In one of its most ambitious projects, the government earlier this year gave the go-ahead for State-run utility Israel Electric Corp (IEC) to find investors to build the network using fiber optic cables, which can provide Internet speeds of 1 gigabit per second - or as much as 100 times what is available now.
IEC said on Wednesday that Viaeuropa's bid, chosen by a quasi-governmental selection committee, will be analyzed over the next month with the hope that the network can start to be deployed by the end of 2013.
"This telecoms venture will ... put Israel on par with developed countries," said Yiftach Ron-Tal, IEC's chairman.
The process was delayed five times and by seven months amid limited participation. The government was forced to sweeten the terms of the project to the winner, such as raising the stake of the chosen group in a new private company to 60% from 51%. IEC will hold 40% of the company, which will build and operate a fiber-to-the-home (FTTH) network.
Initially, four groups submitted bids but just one made it until the end, as two of the other companies joined up with Viaeurope.
Viaeuropa holds half of the consortium, four other companies – including Israel's Rapac Communications and Infrastructure and BATM Advanced Communications – will hold 12.5% each.
The project is estimated to cost billions of shekels to deploy some 25,000 km of fiber optics – 70% of which will be above ground to keep costs down. The government seeks to cover two-thirds of Israel by 2020. IEC already has close to 3,000 km of fiber across the country.
Using fiber to the curb and standard copper lines to the home, Bezeq – Israel's largest telecom group – offers Internet to 1.15 million customers for a 59% market share. Cable company HOT has 41%.
Both companies offer speeds up to 100 megabits per second but most Israelis surf at speeds of 5-10 megabits, which is deemed adequate for downloading and streaming video and music.
Upload speeds, though, are no more than 1-1.5 megabits. With fiber optics, 1 gigabit per second of upload and download can be reached, allowing for improved interactive services.
The biggest winners of the fiber deployment are expected to be Israel's top mobile phone operators, Cellcom and Partner Communications, which bought companies that offer Internet services and seek to develop Internet TV.
But they now rely on the HOT and Bezeq infrastructures, limiting their own offerings, while Bezeq has started its own FTTH trials. Both companies have said they welcome new competition.