovation Authority
- Startup Nation Central
For more information, please contact Commercial Specialist Christina Azar at Christina.Azar@trade.gov