Cellcom Israel Ltd. — Annual Report 2015

Mar 21, 2016

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 20–F

†	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
	OR
_	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2015
	OR
†	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period fromto
	OR
†	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	Date of event requiring this shell company report
	Commission file number 001-33271
	CELLCOM ISRAEL LTD.
	(Exact name of Registrant as specified in its charterand translation of Registrant's name into English)
	ISRAEL
	(Jurisdiction of incorporation or organization)
	10 Hagavish Street, Netanya 4250708, Israel
	(Address of principal executive offices)
	Liat Menahemi Stadler, 972-52-9989595 (phone), 972-98607986 (fax), LIATME@cellcom.co.il, 10 Hagavish Street, Netanya 4250708, Israel
	(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
	Securities registered or to be registered pursuant to Section 12(b) of the Act.
	Title of each className of each exchange on which registeredOrdinary Shares, par value NIS 0.01 per shareNew York Stock Exchange ("NYSE")
	Securities registered or to be registered pursuant to Section 12(g) of the Act.
	None
	(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None (Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2015, the Registrant had outstanding 100,604,578 Ordinary Shares, par value NIS 0.01 per share.

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. _ Yes No

If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes _ No

Indicate by check mark whether the Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and has been subject to such filing requirements for the past 90 days. _ Yes No

Indicate by check mark whether the Registrant (1) has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer _ Accelerated filer Non-accelerated filer

Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:

U.S. GAAP

International Financial Reporting Standards as issued by the International Accounting Standards Board _

Other

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant elected to follow.

Item 17

Item 18

If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes _ No

TABLE OF CONTENTS

	PART I
Item 1.	Identity of Directors, Senior Management and Advisers	5
Item 2.	Offer Statistics and Expected Timetable	5
Item 3.	Key Information	5
Item 4.	Information on the Company	30
Item 4A.	Unresolved Staff Comments	83
Item 5.	Operating and Financial Review and Prospects	84
Item 6.	Directors, Senior Management and Employees	115
Item 7.	Major Shareholders and Related Party Transactions	143
Item 8.	Financial Information	147
Item 9.	The Offer and Listing	150
Item 10.	Additional Information	152
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	167
Item 12.	Description of Securities Other than Equity Securities	168
	PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies	168
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	168
Item 15.	Controls and Procedures	168
Item 16A.	Audit Committee Financial Expert	170
Item 16B.	Code of Ethics	170
Item 16C.	Principal Accountant Fees and Services	170
Item 16D.	Exemptions from the Listing Standards for Audit Committees	171
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	171
Item 16F.	Change In Registrant's Certifying Accountant	171
Item 16G.	Corporate Governance	171
Item 16H.	Mine Safety Disclosure	172
	PART III
Item 17.	Financial Statements	172
Item 18.	Financial Statements	172
Item 19.	Exhibits	173
Financial Statements		F-1

Page

INTRODUCTION

In this annual report, "Cellcom," the "Company," "we," "us" and "our" refer to Cellcom Israel Ltd. and its subsidiaries. The terms "NIS" refers to new Israeli shekel, and "dollar," "USD" or "$" refers to U.S. dollars.

Presentation of Financial and Share Information

We prepare our consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

Unless we indicate otherwise, U.S. dollar translations of the NIS amounts presented in this annual report are translated for the convenience of the reader using the rate of NIS 3.902 to $1.00, the representative rate of exchange as of December 31, 2015 as published by the Bank of Israel. The translation is for the convenience of the reader only, and it does not represent the fair value of the translated assets and liabilities.

Trademarks

We have proprietary rights to trademarks used in this annual report which are important to our business. We have omitted the "®" and "™" designations for certain trademarks, but nonetheless reserve all rights to them. Each trademark, trade name or service mark of any other company appearing in this annual report belongs to its respective holder.

Industry and Market Data

This annual report contains information about our market share, market position and industry data. Unless otherwise indicated, this statistical and other market information is based on statistics prepared by the Ministry of Communications of Israel, Brandman Marketing Research and Consultancy Institute, Sapio Research and Development, Geocartography Research Institute, Rotem, ABI research, LINX and Meida Shivuki C.I (survey institute). Industry publications generally state that the information they contain has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. We have not independently verified the accuracy of market data and industry forecasts contained in this annual report that were taken or derived from these industry publications.

Special Note Regarding Forward-Looking Statements

We have made statements under the captions "Item 3. Key Information - D - Risk Factors," "Item 4 – Information on the Company," "Item 5. Operating and Financial Review and Prospects," and in other sections of this annual report that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or

achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled "Item 3. Key Information - D. Risk Factors." You should specifically consider the numerous risks outlined under "Item 3. Key Information - D. Risk Factors."

Although we believe the expectations reflected in the forward-looking statements contained in this annual report are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We assume no duty to update any of these forward-looking statements after the date of this annual report to conform our prior statements to actual results or revised expectations, except as otherwise required by law.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA

You should read the following selected consolidated financial data in conjunction with the section of this annual report entitled "Item 5. Operating and Financial Review and Prospects" and our consolidated financial statements and the notes thereto included elsewhere in this annual report.

The selected data presented below under the captions "Income Statement Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended December 31, 2015, are derived from the consolidated financial statements of Cellcom Israel Ltd. and subsidiaries, which financial statements have been audited by Somekh Chaikin, an independent registered public accounting firm and a member firm of KPMG International. The consolidated financial statements as of December 31, 2014 and 2015, and for each of the years in the three-year period ended December 31, 2015, and the report thereon, are included elsewhere in this annual report. The selected data should be read in conjunction with the consolidated financial statements, the related notes, and the independent registered public accounting firm's report and the convenience translation of the consolidated financial

statements as of and for the year ended December 31, 2015 into U.S. dollars solely for the convenience of the reader.

On August 31, 2011, we completed the acquisition of 100% of the share capital of Netvision Ltd., or Netvision. Therefore, the consolidated results for the year ended December 31, 2011, included elsewhere in this annual report, include Netvision's results for the months of September through December 2011 only.

The information presented below under the caption "Other Data" contains information that partly is not derived from the financial statements.

For your convenience, the following tables also contain U.S. dollar translations of the NIS amounts presented at December 31, 2015, translated using the rate of NIS 3.902 to $1.00, the representative rate of exchange on December 31, 2015 as published by the Bank of Israel.

	Year Ended December 31,
	2011(1)	2012	2013	2014	2015	2015
						(In US$
			(In NIS millions, except where indicated otherwise)			millions)
Income Statement Data:
Revenues	6,506	5,938	4,927	4,570	4,180	1,071
Cost of revenues	3,408	3,463	2,990	2,727	2,763	708
Selling and marketing expenses	990	865	717	672	620	159
General and administrative expenses	685	629	570	463	465	119
Other (income) expenses, net	1	(4)	(1)	46	22	6
Operating income	1,422	985	651	662	310	79
Financing expense, net	293	259	246	198	177	45
Income tax	304	195	117	110	36	9
Net income	825	531	288	354	97	25
Basic earnings per share (in NIS)	8.28	5.34	2.89	3.51	0.95	0.24
Diluted earnings per share (in NIS)	8.28	5.33	2.86	3.48	0.95	0.24
Weighted average ordinary shares used in calculation
of basic earnings per share (in shares)	99,476,671	99,481,487	99,495,525	99,924,306	100,589,458	100,589,458
Weighted average ordinary shares used in calculation
of diluted earnings per share (in shares)	99,511,433	99,609,722	100,319,724	100,706,282	100,589,530	100,589,530
Other Data:
EBITDA(2)	2,167	1,753	1,335	1,282	872	223
Capital expenditures	520	537	384	487	396	101
Dividends declared per share	7.88	1.31	0.85	-	-	-
Net cash from operating activities	1,332	1,641	1,556	1,557	836	214
Net cash used in investing activities	(1,656)	(708)	(344)	(350)	(96)	(25)
Net cash from (used in) financing activities	715	(439)	(1,569)	(1,106)	(1,136)	(291)
Cellular Subscribers (in thousands)(3)	3,349	3,199	3,092	2,967	2,835	2,835
Churn rate of cellular subscribers(4)	25.1%	31.5%	36.8%	44%	42%	42%
Cellular ARPU (in NIS)(5)	106	88	78	72	65	17
Balance Sheet Data:
Cash	920	1,414	1,057	1,158	761	195
Working capital	679	1,232	1,082	837	625	161
Total assets	8,557	8,787	7,579	7,240	6,278	1,609
Total equity	187	500	710	1,092	1,185	304

• (1) The consolidated financial results for the year ended December 31, 2011 include the results of Netvision, our wholly owned subsidiary, for the months September through December 2011. We consummated the acquisition of Netvision on August 31, 2011.
• (2) EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net (excluding expense related to employee retirement plans); income tax; depreciation and amortization and share based payments. We present EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure (most particularly affecting our interest expense given our significant debt), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age of, and depreciation expenses associated with, fixed assets. EBITDA should not be considered in isolation or as a substitute for operating income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of our profitability or liquidity. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this annual report, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.

The following is a reconciliation of net income to EBITDA:

	Year Ended December 31,
	2011	2012	2013	2014	2015	2015
			(In NIS millions)			(In US$ millions)
Net income	825	531	288	354	97	25
Financing expense, net	293	259	246	198	177	45
Other expenses (income),net (excluding expense related to
employee retirement plans);	1	(4)	(1)	7	(3)	(1)
Taxes on income	304	195	117	110	36	9
Depreciation and amortization	738	765	676	610	562	144
Share based payments	6	7	9	3	3	1
EBITDA	2,167	1,753	1,335	1,282	872	223

• (3) Cellular subscriber data refers to active subscribers. We use a six-month method of calculating our cellular subscriber base, which means that we deduct subscribers from our subscriber base after six months of no revenue generation and activity on our network by or in relation to the post-paid subscribers, no revenue generating calls or SMS for pre-paid subscribers and no data usage or less than NIS 1 of accumulated revenues for M2M (machine to machine) subscribers. The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. During the fourth quarter of 2011, we removed approximately 52,000 subscribers from our subscribers base, which included subscribers using our TDMA network who had not requested a transfer to our other networks following the shutdown of our TDMA network as of December 31, 2011, and subscribers who ceased using our services following a change to our policy which previously allowed subscribers to change from post to prepaid subscription as a result of the reduction of early termination fees in plans which include a commitment to a predefined period, or Early Termination Fees, in the cellular market in early 2011. These changes affected other key performance indicators. In the fourth quarter of 2012 we removed approximately 138,000 M2M subscribers from our subscriber base, following the addition of the above revenue generation criterion for M2M subscribers. This change had an immaterial effect on our ARPU for 2012. In the fourth quarter of 2013, we removed approximately 64,000 subscribers from our subscriber base, following a change to our prepaid subscribers counting mechanism. As a result of such change, we add a prepaid subscriber to our subscribers base only upon charging a prepaid card and remove them from our subscribers base after six months of no revenue generating calls or SMS. Following each of these changes, we have not restated prior subscriber data to conform with this change.
• (4) Churn rate is defined as the total number of voluntary and involuntary permanent deactivations of cellular subscribers in a given period expressed as a percentage of the number of cellular subscribers at the beginning of the period. Involuntary permanent deactivations relate to cellular subscribers who have failed to pay their arrears for the period of six consecutive months. Voluntary permanent deactivations relate to cellular subscribers who terminated their use of our cellular services. Churn rate data is excluding the above mentioned removals of subscribers.
• (5) Average monthly revenue per cellular subscriber (ARPU) is calculated by dividing revenues from cellular services for the period by the average number of cellular subscribers during the period and by dividing the result by the number of months in the period. Revenues from inbound roaming services and hosting services are included even though the number of cellular subscribers in the equation does not include the users of those roaming and hosting services. Inbound roaming services and hosting services are included because ARPU is meant to capture all service revenues generated by a cellular network. Revenues from repair services pursuant to a monthly subscription, or Subscription Repair Services are included because they represent recurring revenues generated by cellular subscribers, but revenues from sales of handsets (which for purposes of this report may include other types of cellular end user equipment, such as tablets), non-subscription repair services carried out on a random basis, or Random Repair Service and other services are not included. We and industry analysts treat ARPU as a key performance indicator of a cellular operator because it is the closest meaningful measure of the contribution to service revenues made by an average subscriber.

We have set out below the calculation of cellular ARPU for each of the periods presented:

	Year Ended December 31,
	2011	2012	2013	2014	2015	2015
		(In NIS millions, except number of subscribers and months)
Revenues	6,506	5,938	4,927	4,570	4,180	1,071
less revenues from equipment sales	1,747	1,356	942	1,005	1,048	269
less other revenues*	484	1,125	1,034	941	869	223
Revenues used in cellular ARPU calculation	4,275	3,457	2,951	2,624	2,263	580
Average number of cellular subscribers	3,361,803	3,291,843	3,135,857	3,034,946	2,898,987	2,898,987
Months during period	12	12	12	12	12	12
Cellular ARPU (in NIS, per month)	106	88	78	72	65	17

* Other revenues include revenues from other communications services such as ISP, transmission services, local and international landline services and repair services.

Exchange Rate Information

The following table shows, for each of the months indicated, the high and low exchange rates between the NIS and the U.S. dollar, expressed as NIS per U.S. dollar and based upon the daily representative rate of exchange as published by the Bank of Israel:

Month	High (NIS)	Low (NIS)
September 2015	3.949	3.863
October 2015	3.923	3.816
November 2015	3.921	3.867
December 2015	3.905	3.855
January 2016	3.983	3.902
February 2016	3.964	3.871

On March 18, 2016 the daily representative rate of exchange between the NIS and U.S. dollar as published by the Bank of Israel was NIS 3.857 to $1.00.

The following table shows, for periods indicated, the average exchange rate between the NIS and the U.S. dollar, expressed as NIS per U.S. dollar, calculated based on the average of the representative rates of exchange on the last day of each month during the relevant period as published by the Bank of Israel:

Year	Average (NIS)
2011	3.582
2012	3.844
2013	3.601
2014	3.593
2015	3.887

The effect of exchange rate fluctuations on our business and operations is discussed in "Item 11 - Quantitative and Qualitative Disclosures about Market Risk."

B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D. RISK FACTORS

We believe that the occurrence of any one or some combination of the following factors could have a material adverse effect on our business, financial condition or results of operations.

Risks Related to our Business

We operate in a heavily regulated industry, which can harm our results of operations. In recent years, regulation in Israel has materially adversely affected our results.

A substantial part of our operations is subject to the Israeli Communications Law, 1982, the Israeli Wireless Telegraph Ordinance (New Version), 1972, the regulations promulgated thereunder and the licenses for the provision of different telecommunications services that we received from the Ministry of Communications in accordance with the Communications Law. The interpretation and implementation of the Communications Law, Wireless Telegraph Ordinance and regulations and the provisions of our general licenses, as well as our other licenses, are not certain and subject to change, and disagreements have arisen and may arise in the future between the Ministry of Communications, or MOC, and us. The Communications Law and regulations thereunder grant the Ministry of Communications extensive regulatory and supervisory authority with regard to our activities, as well as the authority to impose substantial sanctions in the event of a breach of our licenses or the applicable laws and regulations. Further, in the event that we materially violate the terms of our licenses, the Ministry of Communications has the authority to revoke them. Our operations are also subject to the regulatory and supervisory authority of other Israeli regulators which have the authority to impose criminal and administrative sanctions against us.

Our general cellular license is valid until February 2022. It may be extended for additional six-year periods upon our request to the Ministry of Communications and confirmation from the Ministry of Communications that we have complied with the provisions of our license and the applicable law, have continuously invested in the improvement of our service and network and have demonstrated the ability to do so in the future. Netvision's unified licenses (granted in July 2015 and amended in February 2016) under which Netvision is providing landline telephony services, internet connectivity services, or ISP, and international long distance services, or ILD, are valid until March 2026 and February 2022, respectively and may be extended for additional ten year periods, on terms similar to those provided in our cellular license. Our other licenses are also limited in time. Our licenses may not be extended when necessary, or, if extended, the extensions may be granted on terms that are not favorable to us. In addition, the Ministry of Communications has interpreted and may interpret our licenses and has modified and may modify our licenses without our consent and in a manner that could limit our freedom to conduct our business and harm our results of operations. Possible changes to our licenses and legislation which would require us to change our pricing plans and information systems frequently or on a timetable we cannot meet, can increase the risk of noncompliance with our licenses or violation of such legislation and our exposure to lawsuits and regulatory sanctions.

Further, our business and results of operations could be materially and adversely affected by new legislation and decisions by regulators or the courts that:

• x approve the annulment or further relaxation of the structural separation requirements imposed on the Bezeq communications group, given its monopolistic or duopolistic powers in all areas in which we compete, and also on the Hot communications group (though to a lesser degree, given that Hot already has substantial leniencies despite its monopolistic and duopolistic powers), more so if carried out before an effective landline wholesale market, which includes both telephony and infrastructure, is effected on both Bezeq's and Hot's infrastructure; do not set competition-inducing tariffs with respect to the wholesale services or set other unfavorable regulation with respect to the landline wholesale market. See also "- We face intense competition in all aspects of our business" below and "Item 4. Information on The Company – B. Business Overview "-Competition";
• x award our competitors certain benefits and leniencies not available to us, including through waiving, easing or not enforcing requirements set in the licenses of mobile network operators, or MNOs, or not making similar demands or not imposing similar restrictions. See "Item 4. Information on the Company – B. Business Overview - Competition", and thereunder "-wireline", "-Government Regulations – Mobile Virtual Network Operators" and thereunder: "- Additional MNOs" and " – Landline" for additional details;
• x do not renew our licenses or the allocation of our frequencies or limit our usage thereof or demand that we return frequencies allocated to us or not allow us to obtain additional frequencies, as such become necessary;
• x impose new safety or health-related requirements;
• x impose additional restrictions or requirements with respect to the construction and operation of cell sites or the networks, including in relation to site and network sharing or provide leniencies to our competitors;
• x impose restrictions or demand we meet additional requirements on the provision of services or products we provide or regulate or otherwise intervene with the terms under which we advertise, market or provide them to our subscribers, including in respect of existing agreements;
• x allow other operators to provide services previously provided only by us to our subscribers;
• x set higher service standards or costly requirements relating to the service we provide our customers, both in relation to our network quality and coverage and our customer service;
• x impose a stricter policy with respect to privacy protection, such as with regard to data protection, collection, amelioration, segmentation or usage of data, including for commercial activities by us or for the benefit of third parties; and
• x impose regulation on our OTT TV services, including the requirement to finance original productions or imposing unfavorable terms for the usage of

the Digital terrestrial television (DTT) broadcasting in Israel or applying such regulation to us and not to other OTT TV providers . See "- Item 4. Information on the Company – B. Business Overview – Government Regulations ― OTT TV".

See "Item 4. Information on the Company – B. Business Overview – Government Regulations ― Our Principal License" and "- Other Licenses".

If we fail to compensate for lost revenues, increased expenses (objectively or in comparison to our competitors) or additional investments resulting from past or future legislative or regulatory changes with alternative sources of income or otherwise, our results of operations may be materially adversely affected.

We face intense competition in all aspects of our business.

The Israeli telecommunications market is highly competitive in many of its elements, including the cellular and landline service markets. The competition level has increased substantially in recent years, following the entry of additional competitors and regulatory changes alleviating entry barriers and transfer barriers. In the last year, we entered both the TV market through our OTT TV service and the landline infrastructure market, through the landline wholesale market (VDSL). In the other markets we operate in and specifically in the cellular market, the intensified competition led to price competition, the adverse effects of which include a high churn rate and high subscriber acquisition costs, in addition to continued price erosion, all of which have ultimately led to a material decrease in revenues and profitability for us and other MNOs. The current level of competition in all the markets in which we operate and aggressive price plan offerings by our competitors are expected to continue. See also the "Competition" section under "Item 4. Information on the Company - B. Business Overview","-Netvision - Internet infrastructure and ISP Business" and "-Netvision - Telephony Business". Should the current level of competition and trends continue, it will continue to materially adversely affect our results of operations. Any of the following developments materializing in our market, may result in increased competition and a further materially reduced profitability for us:

• x the agreement for the purchase of Golan Telecom Ltd., or Golan by us is not approved by the regulators, if it results in Golan's insolvency and increased efforts by the other operators to recruit Golan's subscribers. For additional details, see "Item 4. Information on the Company – B. Business Overview "- Agreement for the Purchase of Golan".
• x tariffs maintained at their current level or decreasing even further, including as part of a bundle.
• x an ineffective landline wholesale market, including due to the exclusion of telephony wholesale services, services provided not in line with the wholesale market criteria, unfavorable pricing harming our ability to provide competitive bundles and compete with the Hot and Bezeq groups or further escalation of the competition by Bezeq and Hot, given their dominance in the landline market, more so if the structural limitations on these groups are alleviated before an effective landline wholesale market is in effect. See "Item 4. Information on The Company –B. Business Overview – Government Regulations – Landline" for additional details.

• x annulment or further relaxation of the structural separation imposed on each of the Bezeq and Hot groups as it will provide the Bezeq and Hot groups a competitive advantage, given their dominance in the landline telephony and infrastructure markets and TV market. See "Item 4. Information on The Company –B. Business Overview – Government Regulations – Landline" for additional details.
• x entrance of new competitors to any of the markets we operate in, or the entry of existing competitors to additional markets or segments where they are currently not or less active, or as a result of regulatory changes, allowing other operators to provide services currently provided only by us to our subscribers. See "Item 4. Information on The Company –B. Business Overview - Government Regulation –Other Licenses –Unified License" and "-Additional MNOs".
• x the continued increased competition in the handsets market may result in decreased handset sales. See "Item 4. Information on The Company –B. Business Overview – Competition" for additional details.

We may not be able to obtain permits to construct and operate cell sites.

We depend on our network of cell sites to maintain and enhance network coverage for our subscribers. We also deploy and operate microwave sites as part of our transmission network. The construction and operation of these various facilities are highly regulated and require us to obtain various consents and permits.

We have experienced difficulties in obtaining some of these consents and permits, particularly in obtaining building permits for cell sites from local planning and building authorities. As of December 31, 2015, we operated a small portion of our cell sites without building permits or applicable exemptions and approximately 33%of our cell sites without building permits in reliance on an exemption from the requirement to obtain a building permit, mainly for radio access devices. Our reliance on the exemption for radio access devices had been challenged and is currently awaiting ruling by the Israeli Supreme Court. Under an interim order issued by the Supreme Court in September 2010, we are unable to rely on the exemption in cellular networks, other than to replace existing radio access devices in certain conditions, until regulations limiting such reliance are enacted or a different decision by the court is made.

Additionally, District Court rulings adopted a narrower interpretation of 'rooftops', to which the exemption may be applied.

We also rely on the exemption for our rooftop microwave sites and signal amplifiers (known as 'repeaters'). It is unclear whether other types of repeaters require a building permit.

In addition, we may be operating a significant number of our cell sites in a manner that is not fully compatible with the building permits issued for these cell sites which may, in some cases, also constitute grounds for termination of our lease agreements for those sites or claims for breach of such agreements.

Pursuant to the Israeli Non-Ionizing Radiation Law, 2006, the granting or renewal of an operating permit by the Commissioner of Environmental Radiation at the Ministry of Environmental Protection of Israel, or the Commissioner, for a cell site or other facility is

subject to the receipt of a building permit or an exemption from such a permit. Should we fail to obtain building permits for our cell sites or other facilities, including in the event that our reliance upon an exemption from the requirement to obtain building permits for these cell sites and other facilities is found invalid, the Commissioner will not grant or renew our operating permits for those cell sites and other facilities. Since October 2007, the Commissioner will not grant or renew operating permits to radio access devices where the local planning and building committee's engineer objected to our reliance upon the said exemption.

Certain proposed amendments to the Non-Ionizing Radiation Law and Regulations and the Planning and Building Law, propose setting additional restrictions in relation to the operation of cell sites and other facilities, such as setting larger distance requirements between cell sites locations and residences or certain institutions.

In June 2010, proposed changes to the Israeli National Zoning Plan 36, or the Plan, which regulates cell site construction and operation, were approved by the Israeli National Council for Planning and Building and submitted for the approval of the Government of Israel. The proposed changes, if approved, would place additional restrictions on the construction and operation of cell sites. Several local planning and building authorities are claiming that Israeli cellular operators may not receive building permits, in reliance on the current Plan, for cell sites operating in frequencies not specifically detailed in the frequencies charts attached to the Plan and have refused to provide a building permit in a number of cases. The proposed draft amendment to the Plan covers all new cell sites requiring a building permit, independently of the frequencies in which they operate. Most of our cell sites and many cell sites operated by other operators also operate in frequencies not specifically detailed in the Plan.

Operation of a cell site or other facility without a building permit, operating permit or not in accordance with the permits or other legal requirements may subject us and our officers and directors to criminal, administrative and civil liability, to eviction orders in respect of the cell sites in breach, revocation or suspension of the operating permit, as well as to withholding the grant of operating permits to additional cell sites or demolition orders. As a result, we may be required to relocate cell sites to less favorable locations or stop operation of cell sites.

If we are unable to obtain or rely on exemptions from obtaining or to renew building or other consents and permits for our existing cell sites or other facilities, or if any of the proposed changes noted above are adopted, it could adversely affect our existing network and its build-out, delay the deployment of our 4G network, negatively affect the extent, quality and capacity of our network coverage and our ability to continue to market our products and services effectively, all of which may have a material adverse effect on our results of operations and financial condition.

For additional details see "Item 4.B – Business Overview - Government Regulations - Permits for Cell Site Construction".

We may be required to indemnify certain local planning and building committees in respect of claims against them.

Under the Israeli Planning and Building Law, 1965, by approving a building plan, local planning and building committees may be required to compensate for depreciation of properties included in or neighboring the approved plan.

As a precondition to obtaining a cell site construction permit from a planning and building committee, we are required to provide a letter to the committee indemnifying it for possible depreciation claims and have provided hundreds of such indemnification letters to local planning and building committees. Calls upon our indemnification letters may have a material adverse effect on our financial condition and results of operations. We may also decide to demolish or relocate existing cell sites to less favorable locations or not at all, due to the obligation to provide indemnification. As a result, our existing service may be impaired or the expansion of our network coverage could be limited.

Alleged health risks relating to non-ionizing radiation generated from cell sites and cellular devices may harm our prospects.

Handsets, accessories and various types of cell sites are known to be sources of non-ionizing radiation emissions and are the subject of an ongoing public debate and concern in Israel. While, to the best of our knowledge, the handsets that we market comply with the applicable legislation that relate to acceptable "specific absorption rate," or SAR, levels, we rely on the SAR levels published by the manufacturers of these handsets and do not perform independent inspections of the SAR levels of these handsets. As the manufacturers' approvals refer to a prototype handset, we have no information as to the actual level of SAR of the handsets throughout the lifecycle of the handsets, including in the case of handset repair. See also "Item 4. Information on the Company – B. Business Overview - Government Regulations - Handsets". In July 2008, the Israeli Ministry of Health published recommendations to take precautionary measures when using cellular handsets, which has increased the concerns of the Israeli public. In May 2011, the International Agency for Research on Cancer, an agency of the World Health Organization, or WHO, issued a press release classifying radiofrequency electromagnetic fields as possibly carcinogenic to humans (Group 2B), based on an increased risk for glioma, a malignant type of brain cancer, associated with wireless phone use. In June 2011, the WHO publication noted that to date, no adverse health effects have been established as being caused by mobile phone use and while an increased risk of brain tumors is not established, the increasing use of mobile phones and the lack of data for mobile phone use over time periods longer than 15 years warrant further research of mobile phone use and brain cancer risk, particularly given recent popular use by younger people with potentially longer periods of exposure. However, in September 2014, the Israeli Ministry of Health updated the possibly carcinogenic to humans elements list in its site, according to the International Agency for Research on Cancer's classification. Moreover, increasing awareness of the possible risks of cellular phones usage, reducing usage thereof and introducing precautionary measures were the subject of several bills in recent years.

Health concerns regarding cell sites have caused us difficulties in obtaining permits for cell site construction and obtaining or renewing leases for cell sites and even resulted in unlawful sabotage of a small number of cell sites and prompted proposed legislation aimed at increasing the minimum distance permitted between cell sites and certain institutions. Formal positions adopted by various Israeli Ministries with respect to radiation safety, include the position (2009) that cell sites constructed pursuant to a building permit are preferable to

radio access devices, that 4G services involve some increase in the level of non-ionizing radiation the public will be exposed to and therefore should have limited permitted usage and that utilizing a cellular network to provide advanced services that can be provided through a landline network is not justified in light of the preventive care principle set forth in the Israeli Non-Ionizing Radiation Law.

If health concerns regarding non-ionizing radiation increase further, or if adverse findings in studies of non-ionizing radiation are published, nonionizing radiation levels are found to be higher than the standards set for handsets and cell sites, we may be subject to health-related claims for substantial sums. Consumers may also be discouraged from using cellular handsets and regulators may impose additional restrictions on the construction and operation of cell sites or handset and accessories marketing and usage. As a result, we may experience increased difficulty in constructing and operating cell sites and obtaining leases for new cell site locations or renewing leases for existing locations, or be exposed to property depreciation claims; and we may lose revenues due to decreasing usage of our services and be subject to increased regulatory costs. We have not obtained insurance for these potential claims. See "Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – Legal Proceedings – Class Actions" for additional details on two class actions filed against us in that respect. An adverse outcome or settlement of any health-related litigation against us or any other provider of cellular services could have a material adverse effect on our results of operations, financial condition or prospects.

The unionizing of our employees may impede necessary organizational and personnel changes, result in increased costs or disruption to our operation.

In September 2013, we recognized the Histadrut, an Israeli labor union, as the union representing the Company's and Netvision's employees and in February 2015, we entered a collective employment agreement with the Company's employees' representatives and the Histadrut for a term of 3 years (2015- 2017). The agreement defines employment policy and terms in various aspects, including payments to the employees and procedures relating to manning a position, change of place of employment and dismissal, including management and employees' representative respective authority with regards to each. As a result, our day-to-day operations and our ability to execute organizational and personnel changes is more limited, cumbersome, costly and lengthy, as reflected in the voluntary retirement plan carried out in 2014 and 2015, and requires more management attention, that would otherwise be available for our ongoing business. In January 2016, the Histradrut announced a labor dispute in the Company with respect to outsourcing and other employment issues. Although to date, we have not suffered any work stoppages or other disruptions to our operation, future disagreements with the employees' representatives may trigger an adverse impact on our services or customer service, changes may fail to be executed or be executed in a materially different way than planned, resulting in substantially lower savings than expected or requiring materially increased employment costs. Inability or limited ability to make organizational and personnel changes, as well as work stoppages or other disruption to our operations and limitations on management's discretion, may damage the efficiency and quality of our operations, and may lead to damage to our reputation, increased customer churn, loss of market share and reduced profitability.

We are exposed to, and currently are engaged in, a variety of legal proceedings, including class action lawsuits.

We provide services to millions of subscribers on a daily basis. As a result of the scope and magnitude of our operations, as well as the multitude of pricing plans for stand-alone and bundles of services, the large amount of usage data our information systems need to process and record with relation to our subscribers according to their respective pricing plans (currently involving, in certain cases, both Cellcom and Netvision systems), the frequent and multiple changes to our operation and pricing plans due to regulatory changes or in response to the changing conditions in the markets in which we operate, and the involvement of thousands of sales and customer service representatives in the sale process and after sale contacts with our existing or prospective customers all increasing the risk of discrepancies between a pricing plan and the information processed by our internal information systems occurring or inadequate information provided, despite our continued efforts to the contrary - we are subject to the risk of a large number of lawsuits, including class action suits by consumers and consumer organizations, with respect to billing and other practices, such as customer care practices, marketing, including mass media marketing as well as sending commercial messages to customers, data collection and usage practices, including for commercial purposes, offering practices of products and services, including third parties' products and services and practices related to the provision of such services to our customers, such as disclosure requirements. In addition, with respect to practices governed by our licenses or other regulation, we are also subject to the risk of monetary and other regulatory sanctions. See "We operate in a heavily regulated industry, which can harm our results of operations. In recent years, regulation in Israel has materially adversely affected our results" above. These actions are costly to defend and could result in significant judgments against us. Recent years were characterized by a substantial increase in the number of requests for certification of class actions filed and approved in Israel in general, and also against us, the greater involvement of consumer organizations (by filing such suits, opposing settlement agreements and advocating the filing of lawsuits) and the Advocate General (opposing settlement agreements). All of this increases our legal exposure and our legal costs in defending against such suits, which as a result may materially and adversely affect our financial results. This trend is expected to continue. In addition to two class actions approved against us in 2011 and 2013, we have entered into several settlement agreements, mostly for immaterial sums and are currently engaged in dozens of purported class action suits as a defendant, many of which are for substantial amounts. Should these requests to certify lawsuits against us as class actions are approved and succeed, this may have a material adverse effect on our financial results. For a summary of certain material legal proceedings against us, see "Item 8 – Financial Information - A. Consolidated Statements and Other Financial Information –Legal Proceedings".

