TEL AVIV, Israel -- At the annual Israel Business Conference earlier this month, scores of high-ranking politicians, top telecom executives and analysts expressed confidence in the continued success of Israeli companies operating in the forefront of the global telecom industry.

But many in Israel's business community who gathered in Tel Aviv's luxurious David Intercontinental hotel expressed uncertainty regarding the nation's upcoming election and the effects of the changing political forces on its economy. Politics and geopolitics are always a major consideration for investing in Israeli companies, arguably more than ever heading into 2006. But barring a total unraveling of Israel's domestic political scene or a drastic deterioration of Israeli-Palestinian relations, investors at the conference were enthralled with the prospects for Israel's high-tech community.

In a rare public appearance, Dov Baharav, chairman and chief executive officer of


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, the giant Israeli software maker, told conference attendees that the "world was on the brink of a drastic change in the way people communicate." Telecom carriers across the globe are rushing to invest in multiple services, Baharav said, adopting third-generation technologies -- such as voice-over-Internet protocol (VoIP), wireless, video and data streaming -- and adding them to their existing service platform.

Amdocs helps large carriers such as


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integrate their customer management systems to accommodate additional services in a way that is transparent to the user, according to Baharav.

Amdocs' earnings grew 27% to $2.039 billion, or $1.45 a share, in fiscal 2005. Baharav estimated that 2006 earnings will reach $2.4 billion, or $1.65 a share. Analysts on average estimate Amdocs will earn $1.68 a share in fiscal 2006, according to Thomson First Call.

"Everybody is investing in additional services," said Tal Liani, telecom analyst at Merrill Lynch, who spoke at the conference. "Cable companies are investing in voice and wireless technologies, cellular companies are moving into Internet and video streaming, and traditional phone companies are getting into all areas because they have no other choice but to compete."

Israel, according to Baharav and other panelists, is strategically positioned to benefit from the consolidation in the telecom world, while domestic telecom carriers, cellular operators and cable companies are teaming up and consolidating in the race to reach triple and quadruple plays.


, Israel's largest telecom carrier and a former state-owned monopoly phone company, last year acquired the full ownership of


, the third-biggest cellular company in Israel, and owns


, the Israeli satellite cable TV operator.

Analysts are also talking about a possible merger between


, Israel's biggest cable TV company, and

Partner Communications

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, its second-largest cellular operator by user number.

Looking forward, companies such as Amdocs,


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( CMVT) are in a "fantastic position in the areas of supplying telecom solutions," Merrill Lynch's Liani said.

Baharav talks about "a new global paradigm of a 25 megabit per second cable to every home." "We are witnessing more and more launching of IP wideband cables, such as the 25 mbps high definition TV offered today by AT&T."



is even talking about launching a one Gigabit per second service to every home," Baharav said.

But with so much bandwidth capacity, telecom carriers need the equivalent amount of content to push through to customers. Many Internet content providers went belly up following the burst of the Internet bubble in 2000, but "there is a resurrection of content," said Sachi Gerlitz, partner at Apax Partners. "Both the incumbents and a new class of alternative content providers are trying to find new routes to offer additional content. Large production studios are hooking up to cellular networks."

This time around, content aggregators such as


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, and content providers like


and parent


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, are selling content directly to the customers through their own wireless and cable networks, bypassing the telecom carriers, Baharav said.

"The question now is whether content providers will commoditize the carriers or vice versa," Baharav said. "We believe that soon enough customers will be able to receive any type of service and content from any company."

Gerlitz, however, maintains that telecom carriers are still a long distance away from becoming equal players in the field of content.

In Israel, about 30 start-up companies develop content management systems and a variety of optimization technologies for voice over IP and other rich media streaming solutions, according to D&A Hi-Tech Information, a Tel Aviv-based high-tech advisory group.

Scopus Video Networks

( SCOP), the Israeli maker of IP-based digital video networking platforms, recently went public earlier at $7 a share, which was the lower end of the anticipated selling price range. The company's products enable video delivery over broadband IP-based networks.



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is said to be scoping Israeli companies for its 10th acquisition in Israel, probably looking for a technology that would complete its Internet protocol TV broadcasting package. According to D&A, one potential start-up for acquisition is


, which provides video-content distribution and delivery solutions over IP broadband networks.

Another company worth noting is


( NNDS), which develops a technology that secures broadband IP networks against piracy, from the broadband access point through the last mile.

Many companies in Israel were established on the idea of a broadband network that connects us seamlessly to any information we need, whether it's video, data or voice, wherever we are.

In the meantime, the start of the revolution looks promising. But whether the 25 megabit per second to every home vision is achievable remains to be seen and, as with Israel's overall economy, may very well depend on the nation's politics.

All Politics Is Local

Prime Minister Ariel Sharon, who recently left his Likud Party to establish a new party, spoke at the conference and promised that Israel's economy won't suffer from the hastened elections brought forward by his maneuvers. Elections in Israel are scheduled for March 28.

Recently, Sharon suffered a minor stroke and will undergo heart bypass surgery. Recent polls show his medical condition hasn't affected his chances to win the elections.

As for Sharon's economic agenda, many believe he will maintain his previous policies of privatization and tax cuts.

Amir Peretz, the newly elected head of the Labor Party and former leader of Israel's largest labor union, pledged to alleviate poverty in Israel by raising the minimum wage, and restarting government allowances to children, the handicapped and the elderly, while halting privatization of government-owned corporations.

Peretz, who tried hard not to scare away Israel's business echelon with his pro-labor views, and Sharon, who many believe has crossed the line to the left side of the political map with the historic withdrawal from Gaza, reflect the ever-growing disparities over national security, social and economic issues in Israel.

"A wave of populism is sweeping the political discourse" in Israel, Benjamin Netanyahu, former prime minister and the newly elected head of the right-wing Likud Party, told the audience. "Suddenly, everybody is talking about poverty...and overlooking the tremendous growth Israel's economy has achieved in the last couple of years," Netanyahu said.

Israel's gross domestic product rose 10% in the last two years to about $120 billion in 2005, according to Shlomo Maoz, chief economist at the brokerage house Excellence-Nessuah. Israel's economy is expected to grow by 5.1% in 2005 and 4.3% in 2006, according to Maoz.

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