Further, predefined damages (set forth in the Consumer Protection Law as of 2013) for a discrepancy from a customer's pricing plan, remedied after the customer complained, may aggregate to substantial amounts if paid to numerous customers on multiple occasions, more so if a bill aiming to impose substantially increased predefined damages for any discrepancy from the customer's pricing plan, proposed in 2014 by the Ministry of Communications, is adopted.

We employ thousands of employees and are therefore subject to the risk of employee lawsuits, including class action suits by employees.

We are subject to the risk of intellectual property rights claims against us, in relation to our TV service and other content related services, including video, photographs, music, music-related or other content we purchase from third party content providers. These claims may require us to initiate or defend protracted and costly litigation, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages or may be required to obtain licenses for the infringing product or service, which, if in substantial sums, could harm our results of operations. If we cannot obtain all necessary licenses on commercially reasonable terms, we may be forced to stop using or selling the products and services. We may not have insurance coverage for these types of claims.

Our operations are dependent on complex technology and information systems.

Our operations are dependent on a number of complex technological systems. The offering of bundles of services by us and Netvision, following our merger, increased the number of complex technological systems involved in providing service to our customers and in the billing process of our customers, resulting in some cases in cumbersome procedures, inefficient usage of resources and lack of uniformity. The occurrence of malfunctions in such complex and ever changing and expanding systems is inevitable. In addition, we are considering implementing one Customer Relation Management, or CRM system for both companies, which may result in larger expenditures than anticipated, require significant management attention that would otherwise be available for our ongoing business, or lead to unforeseen operating difficulties and malfunctions, which may lead to loss of revenues, legal claims and regulatory sanctions. For additional details regarding our information systems agreements, see "Item 4. Information on the Company - B. Business Overview - Network and Technology - Information technology". A malfunction in any of our systems which severely impacts our ability to provide products and services to our customers or adequately bill them, may result in loss of revenues to us, may adversely impact our brand and service perception, and expose us to legal claims, all of which may adversely affect our results of operations.

Our operations are dependent on various information systems. We have experienced, and continue to experience, various forms of cyber attacks on a frequent basis. The unauthorized entry to or disruption of operation of these information systems, including due to cyber attacks, may result in damage to us and our customers. Such damages could include our inability to provide certain services without disruptions, if at all, our inability to bill for services rendered, loss of data to us and our customers or abuse of customers' data, all of which may expose us to legal claims and liabilities. Further, any successful attacks on Netvision's customers' information systems, protected by Netvision's data security products, may also expose Netvision to legal claims and liability.

There are certain restrictions in our licenses relating to the ownership of our shares. As a result of a change in control of IDB, we are currently not in compliance with the terms of our licenses.

Our cellular license restricts ownership of our ordinary shares and who can serve as our directors as follows:

x our founding shareholder, Discount Investment Corporation Ltd., or DIC (or its transferee or transferees, if approved in advance by the Ministry of Communications as "founding shareholders"), must own at least 26% of each of our means of control;

• x Israeli citizens and residents among our founding shareholders (or their approved transferees) must own at least 20% of our outstanding share capital and each of our other means of control (DIC has agreed to comply with this requirement);
• x a majority of our directors must be Israeli citizens and residents;
• x at least 20% of our directors must be appointed by Israeli citizens and residents among our founding shareholders; and
• x we are required to have a committee of our Board of Directors that deals with matters relating to state security, which must be comprised of at least four directors (including an external director) having the requisite security clearance by Israel's General Security Service.

If these requirements are not complied with, we could be found to be in breach of our license and our license could be changed, suspended or revoked.

As a result of a rights offering effected by IDB in February 2015 and the subsequent purchase of IDB shares previously indirectly held by Mr. Ben Moshe, one of IDB's controlling shareholders at the time, by corporations controlled by Mr. Elsztain, the other controlling shareholder in October 2015, the control of IDB and consequently indirectly of us, has changed and requires the approval of the Ministry of Communications, including in relation to the Israeli holding requirements included in our communications licenses since Mr. Elsztain is not an Israeli citizen and resident. We have filed a formal request with the Ministry of Communications for its approval of such changes, which includes a request to amend our communications licenses, including with regard to the Israeli holdings requirement set forth in such licenses and an extension period in order for us to comply with the updated provisions (which has not been granted yet). See "Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders." If our request is not granted and some other accommodation is not provided by the Ministry of Communications, we may face sanctions, which, according to the terms of our licenses, could include the suspension or revocation of our licenses.

In addition, our license provides that, without the approval of the Ministry of Communications, no person may acquire or dispose of shares representing 10% or more of our outstanding share capital. Further, our directors and officers and any holder of ordinary shares representing 5% or more of our outstanding share capital may not own 5% or more of Bezeq or any of our competitors or serve as a director or officer of such a company, subject to certain exceptions which require the prior approval of the Ministry of Communications.

To ensure that an unauthorized acquisition of our shares would not jeopardize our license, our articles of association provide that any shares acquired without approval required under our license will not be entitled to voting rights.

If our service is to be determined by the Israeli Government to be an "essential service", the Prime Minister and the Ministry of Communications could impose additional limitations including a heightened requirement of Israeli ownership of our ordinary shares.

Although our articles of association contain certain provisions that are aimed at reducing the risk that holdings or transfers of our ordinary shares will contravene our license, we cannot entirely control these and other matters required by our license, the violation of

which could be a basis for suspending or revoking our license. Our other licenses and Netvision's licenses contain similar restrictions. See also "Item 4. Information on the Company – B. Business Overview – Government Regulations - Our Principal License" and "-Other Licenses" and "Item 4. Information on The Company – B. Business Overview – Netvision".

We may be adversely affected by the significant technological and other changes in the cellular communications industry.

The telecommunications market is known for rapid and significant technological changes and requires ongoing investments in advanced technologies in order to remain competitive. In recent years we have witnessed a growing demand for Internet, content and data through advanced third and fourth generation cellular phones, smartphones, modems, tablets and other devices using cellular data that resulted in a rapid and immense growth of data traffic on cellular networks and required cellular operators to upgrade their networks to accord such demand. Transfer of subscribers to unlimited packages of services and national roaming on our network, have contributed to the substantially growing demand for data traffic on our network, as well as to voice and text messages. We estimate that data traffic will continue to rapidly grow in the future. To meet the growing demand for cellular data traffic, we are required, among others, to continue our investment in our 4G network and upgrading our transmission network, to allow larger capacity and higher data speed rates. In addition, as in order to provide optimal performance, our LTE network requires additional frequencies to those allocated to us under the LTE frequencies tender (as the Ministry of Communications expects us to evacuate 12 1800MHz which were allocated to us for our 2G network, to be used by our LTE network), we are in the process of allocating additional 1800MHz to our LTE network, in areas where lower usage of our 2G network, together with advanced and modern equipment and software features, allows such allocation, with negligible adverse effect to our 2G network performance. Nonetheless, such limited quantity of frequencies may adversely affect our network performance, specifically if we cannot use the LTE frequencies allocated to Golan pursuant to our pending agreement to purchase Golan or additional frequencies under a network sharing agreement, as our 4G network will have 15MHz at most (similar to Pelephone's network, unless Pelephone enters a network sharing agreement), whereas Partner and Hot's 4G combined network enjoys 20MHz, which may harm our competitive stance.

If we cannot obtain or maintain favorable arrangements with foreign telecommunications operators, our services may be less attractive or less profitable.

We rely on agreements with cellular providers outside Israel to provide roaming capabilities to our cellular subscribers in many areas outside Israel. We cannot control or compel the improvement of the quality of the service that they provide and it may be inferior or less advanced than the service that we provide. Some of our competitors may be able to obtain lower roaming rates than we do because they may have larger call volumes or can use more favorable agreements of their overseas affiliates. If our competitors' providers can deliver a higher quality, more advanced or a more cost effective roaming service, then subscribers may migrate to those competitors and our results of operation could be adversely affected, more so if the proposed amendment to our license, allowing other operators to provide roaming services to our subscribers, will be adopted.

Inbound roaming to our network is also influenced by our ability to maintain favorable roaming arrangements. The entry of additional UMTS providers has not only

increased competition regarding outgoing roaming services but also increased competition on inbound roaming services. Additional operators or the abovementioned proposed amendment to our license, may increase such competition further.

In recent years, roaming tariffs for our subscribers have decreased. If roaming tariffs continue to decrease including as a result of the increasing competition or the changing regulation, this could adversely affect our profitability and results of operations.

We also rely on agreements with foreign carriers to provide ILD services by Netvision as well as its international voice hubbing (providing ILD services to foreign operators) services. The risks detailed above in relation to roaming services and possible effects of such risks, apply to Netvion's ILD and hubbing services as well. See "Item 4. Information on The Company – B. Business Overview – Netvision – Telephony Business".

Our substantial debt increases our exposure to market risks, may limit our ability to incur additional debt that may be necessary to fund our operations and could adversely affect our financial stability; regulatory change, market terms and our financial results may affect our possibilities to raise debt.

As of December 31, 2015, our total indebtedness was approximately NIS 3,788 million ($971 million), with our net debt at approximately NIS 2,747 million ($704 million). For additional details see "Item 5. Operating and Financial Review and Prospects. – B. Liquidity and Capital Resources – General". The indentures governing our debentures currently permit us to incur additional indebtedness (subject in some cases to certain limitations). Our substantial debt could adversely affect our financial condition by, among other things:

• x increasing our vulnerability to adverse economic, industry or business conditions, including increases in the Israeli Consumer Prices Index, or CPI, as approximately NIS 2,821 million ($723 million) is CPI linked
• x limiting our flexibility in planning for, or reacting to, changes in our industry and the economy in general;
• x requiring us to dedicate a substantial portion of our cash flow from operations to service our debt, thus reducing the funds available for operations and future business development, as well as for dividend distribution; and
• x limiting our ability to obtain, or resulting in less favorable terms and pricing for, additional financing to operate, develop and expand our business or for refinancing existing debt.

Following circulars of the Commissioner of Capital Markets, Insurance and Savings in the Ministry of Finance published on October 2010 and August 2013, instructing institutional investors to follow certain procedures and requirements before investing in non-governmental debentures our series F through I indentures include certain limitations and covenants, including a covenant not to issue additional debentures if it involves a rating downgrade, certain financial covenants, negative pledge, cross default, limitation on the distribution of dividends, obligation to pay additional interest in case of certain rating downgrades (which occurred under our series F and G debentures, in June 2013). For details regarding such limitations and covenants see "Item 5. Operating and Financial Review and Prospects. – B. Liquidity and Capital Resources – Debt Service". These limitations are

expected to apply to any additional debt incurred by us. These procedures, limitations and covenants limit our freedom to conduct our business, may impose additional costs on us and may limit our ability to borrow additional debt from Israeli institutional investors as well as adversely affect the terms and price of such debt raising.

Since 2011, we suffered a significant decrease in our operating results, following certain regulatory changes, intensified competition and price erosion (see "Item 4. Information on the Company – B. Business Overview –Competition" and "-Additional MNOs"). In May 2012 and in June 2013, the rating of our debentures was downgraded due to increased leverage and competitive pressure. This and any further downgrade in our rating, and any adverse change in our financial results, including any increase in our net leverage (defined in our series F through I indentures and other credit facilities as the ratio of net debt to EBITDA during a period of 12 consecutive months, excluding onetime influences), may adversely affect the terms and price of debt raised, particularly through the issuance of debentures to institutional investors, which, given the limitation on the ability of Israeli banks to lend money to us pursuant to the "Guidelines for Sound Bank Administration" issued by the Israeli Supervisor of Banks (as we are a member of IDB's group of borrowers), may limit our ability to obtain additional financing to operate, develop and expand our business or to refinance existing debt.

See also the law for the promotion of competition and the mitigation of concentration under "Risks Relating to Our Ordinary Shares - Recent Legislation in Israel affecting corporate conglomerates, could adversely affect us" below, which may adversely affect our possibilities of raising debt from Israeli institutional investors.

Our business results may be affected by currency fluctuations, by our currency hedging positions and by changes in the Israeli Consumer Price Index.

A portion of our cash payments are incurred in, or linked to, foreign currencies, mainly U.S. dollars. In particular, in 2013, 2014 and 2015, payments denominated in, or linked to, foreign currencies, mainly U.S. dollars, represented approximately 24%, 20% and 24%, respectively, of our total cash outflow (including payments of principal and interest on our debentures). These payments included capital expenditures, some cell site rental fees, payments for roaming services and to equipment suppliers including handset and set-top boxes and content purchasing agreements (for our OTT TV service) suppliers and part of our dividend payments. As almost all of our cash receipts are in NIS, any devaluation of the NIS against the foreign currencies in which we make payments, particularly the U.S. dollar, will increase the NIS cost of our foreign currency denominated or linked expenses and capital expenditures.

Furthermore, since the principal amount of and interest that we pay on our Series B, D, F and H debentures, are linked to the Israeli CPI, any increase in the Israeli CPI will increase our financing expenses and could adversely affect our results of operations. See "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Debt Service" for details.

We purchase derivative financial instruments in order to hedge part of the foreign currency risks, CPI risks deriving from our operations and indebtedness. Derivatives are initially recognized at fair value. Changes in the fair value are accounted for such that: Changes in the fair value of derivative hedging instruments designated as a cash flow hedge are recognized directly as a component of our shareholders' equity to the extent that the

hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in our income statement as the hedged item affects earnings. The amount recognized in shareholders' equity is transferred to our income statement in the same period that the hedged item affects our earnings. Notwithstanding the above, hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognized through our income statement upon occurrence. These differences in the derivative instruments' designation could result in fluctuations in our reported net income on a quarterly basis.

We may not be able to fulfill our dividend policy in the future; implementation of our dividend policy will significantly reduce our future cash reserves.

In February 2006, we adopted a dividend policy targeting a payout ratio of at least 75% of our net income in each calendar year, subject to any applicable law, our license and contractual obligations and provided that such distribution would not be detrimental to our cash needs or to any plans approved by our Board of Directors. Our series F through I indentures and other credit facilities contain a covenant not to distribute more than 95% of the profits available for distribution according to the Israeli Companies Law 1999, or Companies Law, or Profits. Moreover, under such indentures and other credit facilities, if our net leverage (defined as the ratio of net debt to EBITDA during a period of 12 consecutive months, excluding certain one-time effects) exceeds 3.5:1, we may not distribute more than 85% of our Profits and if our net leverage exceeds 4.0:1, we may not distribute more than 70% of our Profits. For additional details see "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Debt Service". In addition, our license requires that we and our 10% or more shareholders maintain at least $200 million of combined shareholders' equity. Dividend payments are not guaranteed and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends or to pay dividends at a ratio to net income that is less than that paid in the past. Since 2012 our board of directors declared a dividend for the first quarter of 2012 and third quarter of 2013 only, constituting 75% of our net income and part of our retained earnings from earlier periods, respectively, whereas for the other quarters of 2012 and 2013 and in 2014 and 2015, our board of directors chose not to declare dividends, given the intensified competition and its adverse effect on our results of operations and in order to strengthen our balance sheet. See "Item 8. Financial Information - A. Consolidated Statements and Other Financial Information - Dividend Policy".

Our dividend policy, to the extent implemented, will significantly reduce our future cash reserves and may adversely affect our ability to fund unexpected capital expenditures. As a result, we may be required to borrow additional money or raise capital by issuing equity securities, which may not be possible on attractive terms or at all.

If we are unable to fulfill our dividend policy, or pay dividends at levels anticipated by investors in our shares, the market price of our shares may be negatively affected and the value of our investors' investment may be reduced.

We rely on a limited number of suppliers for key equipment and services. We do not own our own infrastructure in the landline market and are dependent on infrastructure providers.

We depend upon a small number of suppliers to provide us with key equipment and services. For example, Nokia Solutions and Networks Israel, or NSN, provides our network system based on LTE technology and GSM/GPRS/EDGE technology, our UMTS/HSPA core system, part of our radio access network and related products and services, and our landline New Generation Network system, or NGN system; LM Ericsson Israel, or LM Ericsson, supplies part of our radio access network and related products and services based on UMTS/HSPA technology and our OTT TV services platform; Alcatel Lucent Israel Ltd., or Alcatel Lucent and Cisco Systems, Inc., or Cisco provide our Carrier Ethernet network and SDH equipment for our transmission network; and Be'eri Printers provides our printing supplies and invoices as well as the distribution, packaging and delivery of invoices and other mail to the postal service distribution centers. In addition, we lease a small portion of our transmission capacity from Bezeq, the incumbent landline operator. Our OTT TV services are further dependent on the Israeli Second Radio and Television authority, the authority responsible for linear channels of the Digital terrestrial television (DTT) broadcasting in Israel.

We are further dependent on infrastructure providers for our (including Netvision's) ISP, ILD, landline telephony (using Voice over Broadband, or VOB technology), broadband infrastructure (using the VDSL landline wholesale market) and OTT TV services. Those providers include Mediterranean Nautilus Ltd. and Mediterranean Nautilus (Israel) Ltd., or collectively Med Nautilus, which connects the Israeli internet network to the "entry points" of the global internet network, as well as Israeli telephony, via an underwater communications cable, and Bezeq and Hot, which provide broadband infrastructure in Israel. Since the launch of the landline wholesale market, we are dependent on Bezeq for the provision of our broadband infrastructure services as well. Should an effective telephony service be provided under the wholesale market and the wholesale market effectively apply to Hot as well, we would be dependent on them for such services as well. These suppliers have suffered labor disruptions, stoppages and slowdowns and may experience them in the future as well. See also "Item 4. Information on The Company – B. Business Overview – Netvision".

In general, if these suppliers fail to provide equipment or services to us that meet requisite quality standards or on a timely basis, or at unfavorable terms to us, we may be unable to provide services to our subscribers in an optimal manner until an alternative source, if one is available, can be found or the situation is rectified, which may harm our ability to compete and result in loss of customers and revenues or place our licenses at risk of revocation for failure to satisfy the required service standards and subject us to customers' lawsuits.

In addition, our cellular end-user equipment sales have been dominated in recent years by Apple and Samsung products, representing over half of our handset sales. See "Item 4. Information on the Company - B. Business Overview - Handsets" for additional details. Advanced Digital Broadcast S.A., or ADB, provides our set-top boxes for our OTT TV services and Altech Multimedia (Pty) Ltd., or Altech, will provide our set-top boxes in the near future. Vubiquity Management Ltd., or VU, provides us with international content and content operation services for our OTT TV services. Should any of these suppliers refuse to sell equipment or content, as applicable, to us, condition such sales on unfavorable terms and conditions or provide our competitors with more favorable terms and conditions, or if these

suppliers fail to produce successful and desirable products or content when no equivalent alternatives are available, this could have a material adverse effect on our handset sales or OTT TV services revenues, as applicable, and results of operations. In addition, any regulatory change which will prevent our customers from using the DTT or condition such usage on unfavorable terms, degradation of service quality, or labor disputes may adversely affect our services, which may harm our ability to compete and result in loss of customers and revenues.

Our investment in new businesses involves many risks.

We have invested and expect to continue to invest in exploration and development of new business opportunities in order to extend and complete our capabilities and offerings, such as our OTT TV solution, which we launched in December 2014. Such endeavors may involve significant risks and uncertainties, including shift of management attention from our ongoing business, loss of focus of our sales and marketing efforts on our main businesses due to attention given to new businesses, insufficient revenues to offset liabilities assumed and expenses associated with these new investments, adversely affecting our cash flow, especially in businesses that require long term and fixed cost such as for the purchase of content in favor of our OTT TV services, inadequate return of capital on our investments, regulatory changes which may impose additional burdens than those planned, inability to effectively compete with incumbent providers or new competitors entering the market, and unidentified issues not discovered in our due diligence of such strategies and offerings, such as unforeseen operating difficulties and large expenditures. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and will not materially adversely affect our reputation, financial condition, and operating results. Moreover, entry into such new ventures may trigger increased competitive pressure by the incumbent providers of competing services on our core business, aiming at preventing our efforts to compete with them at the relevant market, as triggered in December 2014 by Hot after the launch of our OTT TV services.

We are a member of the IDB group of companies, a large and highly regulated Israeli business group, which may limit our ability to expand our business, to acquire other businesses or raise debt. The effects on us of IDB's financial condition are unclear.

We are an indirect subsidiary of IDB Development Corporation Ltd., or IDB, large and highly regulated Israeli business group. In May 2014, a creditors' arrangement for IDB Holding Corporation Ltd., or IDB Holding, was consummated, and since the third quarter of 2014, IDB's financial statements include a note regarding the existence of significant doubts as to its ability to continue as a going concern due in part to its liquidity condition. In January 2016, the rating of IDB's debentures was further downgraded due to the rating agency's assessment of an additional erosion in IDB's liquidity profile and increase in the risk for insolvency. In March 2016, the rating of DIC's debentures was also further downgraded due to the rating agency's assessment of an insufficient improvement in the DIC's financial flexibility and relatively weak liquidity. IDB's and DIC's financial condition could have an adverse effect on our debentures rating, or on the terms of any new debt raised. In addition, pursuant to the "Guidelines for Sound Bank Administration" issued by the Israeli Supervisor of Banks, the amount that an Israeli bank may lend to one group of borrowers and to each of its six largest borrowers is limited. Since we are a member of IDB's group of borrowers, these guidelines may limit the ability of Israeli banks to lend money to us.

Under the Law for the Promotion of Competition and the Mitigation of Concentration, or the Concentration Law, competitive and control concentration factors, both of a certain market and generally, are to be taken into consideration prior to allocation of rights in public assets (including in the communications field) by the relevant governmental authorities, to entities considered to be 'concentrated entities'. Being a subsidiary of IDB, we were included in the list of concentrated entities published in December 2014 to which such requirements apply. This may adversely affect the renewal of our licenses and allocation of additional frequencies to us, which may have an adverse effect on our business. See also **"**Risks Relating to Our Ordinary Shares - Recent Legislation in Israel affecting corporate conglomerates, could adversely affect us" below.

Due to the limited size and high level of regulation of the Israeli market, and the communications market in particular, our being a member of the IDB group of companies may limit our ability to expand our business in the future, form joint ventures and strategic alliances and conduct other strategic transactions with other participants in the Israeli communications market. Specifically, it may hinder the approval of our agreement to purchase Golan.

We are controlled by a single shareholder who can significantly influence matters requiring shareholders' approval.

As of December 31, 2015, Discount Investment Company, or DIC held, directly and indirectly, approximately 41.77% of our outstanding share capital. Pursuant to shareholders agreements among DIC and certain of our minority shareholders, who in the aggregate own approximately 3.39% of our ordinary shares, DIC has been granted the voting rights in respect of those shares. In addition to DIC's shareholdings and such additional voting rights, it has the right to appoint the 20% of our directors that we are required by our license and articles of association to have appointed by Israeli citizens and residents among our founding shareholders. Accordingly, subject to legal limitations, DIC has control (as the term "control" is defined in the Israeli Securities Law; namely the ability to direct a company's activities) over all matters requiring shareholder approval, including the election and removal of our directors (other than external directors) and the approval of significant corporate transactions. This concentration of ownership could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs or other purchases of our ordinary shares that might otherwise give our shareholders the opportunity to realize a premium over the then-prevailing market price for our ordinary shares.

Recent legislation in Israel affecting corporate conglomerates, could adversely affect us.

In December 2013, the Concentration Law was enacted by the Israeli parliament. The law, in material part: (1) imposes limitations on the holdings by a significant corporation that is not in the financial sector in a significant corporation in the financial sector or the holdings of both kinds of corporations under common control and on the possibility of serving as a director in both a significant non-financial corporation and a significant financial corporation; (2) imposes a two layer limitation on the total number of reporting corporations (layers) in pyramidal structure (for existing pyramidal structures of three layers after a transition period of six years and of four layers – after a transition period of four years); (3) strengthens the corporate governance rules applicable to public companies in Israel, and sets additional limitations on certain transactions in which a controlling shareholder has a personal interest, strengthens the independence requirements of external directors and requires that as of September 2014 and during the said transition period in companies that are third layer and up

in a pyramidal structure - the majority of the board of directors be independent, as defined in the Israeli Companies Law, and that the number of external directors be half the number of the company's directors less one (rounded upward) but not less than two; (4) authorizes the Israeli Minister of Finance or bodies authorized by it to set limitations regarding the aggregate credit that may be provided by financial institutions to a corporation or a business group (defined as a controlling shareholder and the corporations under its control); and (5) sets additional procedures including involving the committee of mitigation of concentration designated to take into consideration competitive and control concentration factors prior to any allocation of rights in public assets (including in the communications field) by the relevant governmental authorities. We are a third layer company in the pyramidal structure of the IDB group and were included in the list of concentrated entities published in December 2014 to whom such requirements apply. Accordingly, in September 2014 we changed the composition of our board of directors to accord with the requirements of the Concentration Law, and IDB and DIC have until December 2019 to cause us to cease being a third layer company. IDB and DIC have announced that they are reviewing possible ways to achieve this goal without having to forfeit control of us, such as by merging with each other or by taking IDB or DIC private. There can be no assurance how or when this would occur, if at all. In March 2016, IDB announced that the Israeli court approved an arrangement for the purchase of all of IDB's shares from the public by Dolphin Netherlands, pursuant to which companies indirectly controlled by Eduardo Elsztain will own all the shares of IDB as of the end of March 2016. However, since IDB's debentures will continue to be publicly traded, we will still be considered a third layer company. In addition, the new procedures set in the law in relation to allocation of rights in public assets, could have an adverse effect on our ability to renew our cellular license, receive additional frequencies or purchase Golan. The law may also adversely affect our ability to raise debt or other aspects of our business.

Risks Relating to Operating in Israel

We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel.

Our operations, our network and some of our suppliers are located in Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and could make it more difficult for us to raise capital. A substantial part of our network and information systems is located within range of missile strikes from the Gaza Strip and Lebanon. Any damage to our network or information systems may damage our ability to provide service, in whole or in part or otherwise damage our operation and could have an adverse effect on our business, financial condition or results of operations.

More generally, any armed conflicts, terrorist activities or political instability in the region would likely negatively affect business conditions and could harm our results of operations, including following termination of such conflicts, due to a decrease in the number of tourists visiting Israel. Such adverse effects may also occur due to the increasing criticism of Israel in the international community. Since the end of 2010 several countries in the region, including Egypt and Syria, have been experiencing increased political instability, which led to changes in government in some of these countries, the effects of which are

currently difficult to assess. The absence of a stable government in certain Middle Eastern countries has enabled the development of extremist groups, which could threaten Israeli interests. In addition, Iran has threatened to attack Israel and is suspected to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in areas that neighbor Israel, such as Hamas in Gaza and Hezbollah in Lebanon. This situation may potentially escalate in the future to violent events which may affect Israel and us.

In addition, in the event that the State of Israel relinquishes control over certain territories currently held by it to the Palestinian Authority, we will not be able to provide service from our cell sites located in Israeli populated areas and on connecting roads in these territories. This may result in the loss of subscribers and revenues and in a decrease in our market share.

Our freedom and ability to conduct our operations may be limited during periods of national emergency.

The Communications Law grants the Prime Minister of Israel the authority, for reasons of state security or public welfare, to order a telecommunications license holder to provide services to security forces, to perform telecommunications activities or to establish a telecommunications facility as may be required for the security forces to carry out their duties. Further, the Israeli Equipment Registration and IDF Mobilization Law, 1987, also permits the registration of engineering equipment and facilities and the taking thereof for the use of the Israel Defense Forces. This law further sets the payment for use and compensation for damages caused to the operator as a result of such taking. Our general license also permits the Israeli Government, during national emergencies or for reasons of national security, to take all necessary actions in order to ensure state security, including taking control of our network, and requires us to cooperate with such actions. If national emergency situations arise in the future and if we are to be subject during such time to any of the foregoing actions, this could adversely affect our ability to operate our business and provide services during such national emergencies and adversely affect our business operations. Our other licenses and Netvision's licenses (excluding our ISP licenses) contain similar restrictions. See also "Item 4. Information on the Company – B. Business Overview – Government Regulations ― Our Principal License", "Other Licenses" and "– Netvision".

Provisions of Israeli law and our license may delay, prevent or impede an acquisition of us, which could prevent a change of control.

The Israeli Companies Law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be completed unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, a majority of each class of securities of the target company is required to approve a merger. Further, the provisions of our licenses require the prior approval of the Ministry of Communications for changes of control in our Company.

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize

tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when the time expires, tax then becomes payable even if no actual disposition of the shares has occurred.

These provisions could delay, prevent or impede an acquisition of us, even if such an acquisition would be considered beneficial by some of our shareholders.

Risks Related to the Proposed acquisition of Golan Telecom Ltd.

Failure to consummate the acquisition could negatively impact the price of our ordinary shares and our future business and financial results.

In November 2015, we entered an agreement for the purchase of Golan, one of our competitors. The consummation of the acquisition may be delayed, the acquisition may be consummated on terms different than those contemplated by the purchase agreement, or the acquisition may not be consummated at all. In particular, we have not received regulatory approval for the acquisition of Golan. There is no assurance that the acquisition will be approved by the Israeli regulators and we anticipate that obtaining such approvals will be challenging, specifically in light of the strong opposition to the transaction, led by the Ministry of Treasury. The current market price of our ordinary shares may reflect a market uncertainty as to whether the acquisition will occur, and a failure to consummate the acquisition could result in a significant decline in the market price of our ordinary shares and a negative perception of us generally. Any delay in the consummation of the acquisition or any uncertainty about the consummation of the acquisition could also negatively impact our share price and future business and financial results.

Also, if the acquisition is not approved and we cannot maintain the national roaming revenues we currently enjoy or an equivalent compensation (with revenues from recruiting part of Golan's subscribers not being an adequate relief), it may substantially adversely affect our revenues and profitability and if such decision results in Golan's insolvency, we may face difficulties in the collection of Golan's debt to us. For additional details, see "Item 4. Information on the Company – B. Business Overview "- Agreement for the Purchase of Golan".

Failure to successfully execute or attain strategic objectives from our acquisition and growth strategy may adversely affect our financial condition and results of operations

Even if the acquisition is successfully executed, we may face subsequent difficulties in optimizing the operations of Golan and may experience unanticipated risks or liabilities that were not discovered, accurately disclosed or sufficiently assessed during the due diligence process. Moreover, even if Golan is successfully acquired, the business may ultimately fail or fall short of achieving our strategic objectives for the transaction over the long term.

Any failures in the execution of the transaction or in achieving our strategic objectives with respect to the acquisition could result in slower growth, higher than expected costs, the recording of asset impairment charges and other actions which could adversely affect our business, financial condition and results of operations.

The proposed acquisition entails various risks, which include but are not limited to:

• x the regulatory or other approvals required for the proposed acquisition may not be obtained, specifically in light of the strong opposition to the transaction, led by the Israeli Ministry of Treasury, or may be obtained subject to conditions that are not anticipated, or another condition to the closing of the proposed acquisition may not be satisfied, resulting in delays or ultimate failure of consummating a proposed acquisition;
• x the lengthy, uncertain process of pursuing the purchase could disrupt relationships between us and Golan's customers, suppliers and employees, distract our or Golan's management from operating the business, and could lead to additional and unanticipated costs;
• x the financing of the acquisition, if consummated, is expected to increase the level of our net debt and adversely affect the net debt to EBITDA ratio, included in our debentures and other credit facilities. See "Item 5. Operating and Financial Review and Prospects. – B. Liquidity and Capital Resources – Debt Service";
• x Golan may be unable to retain and hire key personnel and/or maintain its relationships with customers, suppliers and other business partners pending the consummation of the proposed acquisition by us;
• x after the consummation of the acquisition, we may be unable to retain Golan's key personnel, existing customers, suppliers and other business partners or attract new customers;
• x failure to achieve the targeted growth and expected benefits of the acquisition of Golan if sales of Golan's services are lower than anticipated;
• x undiscovered or unanticipated risks and liabilities, including legal and compliance related liabilities, may emerge in connection with the acquisition, or may be higher than anticipated; and
• x even after successfully completing the acquisition, the anticipated benefits of the acquisition may ultimately prove to be less than anticipated.

For additional risks in relation to the Golan acquisition, see also "-We face intense competition in all aspects of our business" and "-We may be adversely affected by the significant technological and other changes in the cellular communications industry" above.

Risks Relating to Our Ordinary Shares

A substantial number of our ordinary shares could be sold into the public market, which could depress our share price.

Our largest shareholder, DIC, holds approximately 41.77% of our outstanding ordinary shares, as of December 31, 2015. The market price of our ordinary shares could decline as a result of future sales by DIC or other existing shareholders or the perception that these sales could occur. DIC sold approximately 5% of our outstanding shares outside the United States in 2011 and approximately 1.7% of our outstanding shares in 2013. In addition, under our recent agreement for the purchase of Golan, if approved and consummated, Golan's shareholders will be entitled to up to NIS 400 million in our shares (in accordance with a calculation mechanism set in the agreement), which they may sell after the lapse of two years from closing. See "Item 4. Information on the Company - B. Business Overview – General -

Agreement for the Purchase of Golan". Sales may be made pursuant to a registration statement, filed with the U.S. Securities and Exchange Commission, or the SEC, pursuant to the terms of a registration rights agreement or otherwise, or in reliance on an exemption from the registration requirements of the Securities Act, including the exemptions provided by Rule 144. Any decline in our share price could also make it difficult for us to raise additional capital by selling shares.

In addition, under our 2006 option plan and 2015 option plan, options are subject to vesting schedules but vesting will be accelerated upon certain events, including any sale or other disposition, of all or substantially all, of the outstanding shares of us. As of December 31, 2015, we had 2,873,190 shares reserved for issuance upon the exercise of options. See "Item 6. Directors, Senior Management and Employment – E. Share Ownership – 2006 Share Incentive Plan".

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

Our History

Cellcom Israel Ltd. was incorporated in 1994 in Israel. Our principal executive offices are located at 10 Hagavish Street, Netanya 4250708, Israel and our telephone number is (972). Our authorized U.S. representative, Puglisi& Associates, is located at 850 Library Avenue, Suite 204 Newark, Delaware 19711 and our agent for service of process in the United States, CT Corporation System, is located at 111 Eighth Avenue, New York, NY 10011.

In February 2007, we listed our shares on the NYSE and in July 2007, we dual listed our shares on the Tel Aviv Stock Exchange, or TASE, and began applying the reporting leniencies afforded under the Israeli Securities Law to companies whose securities are listed both on the NYSE and the TASE.

DIC, a subsidiary of IDB, currently directly and indirectly holds approximately 41.77% of our share capital and the voting rights in respect of an additional approximately 3.39% of our share capital.

As of the date of this Annual Report on Form 20-F, there has been no indication of any public takeover offer by any third party, in respect to our ordinary shares, or by us, with respect to another company's shares.

We hold one of the five general licenses to provide cellular telephone services in Israel in addition to four MVNO providers. Our cellular license was granted by the Ministry of Communications in 1994 and is valid until 2022.

On August 31, 2011, we completed the acquisition of 100% of the share capital of Netvision, a major Israeli ISP and ILD services provider, for a total consideration of approximately NIS 1.57 billion ($404 million). Since prior to the merger transaction, the IDB Group controlled both Netvision and us, the merger transaction was approved as a related party transaction under Israeli law. For further details, see Item 7. B "Related Party Transactions". For further details on Netvision, see "Item 4.B -Business Overview - Netvision".

Since 2012 we have suffered radical adverse changes to our results of operations, following regulatory changes, which also facilitated the entry of additional competitors, a dramatically increased competition and continued price erosion, resulting in a decrease in our EBITDA for 2012, 2013, 2014 and 2015 by 19.1%, 23.8%, 4.0% and 32%, respectively, in comparison to the previous year, despite continued implementation of aggressive efficiency measures in order to mitigate those adverse effects,. We intend to continue to implement organizational and personnel changes in our continued effort to mitigate the adverse effects of the increased competition in all areas in which operate. We cannot guarantee the success of these measures.

In December 2014 and May 2015, we entered the TV and internet infrastructure markets, respectively, which completed our communications offering to include all communications services in Israel.

In June 2015, we entered an agreement to purchase Home Cellular Ltd., one of the four MVNO's operating in the Israeli cellular market, for an immaterial sum. The agreement is subject to the approval of the Ministry of Communication.

In November 2015, we entered an agreement for the purchase of Golan, one of the other four MNO's operating in Israel. If approved by the regulators and consummated, we expect our purchase of Golan to, among other benefits, increase our cellular subscriber market share and our revenues, provide us with opportunities to offer our other services and products to Golan's subscribers and provide opportunities for cost synergies. See Item 3. Key Information – D. Risk Factors – Risks Related to our Business - We face intense competition in all aspects of our business" and "Item 4. Information on the Company - B. Business Overview – General - Agreement for the Purchase of Golan" and "-Competition" for additional details.

Principal Capital Expenditures

Our accrual capital expenditure in 2013, 2014 and 2015 amounted to NIS 384 million, NIS 487 million and NIS 396 million, respectively. Accrual capital expenditure is defined as investment in fixed assets and intangible assets, such as spectrum licenses, rights of use of communications lines, cellular networks' enhancement and expansion and development of new products, set-top boxes for our TV services and routers for our landline services.

B. BUSINESS OVERVIEW

General

We are the largest provider of cellular communications services in Israel based upon number of subscribers and estimated market share as of December 31, 2015. Upon launch of our services in 1994, we offered significantly lower prices for cellular communications services than the incumbent provider and transformed the nature of cellular telephone usage in Israel, turning it into a mass market consumption item. We surpassed the incumbent cellular operator and became the market leader in terms of number of subscribers in 1998 and, despite the entry of additional competitors, we have continued since then to have the highest number of subscribers. As of December 31, 2015, we provided services to approximately 2.835 million subscribers in Israel with an estimated market share of 27%. Our closest competitors – Partner and Pelephone - had estimated market shares of 26% and 25%, respectively. Hot Mobile was estimated to have a market share of 11.6%, Golan was

estimated to have a market share of 8.5% and the MVNOs together, were estimated to have a market share of 1.6%. These estimates are based on the public reports of other operators and our estimate of the market share of the operators who do not publish reports.In the year ended December 31, 2015, we generated revenues of NIS 4,180 million ($1,071 million), EBITDA of NIS 872 million ($223 million), and operating income of NIS 310 million ($79 million). See note 2 to the table in "Item 3. Key Information – A. Selected Financial Data" for a definition of EBITDA. Since 2012 our results of operations were adversely affected by the increasing competition which led to accelerated price erosion and increased churn rate. We estimate that the intensified competition will continue to adversely affect our results in the future. See "Item 5. Operating and Financial Review and Prospects. – A. Operating Results – Overview –General ". We sell our various services on a stand-alone basis or bundled with certain other services offered by Netvision and us.

We offer a broad range of cellular services through our 2G and 3G cellular networks covering substantially all of the populated territory of Israel and our 4G network launched in 2014 and covering most of the population of Israel. These services include basic and advanced cellular telephone services, text and multimedia messaging services and advanced cellular content and data services. We also offer international roaming services in 181 countries as of December 31, 2015. We offer our subscribers a wide selection of handsets from various leading global manufacturers, as well as repair services on most handsets we offer. We also offer landline transmission and data services to business customers and telecommunications operators and, since July 2006, we offer landline telephony services. Since December 2014 we also offer OTT TV services and since February 2015 we (and Netvision) offer internet infrastructure services through the landline wholesale market (bundled with Netvision's ISP service or – more recently - through triple play packages which also include OTT TV services and VOB).

Through our wholly owned subsidiary Netvision, we offer ISP, ILD, landline telephony (VOB) and teleconferencing services. Additional services include cloud services and data protection products solutions based on products and services offered by us and by third party vendors. For further details on Netvision's business and operations, see "- Netvision" below.

In November 2015, we entered an agreement with Golan and its shareholders for the purchase of 100% of the shares of Golan for the sum of NIS 1.17 billion (subject to certain adjustments). The agreement is subject to certain conditions including the receipt of regulatory approvals. For additional details see " –Agreement for the Purchase of Golan" below.

The following table presents our number of cellular subscribers and revenues for each of the last five years:

	Year Ended December 31,
	2011	2012	2013	2014	2015
Cellular subscribers (end of period) (in thousands)(1)	3,349	3,199	3,092	2,967	2,835
Revenues (in NIS millions)	6,506	5,938	4,927	4,570	4,180

(1) Subscriber data refers to active cellular subscribers. We use a six-month method of calculating our cellular subscriber base, which means that we deduct subscribers from our cellular subscriber base after six months of no revenue generation and activity on our network by or in relation to the post-paid subscriber, no revenue generating calls or SMS for pre-paid subscriber and no data usage or

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less than NIS 1 of accumulated revenues for M2M (machine to machine) subscribers. The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. During the fourth quarter of 2011, we removed approximately 52,000 subscribers from our subscribers base, which included subscribers using our TDMA network who had not requested a transfer to our other networks following the shutdown of our TDMA network as of December 31, 2011, and subscribers who ceased using our services following a change to our policy which previously allowed subscribers to change from post to prepaid subscription as a result of the reduction of Early Termination Fees in the cellular market in early 2011. These changes affected other key performance indicators. In the fourth quarter of 2012, we removed approximately 138,000 M2M subscribers from our subscriber base, following the addition of the above revenue generation criterion for M2M subscribers. This change had an immaterial effect on our ARPU for 2012. In the fourth quarter of 2013 we removed approximately 64,000 subscribers from our subscribers base, following a change to our prepaid subscribers counting mechanism. As a result of such change, we add a prepaid subscriber to our subscribers base only upon charging a prepaid card and remove them from our subscribers base after six months of no revenue generating calls or SMS. Following each of these changes, we have not restated prior subscriber data to conform to such changes.

Business Strategy

Our goal is to strengthen our position as a leading Israeli telecommunications group. The principal elements of our business strategy are as follows:

• x Offering our customers comprehensive telecommunications solutions. We offer our customers a wide range of cellular and landline telecommunications services. We focus our offerings on bundles of services, which as of May 2015 also included triple play bundles of internet infrastructure (through the landline wholesale market using Bezeq's VDSL infrastructure) and ISP, landline telephony and TV services), as they enhance customer loyalty to us. We also offer a one stop shop for the group's portfolio of services, in both customer service and sales. In addition, we intend to continue to leverage our leading position and large market share in those businesses for cross-sales and the offering of new services which are found to be synergistic to those businesses, such as our OTT TV services and internet infrastructure services, in order to increase our overall revenues and market share.
• x Growing in wireline services. We intend to continue to expand our landline business with both private and business customers. For private customers, we provide Internet infrastructure (via Bezeq's infrastructure through the wholesale market) and ISP, home telephony services (VOB, via Bezeq's and Hot's infrastructure), OTT TV services as well as ILD services. For business customers, we provide a wide range of telecommunications services, including Internet infrastructure (via Bezeq's VDSL infrastructure through the wholesale landline) and ISP, transmission services, ILD, landline telephony services, as well as hosting and data security services. These, combined with approximately 1,780 kilometer inland fiber-optic network, our microwave infrastructure, and Netvision's high penetration in business parks and industrial centers, provide us with the ability to selectively offer costefficient landline telecommunications solutions to business customers and integrated offerings of landline and cellular services.
• x Optimization of cost structure. We continue our efforts to reduce costs and improve our efficiency. In 2015, we continued taking other aggressive efficiency measures, through adjustments to the existing head count, a reduction in overhead expenses and improvement of work processes. We plan to continue streamlining our costs in 2016, including organizational and personnel changes, and also through our agreement to purchase Golan, if approved and executed.

Agreement for the Purchase of Golan

In November 2015, we entered an agreement with Golan and its shareholders for the purchase of 100% of the shares of Golan, for the sum of NIS 1.17 billion, or Purchase

Agreement and Purchase Price, respectively. The Purchase Price is subject to certain adjustments, including due to specified material adverse events with respect to Golan.

Golan is one of the four other MNOs operating in Israel in addition to us. It launched operations in 2012 with a strong brand recognized for low-cost services, and primarily provides cellular services to approximately 900,000 customers (as of November 2015), with a comparatively low churn. For the year ended December 31, 2014 and the six months ended June 30, 2015, Golan's revenues were NIS 395 million and NIS 243 respectively, and net profit was NIS 21 million and NIS 2 million, respectively (according to information provided by Golan to us).

If approved by the regulators and consummated, we expect our purchase of Golan to, among other benefits, increase our cellular subscriber market share and our revenues, provide us with opportunities to offer our other services and products to Golan's subscribers and provide opportunities for cost synergies.

The purchase of Golan is another step in turning us into a leading telecommunication group that provides high value at low prices to the Israeli consumer. We intend to operate Golan Telecom as an independent company.

The main provisions of the Purchase Agreement include:

• x Up to NIS 400 million out of the Purchase Price shall be paid in the form of a mandatorily convertible 5 year note issued to the sellers by us. The note shall be repaid through the issuance of our ordinary shares. The sellers may request conversion or assign the note at any time after the second anniversary of the closing date, at which time, we may elect, at our sole discretion, to repay the sellers by the equivalent market value of the shares, rather than issue the shares. Golan's shareholders will receive limited customary registration rights in relation to such shares.
• x Golan shall continue to purchase national roaming services from us, until the earlier of the closing date or a certain date specified in the Agreement following its termination date and as of January 2016, shall increase its monthly payment to us to approximately NIS 21 million, or Monthly Consideration. After closing, we shall no longer receive national roaming revenues. The parties further agreed to postpone the payment date for the difference between the sum Golan has been paying us and the sum it is obligated to pay us under the national roaming services agreement, which was set to NIS 600 million, until the earlier of the valid termination of the Purchase Agreement or the lapse of 12 months from the signing of the Purchase Agreement, if no closing is reached by then. The network sharing agreements between us and Golan are void.
• x The Purchase Agreement contains generally customary representations, covenants, indemnification arrangements, closing conditions and termination terms. Specific closing conditions include the receipt of the approvals of the Israeli Ministry of Communications and the Antitrust Commissioner, and absence of a material adverse change in Golan's condition, as defined in the Purchase Agreement. The Purchase Agreement can be terminated by either party if closing does not occur until the lapse of 12 months from the Purchase Agreement date.

We intend to finance the Purchase Price through a combination of equity and debt. We expect that in addition to the said NIS 400 million convertible note, we would issue approximately NIS 200 million of equity (which may include a rights offering) and will finance the remainder from internal sources and a debt raising.

There is no assurance that the Agreement shall be approved by the Israeli regulators, which we expect will be challenging, specifically in light of the opposition to the transaction, led by the Ministry of Treasury, nor as to the execution of such a sale.

For risks related to the purchase of Golan, see "Item 3. Key Information – D. Risk Factors – Risks Related to the Proposed Acquisition of Golan Telecom Ltd." above.

Cellular Services and Products

As of December 31, 2015, we provided cellular communications services to approximately 2.845 million subscribers, including basic cellular telephony services, text and multimedia messaging, data and other value-added services as well as handset sales. Not all services are supported by all handsets or by all of our networks.

We offer our cellular subscribers a variety of usage and sector pricing plans and bundles combining cellular services with other communications services that our group offers, such as Internet infrastructure and ISP, landline, ILD and OTT TV services for home and IP switchboard, Internet infrastructure and ISP landline and ILD services for the office. We offer two methods of payment: pre-paid and post-paid. Pre-paid services are offered to subscribers who pay for our services prior to obtaining them, usually by purchasing our "Talkman" pre-paid cards or "virtual" Talkman cards. Post-paid services are offered to subscribers who are willing to pay for our services through banking and credit arrangements, such as credit cards and direct debits. Price erosion and the marketing of unlimited packages, have resulted in a constant decline in our pre-paid subscriber base. In line with regulation, our pricing plans do not include a commitment to purchase our services for a predefined period, other than in large business agreements.

Basic cellular services

Our principal cellular service is basic cellular telephony and data transfer, upload and download (in supporting handsets). Both are included in our "unlimited packages". In addition, we offer many other services with enhancements and additional features to our basic cellular telephony service, including voice mail, cellular fax, call waiting, call forwarding, caller identification and conference calling.

Data services can be used with handsets (in supporting models), cellular modems, laptops and tablets. We provide our customers with a variety of "internet surfing packages" for that purpose.

We also offer both an outbound roaming service to our subscribers when traveling outside of Israel and an inbound roaming service to visitors to Israel who can "roam" into our network. As of December 31, 2015, we had commercial roaming relationships with 546 operators in 181 countries based on the standard agreements of the GSM organization (an umbrella organization in which all the cellular operators operating with GSM technology are members). In addition, as of December 31, 2015, we had 3G roaming arrangements with 347 of these operators, in 114 countries, (some of them for 4G as well) enabling our 3G and 4G roamers to use data services in the respective countries and visiting roamers in Israel of these operators, to use our 3G and 4G services, respectively.

Value-added services

In addition to basic cellular telephony and data services, we offer many value-added services, such as SMS and MMS, cloud backup content services such as music downloads

and "Cellcom TV" application. SMS is included in our "unlimited packages". We offer those services that we believe are likely to be popular with subscribers and benefit our business. Some of the value-added services that we offer are available only to subscribers who have supporting handset models and some are offered only to business subscribers.

To our business subscribers we also offer multi SMS, M2M, "Double Net" services allowing combined usage of cellular and landline networks in order to insure continuous service, work force management and vehicles management applications.

Handsets

We sell a wide selection of handsets (which for purposes of this report may include other types of communicationsend-user equipment, such as tablets) designed to meet individual preferences. Prices of handsets vary based on handset features and special promotions. We offer a variety of installment plans for handsets and discounts for short term installment plans, however in most cases, handsets are to be paid in 36 monthly installments. We offer a variety of handsets from world-leading brands such as Apple, LG, Nokia, Samsung, Sony, HTC, ZTE and Alcatel. The vast majority of our handset sales in 2015 have been by Apple and Samsung. The handset models we sell offer Hebrew language displays in addition to English, Arabic and Russian (in most of the models). We are also required to provide cellular services to subscribers who did not purchase their handsets from us, provided that the handset model complies with the standards set by the Ministry of Communications. We offer our subscribers repair services for most handsets, in approximately 28 locations, including through our wholly owned dealer, as well as by dispatch service. See also "Customer Care" below.

We also sell modems, tablets and smart watches to promote our data services. In addition, we sell added value products to our customers, such as smart watches.

Samsung International Co. Ltd. provides us Samsung products and spare parts for such products, under terms, including price of products, agreed between us and Samsung from time to time.

In 2013, we entered into an agreement with Apple Sales International for the purchase and distribution of iPhone products, respectively, in Israel. Under the terms of the agreement, we have committed to purchase a minimum quantity of iPhone products, respectively, over a period of three years, which have represented a significant portion of our total cellular handsets purchase amounts, respectively, over that period.

Landline services

In addition to our cellular services, we provide landline telephony, transmission and data services, using our approximately 1,780 kilometers of inland fiber-optic infrastructure and complementary microwave links. We have offered transmission and data services since 2001, landline telephone service since July 2006, and advanced, voice and data landline services since 2008, both to selected business customers. Since May 2015 we (and Netvision) have offered internet infrastructure services through the landline wholesale market, using Bezeq's VDSL infrastructure. Netvision also offers landline services to both private and business customers, focusing on the private sector. For further details, please see "-Netvision" below. For additional details regarding the landline wholesale market and the possible effects

of the provision of broadband infrastructure services by IBC on our landline business, see "Item 4. Information on the Company –Competition - Wireline".

As of December 2014, we are also offering OTT-TV services, branded 'Cellcom tv' to private customers and using Netvision's systems. Cellcom tv is an hybrid OTT-DTT TV service provided to the Israeli market. The service includes a set-top box that enables linear channels, including based on the Israeli Digital terrestrial television (DTT) broadcasting, Video on Demand library subscription (SVoD) that can be also accessed by smartphones and tablets (TV anywhere), access to internet video content from selected internet sites, music streaming service and additional advanced features such as personal video recorder, VoD playlist channels and connection to social networks, for a highly competitive price. Our VoD catalogue and linear channels offer international and local content from top content suppliers.

In 2012, Netvision entered an agreement with ADB, for the purchase and distribution of set-top boxes and ancillary products and services for our OTT TV services. In June 2015, Cellcom entered an agreement with Altech, for the same purpose.

In 2013, Netvision entered an agreement with VU, a leading international supplier of multiplatform video services and solutions, for the supply of international video content and content operation and management services. Under its agreement with VU, Netvision has committed to pay minimum amounts for such content and services. The Agreement is valid until the end of 2018, and may be terminated by Netvision at the end of 2017, subject to certain conditions; and thereafter is renewable for additional periods of one year each, unless terminated by either party, subject to prior notice.

Network and Technology

General

Our cellular network has developed over the years since we commenced our operations in 1994, and we now have dual cellular and wireline capabilities.

Our "fourth generation" LTE, or Long Term Evolution technology, was launched in August 2014, offers data throughput of up to 112 Mbps on the downlink path and up to 37 Mbps on the uplink path (voice services are provided through our 3G network). Our LTE network is covering most of the population of Israel and in 2016 we intend to continue the deployment of this network and allocate additional spectrum in the 1800 band (where possible) in order to enable higher data throughput rate.

Our "third generation" UMTS/HSPA+, or high-speed packet data access, technology, offers full interactive multimedia capabilities with current data rates of up to 42 Mbps on the downlink path and up to 5 Mbps on the uplink path. In 2016, we intend to continue to support the increasing demand for data traffic, while maintaining its quality of services. This network, considered to be a "3.9" technology, uses the same core as our GSM/GPRS/EDGE network and covers substantially all of the populated territory in Israel. Moreover, our UMTS/HSPA+ network supports types of services that require higher throughput and lower delay, such as video conferencing and provides an adequate fallback for our LTE network by means of smart features and network load sharing.

Our "second generation" GSM/GPRS/EDGE 1800MHz network allows for voice calls, data transmission and multimedia services, although at slower speeds than our LTE and

UMTS/HSPA+ networks. Our GSM/GPRS/EDGE technology is an advanced second-generation technology and considered to be a "2.75G" technology. It enables us to deliver multimedia and services at speed rates that are higher than the rates offered through regular "second generation" digital cellular technology. Packet data rates vary from 50 Kbps to 200 Kbps, depending mainly on handset capabilities. In addition, in the case of coverage gaps and for voice services supported by our GSM/GPRS/EDGE technology, the network provides an adequate voice fallback for our LTE and UMTS networks. Most of our traffic uses the UMTS/HSPA+ network with a continuous growth of data using our LTE network.

Our transmission network is comprised of approximately 1,780 kilometers of inland advanced fiber-optic cables that, together with our microwave infrastructure, enable us to provide our customers with telephony and high speed and high quality transmission and data services. Our transmission network is strategically deployed in order to cover the major portion of Israel's business parks and permits us to provide our own backhaul services while reducing our need to lease capacity from Bezeq, the incumbent landline operator in Israel.

Our system for the provision of advanced centrex services based on cloud solutions to our business landline customers, is by Broadsoft Ltd.

Netvision's platform by LM Ericsson, allows the provision of our OTT TV services, together with the Israeli DTT infrastructure.

Cell sites sharing agreement

In September 2014, we entered into a co-operation agreement regarding maintenance services for passive elements of cell sites with Pelephone, including unifying passive elements and streamlining costs, through a common contractor. The contractor to be selected by an RFP process, will enter a separate agreement with each of us and Pelephone, generally for a period of at least 5 years. In July 2015, the Israeli Antitrust Commissioner approved the co-operation agreement for a period of ten years under certain conditions. However, we have been unable to progress its execution and can provide no assurance that such co-operation will occur in the future.

Infrastructure

We have built an extensive, durable and advanced cellular network system, enabling us to offer high-quality services to substantially the entire Israeli populated territory. We seek to satisfy quality standards that are important to our subscribers, such as high voice quality, high data rate packet sessions, low "blocked call" rate (average rate of call attempts that fail due to insufficient network resources), low "dropped call" rate (average rate of calls that are terminated not in the ordinary course) and deep indoor coverage. Therefore, we have made substantial capital expenditures and expect to continue to make substantial capital expenditures on our network system.

Our LTE network is covering most of the population of Israel and we cover substantially all of the populated areas of Israel with both our UMTS/HSPA+ network and our GSM/GPRS/EDGE network. Our LTE and UMTS/HSPA+ networks are mostly co-located with our GSM/GPRS/EDGE network. The supplier of our LTE network is NSN. The suppliers of our UMTS/HSPA+ network are Ericsson Israel (for part of our 3G radio access network) and NSN (for our core network and part of our radio access network). The supplier

of our GSM/GPRS/EDGE network is NSN. Ericsson and NSN, each with respect to the network supplied by it to us, provide us with maintenance services.

In recent years, we have enhanced and expanded both our UMTS/HSPA+ network and our GSM/GPRS/EDGE network, primarily in urban areas, by adding infrastructure to improve outdoor and indoor coverage, including through UMTS/HSPA 850 MHz sites deployed through substantially all of the populated areas of Israel. In 2016, we intend to continue to expand our LTE network coverage.

We launched our SDH transmission network in 1999. It is based on Alcatel Lucent and ECI Telecom technology and covers substantially all of the populated areas in Israel, and is maintained by Alcatel Lucent and ECI Telecom. We launched our Carrier Ethernet network in 2010, based on Alcatel Lucent technology. It covers substantially all of the populated areas in Israel and is maintained by Alcatel Lucent. In 2015, we launched an MBH network, by Cisco, intended to support all our cellular traffic. In 2016, we intend to migrate the majority of our cellular sites to this new network.

Pursuant to the requirements of our license (as well as the licenses of the other telephony service providers in Israel), our cellular network is interconnected, either directly or indirectly, to the networks of all other telephony service providers in Israel. Our network monitoring system provides around-the-clock surveillance of our entire network. The network operations center is equipped with sophisticated systems that constantly monitor the status of all switches and cell sites, identify failures and dispatch technicians to resolve problems. Operations support systems are utilized to monitor system quality and identify devices that fail to meet performance thresholds. These same platforms generate statistics on system performance such as dropped calls, blocked calls and handoff failures. Our network operations center is located in our Netanya headquarters. In addition, we have duplicate back up center in Ramle, located approximately 30 kilometers, respectively, south of Netanya and a disaster recovery plan, or DRP, for all our engineering systems. We adopted a business continuity plan and a disaster recovery plan to ensure our ability to continue our operation in emergency situations in accordance with a recent amendment to our license.

In 2011, Netvision entered an agreement with LM Ericsson, for the purchase of our OTT TV services system and ancillary products and services. Netvision has an option to purchase maintenance services on an annual basis until 2018. Our OTT TV service also uses the Israeli DTT infrastructure. The DTT infrastructure may be used freely by our customers.

Cellular Network design

We have designed our GSM/GPRS/EDGE, UMTS/HSPA+ and LTE networks in order to provide high quality and reliability in-line with the requirements set forth in our license while using a cost-effective design, utilizing shared components for our networks, where applicable.

We have a DRP for our engineering systems, aimed at increasing our network's survivability in case of damage to any of its elements. The DRP also provides our network with additional advantages, including increased capacity and advanced qualities in line with our license requirements.

Our primary objective going forward is to continue deploying our LTE network while allocating a smaller amount of our 1800MGz frequencies to our 2G network, where possible,

through advanced and modern equipment and software features, and to continue to support the increasing demand for data traffic of our high speed UMTS/HSPA+ network. At the same time we intend to continue to perform extensive optimization work to provide our subscribers with maximum capability to support video and other broad-bandwidth content. See "Item 3. Risk Factors – We may be adversely affected by significant technological and other changes in the cellular communications industry ".

Cellular Network performance

We continually optimize our entire network in order to meet the key performance indicators for our services, including dropped calls, voice quality, accessibility, availability and packet success rate. We use advanced planning, monitoring and analyzing tools and introduce advanced and modern equipment and software features in order to achieve our performance goals efficiently and with minimum faults.

The main indicators that we use to measure network performance for voice and packet data are the "blocked call" rate, the "dropped call" rate and average throughput. Our average rates of blocked and dropped calls meet those required by our license. The average throughput indicator is not set in our license.

Spectrum allocation

Spectrum availability in Israel is limited and is allocated by the Ministry of Communications through a licensing process. We have been allocated 2x10 MHz in the 850 MHz frequency band previously used by our TDMA network and currently by our UMTS/HSPA base stations, 2x20 MHz in the 1800 MHz frequency band, 5 - 15 MHz (varying dependent on usage required in different areas) of which are used by our LTE network and the remaining is used by our GSM/GPRS/EDGE network (again varying dependent on usage required in different areas) and 2 x 10 MHz 2100 MHz frequency band used by our UMTS/HSPA network. We believe that our available spectrum is sufficient for our current needs.

Out of the 20 1800 MHz, 3MHz were allocated to us in August 2015 by the Israeli Ministry of Communications, for 4G technologies (such as LTE, LTE Advanced) . Unlike our other frequencies, allocated to us for the duration of our license, these frequencies were awarded to us for a period of 10 years only.

Cell site construction and licensing

We construct cell sites based on our strategy to expand the geographical coverage and improve the quality of our network and as necessary to replace cell sites that need to be removed. Our acquisition teams survey the area in order to identify the optimal location for the construction of a cell site. In urban areas, this would normally be building rooftops. In rural areas, masts are usually constructed. Our transmission teams also identify the best means of connecting the base station to our network, based on our independent transmission network, either by physical optical fiber, microwave link or Bezeq landlines. Once a preferred site has been identified and the exact equipment configuration for that site decided, we begin the process of obtaining all necessary consents and permits. The construction of cell sites requires building permits from local or regional authorities, or an applicable exemption, as well as a number of additional permits from governmental and regulatory authorities, such as construction and operating permits from the Ministry of Environmental Protection in all cases, permits from the Civil Aviation Authority in most cases and permits from the Israeli

Defense Forces in some cases. In special circumstances, additional licenses are required. See "Item 4. Information on the Company – B. Business Overview – Government Regulations—Permits for Cell Site Construction."

Suppliers

In April 2014 we entered a framework agreement with NSN Israel, of Nokia Solutions and Networks group, a worldwide leading network manufacturer, for the purchase of an LTE network, which also supports LTE Advanced technology (4.5 generation) and related services. This agreement will also govern the purchase and services provided under our previous agreement with NSN, in relation to our GSM/GPRS and EDGE networks, UMTS core system and a UMTS/HSPA radio access network and related products and services. We have an option to purchase maintenance services on an annual basis until March 2030.

We entered into an agreement with LM Ericsson in September 2005 for the purchase of UMTS radio access network and ancillary products and services and in December 2011 for the purchase of upgraded UMTS /HSPA products and related services. We have an option to purchase additional maintenance services on an annual basis until 2026.

We use Telcordia's (which was acquired by Ericsson) intelligent platform, or "IN," to provide services to our GSM/GPRS/EDGE, UMTS and LTE networks, allowing us, at minimal cost, to internally develop sophisticated services with a short time-to-market that are customized to local market requirements. Our IN platform supports all relevant IN protocols, which allows us to provide (subject to applicable roaming agreements) advanced roaming services, including Virtual Home Environment, abbreviated dialing, unified access to voice mail, VPN, local number format from subscribers' phone book and call screening.

In addition, we have agreements with several Israeli engineering companies for the construction of our cell sites. We also purchase certain network components from other suppliers.

Transmission network

Our transmission network provides us with wireline connectivity for our cellular and landline network in substantially all of the populated territory of Israel. It is based on our fiber-optic network and complementary microwave infrastructure. Our transmission network includes links to our internal cellular network and to our landline and transmission subscribers.

Our optical transmission network is deployed from Nahariya in the north to Beer Sheva in the south and Afula and Jerusalem in the east, consisting of approximately 1,780 kilometers. The fiber-optic network reaches most of the business parks in the country and is monitored by a fault-management system that performs real-time monitoring in order to enable us to provide our subscribers with high quality service. In order to efficiently complete our transmission network's coverage to substantially the entire country, we use a microwave network as a complementary solution in those areas that are not served by our fiber-optic network. As of December 31, 2015, we had approximately 2,718 microwave links to both our cell sites and subscribers.

In 2015 we continued to expand our Carrier Ethernet network and our ISP network backbone in Israel and abroad in order to support growing demand for capacity, upgraded the capabilities and capacity of our customer Quality of Experience systems and upgraded and

improved the capabilities of our central system for the protection of our network against cyber attacks.

Under our agreement with Alcatel Lucent, we purchased an SDH transmission network. We purchase maintenance services for the network on an annual basis.

In November 2009, we entered into an agreement with Alcatel Lucent for the purchase of our Carrier Ethernet network. We also agreed to purchase from Alcatel Lucent at least 51% of the equipment and services that we purchase for such network until the lapse of 7 years from final acceptance (until February 2017). We have an option to purchase maintenance services until 2022.

In February 2015 we entered an agreement with Bynat Communications Computers Ltd., or Bynat, for the purchase and maintenance of an MBH transmission network by Cisco. In the agreement we agreed to purchase maintenance services for a term of 5 years from final acceptance (until 2019), and we may stop purchasing such services subject to a termination fee. Thereafter we have an option to purchase maintenance services for a term of 8 years (until 2027).

To supplement our transmission network, we lease a limited amount of transmission capacity from Bezeq, the incumbent landline operator. Netvision owns a small transmission network and leases most of the transmission capacity it requires from us, Bezeq, Hot and Partner.

Information technology

We maintain a variety of information systems that enable us to deliver superior customer service while enhancing our internal processes.

In 2010 - 2015, we entered into several agreements with Amdocs (Israel) Limited, or Amdocs, for the provision of operation, maintenance, management and development services for our and Netvision's billing and customer care systems as well as for the development of a new version for our billing system, to serve Netvision as well as an agreement to replace our and Netvision's current CRM systems and serve both companies. In February 2016, those agreements were consensually terminated by mutual agreement and our billing and CRM systems are supported mostly internally, including by personnel previously engaged by Amdocs.

Netvision currently uses a billing system supported mostly internally and by Intec and a customer care system provided by PeopleSoft and supported mostly internally as well.

We use Nortel's CTI system for the management of incoming calls to our telephonic call centers.

Our current customer care system presents our customer care employees with a display of a subscriber's profile based on various usage patterns. This enables us to provide a service based upon information for that particular subscriber.

We also use a knowledge management system relating to our various services and products by Aman, branded "Cellcopedia".

We (and Netvision as of July 2013) use ERP solutions provided by SAP, supported by Rimini Street Inc, or Rimini. We use a data warehouse based on an Oracle data base system and various data mining tools, ETL by Informatica and reports generated by Cognos. The data warehouse contains data on our subscribers' usage and allows for various analytical segmentation of the data.

Cisco provides us and Netvision with maintenance proactive malfunction detection and consultant services for both our IP networks equipment. The agreement is effective until the end of 2019.

Sales and Marketing

Sales

As part of our strategy to fully penetrate every part of the Israeli market, we try to make the purchase of our services as easy and as accessible as possible, while making our sales lineup more cost efficient. Our efforts to adjust our sales operations to meet current market conditions include closing and uniting points of sale and eliminating duplicate points of sale or transferring to more cost effective channels. We offer pricing plans, value-added services, handsets, accessories and related services through a broad network of direct and indirect sales personnel. We design pricing plans and promotional campaigns aimed at attracting new subscribers and enhancing our ability to retain our existing subscribers. We pay our independent dealers commissions on sales, while our direct, employee sales personnel receive base salaries plus performance-based incentives. All of our, and our dealers', sales and other customer-facing staff go through extensive training prior to commencing their work. Our distribution and sales efforts for subscribers are conducted primarily through four channels:

Points of sale. We distribute our products and services through a broad network of physical points of sale providing us with nationwide coverage of our existing and potential subscriber base.

We operate directly, using our sales force and service personnel, at approximately 28 physical points of sale and service (having closed two points of sale and service in 2015), located in central and other frequently visited locations to provide our subscribers with easy and convenient access to our products and services. In 2015, we reduced the space of several additional points of sale, and we may continue to do so in 2016.

We also distribute our products and services indirectly through a chain of dozens of dealers (including our own wholly owned dealer, Dynamica) who operate at approximately 150 points of sale throughout Israel. Our dealers are compensated for each sale based on qualitative and quantitative measures. We closely monitor the quality of service provided to our subscribers by our dealers. In our efforts to penetrate certain sectors of our potential subscriber base, we select dealers with proven expertise in marketing to such sectors.

Telephonic sales. Telephonic sales efforts target existing and potential subscribers who are interested in buying or upgrading handsets and services. Our sales representatives (both in-house and outsourced) offer our customers a variety of products and services, both in proactive and reactive interactions.

Account managers. Our direct sales force for our business customers maintains regular contact with our mid-sized and large accounts, focusing on sales of cellular and wireline services, customer retention and tailor-made solutions for the specific needs of such customers. We provide small and mid-sized business customers one focal point to both sales and services by phone. Our account managers are aided by our various back office experts in determining customers' needs and making suitable offers. Sales to larger business customers or governmental and local authorities sometimes involve participation in the customer's tender process.

Online sales. We offer our customers the ability to purchase our products and services through our internet site and our smartphone application and invest efforts in directing our customers toward self-service channels. We have established a dedicated internet site for the marketing and sales our OTT TV service.

Marketing

Our marketing strategy emphasizes our position as a market leader, our value for money and our provision of a comprehensive solution for our customers' communication needs, by offering services bundles, which combine a package of voice and SMS usage, cellular data, ISP, landline and ILD services for families and following commencement of our OTT TV and internet infrastructure services, a package of voice and SMS usage, cellular data, ILD services and OTT TV service and triple play bundle of OTT TV, internet infrastructure and ISP and landline telephony services and bundles offerings which combine a package of voice and SMS usage, cellular data, repair services, IP switchboard, internet infrastructure and ISP service, landline and ILD services for the office for small and mid-sized businesses. We believe the provision of bundles and triple play packages of our services strengthen loyalty and increase customer satisfaction. We aim to provide our customers with a comprehensive quality experience through the various means of communications that they use, including their mobile handset, tablet and laptop. Alongside our focus on packages for a fixed sum, we have substantially reduced the number of calling plans available to our customers, thus reducing our back office operation.

From surveys that we conduct from time to time, we learn that subscribers base their choice of communications provider primarily on the following parameters: the services included in the bundle; perceived price of services and handsets; level of customer service; perceived quality of the network; general brand perception; and with regards to the cellular provider - selection of handsets and their compatibility with their needs. Our marketing activities take into consideration these parameters and we invest efforts to preserve our subscriber base and attract new subscribers.

We leverage our extensive interactions with our customers to provide the requested services and also to cross- and up-sell cellular and wireline products and services according to customer needs, usage trends and profitability, mostly by using advanced CRM models, to increase customer satisfaction, loyalty and revenues.

We regularly advertise in all forms of media, including in promotional campaigns. We also use "one to one" promotional campaigns such as advertisements in our subscribers' monthly bill and in incoming IVR. We believe our marketing and branding campaigns, including our "Cellcom tv" advertisement campaign conducted since the launch of such services, has been very successful and acclaimed among the Israeli public and even contributed to the strength of the "Cellcom" brand. We believe that the success and public

response that the campaigns have generated is the result of the relevance of their messages to our customers, indicating the success of our focus and differentiation from our competitors.

Cellcom was ranked by Globes as the leading and strongest brand of Israel's cellular market in 2015 for the fifth year in a row, and 'Cellcom tv' was chosen as the 2015 winning launch, both by Israel's marketing association and in a poll taken among Israel's leading marketing VPs. We believe that our strong brand recognition gives us the high level of market exposure required to help us achieve our business objectives.

Customer Care

Our customer service unit is our main channel for preserving the long-term relationship with our subscribers. We focus on customer retention through the provision of quality service and customer care. In order to achieve this goal, we systematically monitor and analyze our subscribers' preferences, characteristics and trends by developing and analyzing sophisticated databases. In addition, subscribers are encouraged to subscribe to additional value-added services, mobile data and content services as well other communications services such as internet infrastructure and ISP services, landline telephony and ILD services and our private customers – OTT TV services as well, in order to enhance customer satisfaction and increase ARPU, with a specific focus on bundles of services. We invest large resources in the quality of our service to our customers. Our customer care representatives receive extensive training before they begin providing service and thereafter regularly undergo training and review of their performance. We provide our customer care representatives with a continually updated database, thus shortening the interaction time required to satisfy the customer's needs and preventing human errors and closely monitor the service provided by them, in order to assure its quality. We constantly review our performance by reviewing customers applications and conducting surveys among our subscribers in order to ensure their satisfaction with our services and to improve them as necessary. In addition, we constantly apply preventive and preemptive measures aimed at reducing churn.

In our efforts to adjust our costs to new market conditions, we have closed or unified walk-in centers in neighboring locations and reduced or relocated call centers, operating them in a more cost effective fashion, while placing greater focus on self-service channels and proactive malfunction resolution, identifying and solving problems ahead of customer complaint.

In order to respond to subscribers' needs in the most efficient manner, our customer support and service operation offers several channels for our subscribers:

Call centers. In order to provide quick and efficient responses to the different needs of our various subscribers, our call-center services are divided into several sub-centers: general services; technical services; billing; sales; international roaming; and data and internet. We are constantly reviewing the effectiveness of our service and in 2014, we commenced operating a multi-function call center providing all our services. The call center services are provided in four languages: Hebrew, Arabic, English and Russian. We regularly monitor the performance of our call centers. We currently operate call centers in nine locations throughout Israel, four of which are outsourced. In 2015, we witnessed an additional decrease in calls to our calls centers. During peak hours our call centers have the capability to respond to 600 customer calls

simultaneously. We are making efforts to reduce the number of calls to our call centers by offering simple price plans and promoting our self-service channels.

Walk-in centers. As of December 31, 2015, we independently operated approximately 28 service and sales centers, having closed two more points of sale and service in 2015, with approximately 150 additional sale and service points operated by our dealers (including our wholly owned dealer, Dynamica), covering almost all the populated areas of Israel. These centers provide a walk-in contact channel and offer the entire spectrum of products and services that we provide to our subscribers and potential subscribers (the majority of which are provided in our dealers' sale and service points as well), including handset sales, accessories sales (by our wholly owned dealer Dynamica), upgrades and other services, such as bill payment, pricing plan changes and subscriptions to new services. These stores are mostly located in central locations, such as popular shopping malls. The majority of our walk-in centers offer handset repair service for the more minor malfunctions whereas for the more major malfunctions and where on-site repair service is not available, our walk-in centers serve as a contact point in which our subscribers deposit their handsets for repair and receive the repaired handset after two business days in the same center or at a location of their choice by a courier, with the repair services conducted in a central lab.

Self-services. We provide our subscribers and potential subscribers with various self-service channels, such as interactive voice response, or IVR, internet site and our smartphone application, automatic and live chat and live sms chat, and mobile phone application, where they can receive general and specific information, including pricing plans, account balance, information regarding our various services and products and trouble shooting and handset-operation. We invest efforts in directing our customers to use self-service channels.

Our business sales force and back office personnel also provide customer care to our business customers. We provide small and mid-sized business customers one focal point to both sales and services by phone. We offer our business customers repair services by a dispatch service collecting the handset within 48 hours and returning the repaired handset within 48 hours, during which time, the customer is provided with a substitute handset, free of charge.

Customer service for our OTT TV and landline wholesale market services and Netvision services is provided in our independently operated service centers and through technicians providing services at the customers' homes.

All of our service channels are monitored and analyzed regularly in order to assure the quality of our services and to identify areas where we can improve.

We constantly invest time and efforts making our services compatible to persons with disabilities. We provide customers with disabilities convenient accessibility to our premises and adapted products and services, including sign language customer care at our walk-in services, free dispatch services, and the option to receive sales in the customer's home. We work closely with Accessibility Israel, a leading Israeli non-profit organization advancing accessibility for persons with disabilities in Israel, and train our representatives to provide accessible service to all our customers.

We entered into an agreement with Be'eri Printers for our printing supplies and invoices as well as the distribution, packaging and delivery of invoices and other mail to the postal service distribution centers in 2003. The agreement is valid until June 2017 and either party may terminate it previously, by advanced written notice to the other party.

Competition

Communications groups and structural separation

The Israeli telecommunications market is currently dominated by four communications groups: Bezeq, Hot, Partner-012 Smile and Cellcom –Netvision. Each of the Bezeq and Hot groups are subject to certain structural separation requirements in relation to sale of bundles of services by Hot and Bezeq and their respective subsidiaries, as a result of being the incumbent and monopoly in their respective core business – landline and multichannel television services. In addition to certain relaxation of the structural separation imposed on the Bezeq group as of 2010, allowing it to offer bundles of services with its subsidiaries, in2015, Bezeq merged with Yes, Bezeq's subsidiary providing multichannel pay-TV, under certain conditions (detailed under "-Wireline" below). Although the Hot group is also subject to structural separation limitations between its multi-channel television, ISP, cellular and landline services, it was allowed to offer a bundle of landline telephony, multichannel television and internet infrastructure services and under certain conditions ISP services as well, and as of 2011, Hot and Hot Mobile are also allowed to sell and market each other's services and exchange information. Bundle offerings have accelerated and are expected to accelerate competition and price erosion in each of the services included, especially in those services which are not the core services of the Bezeq and Hot groups. For possible annulment of the structural limitations following the execution of a wholesale market of landline services or future investment in wireline infrastructure or a proposed change to the ILD services regulation, or approval of mergers in the Bezeq and Hot groups, see "- Wireline" below, "-Government Regulations – Landline" and "Netvision - Internet infrastructure and ISP Business - Competition", "Netvision - Telephony Business - Competition".

Cellular

There is intense competition in all aspects of the cellular communications market in Israel, which has been intensifying further since 2012, with a penetration rate (the ratio of cellular subscribers to the Israeli population) of approximately 127%, representing approximately 10.5 million cellular subscribers at December 31, 2015, and the average annual churn rate in Israel in 2015 is estimated to be 38%, higher than the churn rates in other developed economies. We expect this intensified competition to continue in the future. We currently compete for market and revenue share with eight other cellular communications operators: four MNOs (Partner, Pelephone, Hot Mobile and Golan (which we agreed to purchase in November 2015, subject to regulatory approvals )) and four MVNOs (Rami Levy Hashikma Communications Marketing Ltd., or Rami Levy, Home Cellular Ltd. (whose purchase by us is pending approval of the Ministry of Communications), or Home Cellular, Azi Communications Ltd., or Azi and Cellact Communications Ltd., or Cellact). Marathon 018 Ltd., or Marathon, is expected to be awarded the 6th MNO license, after winning frequencies in the recent 4G frequencies tender.

Our estimated market share based on number of subscribers was approximately 27% as of December 31, 2015. Estimated market shares at such time of Partner, Pelephone, Hot

Mobile and Golan were estimated to be approximately 26%, 25%, 11.6% and 8.5%, respectively and the MVNOs' collective market share was estimated to be 1.6%. These estimates are based on the public reports of other operators and our estimate of the market share of the operators who do not publish reports.

Hot Mobile and Golan commenced their UMTS operation in May 2012. Rami Levy, Home Cellular, Azi and Cellact, all mobile virtual network operators, commenced operations in December 2011, April 2012 , July 2013 and December 2013, respectively.

Partner started operations in 1998 and is controlled by S.B. Israel Telecom Ltd. (indirectly controlled by the media entrepreneur Haim Saban) and Scailex, an Israeli company listed on the TASE, and by its affiliate Suny, the official importer of Samsung cellular phones to Israel. In March 2011, Partner purchased the outstanding shares of 012 Smile Telecom Ltd., or Smile Telelcom, an ISP and ILD operator, now also serving as Partner's cellular low cost brand dealer and in 2015, its network sharing agreement with Hot Mobile was approved and the two companies began joint operation through a joint subsidiary.

Pelephone is a wholly-owned subsidiary of Bezeq, the incumbent landline operator and started operations in 1986. As of January 2015, its low cost brand services are sold by another subsidiary of Bezeq – Walla Communications Ltd., an internet portal. In 2015, Pelephone purchased the operation (including subscribers) of Alon Cellular Ltd., an MVNO operator. Bezeq is controlled by B Communications Ltd., or B Communications,. B Communications is an Israeli company traded on the NASDAQ and the TASE and controlled by Internet Gold Golden Lines Ltd., or Internet Gold. Both B Communications and Internet Gold form part of the Eurocom Communications Group, or Eurocom, controlled by the Israeli businessman Shaul Alovich.

Hot Mobile (previously named Mirs Communications Ltd.) had its license upgraded from push-to-talk to a cellular license in February 2001. In mid-2012 it began its UMTS operation. Hot Mobile is owned by Hot Telecom, or Hot, which is owned by the French businessman Mr. Patrick Derhy. The Hot group provides multichannel pay-TV services, Internet infrastructure and ISP services, and landline telephony services. In 2015, its aforementioned network sharing agreement with Partner was approved and the two companies began joint operation through a joint subsidiary.

Golan is owned by Xavier Niel, founder and controlling shareholder of the French telecom company Iliad - Free, Patrick and Gerard Pariente, founders and former owners of Naf Naf, a European fashion brand, Michael Golan, the CEO of Golan and former CEO of the French telecom company Iliad – Free and David Golan. Golan began to operate in mid-2012. In November 2015, we entered an agreement with Golan and its shareholders for the purchase of Golan, subject to certain conditions including regulators' approvals, as described under " – Agreement for the Purchase of Golan" above.

Rami Levy is a subsidiary of a major Israeli discount supermarket chain. Home Cellular is a subsidiary of a leading 'do it yourself' stores chain. Azi is owned by Telzar, an ILD operator. Cellact is owned by Cellact Ltd., a content provider.

The competition in the cellular communications market intensified following the entry of additional cellular operators to the market, specifically the launch of two new UMTS operations by Hot Mobile and Golan in mid 2012, without having to first invest in building their own network, with significantly lower tariffs than market level at that time for private

customers. This has led to a material increase in churn rate and accelerated and continuous price erosion and a material decrease in revenues and profitability for us. Since 2015, Hot Telecom has been targeting the business sector, offering lower tariffs than market level, which led to increased competition and price erosion in that sector as well.

Handsets

In the handsets market, we compete with numerous vendors, chain stores and importers' stores. Regulatory decisions in recent years alleviating the regulatory requirements on the import to and sale of handsets in Israel, coupled with regulatory decisions preventing cellular operators from linking handsets sale and cellular services, led to the entry of additional competitors into the market, significantly increased competition and decreased sales for us. See "Item 4. Information on The Company - Government Regulations – Tariff Supervision" for additional details. That, coupled with the growing change in the business market where corporations no longer purchase cellular services for their employees from a designated operator but rather allow each employee to purchase his or her own device and obtain cellular services from their operator of choice, known as the "bring your own device" phenomenon, may further increase the competition in this market.

Wireline

The Israeli landline telephony market has been dominated for many years by Bezeq, the incumbent landline monopoly which held as of March 31, 2015 (according to the Ministry of Communications report) approximately 2/3 of the landline telephony market (and an even larger market share in the business landline telephony sector(. Hot, the incumbent TV monopoly, entered this market in recent years and was allowed to bundle its landline service together with its internet infrastructure and its multi-channel television service. Bezeq and Hot groups are the only groups owning full landline infrastructure in Israel and offering internet infrastructure services to both ISPs and end-users. Other players include us, Netvision, Partner, Smile Telecom and Bezeq International. The landline wholesale market was to allow wholesale landline telephony service as of May 2015. As of the date of this report, no wholesale landline telephony services are provided. In December 2015 the Ministry of Communications published a hearing proposing an interim alternative by which operators without infrastructure would be allowed to resell Bezeq's telephony (for tariffs substantially higher that those set for the wholesale service) and in January 2016, the Ministry of Communications announced it will not interfere with the tariffs Hot proposes for its wholesale telephony service. We believe the resale alternative will not result in competition in this field. For details see "- Government Regulation – Landline".

Transmission and landline data services are provided by Bezeq, Hot, Partner and us. These services are provided to business customers and to telecommunications operators.

Multichannel pay-TV services are dominated by Hot (the incumbent TV provider and monopoly in this field) and YES, (a subsidiary of Bezeq) with approximately 828,000 and 639,000 households, respectively, as of September 30, 2015. The multichannel pay-TV market is also highly penetrated with levels above those of most developed economies. We successfully entered this market in December 2014, using an hybrid OTT-DTT television service, with approximately 63,000 households subscribed to our Cellcon tv services as of December 31, 2015. DTT broadcasting may be used by additional players as well, to be bundled with additional IPTV or Over the Top (OTT) channels, as we do. Partner, Rami Levy and Golan also announced they are considering entering this market and in January 2016,

Netflix, the American internet based VOD content provider, announced it is opening its services to viewers in additional countries including Israel, though without translation of the content and user interface or local content, and it is expected to provide a complementary service to the existing competitors' content. In March and September 2014, the Israeli Antitrust Commissioner, aiming to facilitate the entry of new competitors to the TV market by reducing entry barriers, published the following requirements as a precondition for the approval of any merger in each of the Bezeq and Hot groups: (1) Bezeq to generally not bill ISPs for TV related internet infrastructure services, annul and not engage in any non-original production exclusivity arrangements; and (2) both Bezeq/ Yes and Hot to allow new TV service providers to purchase certain original production of Bezeq for two years from the approval of the merger. The Bezeq –Yes merger was completed in 2015. For details of the ISP and ILD markets, see "Netvision - Internet infrastructure and ISP Business" and "Netvision - Telephony Business" below.

Internet infrastructure services are provided by Bezeq and Hot to approximately 1.27 million and 694,000 households in Israel, respectively, with an immaterial quantity provided by IBC. As of the first half of 2015, internet infrastructure services are provided by other operators, including us, through the landline wholesale market, using Bezeq's VDSL infrastructure. Based on Bezeq and Hot reports, at the end of September 2015, the Internet infrastructure services household penetration rate was approximately 74%. We bundle this service with our ISP service and also as part of our triple play offering. As of December 31, 2015, we had approximately 94,000 households subscribed to our internet infrastructure services. In January 2016, the Ministry of Communications published a hearing proposing maximum tariffs for Hot's wholesale internet structure services. Effective inclusion of Hot's infrastructure in the wholesale market may increase the amount of potential subscribers to our triple play and bundle offerings. For the details regarding a wholesale landline market in Israel see "-Government Regulations – Landline" below.

While an effective wholesale landline market, specifically one including both Bezeq and Hot's infrastructure and providing both telephony and infrastructure services, will enhance our ability (including through Netvision) to compete and extend our service offering, the intended annulment or substantial alleviation of structural separation and Bezeq's tariffs supervision, may have a material adverse effect on our competitive capabilities and results of operation, more so if effected before an effective wholesale market is in place. Further, the entry of new competitors to the landline market, through the wholesale market, has and may trigger further escalation in the competition in other markets in which we operate, such as the ISP. The effectiveness of the wholesale landline services and our ability to offer these services is dependent on the manner of implementation of the wholesale services and the cooperation of the infrastructure owners in the execution of the regulator's decisions and in relation to issues and processes not regulated, which, until now, was lacking.

For further details see below in this Item 4. B. under "- Netvision".

Competition – general

The principal competitive factors in the telecommunications market include the services included in the bundle, perceived price, general brand perception and customer service.

In response to the enhanced competition in the Israeli telecommunications market, we have implemented various steps and strategies, including:

• x identifying new opportunities to maximize our advantages as a communications group, such as our successfully launched television over the internet services and internet infrastructure services through the landline wholesale services;
• x focusing on the offering of bundles of services, as it strengthen customer retention and on enlarging customer purchases from us;
• x agreeing to acquire Golan (subject to certain conditions including regulators' approvals), to increase our offering possibilities and sales opportunities to additional customers;
• x investing in our network to ensure our ability to offer quality and advanced cellular and wireline services, including in our 4G network and providing our customers with the most advanced services; and
• x taking aggressive efficiency measures through adjustments to our existing head count, reducing overhead expenses and improving work processes, in order to reduce costs and improve our agility.

Our ability to compete successfully will depend, in part, on our ability to anticipate and respond to trends and events affecting the industry, including: the introduction of new services and technologies, changes in consumer preferences, demographic trends, economic conditions, pricing strategies of competitors and changes to the legal and regulatory environment.

Competition may intensify further as a result of the occurrence of any of the events described under "Item 3. Key Information – D. Risk Factors – Risks Related to our Business – We face intense competition in all aspects of our business."

Intellectual Property

We are a member of the GSM Association, together with other worldwide operators that use GSM technology. As a member of the association, we are entitled to use its intellectual property rights, including the GSM logo and trademark.

We are the proprietor of approximately 30 domain names and approximately 100 trademarks and trademarks applications, the most important of which are the star design, "Cellcom", "Talkman", "Cellcom Volume" and "Cellcom tv". Netvision is the proprietor of approximately 100 domain names and approximately 30 trademarks, the most important of which are "Netvision" and "013 Netvision". We are also the proprietor of a few registered patents.

Government Regulations

The following is a description of various regulatory matters that are material to our operations, including certain future legislative initiatives that are in the process of being enacted. There can be no certainty that the future legislation described here will be enacted or that it will not be subject to further change before its final enactment.

General

A significant part of our operations is regulated by the Israeli Communications Law, 1982, the regulations promulgated under the Communications Law and the provisions of our licenses, which were granted by the Israeli Ministry of Communications pursuant to the Communications Law. We are required by law to have a license in order to provide certain communications services in Israel. The Ministry of Communications has broad supervisory powers in connection with the operations of license holders and is authorized, among other things, to impose financial penalties for violations of the Communications Law, the regulations and our licenses. For a description of the principal licenses held by Netvision see below in this Item 4.B under the caption "- Netvision".

Our principal license

The establishment and operation of a cellular communications network requires a license pursuant to the Communications Law for telecommunications operations and services and pursuant to the Israeli Wireless Telegraph Ordinance (New Version), 1972, for the allocation of spectrum and installation and operation of a cellular network.

We provide our cellular services under a non-exclusive general license granted to us by the Ministry of Communications in June 1994, which requires us to provide cellular services in the State of Israel to anyone wishing to subscribe. The license expires on January 31, 2022, but may be extended by the Ministry of Communications for successive periods of six years, provided that we have complied with the license and applicable law, have continuously invested in the improvement of our service and network and have demonstrated the ability to continue to do so in the future. The main provisions of the license are as follows:

• x the license may be modified, cancelled, conditioned or restricted by the Ministry of Communications in certain instances, including: if required to ensure the level of services we provide; if a breach of a material term of the license occurs; if DIC (or a transferee or transferees approved by the Ministry of Communications), in its capacity as our founding shareholder, holds, directly or indirectly, less than 26% of our means of control (with "means of control" defined for these purposes as voting rights, the right to appoint a director or general manager, the right to participate in distributions, or the right to participate in distributions upon liquidation); if our founding shareholders who are Israeli citizens and residents hold, directly or indirectly, less than 20% of our means of control (DIC, as founding shareholder, has undertaken to comply with this condition); if at least 20% of our directors are not appointed by Israeli citizens and residents from among our founding shareholders or if less than a majority of our directors are Israeli citizens and residents; if any of our managers or directors is convicted of a crime of moral turpitude and continues to serve; if we commit an act or omission that adversely affects or limits competition in the cellular communications market; or if we and our 10% or greater shareholders fail to maintain combined shareholders' equity of at least $200 million;
• x it is prohibited to acquire (alone or together with relatives or with other parties who collaborate on a regular basis) or transfer our shares, directly or indirectly (including by way of creating a pledge which if foreclosed, will result in the

transfer of shares), in one transaction or a series of transactions, if such acquisition or transfer will result in a holding or transfer of 10% or more of any of our means of control, or to transfer any of our means of control if as a result of such transfer, control over our company will be transferred from one party to another, without the prior approval of the Ministry of Communications. For the purpose of the license, "control" is defined as the direct or indirect ability to direct our operations whether this ability arises from our articles of association, from written or oral agreement or from holding any means of control or otherwise, other than from holding the position of director or officer;

• x it is prohibited for any of our office holders or anyone holding more than 5% of our means of control, to hold, directly or indirectly, more than 5% of the means of control in Bezeq or another cellular operator in Israel, or, for any of the foregoing to serve as an office holder of one of our competitors, subject to certain exceptions requiring the prior approval of the Ministry of Communications;
• x we, our office holders and our interested parties, may not be parties to any arrangement whatsoever with Bezeq or another cellular operator that is intended or is likely to restrict or harm competition in the field of cellular services, cellular handsets or other cellular services. For the purpose of the license, an "interested party" is defined as a 5% or greater holder of any means of control;
• x we are subject to the guidelines of Israel's General Security Services, which may include requirements that certain office holders and holders of certain other positions be Israeli citizens and residents with security clearance. For example, our Board of Directors is required to appoint a committee to deal with matters concerning state security. Only directors who have the requisite security clearance by Israel's General Security Services may be members of this committee. In addition, the Minister of Communications is entitled under our license to appoint a state employee with security clearance to act as an observer in all meetings of our Board of Directors and its committees;
• x prior to operating a network, we are required to have agreements with a manufacturer of cellular network equipment for the duration of its intended operating period, which must include, among other things, a know-how agreement and an agreement guaranteeing the supply of spare parts for our network equipment for a period of at least seven years;
• x we are required to interconnect our network to other public telecommunications networks in Israel, on equal terms and without discrimination, in order to enable subscribers of all operators to communicate with one another, and are also required to provide national roaming services to new UMTS operators;
• x we may not give preference in providing infrastructure services to a license holder that is an affiliated company over other license holders, whether in payment for services, conditions or availability of services or in any other

manner, other than in specific circumstances and subject to the approval of the Ministry of Communications;

• x there are certain general types of payments that we may collect from our subscribers, general mechanisms for setting and raising tariffs, including the basic airtime charging units, and providing cellular services related benefits, reports that we must submit to the Ministry of Communications and an obligation to provide notice to our customers and the Ministry of Communications prior to increasing tariffs and the Ministry of Communications is authorized to intervene in setting tariffs in certain instances;
• x we must maintain a minimum standard of customer service, including, among other things, establishing call centers, maintaining a certain service level (both coverage and performance) of our network, collecting payments pursuant to a certain procedure, protecting the privacy of subscribers; use a specific format for our agreement with our customers; obtain an explicit request from our subscribers to purchase services, whether by us or by third parties, as a precondition to providing and charging for such services, including specific requirements as to format and a default blockage of the customer's ability to purchase certain services; maintain a specific form of evidence of customers' request to purchase our services as a precondition to charging our customers for those services; and provide certain notifications to customers regarding the services ordered and the procedures for handling subscribers' objections as to billing and repayment of overcharged sums;
• x we may not be transfer, pledge or encumber the license or any part thereof without the prior approval of the Ministry of Communications, and face restrictions on the sale, lease or pledge of any assets used for implementing the license;
• x we are required to obtain insurance coverage for our cellular activities. In addition, the license imposes statutory liability for any loss or damage caused to a third party as a result of establishing, sustaining, maintaining or operating our cellular network. We have further undertaken to indemnify the State of Israel for any monetary obligation imposed on the State of Israel in the event of such loss or damage. For the purpose of guaranteeing our obligations under the license, we have deposited a bank guarantee in the amount of NIS80 million with the Ministry of Communications, which may be forfeited in the event that we violate the terms of our license;
• x we must maintain and follow a business continuity plan and a disaster recovery plan; and
• x network sharing, if approved, is to be carried out in accordance with specific instruction in our license;

In the event that we violate the terms of our license, we may be subject to substantial penalties, including monetary sanctions. In August 2012, the Communications Law was amended so as to set gradual financial sanctions on communication operators, for breach of their licenses, the sum of which shall be calculated as a percentage of the operator's income and based on the gravity of the breach. The maximum amount per violation that may be

imposed is approximately NIS 1.6 million plus 0.225% of our annual revenue for the preceding year. The Ministry of Communications published criteria to be used for determining the sum of the imposed sanctions, including the impact on the competition, the duration of the violation, the number of subscribers affected, the benefit to the operator from the violation and prior violations. Following the publication of the guidelines, the MOC has substantially increased its supervision activities and imposed monetary sanctions, including on us (in immaterial sums). Substantial sanctions will harm our results of operations. In the event that we materially violate the terms of our licenses, the Ministry of Communications has the authority to revoke them.

In July 2014, the Israeli Ministry of Communications published a hearing regarding 2G and 3G networks' coverage and quality requirements. The requirements proposed are more severe than the existing requirements and if adopted may adversely affect our result of operations.

In August 2014, the Ministry of Communications published a hearing regarding roaming services provided to subscribers. The hearing proposes, in order to increase competition and reduce roaming payments by subscribers, among others, to allow other Israeli telecommunication operators, including other cellular operators, mobile virtual network operators, international calls operators and landline operators to offer roaming services to a cellular subscriber of another cellular operator, while abroad, using the subscriber's usual cellular number as well as change the way payments for roaming services are calculated. See additional details under "-Tariff Supervision" below. The effects of the changes proposed vary significantly depending on the alternative adopted. The adoption of some alternatives may have a material adverse effect on our results of operations.

In August 2014, the Ministry of Communications proposed to amend the Israeli Communications Law and set fixed compensation in case of failure to meet response times and the Minister of communications proposes to set for telecommunications operators' call centers, as well as a fixed compensation in case a subscriber was wrongfully overcharged (more severe than the existing provision to that effect in the Israeli Consumer Protection Law). We estimate that the proposed changes, if adopted as proposed, would have a material adverse effect on our results of operations.

As a result of a rights offering effected by IDB in February 2015 and the subsequent purchase of IDB shares previously indirectly held by Mr. Ben Moshe, one of IDB's controlling shareholders at the time, by corporations controlled by Mr. Elsztain, the other controlling shareholder in October 2015, the control of IDB and consequently indirectly of us, has changed and requires the approval of the Ministry of Communications. For additional details, see "Item 3. Key Information – D. Risk Factors - Risks Related to our Business – There are certain restrictions in our licenses relating to the ownership of our shares. As a result of a change in control of IDB, we are currently not in compliance with the terms of our licenses" and "Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders".

Other licenses

Unified license

In July 2015, Cellcom Fixed Line Communications L.P., or Cellcom Fixed Line, a limited partnership wholly-owned by us, was granted a nonexclusive unified general license,

allowing the provision of landline telephone communications services and replacing its former special general license for the provision of landline communications services granted in April 2006. The license expires in April 2026, but may be extended by the Ministry of Communications for successive periods of 10 years. The partnership deposited a bank guarantee in the amount of NIS 2 million with the Ministry of Communications upon receiving the license. The provisions of our cellular license , including as to its extension, generally apply to the unified license, subject to certain modifications.

The unified license allows its holder to provide any of the aforementioned services as well as MVNO services, ISP services (currently provided under an internet service provider license) and installation and maintenance of telecommunication equipment at a customer's or the licensee's premises (currently provided under a "network end point" license), subject to the inclusion of a relevant appendix in the unified license and it is intended to alleviate the requirements on license holders that are not required to have a nationwide infrastructure, in order to decrease entry barriers for additional competitors to enter those markets.

The unified license was also granted to 013 Netvision, our indirect wholly owned subsidiary, and one of its subsidiaries, replacing the general license for the provision of international telecommunication services, special licenses for the provision of ISP services and "network end point" and a special general license for the provision of landline telephone services.

The unification process of our unified licenses into one license and its timing is yet to be determined in coordination between the Ministry of communications and the operator and may have various legal, financial, tax and accounting implications on our operations to the extent it would require the transfer of assets, goodwill, rights and obligations among the companies in our group or require an operational unification. The provision of several services by one entity would also circumvent the limitations on discrimination between operators.

Data and transmission license

In 2000, we were granted a non-exclusive special license for the provision of local data communications services and high-speed transmission services, which is effective until December 2017. Following the grant of a special general license for the provision of landline telephone communications services to Cellcom Fixed Line, which also includes the services previously provided through our data and transmission license, our data and transmission license was amended in June 2006 to permit only Cellcom Fixed Line to be our customer of these services (and these services are now being provided to our customers through Cellcom Fixed Line). The provisions of our general and general specific licenses described above, including as to their extension, generally apply to this license, subject to certain modifications.

Services in Judea and Samaria

The Israeli Civil Administration in Judea and Samaria granted us non-exclusive licenses for the provision of cellular and landline services to the Israeli-populated areas in Judea and Samaria. Those licenses are effective until December 31, 2017. We expect we will be able to renew this license without undue burden. The provisions of the cellular and landline licenses described above, including as to its extension, generally apply to those licenses, subject to certain modifications.

ISP license

In December 2001, we were granted a non-exclusive special internet services provider, or ISP, license for the provision of internet access services. The license is effective until December 2018 but may be extended by the Ministry of Communications for successive periods of five years. The provisions regarding the transfer of our shares that are included in the special license for the provision of data and transmission services described above, generally apply to this license.

Tariff supervision

Under the Israeli Communications Regulations (Telecommunications and Broadcasting) (Payment for Interconnecting), 2000, interconnect tariffs among landline operators, international call operators and cellular operators are subject to regulation. In September 2010, the regulations were amended to dramatically reduce maximum interconnect tariffs payable to cellular operators, leading to a material decrease in our revenues.

As of 2013, we are prohibited, under the Communications Law, from making any linkage between a cellular services transaction and a handset purchase transaction, including by way of offering airtime rebates or refunds for handsets. This has resulted in decreased sales of handsets by us and increased churn. In November 2013, the MOC instructed the discontinuance of any specific rebates and refunds to customers transferring from other cellular operators.

The Communication Law has prevented the collection of early termination fees in plans with a commitment to a predefined period, or Early Termination Fees, in the cellular market (as of 2012) and the other communication markets (as of 2011) (excluding from customers with more than a certain amount of cellular lines or over a certain amount of monthly invoice for bundles or other services) in existing as well as new pricing plans. An additional amendment to the Law prohibits the collection of the handset's remaining installments in one payment pursuant to early termination. This has led to materially increased churn rate and subscriber acquisition and retention costs and subsequently to accelerated price erosion.

Under the Communications Law, if a new operator or Hot Mobile and the hosting operator for national roaming have not reached an agreement as to the terms of the service (including the consideration), for any reason, until the service is to commence (after certain criteria is met) the service will be provided for the then prevailing interconnect tariff (in case of a call and for data services - 65% of the interconnect tariff per 1 mega) and subsequently (but no later than February 1, 2012) shall be determined by the Ministry of Communications with the consent of the Minster of Finance and applied retroactively. Unfavorable terms and consideration for the service, may result in material adverse effect on our results of operations. In October 2011, we entered a national roaming agreement with Golan and in September 2011, Hot Mobile entered a national roaming agreement with Pelephone and later with Partner (which was later replaced by a network sharing agreement by Hot Mobile and Partner).

Under the Communications Law, in the event that a MVNO and the cellular operator, will not have reached an agreement as to the provision of service by way of MVNO within six months from the date the MVNO has approached the cellular operator, and if the Ministry of Communications together with the Ministry of Finance determine that the failure to reach an

agreement is due to unreasonable conditions imposed by the cellular operator, the Ministry of Communications may intervene in the terms of the agreement, including by setting the price of the service. In November 2014, the Ministry of Communications published the principles for reviewing the reasonability of MVNO hosting agreements, including existing agreements which the MVNO request to update if the existing agreement hinders its ability to compete and the parties fail to reach an agreement as to its update, to be carried out in light of the best offer made by the cellular operator to a business customer. Unfavorable terms and consideration for the service, may result in material adverse effect on our results of operations. For additional details see "Mobile Virtual Network Operators" below. To date, five MVNOs commenced operations after entering hosting agreements (two of them - Alon Cellular and Home Cellular - were purchased in 2015 by their hosting MNO – Pelephone and us, respectively. Our purchase of Home Cellular is subject to the approval of the Ministry of Communications).

As of January 2013, we are obligated to pay our customers predetermined damages for each discrepancy from the customer's pricing plan, remedied after the customer complained, under the Consumer Protection Law. The damages are in an insignificant amount, but may aggregate to substantial amounts if paid to numerous customers on multiple occasions. In August 2014, the Ministry of Communications proposed a bill aiming to impose substantially increased predefined damages for any discrepancy from the customer's pricing plan, which may aggregate to substantial sums if paid to numerous customers on multiple occasions.

In August 2013, the Communication law was amended so as to authorize the Minister of Communications to give instructions and to set interconnect tariffs and usage of another operator's network rates and supervised services prices, based not only on previous method of cost (according to a calculation method determined by the Minister of Communications) plus reasonable profit, but also on the basis of one of the following: (1) payment for services provided by a licensee; (2) payment for a comparable service; or (3) comparison to such services or interconnect tariffs in other countries. In addition, the Minister of Communications was authorized to give instructions in relation to structural separation for the provision of different services, including between services provided to a licensee and services provided to a subscriber.

In August 2014, the Ministry of Communications published a hearing regarding roaming services provided to subscribers. The hearing proposes, in order to increase competition and reduce roaming payments by subscribers, among others, to change the way payments for roaming services are calculated, such as by requiring a 1 second unit or 1 KB unit (as applicable) for billing of roaming services while abroad and not charging for certain intervals of the call. The adoption of such proposed changes may have a material adverse effect on our results of operations.

Network Sharing

In May and July 2014, the Ministry of Communications set certain requirements for the approval of network sharing by the Ministry of Communications, including the following principles: (1) sharing of passive elements of cell sites and active sharing of antennas among all cellular operators are encouraged; (2) active sharing of radio networks using shared equipment and frequencies will be allowed only between an operator with a partial 3G network deployment and an operator with a full 3G network deployment, whereas such sharing will not be allowed for two operators with full 3G network deployment; (3) sharing of transmission from cell sites among operators sharing frequencies is generally allowed; (4)

investing in a 4G network will be considered as meeting an operator's undertaking to deploy a 3G network under certain conditions; (5) approval of active sharing of radio networks using shared equipment and frequencies shall be for a limited period, only if there are at least three independent cellular networks in Israel, and is conditioned upon certain conditions, including: (i) the obligation to allow other operators to join on terms equal to the terms granted to the sharing operator with the smallest market share; (ii) the obligation to host a Mobile Virtual Network Operator without the other sharing operators' consent; (iii) the shared radio network must be operated through a joint entity held equally by the sharing operators, which entity will be required to obtain a license from the Ministry of Communications and will use the frequencies allocated to sharing operators; and (iv) the radio elements of the shared network will be held in equal parts by the sharing operators, and each of the sharing operators will have the right to use other sharing operators' passive infrastructure following termination of the agreement.

Our network sharing agreements with Golan were not approved and declared void by us and Golan in our November 2015 agreement to purchase Golan. Our co-operation agreement of passive elements only with Pelephone was approved; however, we have been unable to progress in its execution and we can provide no assurance that such co-operation will occur in the future. Hot and Partner's network sharing agreement was approved and the two begun a joint operation through a joint subsidiary.

Permits for cell site construction

General

In order to provide and improve network coverage to our subscribers, we depend on cell sites located throughout Israel. The regulation of cell site construction and operation are primarily set forth in the Israeli National Zoning Plan 36 for Communications, which was published in May 2002. The construction of radio access devices, which are cell sites of smaller dimensions, is further regulated in the Communications Law.

The construction and operation of cell sites are subject to permits from various government entities and related bodies, including:

• x building permits from the local planning and building committee or the local licensing authority (if no exemption is available);
• x approvals for construction and operation from the Commissioner of Environmental Radiation of the Ministry of Environmental Protection;
• x permits from the Civil Aviation Authority (in most cases);
• x permits from the Israel Defense Forces (in certain cases); and
• x other specific permits necessary where applicable, such as for cell sites on water towers or agricultural land.

National Zoning Plan 36

National Zoning Plan 36 includes guidelines for constructing cell sites in order to provide cellular broadcasting and reception communications coverage throughout Israel, while preventing radiation hazards and minimizing damage to the environment and

landscape. The purpose of these guidelines is to simplify and streamline the process of cell site construction by creating a uniform framework for handling building permits.

National Zoning Plan 36 sets forth the considerations that the planning and building authorities should take into account when issuing building permits for cell sites. These considerations include the satisfaction of safety standards meant to protect the public's health from non-ionizing radiation emitting from cell sites, minimizing damage to the landscape and examining the effects of cell sites on their physical surroundings. National Zoning Plan 36 also determines instances in which building and planning committees are obligated to inform the public of requests for building permits prior to their issuance, so that they may submit objections to the construction of a site in accordance with the provisions of the Planning and Building Law. Many local authorities have argued that a building permit issued in reliance on the Plan requires the payment of amelioration charge. In 2013 this position was adopted in principle by an appeal zoning committee. However, in 2014 a district court rejected such claim in relation to another national zoning plan, and the decision was appealed and awaits the Supreme Court's decision. Should the matter be decided against us in appeal zoning committees or by a court of law, the costs of constructing a site will substantially increase.

However, National Zoning Plan 36 is in the process of being revised. Currently proposed changes would impose additional restrictions and requirements on the construction and operation of cell sites. In June 2010, the proposed changes were approved by the National Council for Planning and Building and submitted for the approval of the Government of Israel. If the proposed changes are approved by the Israeli Government, they will harm our ability to construct new cell sites, make the process of obtaining building permits for the construction and operation of cell sites more cumbersome and costly, and could adversely affect our existing network and delay the future deployment of our network.

Site licensing

We have experienced difficulties in obtaining some of the permits and consents required for the construction of cell sites, especially from local planning and building authorities. The construction of a cell site without a building permit (or applicable exemption) constitutes a violation of the Planning and Building Law. Violations of the Planning and Building Law are criminal in nature. The Planning and Building Law contains enforcement provisions to ensure the removal of unlawful sites. There have been instances in which we received demolition orders or in which we and certain of our directors, officers and employees faced criminal charges in connection with cell sites constructed and/or used without the relevant permits or not in accordance with the permits. In most of these cases, we were successful in preventing or delaying the demolition of these sites, through arrangements with the local municipalities or planning and building authorities for obtaining the permit, or in other cases, by relocating to alternate sites. As of December 31, 2015, we were subject to four criminal and administrative legal proceedings alleging that some of our cell sites were built and have been used without the relevant permits or not in accordance with the permits. As of the same date, a small portion of our cell sites operated without building permits or applicable exemptions. Although we are in the process of seeking to obtain building permits for these sites, we may not be able to obtain them and in several instances we may be required to relocate these sites to alternative locations or to demolish them without any suitable alternative. In addition, we may be operating a significant number of our cell sites, in a manner which is not fully compatible with the building permits issued for them, although they are covered by permits from the Ministry of Environmental Protection in respect of their

radiation level. In some cases we will be required to relocate these cell sites to alternative locations, to reduce capacity coverage or to demolish them without any suitable alternative.

Based on advice received from our legal advisors and consistent with most Court rulings on the matter and the Israeli Attorney General opinion on the matter (given in May 2008) that the exemption from obtaining a building permit applies to cellular radio access devices, we have not requested building permits under the Planning and Building Law for rooftop radio access devices.

Notwithstanding the Attorney General's opinion, in May 2008 the District Court of Tel-Aviv-Jaffa, in its capacity as court of appeals, ruled that our and other cellular operators' devices do not meet the exemption's requirements and therefore cannot be relied upon by us and other cellular operators. We and other cellular operators appealed against this ruling to the Supreme Court and the State notified the Supreme Court it concurs with our and another cellular operator's appeals against the District Court ruling. The State requested that a third operator's appeal be returned to the District Court for further deliberation on specific questions regarding the interpretation of "rooftop" and the requirement to obtain an extraordinary usage permit in the circumstances of that case in the context of the exemption. The Supreme Court decided to hear our appeal together with two appeals filed in 2008 and 2009, including by the Union of Local Authorities in Israel and certain local planning and building authorities, requesting to argue against the position of the State.

In July 2009, the inter-ministry committee established to examine the appropriateness of future application of the exemption according to the Attorney General opinion, published its recommendations for future application of the exemption. While the Ministry of Communications recommended that, given the difficulties in obtaining permits for the construction of cell sites, the exemption should be reviewed after the lapse of one to two years from the approval of the new National Zoning Plan 36, to verify that it provides an adequate solution that allows the cellular operators to provide required communications services, the Ministries of Interior Affairs and Environmental Protection recommended that the exemption be annulled within 6 months from the date of the recommendations.

In September 2009, following publication of such recommendations, the Attorney General concluded that the application of the exemption does not balance properly the different interests involved and therefore cannot continue. In March 2010 the Israeli Ministry of Interior Affairs submitted draft regulations setting conditions for the application of the exemption for the approval of the Economy Committee of the Israeli Parliament, which includes significant limitations on the ability to construct radio access devices based on such exemption. Under the Israeli Supreme Court's interim order issued in 2010 at the Attorney General's request and somewhat relaxed in 2011, we, Partner and Pelephone are prohibited from constructing further radio access devices in cellular networks in reliance on the exemption until the enactment of the proposed regulations or other decision by the court, other then the replacement of existing radio access devices under certain conditions, whereas Hot Mobile and Golan are allowed to construct radio access devices in reliance on the exemption, under certain limitations. In December 2015, Hot Mobile and Partner requested, with the Attorney's General approval, further relaxation of the order, to allow them to construct new radio access devices under certain conditions, in furtherance of their network sharing and we have requested a similar relaxation Pelephone has also requested a relaxation of the order. Further, the Attorney General notified the Israeli Supreme Court that a recommendation to enact regulations setting conditions for the application of the exemption is being considered and such regulations may be different than those proposed in 2010. We

are awaiting the Court's decision. Additionally, in November 2008 and again in October 2014, the District Court, in its capacity as court of appeals, ruled that the exemption does not apply to radio access devices, if the rooftop on which those devices are located is at the same level as a place of residence or other building that is regularly frequented by people. Other appeals relating to the exemption, including as to the requirement to obtain an extraordinary usage permit, are still under consideration, as well as other claims asserting that those cell sites and other facilities do not meet other legal requirements continue.

An annulment of, or inability to rely on, or substantial limitation of, the exemption, the dismantling of radio access devices and cell sites due to reasons out of our control and the objection of some local planning and building authorities to grant due permits where required, could have a negative impact on our ability to obtain environmental permits for these sites, could negatively affect the extent, quality, capacity and coverage of our network (specifically in urban areas), and our ability to continue to market our products and services effectively and may have a material adverse effect on our results of operations and financial condition.

Radio access devices do receive the required permits from the Ministry of Environmental Protection. Since October 2007, the Commissioner of Environmental Radiation at the Ministry of Environmental Protection took the position that he will not grant and/or renew operating permits to radio access devices, where the local planning and building committee's engineer objected to the Company's reliance upon this exemption for radio access devices. We believe that in taking this position, the Commissioner is acting beyond his powers.

Several local planning and building authorities argue that Israeli cellular operators may not receive building permits in reliance on the current National Zoning Plan 36, or the Plan, for cell sites operating in frequencies not specifically detailed in the frequencies charts attached to the Plan. In a number of cases, these authorities have refused to issue a building permit for such new cell sites, arguing that the Plan does not apply to such cell sites and that building permits for such cell sites should be sought through other processes (which are longer and cumbersome), such as an application for an extraordinary usage or under existing local specific zoning plans. Since June 2002, following the approval of the Plan, building permits for the Company's cell sites (where required) have been issued in reliance on the Plan. The proposed draft amendment to the Plan covers all new cell sites requiring a building permit, independently of the frequencies in which they operate. Most of our cell sites and many cell sites operated by other operators, also operate in frequencies not specifically detailed in the Plan. The frequencies allocated in the 2011 UMTS tender to Hot Mobile and Golan as well as the frequencies awarded under the January 2015 4G frequencies tender, are also not detailed in the Plan. We believe that the Plan applies to all cell sites, whether or not they operate in specific frequencies.

If this approach continues, it would have a negative impact on our ability to deploy additional cell sites (until such time as the Plan is amended to include all cellular cell sites), which could negatively affect the extent, quality and capacity of our network coverage and our ability to continue to market our products and services effectively.

In addition to cell sites, we provide repeaters (also known as bi-directional amplifiers) and femto-cells to subscribers seeking a solution to weak signal reception within specific indoor locations. Based on advice received from our legal advisors, we have not requested building permits under the Planning and Building Law for outdoor rooftop repeaters, which

are a small part of the repeaters that have been installed. It is unclear whether other types of repeaters and femto-cells require building permits. Some repeaters and femto-cells require specific permits and others require a general permit from the Ministry of Environmental Protection in respect of their radiation level, and we ensure that each repeater functions within the parameters of the applicable general permit. Should it be established that the installation of repeaters and femto-cells (including those already installed) requires a building permit, we will perform cost-benefit analyses to determine whether to apply for permits for existing repeaters or to remove them and whether to apply for permits for new repeaters or femto-cells.

In addition, we construct and operate microwave sites as part of our transmission network. The various types of microwave sites receive permits from the Ministry of Environmental Protection in respect of their radiation level. Based on advice received from our legal advisors, we believe that building permits are not required for the installation of these microwave facilities on rooftops. If the courts determine that building permits are necessary for the installation of these sites, it could have a negative impact on our ability to obtain environmental permits for these sites and to deploy additional microwave sites and could hinder the extent, quality and capacity of our transmission network coverage and our ability to continue to market our landline services to our business customers (based on our own infrastructure) effectively.

In August 2014, additional regulations that include a new exemption from obtaining a building permit came into effect. The exemption is afforded to the addition of an antenna to an existing cell site and is subject to receiving the Commissioner of Environmental Radiation approval that such addition does not change the radiation safety range set in relation to such cell site prior to the addition.

Operating a cell site or a facility without the requisite permits or not in accordance with permits granted could subject us and our officers and directors to criminal, administrative and civil liability. Should any of our officers or directors be found guilty of an offence, although this has not occurred to date, they may face monetary penalties and a term of imprisonment. In addition, our sites or other facilities may be the subject of demolition orders and claims of breach of contract and we may be required to relocate cell sites to less favorable locations or stop operation of cell sites. This could negatively affect the extent, quality and capacity of our network coverage and adversely affect our results of operations.

In July 2011, an inter ministry team of the Ministries of Communications, Finance, Interior, Environmental Protection and the Anti-Trust Commissionaire, published its recommendations regarding cell site sharing. The recommendations include compulsory cell sites sharing in the construction of new cell sites or modification to existing cell sites which require a building permit (the Ministry of Communications may exempt from the obligation to share cell sites where such obligation poses technological and engineering difficulties), while providing preference and leniencies to the new UMTS operators, as well as the reduction of existing non shared cell sites quantity. Unlike the site sharing we wish to implement in the framework of our agreements with Pelephone, where site sharing will be carried out where it is beneficial for us, these recommendations or similar recommendations, if enacted, would further burden the construction of new cell sites and modifications to existing cell sites, and may adversely affect our existing cellular network, network build-out and results of operations.

In May 2012, the positions of the Ministries of Communications, Health and Environmental Protection in relation to the various aspects of the provision of 4G services in Israel were published, in response to a petition to hold a public debate regarding 4G service in Israel and prevent 4G spectrum allocation until such debate is held. The Ministries held the position that 4G services would involve some increase in the level of non-ionizing radiation the public will be exposed to and that in order to minimize such increase 4G deployment should, among others, be based on current cell sites, additional outdoor and indoor small cell sites and, whenever possible, use wireline infrastructure so that data traffic shall be carried mostly through wirelines and not cellular infrastructure. The Ministry of Environmental Protection stated that full deployment of 4G infrastructure, under the guidelines set by the ministries shall decrease the level of exposure from handsets and create a more balanced level of exposure from cell sites, and in any case much lower than the maximum exposure levels recommended by the international health organization and required under the environmental permits for cell sites in Israel. In August 2014, the Ministry of Communications allowed the provision of 4G services and in January 2015, 4G frequencies were awarded to the cellular operators. The abovementioned recommendations were not included in the approval or tender documents. See "Construction and operating permits from the commissioner of environmental radiation" below for additional details.

Indemnification obligations

In January 2006, the Planning and Building Law was amended to provide that as a condition for issuing a building permit for a cell site, local building and planning committees shall require letters of indemnification from cellular operators indemnifying the committees for possible depreciation claims under Section 197 of the Planning and Building Law, in accordance with the directives of the National Council for Planning and Building. Section 197 establishes that a property owner whose property value has been depreciated as a result of the approval of a building plan that applies to his property or neighboring properties may be entitled to compensation from the local building and planning committee. The limitation period within which depreciation claims may be brought under the Planning and Building Law is the later of one year from receiving a building permit under National Zoning Plan 36 for a cell site and six months from the construction of a cell site. The Minister of Interior Affairs retains the general authority to extend such period further.

The National Council's guidelines issued in January 2006, provide for an undertaking for full indemnification of the planning and building committees by the cellular companies, in the form published by the council. The form allows the indemnifying party to control the defense of the claim. These guidelines will remain in effect until replaced by an amendment to National Zoning Plan 36.

Since January 2006, we have provided approximately 400 indemnification letters in order to receive building permits. In addition, prior to January 2006, we provided three undertakings to provide an indemnification letter to local planning and building committees. Local planning and building committees have sought to join cellular operators, including us, as defendants in depreciation claims made against them even though indemnification letters were not provided. We were joined as defendants in a small number of cases, and as of December 31, 2015, we are a party to two depreciation claims for immaterial amounts. We expect that we will be required to continue to provide indemnification letters as the process of deploying our cell sites continues. As a result of the requirement to provide indemnification letters, we may decide to construct new cell sites in alternative, less suitable locations, to reduce capacity coverage or not to construct them at all, should we determine that the risks

associated with providing such indemnification letters outweigh the benefits derived from constructing such cell sites, which could impair the quality of our service in the affected areas.

Construction and operating permits from the commissioner of environmental radiation

Under the Non-Ionizing Radiation Law (and previously under the Israeli Pharmacists Regulations (Radioactive Elements and their Products), 1980), it is prohibited to construct and operate cell sites without a permit from the Ministry of Environmental Protection. The Commissioner of Environmental Radiation is authorized to issue two types of permits: construction permits, for cell site construction; and operating permits, for cell site operation.

These permits contain various conditions that regulate the construction and/or operating of cell sites, as the case may be. Our cell sites routinely receive both construction and operating permits from the Commissioner within the applicable time frames. Some repeaters require specific permits and others require general permits from the Commissioner in respect of their radiation level, and we ensure that each repeater functions within the parameters of its applicable general permit.

Pursuant to the Non-Ionizing Radiation Law, the construction and operation of cell sites and other facilities requires the prior approval of the Commissioner. The validity of a construction permit will be for a period not exceeding three months, unless otherwise extended by the Commissioner, and the validity of an operating permit will be for a period of five years and we are required to submit to the Commissioner annual reports regarding radiation surveys conducted on our cell sites and other facilities by third parties that were authorized to conduct such surveys by the Commissioner. Permits that were issued under the Pharmacists Regulations were deemed, for the remainder of their term, as permits issued under the Non-Ionizing Radiation Law. An applicant must first receive a construction permit from the Commissioner and only then may the applicant receive a building permit from the planning and building committee. In order to receive an operating permit from the Commissioner, certain conditions must be met, such as presenting a building permit or an exemption and means taken (including technological means) to limit exposure levels from each cell site or facility (relevant also for the receipt of a construction permit). In April 2010, the Commissioner amended all existing operating permits to include an obligation to provide the Commissioner with online, ongoing data regarding the radiation level on each of the cell sites and other facilities operated by each cellular operator, satisfied by a monitoring system supplied by the Commissioner and installed at the operator's premises. We provide the Commissioner with the requested data. See "Site licensing" above for additional details in regards to obtaining a building permit or relying on an exemption.

The Non-Ionizing Radiation Law also regulates permitted exposure levels, documentation and reporting requirements, and provisions for supervision of cell site and other facility operation. The Non-Ionizing Radiation Law grants the Commissioner authority to issue eviction orders if a cell site or other facility operates in conflict with its permit, and it imposes criminal sanctions on a company and its directors and officers for violations of the law. Failure to comply with the Non-Ionizing Radiation Law or the terms of a permit can lead to revocation or suspension of the permit, as well as to withholding the grant of permits to additional cell sites of that operator.

In March 2013, a bill amending the Non-Ionizing Radiation Law so as to prohibit the grant of permits under such law for the construction and operation of cell sites situated within

75 meters from certain institutions, passed a preliminary phase of enactment in the Israeli Parliament. According to the bill, such permits granted prior to the enactment of the bill shall expire within 6 months from its effective date. In March 2013, another bill amending the Planning and Building Law was published, so as to broaden the public's right to submit objections to all requests for the construction of cell sites and to allow a wider discretion to the planning authorities in relation to such requests that are submitted in certain circumstances including similar to those described in the previous bill. If the proposed changes to the Non Ionizing Radiation Law or the Planning and Building Law, or similar restrictions are subsequently adopted, they will, among other things, limit our ability to construct new sites (and if applied to existing cell sites, they will also limit our ability to renew operating permits for many of our existing sites), will adversely affect our existing networks and networks build out, specifically in urban areas, and could adversely affect our results of operations.

Handsets

The Israeli Consumer Protection Regulations (Information Regarding Non-Ionizing Radiation from Cellular Telephones), 2002, regulate the maximum permitted level of non-ionizing radiation from handset that emit non-ionizing radiation, according to the European standard, for testing GSM devices, and the American standard, for testing TDMA and CDMA devices. They also require cellular operators to attach an information leaflet to each handset package that includes explanations regarding non-ionizing radiation, the maximum permitted level of non-ionizing radiation and the level of radiation of that specific model of equipment. The Radiation Regulations further require that such information also be displayed at points-of-sale, service centers and on the Internet sites of cellular operators.

We obtained type-approval from the Ministry of Communications for each handset model we started to import prior to November 2012. As of November 2012, we inform the MOC of new models that we start to import and receive the MOC's approval. SAR levels are a measurement of non-ionizing radiation that is emitted by a hand-held cellular handset at its specific rate of absorption by living tissue. SAR tests are performed by the manufacturers on prototypes of each model of handset, not for each and every item. We include the information published by the manufacturer regarding SAR levels as we do not perform independent SAR tests for equipment and rely for this purpose on information provided by the manufacturers. As the manufacturers' approvals refer to a prototype handset, we have no information as to the actual SAR level of each specific item and throughout its lifecycle, including in the case of equipment repair. We inform our customers that there may be changes in the SAR levels in the event of equipment repair. See "Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – Legal Proceedings – Class Actions" for details regarding two class actions against us, in respect of handsets and accessories.

We are required to provide a warranty for certain end user equipment purchased from us, for certain malfunctions during the first year, and are required to provide repair services for two years and in certain cases, for three years. We are also required to annul equipment sale in certain circumstances, at the request of the customer.

Royalties

Under the Communications Law, the Israeli Communications Regulations (Royalties), 2001, and the terms of our general license, we are required to pay the State of Israel royalties equal to a certain percentage of our revenues generated from telecommunications services,

less payments transferred to other license holders for interconnect fees or roaming services and losses from bad debt. No royalties were due for sale of handsets. As of 2013, that percentage was 0%.

Frequency fees

Frequency allocations for our cellular services are governed by the Wireless Telegraph Ordinance. We pay frequency fees to the State of Israel in accordance with the Israeli Wireless Telegraph Regulations (Licenses, Certificates and Fees), 1987.

Mobile virtual network operators

A mobile virtual network operator, or MVNO, is a cellular operator that does not own its own spectrum and usually does not have its own radio network infrastructure. Instead, MVNOs have business arrangements with existing cellular operators to use their infrastructure and network for the MVNO's own customers. The operation of MVNOs in the Israeli cellular market has contributed to the increased competition. If our service to a MVNO is to be provided under unfavorable terms and consideration for us, it may adversely affect our revenues.

For the Minister of Communications' authority to intervene in the terms, including tariffs, for hosting an MVNO, see "Item 4. Information on the Company – B. Business Overview - Government Regulations - Tariff Supervision". Unfavorable terms and consideration for the service may result in material adverse effect on our results of operations.

To date the Ministry of Communications has granted eleven MVNO licenses and five MVNOs have entered hosting agreements with cellular operators, without the Ministry of Communications's intervention (Rami Levy, Home Cellular (recently purchased by us, subject to approval of the Ministry of Communications), Alon Cellular (recently purchased by Pelephone), Azi and Cellact), and commenced operations in December 2011 through December 2013. It is unknown if and when the others will commence operations. For additional details see "Item 4. B. – Business Overview – The Telecommunications Industry in Israel – Cellular services".

Additional MNOs

Hot Mobile (in September 2011) and Golan (In January 2012) were awarded new UMTS frequencies, following a spectrum tender held by the Ministry of Communications. Under the UMTS tender terms, both Golan's and Hot Mobile's commitment to pay license fees was reduced to NIS 10 million, after reaching 7% market share each, in the private sector. Hot Mobile and Golan were awarded certain additional benefits and leniencies, such as a prolonged timetable for network coverage completion and the right to use national roaming through our, Pelephone or Partner's ' networks.

Under the Communications Law, existing operators (other than Hot Mobile) are required to provide new UMTS operators and Hot Mobile national roaming services, for a period of seven to ten years (subject to certain conditions). For regulatory intervention in the terms of the national roaming service, including tariffs, in case of inability to reach an agreement, see "Item 4. Information on the Company – B. Business Overview - Government Regulations - Tariff Supervision".

In October 2011, we entered a national roaming agreement with Golan, under which we provide Golan national roaming services and cell site sharing privileges (which was later amended by our agreement for the purchase of Golan), and Hot Mobile entered a national roaming agreement with Pelephone and later with Partner (which was later replaced by a network sharing agreement by Hot Mobile and Partner). As a result, the Ministry of Communications did not determine the terms for the service.

In May 2012, Golan and Hot Mobile launched their UMTS services, which materially increased competition in the market, increased churn and accelerated price erosion, and have materially adversely affected our results of operations. Investing in a 4G Network will, under certain conditions, replace Golan and Hot Mobile's obligation to deploy a UMTS network. For additional details see "Network Sharing" above.

In January 2015, the Israeli Ministry of Communications completed an 1800MHz frequencies tender, for 4G technologies (such as LTE, LTE Advanced). Participation in the tender was open for all current MNOs, MVNOs and other entities meeting certain condition and bands of 5MHz (excluding our band which was limited to 3MHz given our previous possession of 1800MHz), were awarded to the highest bidders. All existing MNOs and Marathon won bands in the tender and Marathon – a new operator - is expected to be awarded an MNO license. Under the tender terms, Marathon, Golan and Hot Mobile are eligible for up to 50% discount, 10% discount for each 1% addition to their market share, obtained over the next 5 years. We were awarded 3MHz for NIS 6.5 million per 1MHz. Pelephone was awarded 15MHz and each of Partner, Golan, Hot Mobile and Marathon was awarded 5MHZ, for NIS 6.4 – 6.9 million per 1MHz.

Landline

In May 2012, the Israeli Minister of Communications published a policy document regarding landline wholesale services, which mainly provided for: (1) the creation of an effective wholesale telecommunications access market in Israel, as Bezeq and Hot will allow other operators that do not own an infrastructure, to use their infrastructure in order to provide services to end users; (2) the gradual annulment of the structural separation in the Bezeq and Hot groups and its replacement with an accounting separation and change of the supervision on Bezeq retail tariffs to maximum tariffs rather than the current setting of fixed tariffs, generally depending on the development of a wholesale market and the state of competition in the market, and with relation to television broadcasting services, if there is a reasonable possibility of providing a basic package of television services through the internet by providers without a national landline infrastructure.

In January and February 2014, the MOC published hearings regarding terms for the provision of certain wholesale landline services by Bezeq and Hot to other operators (as well as an IRU of passive infrastructure elements by Bezeq and Hot of each other's networks) and the maximum prices it intends to set for certain wholesale services to be provided by Bezeq to other operators (excluding Hot). The MOC noted it is reviewing applying certain wholesale obligations on all landline operators, including us. The MOC further published its decision regarding the types of landline services that shall be offered through the wholesale landline market.

In November 2014, the Minister of Communications amended Bezeq's and Hot's Communications' licenses so as to include certain wholesale landline services, such as internet infrastructure services and wholesale landline telephony services, and the terms for the

provision of such services (within 3-6 months from the date of that decision) as well as promulgated regulations setting the maximum tariffs of the wholesale landline services to be provided by Bezeq. In November 2014, the Ministry of Communications further published a hearing proposing a method of inspecting whether Bezeq and Hot reduce their retail tariffs and thereby reduce the difference between the wholesale and retail tariffs ("margin squeeze") for certain landline services, aiming at reducing the profit of operators who do not own landline infrastructure and preventing their operation in the market.

In January 2015, the Ministry of Communications further amended Bezeq and Hot's licenses to include additional landline services, such as the use of certain of their physical infrastructure by operators who do not own such infrastructure, and the terms for their provision, as of August 2015. In February 2015, the wholesale landline market was formally launched in Israel (through non-automated operation) in regards to internet infrastructure services and in May 2015 the automated stage of the wholesale landline market was effected in regards to internet infrastructure services. Landline telephony service, which was to be provided as of May 2015, has not been provided yet and in December 2015, the Ministry of Communications published a hearing for an alternative temporary one year resale telephony service, at substantially higher tariffs than those set for the telephony wholesale service. We believe that a resale telephony service is not a viable alternative and that its adoption will harm the competition in the landline market and have therefore objected to its adoption. Further, Although the wholesale market was formally applicable to Hot's infrastructure as well, Hot's infrastructure has been effectively excluded from the wholesale market and in January 2016, the Ministry of Communications published a hearing proposing to set maximum tariffs for Hot's wholesale internet infrastructure services and noting it will not interfere with the tariffs Hot has set for its wholesale telephony service. Effective inclusion of Hot's infrastructure in the wholesale market may increase the potential subscribers to our triple play and bundle offerings.

Further, in January 2016 the Ministry of Communications announced its intention to annul Bezeq and Hot's structural separation as part of its plan to ensure massive investment in fiber optics infrastructure in Israel and setting a framework for a wholesale market using such infrastructure. We believe the annulment of structural separation for the Bezeq and Hot will adversely affect our competitive standing, more so if effected before a complete and effective wholesale landline market is operating. For changes to the Israeli Communication law, extending the Minister of Communications' authority to give instructions and set interconnect tariffs, usage of another operator's network rates and supervised services prices, and give instructions in relation to structural separation, see "-Tariff supervision" above.

In August 2013, IBC (a company owned by the Israeli Electric Company, or IEC, and an international group led by Via Europa) received licenses for the provision of broadband infrastructure services on the IEC's optic fibers infrastructure to other licenses holders as well as directly to large business customers. In 2014, IBC commenced deployment of its infrastructure and commenced the provision of such services in selected areas. Some of the smaller ISP providers have reportedly entered an agreement with IBC. See also "- Competition – Wireline" above.

OTT TV

Television services over the Internet are currently not regulated in Israel. In July 2015, a committee nominated by the Ministry of Communications in order to examine, among other things, the regulatory principles and rules that should apply to both television

broadcasting over the internet and the incumbents' TV service over cables and via satellite, submitted its recommendations.

In February 2016, a second advisory committee for the regulation of broadcasting nominated by the Ministry of Communications in October 2015, published its interim recommendations for public comments, including: (1) technological neutrality as to the electronic means by which the content is provided; (2) alleviation of regulation of audio-visual broadcasting in certain aspects, to be handled by a new authority to be established (the Commercial Broadcasting Authority); (3) classification of the players in the market into three categories and determination of the regulation applied to each class as follows: (i) an "audio visual provider" shall be allowed to adopt voluntary self regulation, (ii) a "TV provider" (defined as an audio visual provider offering more than 4 linear edited channels or directing its service mainly to the Israeli public) shall be subject to mild regulation involving a mandatory license that shall include certain limitations in relation to content and ownership and a choice of financing between subscription fees or advertisements, and (iii) a "material provider" (defined as an audio visual vendor generally holding market share of 15-20%) shall be subject to the said mild regulation and to a wide regulation which shall include mandatory investments and original Israeli content financing; (4) audio visual providers who own infrastructure shall be obligated, among others, to offer a package of infrastructure, set-top box and open linear channels for a supervised price; and (5) regulation of advertising and commercial content.

The implementation of either committee's recommendations is subject to the adoption thereof by legislation. If the legislation adopted require us to make additional investments or impose unfavorable regulation on our OTT TV service, or apply such regulation to us and not to other OTT TV providers, or usage of the DTT infrastructure, it may adversely affect our OTT TV business.

See also "- Competition – Wireline" above.

Emergency situations

We may be subject to certain restrictions and instructions regarding our activities or provision of services during national emergencies or for reasons of national security or public welfare, which may increase our liability, including taking control of our cellular or landline networks. Further, the Prime Minister and the Ministry of Communications may determine that our services are deemed essential services, in which case we may be subject to further additional limitations on our business operations.

Reporting requirements

We are subject to extensive reporting requirements. We are required to report to the Ministry of Communications the transfer of means of control from certain thresholds and changes of office holders, as well as to provide reports relating to our ongoing operation and services. We are required to submit to the Ministry of Communications detailed annual reports with information concerning subscribers, revenues by service, the number of new subscribers and churn, network performance, annual financial statements and prior notice of tariff increases . In addition, under our license we may be required by the Ministry of Communications to file additional reports, such as reports on complaints, pricing, specific costs and revenues, network problems and the development of the network.We are required

to provide the Commissioner of Environmental Radiation under the Non-Ionizing Radiation Law and regulations with periodic and online, ongoing data of all cell sites operated by us.

Securities administrative enforcement

Under Israeli securities laws, certain violations of certain securities and securities-related laws supervised by the Israeli Securities Authority, or ISA, may be enforced through administrative measures. The ISA may impose various civil enforcement measures, including financial sanctions, payment to the injured party, prohibition of the violator from serving as an executive officer for a specified period of time, annulment or suspension of licenses, approvals and permits granted under such laws and agreed settlement mechanism as an alternative to a criminal or administrative proceeding. In case of a violation by a corporation, additional responsibility is attributed to the chief executive officer in some cases, unless certain conditions have been met, including the existence and implementation of procedures for the prevention of the violation. We adopted such procedures for the prevention of violations. Since the commencement of operations by the Israeli Securities Law Administrative Enforcement Committee, significant monetary sanctions, ranging up to several million shekels in individual cases, have been imposed on several publicly traded companies and their affiliates for breach of the provisions of the Israeli Securities Law.

Contributing to the Community and Protecting the Environment

We and our employees have been contributing to the community since our inception. We consider contribution to the community in Israel an important component of our business vision and believe we have a responsibility toward the Israeli community, as we acknowledge that business leadership goes hand in hand with social leadership.

In 2015 we continued to contribute to the community with a specific focus on our "Cellcom Volume" youth centers initiative. In addition to promoting Israeli music and artists and providing our customers with Israeli music through a variety of musical content, we have contributed to the creation of "Cellcom Volume" youth centers in various locations throughout Israel, in which we provide young people resources related to music, including music classes, facilities to bands and choirs for rehearsals and recording studios. We are currently reviewing new initiatives of contributing to the community to replace the "Cellcom Volume" initiative.

Throughout the year, our employees volunteer in various activities in the community.

In addition to our contribution to the building up and strengthening of the community, through activities such as our "Cellcom Volume" youth centers, we make financial donations to other worthy causes and entities. In 2015 we donated a total sum of approximately NIS 4.9 million, including our contribution to the community.

We are aware of the importance of environmental protection. Accordingly, while providing quality products and services to our subscribers, we seek to operate responsibly to continuously reduce negative impacts on the environment and the landscape, aiming at a better environmental performance than required by local law. We dedicate personnel, funds and technologies to improve our performance, strive to achieve an efficient deployment of infrastructure subject to the applicable standards, and cooperate with the local authorities. We constantly monitor our environmental performance and aim to reduce our ecological footprint, through activities such as recycling of electronic components and packages,

reduction of paper usage by managed printing, reduction of pollutants' emissions and energy usage as well as activities aimed at allowing our subscribers to better protect the environment, such as collecting used batteries, sending subscribers their monthly bill for our services and other correspondence from us via e-mail and as of 2014, also by SMS, in lieu of regular mail, transfer to usage of environment friendly raw materials and separation between different types of waste in our repair services and since 2014 are purchasing electricity produced by a private natural gas based power station.

Netvision

General

On August 31, 2011, we completed the acquisition of 100% of the share capital of Netvision through a merger transaction. Netvision was founded as an Israeli company in 1994 and became a public company following its initial public offering on the TASE in 2005. In our description of Netvision's business, the term "Netvision" refers to Netvision and its subsidiaries.

Netvision is a leading company in the Israeli communications market and is engaged in two primary businesses through its wholly-owned subsidiary 013 Netvision Ltd., or 013 Netvision: provision of internet connectivity (ISP) and related services, recently - following the formation of the landline wholesale market – combined with internet infrastructure services; and provision of telephony services consisting mainly of international calling services, operator services, teleconferencing services and landline telephony services. In addition, Netvision is engaged in additional activities such as internet applications, cloud services and data security products.

Internet infrastructure and ISP Business

General

The provision of internet connectivity services is one of Netvision's primary businesses. Netvision is a major provider of internet connectivity services. Prior to the formation of the landline wholesale market, the Israeli internet market was characterized by a separation between the internet infrastructure providers and the internet connectivity service providers. Consequently, the internet customer was required to enter into a contractual arrangement with both of these providers. The infrastructure provider is responsible for the connection of the customer from his computer or other device to the infrastructure provider's operator. The internet service provider is responsible for providing access to the customer from the infrastructure provider's operator, through its own operator, to the local and global internet network. Following the inception of the landline wholesale market, we, Netivsion and other operators provide end-to-end internet service (infrastructure and connectivity), using Bezeq's VDSL infrastructure. The two main internet infrastructure providers having their own landline infrastructure for the private sector in Israel are Bezeq and Hot, both are currently under certain structural separation limitations. Bezeq is also providing internet infrastructure services to operators that do not own their own infrastructure (such as Netvision) under the landline wholesale market, who, in turn, provide this service to the end customer. Netvision's internet infrastructure is currently comprised of connectivity sites in two locations in Israel (Haifa and Petah-Tikvah), which provide Netvision's customers, through overseas connectivity points in London and Frankfurt, with connectivity to the global internet network. This internet infrastructure contains backup capability in order to ensure continuity of service.

For a details regarding the landline wholesale market see "Business Overview -Competition - Wireline" and "Government Regulation – Landline" above.

Services and Products

Netvision's main service provided to its internet subscribers is internet connectivity service and related services and products, and as of May 2015, also internet infrastructure services bundled with internet connectivity, as well as bundles of its services, including bundling with our services and other companies' products or services.

In addition, Netvision offers its internet subscribers value added services, such as data protection services to its private subscribers and connectivity integration solutions and global communications solutions to its business customers, including firewalls, anti-virus and anti-spam software, overseas internet connectivity services and server hosting services. In addition, Netvision provides ISP services that offer the ability to filter the content viewed by the internet users.

Netvision is constantly considering and evaluating the possibility of introducing additional products and services to its customers.

The Israeli ISP market is characterized by rapid technological changes, both in terms of the bandwidth offered to customers, as well as in terms of expansion of the list of products and services offered.

Suppliers

In the course of engaging in its ISP business, Netvision has entered into agreements with various suppliers, of which the principal agreements are the following:

Netvision has entered into a number of agreements with Mediterranean Nautilus Ltd. and Mediterranean Nautilus (Israel) Ltd., or collectively Med Nautilus, between 2003 and 2015. Med Nautilus is the owner of communications infrastructure which connects the Israeli internet network to the "entry points" of the global internet network via an underwater communications cable (out of three existing cables, one of them is owned by one of Netvision's competitor, Bezeq International). Pursuant to its agreements with Med Nautilus, Netvision purchased rights of use, of certain telecommunications capacities on Med Nautilus' communications cables, as well as maintenance and operation services relating to these cables. Over the last few years Netvision has increased the capacity purchased for significantly lower prices, as well as reduced maintenance costs. The term of the agreement with respect to capacity purchased from Med Nautilus is in effect until May 2032. Netvision has the option to terminate agreements with respect to parts of the capacity in 2022 and 2027. The terms of these agreements may be subject to regulatory intervention – see "- Regulation and Licenses" below.

Netvision has also entered into agreements with Bezeq and Hot, the primary internet infrastructure providers in the Israeli market. Netvision is dependent upon these suppliers since without their infrastructure Netvision would be unable to provide its ISP services to its customers. Due to the increase in customer demand for broadband width in recent years, Netvision is required from time to time to increase the capacity it purchases from Bezeq and Hot. In 2015, we entered into an agreement with Bynat, for the provision of maintenance and proactive malfunction detection and consultant services for Netvision's IP network equipment by Cisco, effective until the end of 2019. In addition, Netvision sells various Cisco products to its customers.

Netvision uses several supporting systems for the provision of service to its customers, including communications infrastructure by Nortel (see additional details under "Telephony Business – Suppliers" below), customer relations management system by PeopleSoft supported by Amdocs, inventory and suppliers management system by Priority/Eshbel, billing system by CBP supported by Amdocs and by Intec, financial system by Coda and infrastructure integrations system by Microsoft BizTalk. In July 2013, we transferred Netvision's inventory and suppliers management operation to our ERP solutions provided by SAP, supported by Rimini. We are considering the replacement of both our and Netvision's CRM system with one system that shall serve both companies. For details see "Item 4. Information on The Company –B. Business Overview – Network and Technology - Information technology".

Netvision's internet infrastructure service is dependent on Bezeq and in case Netvision purchases such services from Hot, it will be dependent on Hot as well. The terms of the service are mainly set in the landline wholesale market regulation. For additional details see "Government Regulation – Landline".

Sales and Marketing and Customer Care

Netvision conducts its sales and marketing activities in the Internet infrastructure and ISP business through various channels, including media advertising in internet concentrated sales campaigns, telemarketing to potential customers, as well as targeting existing customers by offering them upgrades to existing subscription programs and value added products and services. In addition, Netvision regularly collaborates with other telecommunications providers (including Bezeq and Hot) in order to offer service packages to existing and potential customers and its services are also marketed by Cellcom, including in bundles of services.

Netvision's sales and customer care center is located in Haifa, with additional teams located in our headquarters in Netanya, providing sales services, technical and support services, billing and general information, by specializing representatives as well as installation services provided by technicians teams at the infrastructure customers' premises. In addition, Netvision provides its subscribers and potential subscribers with various self-service channels, such as IVR, web-based services, automatic and live chat and mobile phone application where they can receive general and specific information.

Competition

Internet access is currently provided by three major Internet service providers, or ISPs: Netvision, Bezeq International, Smile Telecom (a subsidiary of Partner), and some other smaller players including Hotnet (a subsidiary of Hot). As of December 31, 2015, Netvision provides ISP services to approximately 685,000 households and we estimate Netvision's market share to be 27%, and Bezeq International and Smile Telecom holding 40% and 24% market share, respectively.

The Israeli ISP market is highly competitive and saturated and is characterized by relatively low entry barriers. Competition among the various players concentrates mainly on the ability to offer high-speeds of internet connection and on pricing. Although the provision of ISP services requires obtaining a license from the Ministry of Communications, the Ministry's policy is liberal in granting ISP licenses (and more recently unified licenses, which allow the provision of ISP services to any holder of such license, subject to the inclusion of

an ISP appendix). As a result, as of the date of this report, there are a few dozen holders of ISP licenses (or unified license allowing the provision of ISP services) in Israel, though most of them do not hold significant market shares. Entry into the ISP market requires, however, incurring substantial penetration costs associated with the formation of ISP infrastructure, support systems, customer care systems and marketing channels. Due to such penetration and the other ongoing costs of operating ISP service, profitability in the ISP market usually requires creation of a broad customer base and the ability to sell added value products and high speed packages to the customers.

The key success factors in the ISP market are the services included in the bundle, competitive pricing, brand recognition and reputation, advanced and updated technological capabilities, available bandwidth, high levels of customer care service, the ability to constantly develop innovative products and services and complementary products and services, and achieving and maintaining customer loyalty.

Although both Bezeq and Hot are under structural limitations, they are allowed to offer bundles of services, under certain limitations, including that some of the services in the Bezeq bundle would be available for sale separately under the same terms as in the bundle, and the requirement that Bezeq allows its competitors to participate in a similar bundle (if it includes ISP, VOB or ILD services) under the same terms and equally markets such bundles as its own bundle (though the second requirement does not apply to the sale of the bundle by a subsidiary of Bezeq). The same limitations apply to Hot in the case of bundles that include ISP services, with respect to the ISP service component of the bundle. The entry of Hot (through its subsidiary Hotnet) into the ISP market at tariffs significantly lower than market prices in 2012, the subsequent entry of cellular operators into that market in 2013, the offering of bundles of services and the aggressive campaigns of both Bezeq and Hot offering substantially higher bandwidth for lower tariffs to end-users, resulted in substantial decrease in ISP service prices and led to increased demand for greater bandwidth, which required Netvision to increase the capacity it purchases from Bezeq and Hot. Further, the offering of bundles of internet infrastructure and ISP using the wholesale market increased the competition in this field, resulting in loss of ISP customers to Netvision. If competition remains at current levels and the regulatory environment remains unchanged, this trend is expected to continue to have a material adverse effect on Netvision's results of operations.

In 2011 and 2012, two additional underwater cables that serve as an alternative to Med Nautilus were deployed. In addition, proposed regulation published for public comments by the Ministry of Communications in 2011, proposed certain limitations on the terms of agreements with Med Nautilus, which would, among other things, limit the discounts and capacity Med Nautilus may provide. The deployment of additional underwater cables improved the competition in the ISP market, as ISP providers were able to find alternatives to Med Nautilus, which led to a substantial decrease in the pricing of the global internet connectivity services provided to Israeli ISP providers. In addition, should the IBC infrastructure be available (which currently cannot be assured), this would improve Netvision's competitiveness in the ISP and landline markets as this is likely to reduce its dependency on Bezeq and Hot as internet infrastructure providers.

For details regarding the internet infrastructure service market, see "Business Overview -Competition - Wireline".

For additional details see "Item 3. Key Information – D. Risk Factors – - Risks Related to our Business – We face intense competition in all aspects of our business" and " Business Overview – Competition" above.

Regulation and Licenses

A major part of Netvision's ISP operations is subject to regulation by the Israeli Ministry of Communications pursuant to the Communications Law, including through its unified license.

The provision of ISP and related services requires a license. Netvision was granted three ISP licenses, one to its wholly-owned subsidiary 013 Netvision, one to its controlled subsidiary Internet Rimon, and third was granted to 013 Netvision by the Israeli Civil Administration in Judea and Samaria in respect of this territory. The license granted to 013 Netvision was replaced in February 2016 with a unified license. The licenses are valid through February 2022, November 2017 and July 2016, respectively.

Under its ISP license, Netvision (Rimon) is required to maintain a minimum standard of customer service and is prohibited from conditioning the use of its services by the customer on the customers being connected to a portal designated by it. Netvision is also required to inform its customers regarding the main features of the service provided, including commencement date of service, the consideration paid by the customer, the minimal surfing speed it is solely responsible for (if it publishes the maximum speed), quality standards, and maintenance details, and details about the possibility of email address portability, and is required to use a specific format for Netvision's agreement with its customers; to obtain an explicit request from its subscribers to purchase services as a precondition to providing and charging for such services; to maintain a specific form of evidence of customers' request to purchase its services as a precondition to charging its customers for those services, provide notifications regarding the services ordered and the procedures for handling subscribers' objections as to billing and repayment of overcharged sums.

Under its ISP licenses, Netvision may not transfer any means of control or any of its licenses-related assets without the prior written approval of the Ministry of Communications. The license may be terminated in case that Netvision fails to provide information or provides false information or in case it is engaged in anticompetitive practices in the communications market, subject to certain terms. The licensee is required to provide the Ministry of Communications with certain reports and is required to cooperate with the supervisory bodies of the Ministry of Communications.

For additional details regarding the unified license which may facilitate the entry of additional players into the ISP market, see "-Government Regulations - Unified license" above.

Further intervention by the Ministry of Communications in the ISP market, including by means of granting additional licenses allowing the provision of such services and setting their terms and conditions, change or annulment of the structural separation currently in place for the Bezeq and Hot groups, permitting the bundling of certain services without restrictions and intervening in the purchasing of global internet connectivity, could have a material adverse effect on Netvision's ISP business.

General

The provision of telephony services is one of Netvision's primary businesses. Netvision's services in its telephony business consist mainly of the following:

• x provision of international calling services, or ILD services;
• x provision of landline telephony services, including teleconferencing services; and
• x sales of IP switchboard services and operation and management of business telecommunications systems.

ILD services enable an end user (whether in Israel or overseas) to conduct a telephone conversation with an end user located elsewhere in the world. These include calls (including cellular calls) from Israel to various destinations abroad as well as call (including cellular call) completion services to overseas operators transferring a call to Israel; transferring international calls between operators and signaling services to local and foreign cellular operators to allow roaming.

Netvision is one of the major players in the Israeli ILD market. In recent years, the ILD market has substantially decreased and is expected to continue to diminish, due to increased usage of substitute solutions, including voice over IP technologies offered by companies such as Skype, usage of local cellular services and increased usage of data in lieu of voice communication. Together with the offering of ILD services for no additional cost in bundles of cellular and landline telephony services, this has resulted in a continual decline in revenues from traditional ILD services.

Landline telephony service enables an end user to conduct a telephone conversation with another end user who uses either another landline or a cellular telephone or computer, either in Israel or overseas.

Services and Products

Netvision's principal service in the ILD market is the provision of outgoing and incoming telephone calls to and from substantially worldwide coverage. Netvision provides these services mostly to post-paid customers, but also to pre-paid customers mainly through the sale of calling cards. Most of the customers of the pre-paid services are foreign workers who work in Israel. In addition, Netvision provides "Hubbing" services to non-Israeli international operators. Hubbing services are bridging services between two non-Israeli international operators. Such services are provided by Netvision where there is no direct connection between two non-Israeli international operators or where pricing differences in different locations make such bridging service desirable. The hubbing service market has been growing in the past few years because of the development of the international dialing market and because of the development of the corresponding arbitrage market on which various international operators trade international dialing capacities. In addition, Netvision provides "signaling" services to cellular operators who use roaming services. A cellular handset located out of its home network needs to "signal" its location to the hosting network in order to enable the cellular subscriber to have roaming services. Netvision provides these

services to certain cellular operators in Israel (including us), as well as to foreign cellular operators with respect to their customers when they visit Israel.

Netvision's principal service in the wireline market is the provision of basic landline telephony services (to private customers by VOB technology). Netvision offers these services to both business and private customers. In addition, Netvision offers IP switchboard services and operation and management of business telecommunications systems. Netvision's ILD and landline services are also bundled with cellular services offered by Cellcom and following the inception of the landline wholesale market, Netvision's landline telephony (VOB) is also offered by Cellcom in its triple play package of internet infrastructure and ISP service, landline telephony service and TV service). For additional details see "Business Overview - Competition".

Suppliers

Netvision's principal suppliers in the telephony market are the following: Bezeq, Hot and cellular operators. Under the Communications Law and licenses, all operators are required to interconnect their network to other public communications networks in Israel, on equal terms and without discrimination in respect of other operators. Netvision has entered into interconnect agreements with Bezeq, Hot and the cellular operators, for facilitating international traffic between Netvision's network and the other networks, as well as for billing and collection services for Netvision services, for certain customers. Netvision's traffic requires interconnections with these operators and is dependent on their availability and quality.

Most of the international dialing traffic between Israel and the rest of the world is conducted through the underwater communications cable of Med Nautilus. For further details on the agreements between Netvision and Med Nautilus, see "Netvision - Internet infrastructure and ISP Business - Suppliers" above.

Netvision has also entered into agreements with more than 100 foreign carriers. These agreements regulate and facilitate the ILD services of Netvision, as well as its international voice hubbing services.

Netvision entered into an agreement with Nortel Networks Israel (Sales and Marketing) Ltd., or Nortel, in June 2004, for the provision of Netvision's international communications switch, on which Netvision bases its ability to provide international calling service, as well as related equipment and services. From 2010, Geneband Inc. (which acquired Nortel's relevant business) provides Netvision with support and maintenance services for the equipment provided under this agreement.

Netvision has entered into an agreement with ECI Telecom Ltd. for the provision of transmission switches by ECI Telecom among the various location sites of Netvision in Israel and overseas, used for its ISP and ILD operations.

Sales and Marketing and Customer Care

The sale and marketing of Netvision's telephony products and services is conducted mainly through direct means such as telemarketing, mail and email campaigns. In addition, Netvision offers its telephony products and services on a non-exclusive basis through our

bundles and triple play package, various retailers, through outsourced telemarketing centers and through distributors.

Netvision's customer care centers and self-service channels provide its telephony services customers the same range of services provided to its ISP customers.

Competition

The Israeli ILD market is highly competitive, and the competition in the market is based mainly on the operator's ability to offer attractive pricing. The price of an international call is also influenced by the call completion tariff paid to the operator in the call's destination country and increased competition in the destination country leads to a decrease in tariffs for calls to those destinations and thus an increase in the quantity of minutes made to those destinations.

Netvision commenced its landline telephony services in 2008 using Voice Over Broadband, or VOB, technology, and since then expanded this business. Netvision's penetration into the landline telephony business is an important element in our ability to offer comprehensive service packages to its and our subscribers. In case landline telephony is effectively included in the landline wholesale market, we may also offer wholesale landline home telephony services to private customers.

Regulatory changes in the telephony market such as the inclusion of ILD services in unlimited bundles offered by cellular and landline operators, have increased competition further. The adoption of proposed changes to ILD regulation, which includes the provision of ILD services by landline operators and cellular operators themselves and not through a separate company, as required today would increase the competition in the ILD market and may adversely affect Netvision's results of operations. See "-Regulation and Licenses" below.

The key success factors in the telephony market are the services included in the bundle, competitive pricing, which are updated constantly, brand recognition and reputation, advanced and updated technological capabilities, reliable network and high levels of maintenance, quality of human resources including customer care services, and the ability to develop comprehensive products and services packages, to build a substantial customer base, to enhance customers' loyalty and the ability to face competition. In addition, the ability to develop strong strategic relations with foreign international carriers and continuous agreements with them are also key elements in the ILD market.

In recent years, the use of alternative telecommunications technologies such as voice-over-IP has resulted in downsizing of the telephony market, especially the ILD services revenues. This trend is expected to continue in the future at a more moderate pace.

Netvision is a major service provider in the Israeli ILD market. As of the date of this report, there are several ILD operators in the Israeli market. Netvision's main competitors in this market are Bezeq (through its wholly-owned subsidiary Bezeq International) and Partner (through its wholly-owned subsidiary Smile Telecom). Additional competitors include Xfone Communications Ltd., Telzar International Communications Services Ltd., Rami Levy, Golan and Hot, through wholly-owned subsidiaries or affiliates. At the end of September 2015, Netvision's market share in the ILD market is estimated to be approximately 20%, and Bezeq International, Smile Telecom and Hot holding 35%, 24% and 12% market share, respectively.

Netvision estimates that its current market share in the Israeli landline telephony market is not material, with approximately 138,000 households subscribed to the services as of December 31, 2015. Netvision's main competitors in the landline telephony market are Bezeq and Hot, as well as Partner (through Smile Telecom) and Bezeq International. To our knowledge, Bezeq remains a monopoly in the landline market.

A wholesale landline telephony services market and the IBC's infrastructure, if and when made effectively available, will enhance Netvision's ability to compete and allow us and Netvision (as well as our competitors) to provide a wider selection of services at competitive prices, specifically in relation to residential landline services which is currently immaterial. Any changes to the structural separation limitations in the Bezeq and Hot groups and the supervision on Bezeq tariffs, or anti-competitive behavior if not prevented by the regulators, however, could adversely affect Netvision's ability to compete with Bezeq and Hot in general, and in the landline market in particular and may have a material adverse effect on Netvision's results of operation. Competition may intensify if additional competitors enter the market following the establishment of an efficient landline wholesale services market.

See also "Item 3. Key Information – D. Risk Factors - Risks Related to our Business – We face intense competition in all aspects of our business" and "Item 4. Information on the Company –Competition - Wireline" and "-Government Regulations – Landline".

Regulation and Licenses

Netvision's operations in the telephony business are subject to regulation, mostly pursuant to the provisions of the Communications Law and the regulations promulgated thereafter, the Communications Regulations (Telecommunications and Broadcasting) (Procedures and Conditions for the Receipt of General Unified License) – 2010, or the Regulations and to the provisions of its Unified licenses, with respect to its ILD landline telephony businesses,and 'network end point' service.

Netvision's unified licenses are held by two of its wholly-owned subsidiaries - 013 Netvision and Veidan Teleconferencing Solutions LP, or Veidan, and expire on May 2025 and March 2026, respectively. Each of 013 Netvision and Veidan deposited a bank guarantee in the amount of NIS 5 million with the Ministry of Communications upon receiving the license. See "Business Overview - Government Regulations – Other Licenses – Unified License" above for additional details.

In October 2013, the Ministry of Communications published a hearing regarding a change to the ILD services regulation, which proposes, among other things: to annul the current limitation preventing landline and cellular operators from providing ILD services themselves (rather than through a separate corporation), which if adopted and applied to the Bezeq and Hot groups as well, would result in the annulment of the structural limitations currently imposed on them, in relation to the ILD services; that holders of a special license for the provision of ILD services will not be obligated to provide service to anyone so requesting nor to all the countries in the world; and to annul the restrictions on the cooperation between cellular and ILD operators in relation to prepaid calling cards. In February 2015, a second hearing proposing certain alternatives to the abovementioned proposed changes, to be applied to the Bezeq and Hot groups during an interim period ending upon annulment of structural separation, was published. The adoption of such changes would

increase the competition in the ILD market even further and may adversely affect Netvision's results of operations.

In addition to its principal unified licenses, Netvision (through its wholly-owned limited partnership Veidan and wholly-owned subsidiary 013 Netvision) received from the Israeli Civil Administration in Judea and Samaria licenses for the provision of landline ILD and 'network end point' services to the Israeli-populated areas in Judea and Samaria, effective until October 2017, August 2018 and July 2017, respectively. The provisions of the principal licenses described above, generally also apply to those licenses, subject to certain modifications

Under its unified licenses, Netvision (through its wholly-owned subsidiary 013 Netvision) may also provide 'network end point' service, i.e., mainly the installation and maintenance of telecommunications equipment at a customer's premises or the licensee's premises, which include telephones, switchboards, telephony cables and related equipment as well as enables Netvision to connect a customer premises, through other license holders, to the public landline network.

In addition, as a service provider, Netvision is subject, like us, to the general legislation governing relations between vendors and consumers, including the Consumer Protection Law, 1981.

In August 2011, the Communications Law was amended pursuant to which the Early Termination Fees in the ILD and in the landline telephony market were annulled, which led to an increase in competition, churn rates and rate of gross recruitment of subscribers and price erosion.

For details of the landline wholesale market and its possible effects see "Competition - Wireline" above and "Item 4. Information on the Company –Competition - Wireline" and "-Government Regulations – Landline".

C. ORGANIZATIONAL STRUCTURE

The IDB Group

Our largest shareholder, DIC, is a majority-owned subsidiary of IDB Development Corporation Ltd., or IDB, one of Israel's largest business groups. IDB and DIC are public Israeli companies traded on the Tel Aviv Stock Exchange. See "Item 3. Key Information – D. Risk Factors - We are a member of the IDB group of companies, a large and highly regulated Israeli business groups, which may limit our ability to expand our business, to acquire other businesses or raise debt. The effects on us of IDB's financial condition are unclear" for details regarding IDB's financial situation and the footnote to the table under "Item 7.A – Major Shareholders" for information on the holdings in IDB.

Netvision and 013 Netvision, our wholly-owned subsidiary and wholly-owned indirect company, respectively, incorporated in Israel, are our only significant subsidiaries.

D. PROPERTY, PLANT AND EQUIPMENT

Headquarters

In August 2003, we entered into a long-term agreement for the lease of our headquarters in Netanya, Israel. The leased property covers approximately 57,800 square meters, of which approximately 26,000 square meters consist of underground parking lots. The lease is in effect until December, 2022 and is renewable for two additional periods of five years each, upon our notice. In 2015, we sublet a portion of our headquarters to several lessees for a period of up to five years, following the reduction in headcount in our headquarters. The lessees have options to renew the lease for additional periods.

Central Laboratory

In October 2010, we entered into a long-term agreement for the enlargement of our techno-logistic center, including our new central laboratory, in Netanya, Israel, and the lease thereof. The leased property covers approximately 11,000 square meters. The lease is for a term of ten years from August 2011 and is renewable for an additional period of 5 years, at our option. In case we do not exercise the option we shall be required to pay approximately NIS 11 million. In January 2015, we sublet approximately 1,100 square meters of the leased property, for a period of five years. The lessee has an option to renew the lease for an additional period subject to the renewal of our lease.

Netvision Properties

Netvision leases two main properties in Israel: one in Haifa and the other in Rosh-Ha'ayin. Netvision uses these properties for its offices, for its call centers, and for its network servers, as well as for equipment storage and until December 2011, has used them as headquarters as well. The Haifa lease covers approximately 8,900 square meters, is in effect until December 2019, may be terminated by Netvision in December 2018 subject to prior notice, and is renewable for three additional periods of two years each, upon Netvision's notice. The Rosh-Ha'ayin lease covers approximately 3,300 square meters, is in effect until December 2017 and is renewable for five additional periods of two years each, upon Netvision's notice. Netvision sublets part of the property in Rosh-Ha'ayin to our wholly-owned dealer and another subsidiary.

Electricity

In December 2010, we entered into an agreement with Ashdod Energy Ltd. (subsequently assigned to Ramat Negev Energy Ltd.), which constructed a private power plant fueled by natural gas in Israel and commenced purchasing a portion of our electricity from it in 2014. Under the agreement as amended in July 2012, we committed to purchase electricity for the earlier of a period of 15 years from commencement of operations of the power plant or until January 2028, subject to our right to terminate the agreement after six years from the commencement of operations of the power plant under certain conditions.

Service Centers, Points of Sale and Cell Sites

As of December 31, 2015, we leased 78 service centers, points of sale and other facilities (including those operated by our wholly-owned dealer), which are used for marketing, sales and customer service. Lease agreements for our retail stores and service centers are generally for periods of two to three years, with extension options that vary by location.

In addition, we lease from various parties, including the Israeli Land Authority, or ILA, municipalities and private entities sites for the establishment, maintenance and operation of cell sites for our cellular network. The duration of these lease agreements varies and ranges, in most cases, from two to five years, with an option to extend the lease for successive similar periods. The lease agreements also differ from each other in aspects such as payment terms and exit windows that enable us to terminate the agreement prior to its scheduled expiration. In some of the agreements, the lessor is entitled to terminate the agreement at any time without cause, subject to prior notice. Based on our past experience, we encounter difficulties in extending the term of approximately 7% of the lease agreements for cell sites, which at times results in our having to pay higher rent in order to remain in the same locations or to find alternative sites.

In addition, Netvision leases a number of points of presence in Israel that are used for equipment and servers storage and storage of operators and other communications equipment for the provision of landline services, and leases storage space for its servers and equipment in New York City, London and Frankfurt.

Authorization Agreement with Land Regulatory Authorities

In June 2013, we renewed an authorization agreement with the ILA (which manages the lands of the Development Authority and the Jewish National Fund) that authorizes us to use lands managed by the ILA for the establishment and operation of cell sites. The authorization agreement is effective until 2019.

The authorization agreement provides that subject to the receipt of approval from the ILA, we will be entitled to establish and operate cell sites on the lands leased to third parties throughout the agreement's term. In connection with the authorization agreement we undertook to vacate at the end of the agreement's term all facilities installed in the authorized area unless the authorization period is extended.

Under the authorization agreement, the ILA is entitled to revoke authorizations granted to us in the event of changes in the designation of the land on which a cell site was erected, in the event that we violate a fundamental condition of the authorization agreement, in the event that the holders of rights in the properties on which we erected cell sites breach the agreements between them and the ILA and in the event that the land on which a cell site was erected is required for public use.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following operating and financial review and prospects should be read in conjunction with "Item 3. Key Information – A. Selected Financial Data" and our consolidated financial statements and accompanying notes appearing elsewhere in this annual report. Our financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, which differ in certain respects from U.S. Generally Accepted Accounting Principles, or U.S. GAAP. Following our adoption of IFRS, as issued by the IASB, we are no longer required to reconcile our financial statements prepared in accordance with IFRS to U.S. GAAP.

This discussion contains forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under "Item 3. Key Information – D. Risk Factors" and elsewhere in this annual report.

A. OPERATING RESULTS

Overview

General

We are the largest provider of cellular communications services in Israel with approximately 2.835 million cellular subscribers as of December 31, 2015, with an estimated market share of 27%, as well as a major ISP and ILD services supplier, through our wholly owned subsidiary – Netvision. In 2015 we have also entered the TV market and the internet infrastructure market (through the recently launched landline wholesale market).

Since 2012, our results of operations have been materially adversely affected by regulatory changes, which have also facilitated the entry of additional competitors, a dramatically increased competition (as a result of which our churn rate in the cellular field reached 42% in 2015) and continued price erosion, resulting in a decrease in our EBITDA for 2013, 2014 and 2015 by 23.8%, 4.0% and 32% respectively, in comparison to the previous year. The high level of competition is expected to continue to further adversely affect our results of operations in 2016. Competition may increase further if current trends continue, if the agreement for the purchase of Golan by us is not approved by the regulators, if the landline wholesale market, launched in 2015, is ineffective, if the structural separation imposed on the Bezeq and Hot groups is annulled or further relaxed, or if new competitors enter the communications markets. During that period, we have continually implemented aggressive efficiency measures in order to mitigate those adverse effects, which, in 2014 and 2015, included voluntary retirement plans for employees, in which approximately 380 and 330, respectively, employees have retired and we have recorded expenses in the amount of NIS 39 million and NIS 25 million, respectively, for the cost of these plans. We intend to continue to implement changes in order to continue our efforts to mitigate the adverse effects of the increased competition in all areas in which we operate. We cannot guarantee the success of these measures. Moreover, unionization of our employees may impede the execution of such measures. See "Item 3. Key Information – D. Risk Factors – Risks Related to our Business - We face intense competition in all aspects of our business" and "Item 4. Information on the Company - B. Business Overview – Competition" for additional details.

We earn revenues and generate our primary sources of cash by offering a broad range of communications services, including cellular, ISP, ILD , landline services and OTT TV services. Our cellular services include basic cellular telephone services and data transfer, download and upload, as well as text and multimedia messaging services and advanced cellular content services, which we provide through our 2G and 3G network covering substantially all of the populated territory of Israel and our 4G network launched in 2014. We also provide international roaming services to our subscribers in 181 countries as of December 31, 2015 as well as to subscribers of foreign networks visiting Israel. We offer our subscribers a wide selection of handsets of various leading global manufacturers as well as extended warranty services on most handsets we offer. We have an advanced fiber-optic transmission infrastructure of approximately 1,780 kilometers. Together with our complementary microwave-based infrastructure, our fiber-optic infrastructure connects the majority of our cell sites with the remainder connected using supplemental transmission capacity leased from Bezeq, the incumbent landline operator and Hot. Having our own transmission network enables us to save substantial operating cash lease costs that would be associated with complete reliance on Bezeq's infrastructure, although these savings are partially offset by maintenance costs and microwave spectrum fees. It also allows us to sell transmission and data services to business customers and telecommunications operators. We provide advanced landline services, to selected landline business customers. Since December 2014 we also offer OTT TV services. In addition, following the acquisition of Netvision in 2011, we provide internet connectivity and related services (ISP) and landline telephony services consisting mainly of international calling services (ILD), operator services, teleconferencing services and landline telephony services. Since May 2015 we and Netvision also offer internet infrastructure services (through the landline wholesale market). We sell our various services on a stand-alone basis or bundled with certain other services offered by Netvision and us which as of May 2015 also included triple play bundles of internet infrastructure and ISP, landline telephony and TV services. Entering a new and penetrated market will require substantial investment and additional operating expenses.

Our management evaluates our performance through focusing on our key performance indicators, which include among others: average revenue per user of cellular and landline subscribers, or ARPU, EBITDA (as defined in "Results of Operations"), EBITDA as percentage of revenues, operating income, net income cash flow, number of cellular, landline ISP, internet infrastructure and OTT TV subscribers (both standalone and as a part of a bundle or triple play package), subscriber churn rate, handset sales and profitability and Net Promoter Score, or NPS, (indicating our subscribers' satisfaction with our services). These key performance indicators are primarily affected by the competitive and regulatory landscape in which we operate and our ability to adapt to the challenges posed.

In November 2015, we entered an agreement with Golan and its shareholders for the purchase of 100% of the shares of Golan, for the sum of NIS 1.17 billion. The purchase agreement also includes the terms under which Golan shall continue to purchase national roaming services from us and the parties' agreements in relation to Golan's debt to us regarding the difference between the sum Golan has been paying us and the sum it is required to pay us under the national roaming services agreement for services provided until the end of 2015. The consummation of the purchase agreement is subject to the receipt of regulatory approvals. The purchase of Golan is another step in turning us into a leading telecommunication group that provides high value at low prices to the Israeli consumer and we expect that it will, if approved by the regulators and consummated, among other benefits, increase our cellular subscriber market share and our revenues, provide us with opportunities

to offer our other services and products to Golan's subscribers and provide opportunities for cost synergies. There is no assurance that the purchase agreement shall be approved by the Israeli regulators, which we estimate to be challenging, specifically in light of the strong opposition, led by the Ministry of Treasury, nor as to the consummation of the transaction. If the agreement for the purchase of Golan by us is not approved by the regulators and if we cannot maintain the national roaming revenues we currently enjoy or an equivalent compensation it may adversely affect our revenues and may cause difficulties in the collection of Golan's debt to us. For additional details see "Item 3. Key Information – D. Risk Factors – Risks Related to the Proposed acquisition of Golan Telecom Ltd." and "Item 4. Information on the Company – B. Business Overview –– Agreement for the Purchase of Golan".

In February 2015, we entered a collective employment agreement with the Company's employees' representatives and the Histadrut for a term of three years (2015-2017). The estimated cost of the agreement over its term is expected to be approximately NIS 200 million, before tax, based on our forecasts (including approximately NIS 30 million in one time payments paid in the first quarter of 2015). In January 2016, the Histradrut announced a labor dispute in the Company with respect to outsourcing and other employment issues.

The Israeli telecommunications market is currently dominated by four communications groups: Bezeq, Hot, Partner-012 Smile and Cellcom –Netvision, with the first two having a full landline infrastructure. While an effective wholesale landline market (launched in 2015) will enhance our ability to compete and extend our service offering, the possible annulment of structural separation and Bezeq's tariffs supervision or other favorable regulatory changes relating to the Bezeq and Hot groups, may have a material adverse effect on our competitive capabilities and results of operation.

We intend to drive revenue primarily by: maximizing the benefits of our position as a leading Israeli telecommunications group, offering our customers full and comprehensive mobile and wireline solutions and bundles of services (including triple play) and enhancing our competitive capabilities; retaining our existing subscribers; offering new services that are synergetic to our core businesses; growing wireline service revenues; and attracting new subscribers. We intend to continue our efforts to optimize our costs by implementing further efficiency measures, reducing our expenses and adjusting our operations to the changing market conditions, but cannot guarantee the success of these measures.

The communications market and specifically the cellular industry are primarily regulated by the Ministry of Communications. Regulatory changes have had material adverse effects on our results of operations in recent years. See "Item 4. Information on the Company – B. Business Overview - Government Regulations." While our pricing is not generally regulated, certain of our rates and pricing mechanisms are subject to regulation. See "Item 4. Information on the Company – B. Business Overview – Government Regulations – Tariff Supervision."

The construction and operation of our cell sites and other transmission facilities are highly regulated and require us to obtain various consents and permits. See "Item 4. Information on the Company – B. Business Overview - Government Regulations—Permits for Cell Site Construction." We have experienced difficulties in obtaining some of these consents and permits and our ability to rely on an exemption from obtaining a building permit was severely limited. Also, we may be operating a significant number of our cell sites in a manner not fully compatible with the building permits issued for them. We do not expect that

the demolition of the facilities currently facing a demolition order would have a material impact on our results of operations and financial condition. Additional restrictions on the construction and operation of cell sites and other facilities may be enacted or we may be required to demolish or relocate these cell sites and facilities, which may adversely affect our existing networks and networks build out, specifically in urban areas, may prevent us from meeting our license requirements and could adversely affect our results of operations.

In 2013, 2014 and 2015, we entered network and cell site co-operation and sharing agreements with Pelephone and Golan, respectively. Our cell site co-operation agreement with Pelephone was approved by the Israeli Antitrust Commissioner, however, we have been unable to progress in the execution of the co-operation agreement with Pelephone and we can provide no assurance that such co-operation will occur in the future. Our sharing agreement with Golan did not receive approval by the regulators and was voided in our agreement to purchase Golan, described above. For additional details see "Item 4. Information on the Company – B. Business Overview – Network and Technology - Cell Sites Sharing Agreement".

Our profitability is also affected by other factors, including changes in our cost of revenues and selling, marketing, general and administrative expenses, including depreciation and financing expenses.

Our results are also impacted by currency fluctuations. While substantially all of our revenues are denominated in NIS, for 2015, approximately20 % of cash outflow was denominated in, or linked to, other currencies, mainly U.S. dollars. Changes to the Israeli CPI, may also impact our results as our debentures (excluding Series E, G and I) and some of our expenses are linked to the Israeli CPI. Any devaluation of the NIS against the U.S. dollar or other foreign currencies will therefore increase the NIS cost of our expenses that are not denominated in NIS or are linked to those currencies and any increase in the Israeli CPI will increase the financial expenses associated with our debentures. We enter into derivative instruments to mitigate the effect of the various market risks associated with these expenses. See "Item 11 - Quantitative and Qualitative Disclosures About Market Risk."

Further, we have incurred significant debt by issuing debentures, the aggregate outstanding principal amount of which as of December 31, 2015 was NIS 3,788 million. See "- Liquidity and Capital Resources- Debt Service". For details regarding our deferred loan agreements see "- Liquidity and Capital Resources- Other Credit Facilities"

In February 2006, our Board of Directors adopted a policy to distribute each year at least 75% of our annual net income. In March 2007, our Board resolved to distribute dividends within the boundaries of the February 2006 dividend policy and until resolved otherwise, on a quarterly basis. In respect of 2015, our board of directors chose not to declare dividends given the intensified competition and its adverse effect on our results of operations and in order to strengthen our balance sheet. We undertook limitations on our dividend distributions in connection to the issuance of our F through I debentures and other credit facilities. See "Item 8. Financial Information – A. Statements and Other Financial Information - Dividend Policy" and "— B. Liquidity and Capital Resources—Dividend payments" and "- Debt Service" and "- Other Credit Facilities".

Revenues

We derive our revenues primarily from the sale of cellular network services (such as airtime and data surfing), handsets and other services, including content and value added services, repair services, and roaming services. Roaming services include roaming charges that we bill to our subscribers for the use of the networks of our roaming partners outside Israel, to which we refer as outbound roaming, and charges that we bill to our roaming partners whose subscribers use our network, to which we refer as inbound roaming. Revenues from airtime are derived from cellular subscribers originating calls on our network and from interconnect revenues from other operators for calls terminating on our network. Since the second quarter of 2012 we also derive our revenues from hosting services.

Our revenues also derive from the sale of landline communications services which include: internet connectivity and related services (ISP) and internet infrastructure services (through the landline wholesale market, since February 2015), OTT TV services (since December 2014), transmission services, telephony services consisting of international calling services (ILD) and landline telephony services, operator services and teleconferencing services.

Our revenues from cellular services are usually affected by seasonality with the third quarter of the year characterized by higher roaming revenues due to increased incoming and outgoing tourism.

Cost of revenues

The principal components of our cost of revenues are the purchase of handsets, accessories, equipment and spare parts, interconnection fees, content cost, cell site leasing costs, transmission services cost, internet connectivity services cost, the purchase of call minutes related mainly to international calling services, outbound roaming services fees, salaries and network development and maintenance and cost of Internet infrastructure. Our cost of revenues also includes depreciation of the cost of our network equipment and amortization of our spectrum licenses, rights of use of communications lines. See "-Application of Critical Accounting Policies and Use of Estimates Long-lived assets - depreciation."

Selling and marketing expenses

Selling and marketing expenses consist primarily of sales force salaries and commissions, advertising, public relations and promotional expenses. We compensate our sales force through salaries and incentives. Our selling and marketing expenses also include depreciation, mainly of leasehold improvements and equipment in our service centers and points of sales, and amortization of intangible assets related to the acquisition of subsidiaries.

General and administrative expenses

General and administrative expenses consist primarily of salaries and compensation, professional and consultancy fees, leases and maintenance of our offices, bad debt and doubtful accounts allowance, and other administrative expenses. Our general and administrative expenses also include depreciation and maintenance fees, mainly for our billing and information systems.

Other income and expenses

Other income and expenses consist primarily of expenses related to employee retirement plan (in 2014, and 2015) and capital gains or losses from sale of property, plant and equipment.

Financing income and expenses

Financing income and expenses consist primarily of interest expense on long-term loans and interest on our debentures, the interest income component of handset long-term installment sales, the effects of fluctuations in currency exchange rates, Israeli CPI adjustments related to the Israeli CPIlinked debentures and other expenses, and income or losses relating to financial derivative instruments that do not qualify for hedge accounting according to IFRS. Financing income and expenses also include interest income on deposits, premium amortization associated with our debentures, and gains and losses from our current investment in tradable securities.

Income Tax

Generally, Israeli companies were subject to corporate tax on their taxable income at the rate of 25% for 2013 tax years, 26.5% for the 2014 and 2015 tax years and will be subject to a corporate tax rate of 25% for the 2016 tax year and onward.

Israeli companies are subject to capital gains tax at the corporate tax rate. A deferred tax asset or liability is created for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Results of Operations - Comparison of 2013, 2014 and 2015

The following table sets forth key performance indicators for the periods indicated:

	Year Ended December 31,		Change*
	2013	2014	2015	2014 vs. 2013	2015 vs. 2014
Subscribers at end of period(1) (in thousands)	3,092	2,967	2,835	(4%)	(4.4%)
Churn rate of cellular subscribers(1)(2)	36.8%	44%	42%	7.2pp	2pp
Average monthly revenue per subscriber (ARPU) (1)(3) (in NIS)	78	72	65	(7.7%)	(9.7%)
Operating income (in NIS millions)	651	662	310	1.7%	(53.2%)
Net income (in NIS millions)	288	354	97	22.9%	(72.6%)
EBITDA(4) (in NIS millions)	1,335	1,282	872	(4%)	(32.0%)
Operating income margin(5)	13.2%	14.5%	7.4%	1.3pp	(7.1pp)
EBITDA margin(6)	27.1%	28.1%	20.9%	0.9pp	(7.2pp)

* pp denotes percentage points and this measure of change is calculated by subtracting the 2013 measure from the 2014 measure and the 2015 measure from the 2014 measure, respectively.

(1) Cellular subscriber data refers to active subscribers. We use a six-month method of calculating our cellular subscriber base, which means that we deduct subscribers from our subscriber base after six months of no revenue generation and activity on our network by or in relation to the post-paid subscriber, no revenue generating calls or SMS for pre-paid subscriber and no data usage or less than NIS 1 of accumulated revenues from M2M (machine to machine) subscribers. The six-month method is, to the best of our knowledge, consistent with the methodology used by other cellular providers in Israel. In the fourth quarter of 2013 we removed approximately 64,000 subscribers from our subscribers base, following a change to our prepaid subscribers counting mechanism As a result of such change, we add a prepaid subscriber to our subscribers base only upon charging a prepaid card and remove them from our subscribers base after six months of no revenue generating calls or SMS. Following each of these changes, we have not restated prior subscriber data to conform with this change.

• (2) Churn rate is defined as the total number of voluntary and involuntary permanent deactivations of cellular subscribers in a given period expressed as a percentage of the number of cellular subscribers at the beginning of such period. Involuntary permanent deactivations relate to cellular subscribers who have failed to pay their arrears for the period of six consecutive months. Voluntary permanent deactivations relate to cellular subscribers who terminated their use of our services. Churn rate data is excluding the above mentioned removals of subscribers.
• (3) Average monthly revenue per cellular subscriber (ARPU) is calculated by dividing revenues from cellular services for the period by the average number of cellular subscribers during the period and by dividing the result by the number of months in the period. Revenues from inbound roaming services and hosting services are included even though the number of subscribers in the equation does not include the users of those roaming and hosting services. Inbound roaming services and hosting services are included because ARPU is meant to capture all service revenues generated by a cellular network. Revenues from sales of Subscription Repair Services are included because they represent recurring revenues generated by subscribers, but revenues from sales of handsets (which for purposes of this report may include other types of cellular end user equipment, such as tablets), Random Repair Services, and other services are not. We and industry analysts, treat ARPU as a key performance indicator of a cellular operator because it is the closest meaningful measure of the contribution to service revenues made by an average subscriber.

We have set out below the calculation of cellular ARPU for each of the periods presented:

		Year Ended December 31,
	2013	2014	2015
		(In NIS millions, except number of subscribers andmonths)
Revenues	4,927	4,570	4,180
less revenues from equipment sales	942	1,005	1,048
less other revenues*	1,034	941	869
Revenues used in ARPU calculation (in NIS millions)	2,951	2,624	2,263
Average number of subscribers	3,135,857	3,034,946	2,898,987
Months during period	12	12	12
ARPU (in NIS, per month)	78	72	65

* Other revenues include revenues from other communications services such as ISP, transmission services and local and international landline services.

(4) EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net; (excluding expense related to employee retirement plans) income tax; depreciation and amortization; and share based payments. We present EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure (most particularly affecting our interest expense given our significant debt), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age of, and depreciation expenses associated with fixed assets. EBITDA should not be considered in isolation or as a substitute for operating income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of our profitability or liquidity. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this annual report, may not be comparable to similarly titled measures reported by other companies due to differences in the way these measures are calculated.

The following is a reconciliation of EBITDA with net income and operating income:

		Year Ended December 31,
	2013	2014	2015
		(In NIS millions)
Net income	288	354	97
Financing expenses, net	246	198	177
Taxes on income	117	110	36
Operating income	651	662	310
Other expenses (income), net	(1)	7	(3)
Depreciation and amortization	676	610	562
Share based payments	9	3	3
EBITDA	1,335	1,282	872

For a reconciliation of EBITDA with net income by operating segment, see" – EBITDA" below.

(5) Operating income margin is defined as operating income as a percentage of total revenues for each of the applicable periods.

(6) EBITDA margin is defined as EBITDA as a percentage of total revenues for each of the applicable periods.

The following table sets forth our consolidated statements of income as a percentage of total revenues from operations for the periods indicated:

		Year Ended December 31,
	2013	2014	2015
Revenues	100.0%	100.0%	100.0%
Cost of revenues	60.7%	59.7%	66.1%
Gross profit	39.3%	40.3%	33.9%
Selling and marketing expenses	14.6%	14.7%	14.8%
General and administrative expenses	11.5%	10.1%	11.1%
Other (income) expenses, net	-	1.0%	0.5%
Operating income	13.2%	14.5%	7.4%
Financing expenses, net	5.0%	4.3%	4.2%
Income before income tax	8.2%	10.2%	3.2%
Income tax	2.4%	2.4%	0.9%
Net income	5.8%	7.7%	2.3%

Revenues

		Year Ended December 31,		Change
	2013	2014	2015	2014 vs. 2013	2015 vs. 2014
		(In NIS millions)
Revenues	4,927	4,570	4,180	(7.2%)	(8.5%)

The decrease in revenues in 2015 is attributed mainly to a 12.1% decrease in service revenues compared with 2014 due to the intensified competition in the cellular market as well as a decrease in ISP and international calling revenues. The decrease in service revenues was partially offset by a 4.3% increase in equipment revenues and revenues from OTT TV services launched in the end of 2014. Netvision's contribution to total revenues for 2015 totaled NIS 809 million (excluding inter-company revenues), compared with NIS 853 million in 2014.

The decrease in Netvision's contribution is mainly due to a decrease in revenues from internet services and international calling services and was partially offset by a 63.9% increase in equipment revenues.

The decrease in revenues in 2014 is attributed to a 10.5% decrease in service revenues compared with 2013 due to the intensified competition in the cellular market as well as a decrease in ISP and international calling revenues. The decrease was partially offset by a 6.7% increase in equipment revenues. Netvision's contribution to total revenues for 2014 totaled NIS 853 million (excluding inter-company revenues), compared with NIS 933 million in 2013. The decrease in Netvision's contribution to total revenues resulted mainly from a decrease in service revenues.

The following table sets forth the breakdown of our revenues for the periods indicated based on the various sources thereof:

		2013		2014		2015
	Revenues	% of TotalRevenues	Revenues	% of TotalRevenues	Revenues	% of TotalRevenues
	(NIS inmillions)		(NIS inmillions)		(NIS inmillions)
Service revenues:
Cellular services	2,797	56.8%	2,487	54.4%	2,121	50.7%
Landline communications
services*	1042	21.1%	940	20.6%	866	20.7%

	2013		2014		2015
	Revenues	% of TotalRevenues	Revenues	% of TotalRevenues	Revenues	% of TotalRevenues
Other services**	146	3.0%	138	3.0%	145	3.5%
Total service revenues	3,985	80.9%	3,565	78.0%	3,132	74.9%
Equipment revenues	942	19.1%	1,005	22.0%	1,048	25.1%
Total revenues	4,927	100.0%	4,570	100.0%	4,180	100.0%

* Consists mainly of international calling services, landline telephony services, transmission services , hubbing services, internet services (ISP and internet infrastructure services) and TV services.

** Consists of repair services fees.

During 2015, service revenues (comprising 74.9% of total revenues) decreased 12.1%, compared with 2014. This decrease in service revenues resulted mainly from a 14.7% decrease in revenues from cellular services due to the ongoing price erosion of those services and a decrease in subscriber base resulting from the intensified competition in the cellular market. The decrease in service revenues also resulted from a decrease in revenues from internet services as well as decrease in revenues from international calling services. Netvision's contribution to service revenues totaled NIS 691 million (excluding inter-company revenues) in 2015, as compared to NIS 781 million in 2014.

During 2014, service revenues (comprising 78% of total revenues) decreased 10.5%, compared with 2013. This decrease in service revenues resulted mainly from a 11.1% decrease in revenues from cellular services due to the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market. The decrease in service revenues also resulted from a 9.8% decrease in landline communications services revenues such as internet services as well as a decrease in revenues from transmission services. Netvision's contribution to service revenues totaled NIS 781 million (excluding inter-company revenues) in 2014, as compared to NIS 873 million in 2013.

During 2015, revenues from landline communications services decreased 7.8% as a result of a decrease in internet services revenues due to price erossion as well as a decrease in international calling services revenues, which were partially offset by revenues from OTT TV services launched at the end of 2014.

During 2014, revenues from landline communications services decreased 9.8% as a result of a decrease in internet services mainly due to the erosion in the price of such services, a decrease in international data services and value added services as a result of the intensified competition, as well as a decrease in revenues from international calling services.

During 2015, revenues from other services increased 5.1%, compared with 2014. This increase resulted from an increase in repair services.

During 2014, revenues from other services decreased 5.5%, compared with 2013. This decrease resulted mainly from a decrease in Subscription Repair Services fees which are characterized by lower revenues but higher profitability in 2014.

During 2015, equipment revenues (comprising 25.1% of total revenues) increased 4.3%, compared with 2014. This increase resulted from an approximately 63.9% increase in Netvision's end-user equipment revenues totaled NIS 118 million in 2015, compared to NIS 72 million in 2014.

During 2014, equipment revenues (comprising 22% of total revenues) increased 6.7%, compared with 2013. This increase resulted from an approximately 6 % increase in the

number of cellular handsets sold in 2014, as compared with 2013. Netvision's contribution to equipment revenues totaled NIS 72 million in 2014, compared to NIS 60 million in 2013.

The following table sets forth the breakdown of our revenues for the periods indicated based on the types of subscribers:

		2013		2014		2015
		% of Total		% of Total		% of Total
	Revenues	Revenues	Revenues	Revenues	Revenues	Revenues
	(NIS in		(NIS in		(NIS in
	millions)		millions)		millions)
Individual	3,525	71.5%	3,296	72.1%	3,000	71.8%
Business	1,209	24.6%	1,087	23.8%	1,011	24.2%
Other*	193	3.9%	187	4.1%	169	4.0%
Total	4,927	100.0%	4,570	100.0%	4,180	100.0%

* Consists of revenues from inbound roaming services, hosting services (since mid-2012) and other services.

A breakdown of revenues according to types of subscribers (individual and business) during 2015 compared with 2014, shows a 9.0% decrease in revenues attributable to individual subscribers and a 7.0% decrease in revenues attributable to business subscribers. These decreases resulted mainly from the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market. The decrease in revenues attributable to both individual and business subscribers also resulted from a decrease in revenues from internet services and international calling services which primarily resulted from price erosion due to market competition.

A breakdown of revenues according to types of subscribers (individual and business) during 2014 compared with 2013, shows a 6.5% decrease in revenues attributable to individual subscribers and a 10.1% decrease in revenues attributable to business subscribers. These decreases resulted mainly from the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market. The decrease in revenues attributable to both individual and business subscribers also resulted from a decrease in revenues from internet services and international calling services which primarily resulted from price erosion due to market competition.

The following table sets forth the breakdown of our revenues for the periods indicated based on the types of subscription plans:

	2013		2014		2015
	Revenues	% of TotalRevenues	Revenues	% of TotalRevenues	Revenues	% of TotalRevenues
	(NIS inmillions)		(NIS inmillions)		(NIS inmillions)
Pre-paid	342	6.9%	317	6.9%	251	6.0%
Post-paid	4,392	89.2%	4,066	89.0%	3,760	90.0%
Other*	193	3.9%	187	4.1%	169	4.0%
Total	4,927	100.0%	4,570	100.0%	4,180	100.0%

* Consists of revenues from inbound roaming services, hosting services (since mid-2012) and other services.

A breakdown of revenues according to types of subscription plans (pre-paid and post-paid) during 2015 compared with 2014, shows a 7.5% decrease in revenues attributable to post-paid subscribers and a 20.8% decrease in revenues attributable to pre-paid subscribers. The decrease in revenues attributable to post-paid subscribers was primarily the result of the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market. This decrease resulted also from a decrease in revenues from internet

services and international calling services. The decrease in revenues attributable to pre-paid subscribers resulted mainly from increased churn of pre-paid cellular subscribers, as well as from the ongoing price erosion.

A breakdown of revenues according to types of subscription plans (pre-paid and post-paid) during 2014 compared with 2013, shows a 7.4% decrease in revenues attributable to post-paid subscribers and a 7.3% decrease in revenues attributable to pre-paid subscribers. The decrease in revenues attributable to post-paid subscribers was primarily the result of the ongoing erosion in the price of cellular services, resulting from the intensified competition in the cellular market. This decrease resulted also from a decrease in revenues from internet services and international calling services. The decrease in revenues attributable to pre-paid subscribers resulted mainly from increased churn of pre-paid cellular subscribers, as well as from the ongoing price erosion.

Segment Revenues Discussion

We operate in two operating segments:

Cellcom's revenue segment, which includes Cellcom Israel Ltd. and its subsidiaries, excluding Netvision Ltd. and its subsidiaries, includes revenues from cellular communications services and cellular end user equipment sales, repair services, and OTT TV services (as of December 2014).

Netvision's revenue segment, which includes Netvision Ltd. and its subsidiaries. Netvision, includes revenues from internet connectivity services (ISP), internet infrastructure services based on the landline wholesale market (as of February 2015), and additional telephony services such as international calling (ILD), landline telephony and teleconferencing services.

We measure revenues on an operating segment basis. The following is a discussion of our revenues for our two operating segments.

Cellcom

Revenues for Cellcom in 2015 totaled NIS 3,372 million (including inter-segment revenues), compared to revenues of NIS 3,717 million in 2014. The decrease was primarily due to a decline in service revenues of 12.3% due to the ongoing erosion in the price of cellular services resulting from the intensified competition in the market. Equipment revenues in 2015 were similar to 2014.

Revenues for Cellcom in 2014 totaled NIS 3,717 million (including inter-segment revenues), compared to revenues of NIS 3,994 million in 2013. The decrease was primarily due to a decline in service revenues of 10.5% due to the ongoing erosion in the price of cellular services resulting from the intensified competition in the market. The decrease was partially offset by a 5.8% increase in equipment revenues primarily due to an approximately 44% increase in the number of cellular handsets sold in 2014, as compared with 2013, and an approximately 6% decrease in the average sale price of cellular handsets, resulted from the increased competition in the cellular handsets market.

Netvision

Revenues for Netvision in 2015 totaled NIS 991 million (including inter-segment revenues), compared to revenues of NIS 960 million in 2014. The increase primarily resulted from a 72.7% increase in equipment revenues, which was partially offset by a 2.8% decrease in service revenues mainly resulted from a decrease in revenues from internet services and international calling services.

Revenues for Netvision in 2014 totaled NIS 960 million (including inter-segment revenues), compared to revenues of NIS 1,039 million in 2013. The decrease primarily resulted from a 9.8% decrease in service revenues partially offset by 28.3% increase in equipment revenues. The decrease in service revenues mainly resulted from a decrease in revenues from internet services and international calling services, mainly due to price erosion, as well as a decrease in revenues from hubbing services due to a change in the mix of call destinations.

Cost of revenues and gross profit

	Year Ended December 31,		Change
	2013	2014	2015	2014 vs. 2013	2015 vs. 2014
		(In NIS millions)
Cost of service revenues	2,271	1,983	2,000	(12.7%)	0.9%
Cost of equipment revenues	719	744	763	3.5%	2.6%
Total cost of revenues	2,990	2,727	2,763	(8.8%)	1.3%
Gross profit	1,937	1,843	1,417	(4.9%)	(23.1%)

The increase in cost of service revenues in 2015 compared with 2014 mainly resulted from an increase in content costs related to OTT TV services launched at the end of 2014. 2014 also benefited from a one–time reduction of a provision for cell-sites rent expenses in the amount of NIS 44 million, as well as a one-time cancelation of a provision for communications cables expenses in the amount of NIS 22 million. This increase was partially offset by a decrease in other cost of revenues expenses such as depreciation and maintenance. Netvision's contribution to the cost of service revenues (excluding intercompany expenses) decreased to NIS 450 million in 2015 from NIS 471 million in 2014, mainly due to a decrease in cost of revenues from international calling services and a decrease in communications cables expenses.

The decrease in cost of service revenues in 2014 compared with 2013 mainly resulted from a decrease in payroll expenses due to efficiency measures, a decrease in interconnect fees as a result of a decrease in connectivity tariffs, a decrease in cost of revenues from internet and international calling services as a result of a decrease in sales of such services, a one-time reduction of a provision for cell-sites rent expenses in the amount of NIS 44 million, as well as a one-time cancelation of a provision for communications cables expenses in the amount of NIS 22 million. Netvision's contribution to the cost of service revenues (excluding inter-company expenses) decreased to NIS 470 million in 2014 from NIS 602 million in 2013, mainly as a result of a decrease in payroll expenses and interconnect fees, and a decrease in cost of revenues from internet connectivity and international calling services as a result of a decrease in sale of such services.

The increase in cost of equipment revenues in 2015 compared with 2014, resulted mainly from an increase in cost of equipment revenues in Netvision to NIS 101 million in

2015 from NIS 55 million in 2014, due to the increase in sales of equipment to business customers, partially offset by a decrease in the average cost of cellular handsets.

The increase in cost of equipment revenues in 2014 compared with 2013, resulted mainly from an increase in the cost of cellular handsets, primarily as a result of a 6% increase in the number of cellular handsets sold during 2014 as compared with 2013, partially offset by a 4% decrease in the average cost of cellular handsets. Netvision's contribution to cost of equipment revenues increased to NIS 55 million in 2014 from NIS 47 million in 2013 due to the increase in sales of equipment to business customers.

The decrease in gross profit in 2015 compared with 2014, resulted mainly from the ongoing erosion in the price of cellular services and an increase of cost of revenues mainly due to one-time effects during 2014.

The decrease in gross profit in 2014 compared with 2013, resulted mainly from the ongoing erosion in the price of cellular services and internet services.

Selling and marketing expenses and general and administrative expenses

		Year Ended December 31,		Change
	2013	2014	2015	2014 vs. 2013	2015 vs. 2014
		(In NIS millions)
Selling and marketing expenses	717	672	620	(6.3%)	(7.7%)
General and administrative expenses	570	463	465	(18.8%)	(0.1%)
Total	1,287	1,135	1,085	(11.8%)	(4.4%)

The decrease in selling and marketing expenses in 2015 compared with 2014, was primarily the result of efficiency measures we implemented, which led to a decrease in advertising and other expenses and from a decrease in amortization expenses in 2015 compared with 2014 attributable to the acquisition of Netvision. Netvision's contribution to selling and marketing expenses in 2015 totaled NIS 82 million compared to NIS 96 million in 2014.

The decrease in selling and marketing expenses in 2014 compared with 2013, was primarily the result of efficiency measures we implemented, which led to a decrease in payroll expenses, advertising and other expenses. The decrease in selling and marketing expenses also resulted from a decrease in amortization expenses in 2014 compared with 2013 attributable to the acquisition of Netvision. Netvision's contribution to selling and marketing expenses in 2014 totaled NIS 96 million compared to NIS 128 million in 2013.

The increase in general and administrative expenses in 2015 compared with 2014, resulted mainly from an increase in employee welfare costs as a result of the collective employment agreement, partially offset by efficiency measures we implemented, which led to a decrease in IT (Information Technology) expenses and other expenses. Netvision's contribution to general and administrative expenses in 2015 totaled NIS 61 million compared to NIS 46 million in 2014, mainly as a result of an increase in depreciation related to software.

The decrease in general and administrative expenses in 2014 compared with 2013, resulted mainly from a decrease in allowance for doubtful accounts, a decrease in depreciation and amortization expenses, as well as from efficiency measures we implemented, which led to a decrease in salaries, rent and other expenses. Netvision's

contribution to general and administrative expenses in 2014 totaled NIS 46 million compared to NIS 60 million in 2013, mainly as a result of efficiency measures Netvision implemented.

Other income (expenses), net

		Year Ended December 31,
	2013	2014	2015
		(In NIS millions)
Other income (expenses), net	1	(46)	(22)

Other expenses in 2015 primarily include an expense of NIS 25 million following an employee voluntary retirement plan executed in the second quarter of 2015 compared to an expense of NIS 39 million following an employee voluntary retirement plan for employees executed in the second quarter of 2014.

Other expenses in 2014 consists mainly of an expense of NIS 39 million following a voluntary retirement plan for employees executed in the second quarter of 2014. Other expenses include also capital loss from sale of property, plant and equipment.

Financing expenses, net

		Year Ended December 31,
	2013	2014	2015
		(In NIS millions)
Financing expenses	(402)	(298)	(232)
Financing income	156	100	55
Financing expenses, net	(246)	(198)	(177)

Financing expenses, net, for 2015 decreased 10.6% compared with 2014. The decrease resulted mainly from a decrease in interest expenses associated with our debentures, due to a decrease in our average debt level of approximately NIS 600 million in 2015 compared to 2014.

Financing expenses, net, for 2014 decreased 19.5% compared with 2013. The decrease resulted mainly from a decrease in interest expenses associated with our debentures, in 2014 compared with 2013, due to a lower debt level following the principal payment in the amount of approximately NIS 1 billion during 2014. The decrease in financing expenses, net, also resulted from decrease in the Israeli Consumer Price Index (CPI) linkage expenses associated with our debentures, due to 0.1% deflation in 2014 compared to 1.9% inflation rate in 2013. The decrease in financing expenses, net, was partially offset by a decrease in interest income related to cellular handset income and also by a one-time positive affect in the amount of approximately NIS 15 million in 2013.

Interest and CPI linkage expenses associated with the principal amount of the debentures incurred during 2013, 2014 and 2015 were approximately NIS 385 million, NIS 251 million and NIS 169 million, respectively.

		Year Ended December 31,		Change
	2013	2014	2015	2014 vs. 2013	2015 vs. 2014
		(In NIS millions)
Taxes on income	117	110	36	(6.0%)	(67%)

Taxes on income for 2015 decreased 67% compared with 2014. This decrease resulted mainly from the decrease in profit before income tax, attributed primarily to the adverse effect on our results resulting from the intensified competition in the communications market.

Taxes on income for 2014 decreased 6% compared with 2013. This decrease resulted mainly from income tax in respect of prior years.Income tax for 2013 decreased 40% compared with 2012, mainly due to a significant decrease in profit before income tax, attributed primarily to the adverse effect on our results resulting from the intensified competition in the communications market.

Net income

2013	2014	2015	2014 vs. 2013	2015 vs. 2014
288	354	97	22.9%	(72.6%)
		(In NIS millions)	Year Ended December 31,	Change

The decrease in net income in 2015 compared with 2014, was primarily due to a significant decrease in operating profit, attributed primarily to the adverse effect on our results resulting from the intensified competition in the communications market and erosion in revenues.

The increase in net income in 2014 compared with 2013, was primarily due to an increase in operating profit partially as a result of efficiency measures we implemented and a decrease in financing expenses due to a lower debt level and one-time effects (as discussed under "Cost of revenues and gross profit").

EBITDA

Segment EBITDA

We measure EBITDA on an operating segment basis. EBITDA is a non-IFRS measure and is defined as income before financing income (expenses), net; other income (expenses), net (excluding expenses related to employee retirement plans); income tax; depreciation and amortization; and share based payments. For further information on our presentation of EBITDA and a reconciliation of EBITDA to consolidated net income, see footnote (4) under "- Results of Operations - Comparison of 2013, 2014 and 2015" above. The following is a reconciliation of EBITDA with net income by operating segment.

	Year Ended December 31, 2015
			(In NIS millions)
			Reconciliationfor
	Cellcom	Netvision	consolidation	Consolidated
Net incomeFinancing expenses, netTaxes on incomeOperating incomeOther (income) expensesDepreciation and amortizationShare based paymentsEBITDA	11	103	(17)	97
				177
	6	37	(7)	36
				310
				(3)
	442	89	31	562
				3
	642	224	6	872
			Year Ended December 31, 2014
	(In NIS millions)
			Reconciliationfor
	Cellcom	Netvision	consolidation	Consolidated

Net income	211	189	(46)	354
Financing expenses, net				198
Taxes on income	80	44	(14)	110
Operating income				662
Other expenses				7
Depreciation and amortization	475	85	50	610
Share based payments				3
EBITDA	967	315		1,282

	Year Ended December 31, 2013
			(In NIS millions)
			Reconciliation
			for
	Cellcom	Netvision	consolidation	Consolidated
Net income	210	135	(57)	288
Financing expenses, net				246
Taxes on income	91	45	(19)	117
Operating income				651
Other expenses				(1)
Depreciation and amortization	504	96	76	676
Share based payments				9
EBITDA	1,066	269	-	1,335

Segment EBITDA Discussion

Cellcom

In 2015, Cellcom generated EBITDA of NIS 642 million compared to NIS 967 million in 2014, a 33.6% decrease. The decrease was primarily caused by a reduction in service revenues due to the ongoing erosion in prices of cellular services as well as losses resulting entering a new field of operation – the OTT. The decrease was partially offset by efficiency measures we implemented, including a decrease in advertising and other expenses.

In 2014, Cellcom generated EBITDA of NIS 967 million compared to NIS 1,066 million in 2013, a 9.3% decrease. The decrease was primarily due to a reduction in service revenues due to the ongoing erosion in pricing for cellular services. The decrease was partially offset by efficiency measures we implemented, decrease in allowance for doubtful accounts and decrease in depreciation and amortization and one-time effects (as discussed under "Cost of revenues and gross profit").

Netvision

In 2015, Netvision generated EBITDA of NIS 230 million (including consolidation adjustments) compared to NIS 315 million in 2014, a 28.9% decrease. The decrease was primarily due to a decrease in internet and international calling revenues.

In 2014, Netvision generated EBITDA of NIS 315 million compared to NIS 269 million in 2013, a 17% increase.The increase was primarily due to efficiency measures we implemented and one-time effects (as discussed under "Cost of revenues and gross profit").

B. LIQUIDITY AND CAPITAL RESOURCES

General

Our liquidity requirements relate primarily to working capital requirements, debt service, capital expenditures for the expansion and enhancement of our networks, end user equipment and payment of dividends, when declared. We fund these requirements through cash flows from operations and raising new debt.

Following circulars of the Commissioner of Capital Markets, Insurance and Savings in the Ministry of Finance, or Commissioner, published in October 2010 and August 2013, instructing institutional investors to follow certain procedures and requirements before investing in non-governmental debentures, our series F through I indentures include certain limitations and covenants. For additional details see "- Debt Service" below. These limitations are generally also included in our other credit facilities (see "-Other Credit Facilities" below) and are expected to apply to any additional debt incurred by us. These procedures, limitations and covenants limit our freedom to conduct our business, may impose additional costs on us and may limit our ability to borrow additional debt from Israeli institutional investors as well as adversely affect the terms and price of such debt raising.

In May 2012 and June 2013, the rating of our debentures was downgraded. Though the rating of our debentures has remained stable since then, any downgrade in our ratings may adversely affect the terms and price of our debt or additional debt raised, particularly through the issuance of debentures to institutional investors, which, given the limitation on the ability of Israeli banks to lend money to us pursuant to the "Guidelines for Sound Bank Administration" issued by the Israeli Supervisor of Banks (as we are a member of IDB's group of borrowers), may limit our ability to obtain additional financing to operate, develop and expand our business or to refinance existing debt. We believe that our free cash flow together with our financial reserves and our deferred loans will be sufficient to fund our anticipated cash needs for working capital, capital expenditures and debt service for at least the next 12 months, including the distribution of dividends, should our Board of Directors decide to reinstate dividend payments (after having suspended dividend declaration after the dividend declaration for the third quarter of 2013 in order to strengthen our balance sheet), excluding the financing of the purchase of Golan which will require additional equity and debt raising (see details under "Item 4. Information on the Company – B. Business Overview – Agreement for the Purchase of Golan"). Our future capital requirements will depend on many factors, including level of revenues, the timing and extent of spending to support marketing and subscriber retention efforts, the expansion of sales and marketing activities and the timing of introductions of new products and enhancements of existing products, the level and timing of investing in our 4G network, our OTT TV services and our internet infrastructure (via the wholesale market) services, whether our agreement for the purchase of

Golan is approved and any decision to reinstate dividends. Our Board of Directors would not expect to reinstate dividends unless it believes that our cash flow and available reserves will be sufficient to fund our needs, including our dividends.

In February 2006, our Board of Directors adopted a policy to distribute each year at least 75% of our annual net income as dividends, subject to compliance with applicable law, our license and contractual obligations and so long as the distribution would not be detrimental to our cash needs or to any plans approved by our Board of Directors. We undertook limitations on dividend distributions in our indentures of series F through I debentures and in other credit facilities. See "Item 8. Financial Information – A. Consolidated Statements and Other Financial Information – Dividend Policy", " - Debt Service" and "-Other Credit Facilities" below. In respect of 2015, our Board of Directors chose not to declare dividends given the intensified competition and its adverse effect on our results of operations and in order to strengthen our balance sheet. It is possible that our Board of Directors' estimate of our cash needs will be incorrect, or that events could occur that could increase our cash needs beyond anticipated. If that occurs, we may not have sufficient cash to cover these needs as a result of various expenditures previously made by the Company, including prior investments and expenses and prior dividend payments, and we would need to identify additional sources of financing, which could include equity or debt financing. We may not be able to obtain such financing on acceptable terms or at all.

Dividend payments

In 2015 and 2014 our Board of Directors chose not to declare dividends given the intensified competition and its adverse effect on our results of operations and in order to strengthen our balance sheet. During 2013, we distributed cash dividends in the aggregate amount of approximately NIS 85 million ($22 million), in respect of the third quarter of 2013 only, out of our retained earnings, and our Board of Directors chose not to declare dividends for the first, second, and fourth quarters, for the above reasons.

Debt service

Shelf Prospectus

In June 2014, we filed a shelf prospectus with the Israeli Securities Authority, or ISA, and the Tel Aviv Stock Exchange, or TASE. The shelf prospectus allows us, from time to time, until June 2016 (which may by extended until June 2017, subject to certain conditions), to offer and sell various securities including debt and equity, in Israel, in one or more offerings, subject to filing a supplemental shelf offering report, that describes the terms of the securities offered and the specific details of the offering. In January 2015, we filed an amendment to the shelf prospectus with the ISA and TASE, which allowed us to offer the debentures holders of our series D and E debentures, to exchange them with our series H and I debentures, respectively, as described below under "Public Debentures". At this stage, no decision has been made as to the execution of any offering, nor as to its scope, terms and timing, if executed, and there is no certainty that such offering will be executed.

The shelf prospectus includes our undertaking to comply with certain reporting obligations under the Israeli securities law in the event of certain warning signs of financial stress.

101

Public debentures

Our Series B debentures were issued in December 2005 and January 2006, to institutional and other investors in private placements and in May 2006, we issued additional debentures. The debentures are listed on the Tel Aviv Stock Exchange. As of December 31, 2015, Series B consisted of approximately NIS 370 million ($95 million) aggregate principal amount of debentures (after we repaid the principal payments in January 2013, 2014 and 2015 in the sum of approximately NIS 185 million ($47 million) each. In January 2016 we repaid another principal payment in the same amount). The Series B debentures bear interest at the rate of 5.3% per year, and are linked (principal and interest) to the Israeli CPI. The principal is payable in five annual payments commencing in January 2013, and the interest is payable annually commencing January 2007.

The Series B debentures are unsecured and do not restrict our ability to issue additional debentures of any class or distribute dividends in the future. The Series B debentures contain standard terms and obligations including restriction on our ability to create liens on our assets, other than fixed liens on assets provided in connection with financing the purchase of such assets.

Our series D debentures were issued in October 2007 to the public in Israel. In February 2008 we issued, in a private placement, additional debentures of this Series. In April 2009 and March 2011 (under our 2009 Shelf Prospectus) and in August 2011 (under our 2011 Shelf Prospectus), we issued to the public in Israel additional Series D debentures. The debentures are listed for trading on the Tel Aviv Stock Exchange. In February 2015, pursuant to an exchange offer of our Series H and I debentures for a portion of our outstanding Series D and E debentures, respectively, or the Exchange Offer, we exchanged approximately NIS 555 million ($142 million) principal amount of our Series D debentures with approximately NIS 844 million ($216 million) principal amount of Series H debentures. Following the consummation of the Exchange Offer, our Series D debentures consisted of approximately NIS 899 million ($230 million) principal amount. As of December 31, 2015, Series D debentures consisted of approximately NIS 599 million ($154 million) aggregate principal amount (after we repaid principal payments in July of each 2013-2014 and July 2015 in the sum of approximately NIS 485 million ($124 million) and NIS 300 million ($77 million), respectively and the aforementioned exchange).

The Series D principal is payable in five equal annual payments on July 1, for each of the years 2013 through 2017 (inclusive). The interest on Series D debentures is payable annually on July 1, for each of the years 2008 through 2017 (inclusive). Series D debentures bear an annual interest rate of 5.19% and are linked (principal and interest) to the Israeli CPI for August 2007.

The Series D debentures are unsecured and do not restrict our ability to issue additional debentures of any class or distribute dividends in the future. The Series D debentures contain standard terms and obligations.

Our Series E debentures were issued in April 2009, to the public in Israel based on our 2009 shelf prospectus. In March 2011 (under our 2009 Shelf Prospectus) and in August 2011 (under our 2011 Shelf Prospectus), we issued to the public in Israel additional Series E debentures. The debentures were listed for trading on the Tel Aviv Stock Exchange. In February 2015, pursuant to the Exchange Offer, we exchanged approximately NIS 272 million ($70 million) principal amount of Series E debentures with approximately NIS 335

million ($86 million) principal amount of Series I debentures. Following the consummation of the Exchange Offer, our Series E debentures consisted of approximately NIS 327million ($84 million) principal amount. As of December 31, 2015, these debentures consisted of approximately NIS 327 million ($84 million) aggregate principal amount (after we repaid principal payments in January 2012, 2013, 2014 and 2015 in the amount of approximately NIS 300 million ($77 million) each and the aforementioned exchange). In January 2016, we repaid another principal payment in the amount of approximately NIS 164 ($42 million).

The Series E principal is payable in six equal annual payments on January 5, of each of the years 2012 through 2017 (inclusive). The interest on Series E debentures is payable annually on January 5, of each of the years 2010 through 2017 (inclusive). Series E debentures bear an interest rate of 6.25% per annum, without any linkage.

The Series E debentures are unsecured and do not restrict our ability to issue additional debentures of any class or distribute dividends in the future. The Series E debentures contain standard terms and obligations.

Our Series F and G debentures were issued in March 2012 to the public in Israel under our 2011 shelf prospectus (as amended in March 2012) and were listed for trading on the Tel Aviv Stock Exchange. As of December 31, 2015, these debentures consisted of approximately NIS 715 million ($183 million) aggregate principal amount Series F debentures and approximately NIS 285 million ($73 million) aggregate principal amount Series G debentures.

The Series F principal is payable in four annual installments: one payment of 10% of the principal on January 5, 2017, and three equal annual installments of 30% of the principal, on January 5 of each of the years 2018 through 2020 (inclusive). The interest on Series F debentures is payable in semiannual installments on January 5 and on July 5, of each calendar years commencing July 5, 2012 through January 5, 2020 (inclusive). Series F debentures bear an interest rate of 4.35% per annum, linked to the Israeli CPI for February 2012. In June 2013, following the ratings decrease discussed above, the annual interest rate for our Series F debentures was increased by 0.25% to 4.60%, beginning July 5, 2013.

The Series G principal is payable in three annual installments: one payment of 20% of the principal on January 5, 2017, a second payment of 50% of the principal on January 5, 2018 and a third and last payment of 30% of the principal on January 5, 2019. The interest on Series G debentures is payable in semi-annual installments on January 5 and on July 5 of each calendar year commencing July 5, 2012 through January 5, 2019 (inclusive). Series G debentures bear an interest rate of 6.74% per annum, without any linkage. In June 2013, following the ratings decrease discussed above, the annual interest rate for our Series G debentures was increased by 0.25% to 6.99%, beginning July 5, 2013.

The Series F and G debentures are unsecured and contain, in addition to standard terms and obligations, the following obligations:

• x a negative pledge, subject to certain exceptions;
• x a covenant not to distribute more than 95% of the profits available for distribution according to the Companies Law ("Profits"); provided that if our net leverage (defined as the ratio of net debt to EBITDA during a period of 12 consecutive months, excluding one-time events) exceeds 3.5:1, we will not distribute more than 85% of our

Profits and if our net leverage exceeds 4.0:1, we will not distribute more than 70% of our Profits. For this purpose, net debt is defined as credit and loans from banks and others and debentures, net of cash and cash equivalents and current investments in tradable securities; and EBITDA is defined as profit before depreciation and amortization, other expenses or income, net, financing expenses or income, net and taxes on income;

• x a limitation on our ability to voluntarily redeem the debentures prior to their stated maturity date to a minimum amount of NIS 100 million of each series of debentures and an undertaking to pay the holders of such debentures an additional annual interest of 1% in the event of such early redemption;
• x a covenant to have the debentures rated by a rating agency (in as much as under our control);
• x an obligation to pay additional interest of 0.25% for a two-notch downgrade in the debentures' rating and additional interest of 0.25% for each additional one-notch downgrade and up to a maximum addition of 1%, in comparison to the rating given to the debentures prior to their issuance;
• x a covenant not to issue additional debentures of the relevant series if the additional issuance by itself, will cause a certain rating downgrade.

We also agreed to the addition of the certain events to the list of events of default of the Series F and G debentures, including:

• x cross default, excluding following an immediate repayment initiated in relation to a liability of NIS 150 million ($38 million) or less;
• x failure of our main business to be cellular communications or loss of our cellular license for a period of over 60 days;
• x suspension of trading of the debentures on the TASE over a period of 45 days;
• x failure to comply with the above covenant regarding limitations on dividend distributions;
• x failure to have the debentures rated over a period of 60 days;
• x a petition or court order to withhold all legal proceedings against us or petition for creditors arrangement filed;
• x the sale of a major part of our assets or merger (with certain exclusions);
• x failure to publish financial reports when due;
• x a net leverage in excess of 5.0:1, or in excess of 4.5:1 during four consecutive quarters;
• x failure to comply with our negative pledge covenant; and

x any other event causing or expected to cause a material adverse effect (which shall not include any event that shall or is likely to cause our net leverage to increase to a ratio of under 5.0:1) on our business and posing real threat of a substantial damage to the debenture holders' rights.

Our Series H and I debentures were issued in July 2014 to the public in Israel under our 2014 shelf prospectus and were listed for trading on the Tel Aviv Stock Exchange. In February 2015, pursuant to the Exchange Offer, under our 2014 shelf prospectus and in a private offering, we issued approximately NIS 844 million ($216 million) principal amount of of Series H debentures and approximately NIS 335 million ($86 million) principal amount of series I debentures in exchange for approximately NIS 555 million ($142 million) principal amount of Series D debentures and approximately NIS 272 million ($70 million) principal amount of Series E debentures, respectively. Following the consummation of the exchange and as of December 31, 2015, our Series H and I debentures consisted of approximately NIS 950 million ($243 million) principal amount and NIS 558 million ($143 million) principal amount.

The Series H debentures principal is payable in seven annual installments: three equal annual installments of 12% of the principal on July 5 of the years 2018 through 2020 (inclusive), and four equal annual installments of 16% of the principal on July 5 of the years 2021 through 2024 (inclusive). The interest on the Series H debentures is payable in semi-annual installments on January 5 and on July 5, of each calendar year commencing January 5, 2015 through July 5, 2024 (inclusive). The Series H debentures bear an interest rate of 1.98% per annum, linked to the Israeli Consumer Price Index for May 2014.

The Series I debentures principal is payable in eight annual installments: three equal annual installments of 10% of the principal on July 5 of the years 2018 through 2020 (inclusive), and five equal annual installments of 14% of the principal on July 5 of the years 2021 through 2025 (inclusive). The interest on the Series I debentures is payable in semi-annual installments on January 5 and on July 5 of each calendar year commencing January 5, 2015 through July 5, 2025 (inclusive). The Series I debentures bear an interest rate of 4.14% per annum, without any linkage.

The Series H and I debentures are unsecured and contain, in addition to standard terms and obligations and the above undertakings in our Series F and G indenture which generally apply to our Series H and I debentures as well, the following obligations:

• x in addition to being an event of default, meeting the financial covenants would be a condition for dividend distribution; and
• x meeting the financial covenants would also be a condition for the issuance of additional debentures of each of the two new series.

The Series H and I Indenture contains substantially similar events of default to those found in the Series F and G Indenture, with the exception of certain new events of default that do not appear in the Series F and G Indenture as well as certain modifications to the events of default that are found in the Series F and G Indenture, including:

x breach of the above limitation on dividend distributions;

• x the minimum amount required for triggering a cross default shall not apply to a cross default triggered by another series of debentures;
• x the existence of a real concern that we shall not meet our material undertakings towards the debenture holders;
• x the inclusion in our financial statements during a period of two consecutive quarters of a note regarding the existence of significant doubt as to our ability to continue as a going concern; and
• x breach of our undertakings regarding the issuance of additional debentures.

As of December 31, 2015, we complied with the above covenants.

Other credit facilities

In May 2015, we entered into a loan agreement with two Israeli financial institutions, or Lenders, according to which the Lenders have agreed, subject to certain customary conditions, to provide us two deferred loans for the total principal amount of NIS 400 million, without any linkage, as follows:

• x A principal amount of NIS 200 million will be provided to us in June 2016, and will bear an annual fixed interest of 4.6%. The loan's principal amount will be payable in four equal annual payments on June 30 of each of the years 2018 through 2021 (inclusive). The interest will be paid in ten semi-annual installments on June 30 and December 31, of each calendar year commencing December 31, 2016 through and including June 30, 2021.
• x A principal amount of NIS 200 million will be provided to us in June 2017, and will bear an annual fixed interest of 5.1%. The loan's principal amount will be payable in four equal annual payments on June 30 of each of the years 2019 through 2022 (inclusive). The interest will be paid in ten semi-annual installments on June 30 and December 31, of each calendar year commencing December 31, 2017 through and including June 30, 2022.

Under the agreement, the interest rate may be subject to certain adjustments. Until the provision of the loans, we are required to pay the Lenders a commitment fee. We may cancel or prepay one or both loans, subject to a certain cancelation fee or prepayment fee, as applicable. The agreement includes standard terms and obligations and also generally includes the negative pledge, limitations on distributions, events of default and financial covenants applicable to our series F through I debentures.

In August 2015, we entered into a loan agreement with an Israeli bank, or Lender, according to which the Lender has agreed, subject to certain customary conditions, to provide us a deferred loan in a principal amount of NIS 140 million, without any linkage, which will be provided to us in December 2016, and will bear an annual fixed interest of 4.9%. The loan's principal amount will be payable in five equal annual payments on June 30 of each of the years 2018 through 2022 (inclusive).

Under the Agreement, the interest rate may be subject to certain adjustments. Until the provision of the loan, we are required to pay the Lender a commitment fee and if we do

not borrow, certain additional fees. We may borrow the loan earlier, in which case the repayment shall be earlier and we may prepay the loan, subject to a prepayment fee. The agreement also includes certain events which if not approved by the Lender allow the Lender to notify us of an acceleration of the repayment of the loan.

The agreement includes standard terms and obligations and also generally includes the negative pledge, limitations on distributions, financial covenants and event of defaults applicable to our series F through I debentures, with certain modifications, including foreclosure, materialization of a pledge, execution actions, receivership and (subject to certain exclusions) sale of assets, in a specified certain lower amount, a failure to operate in a field which is material to our operations and mergers and changes of formation (with more limited exclusions) will trigger an event of default. In case we provide stricter financial covenants to another financial institution or debenture holder, those will apply to this agreement as well.

In the ordinary course of business, from time to time, we and our subsidiaries, enter into framework agreements with banks for various banking services, such as credit lines and hedging transactions. In March 2015, we entered an extended payment terms agreement with a certain supplier, which includes terms similar to our deferred loans agreements.

Rights Offering

In June 2015, we filed a registration statement with the Securities and Exchange Commission, or the SEC, and the Israeli Securities Authority, or the ISA, in preparation for a possible rights offering that proposed to raise approximately NIS 120-150 million (assuming a full exercise of subscription rights), or "the Rights Offering". DIC notified the Company that if the Company executes an equity offering (whether through ordinary shares offering or rights offering or in any other manner), DIC intends, in as much as DIC's cash needs will allow, to invest in such offering so that DIC's relative holding in the Company's share capital does not fall below its pre-offering holding, and to make an additional investment, if possible, so that DIC's total investment in such offering shall not exceed NIS 100 million.

The execution, timing, terms (including subscription ratio) and amount of such proposed Rights Offering have not yet been determined and are subject to further approvals of our Board of Directors, declaration of effectiveness of the registration statement by the SEC, and approvals of the ISA, the Tel Aviv Stock Exchange and the New York Stock Exchange. There is no assurance that such approvals will be received or that the Rights Offering will be executed, nor as to its timing, terms or amount.

Capital expenditure

Our accrual capital expenditure in 2013, 2014 and 2015 amounted to NIS 384 million, NIS 467 million and NIS 396 million, respectively. Accrual capital expenditure is defined as investment in fixed assets and certain intangible assets, such as spectrum licenses, rights of use of communications lines, UMTS networks' enhancement and expansion and development of new products and services, during a given period. For the periods under review, a key focus of our capital investment has been the enhancement and expansion of our existing networks and transmission infrastructure and deployment of our LTE network (in 2014).

Cash flows from operating activities

Cash flows from operating activities totaled NIS 836 million in 2015, a decrease from NIS 1,557 million in 2014. The decrease in cash flow is primarily attributed to a decrease in proceeds from customers due to the decrease in service revenues.

Cash flows from operating activities totaled NIS 1,557 million in 2014 similar to NIS 1,556 million in 2013. The steady cash flow level is primarily attributed to a decrease in proceeds from customers due to the decrease in service revenues. This decrease was offset by a decrease in payments to vendors as a result of a decrease in operating expenses mainly due to efficiency measures we implemented.

Cash flows from investing activities

The net cash flows from operating activities is the main capital resource for our investment activities. In 2013, 2014 and 2015, our net cash used in investing activities amounted to NIS 344 million, NIS 350 million and NIS 96 million, respectively. The payments were used primarily for the improvement and expansion of our networks and information systems infrastructures. These payments were partially offset by a repayment of long term deposit and cashing out part of our current investments in tradable debentures. The decrease in 2015 compared with 2014 resulted mainly from a decrease in investments in tradable debentures. There was no significant change in 2014 compared to 2013.

Cash flows from financing activities

In 2015, net cash used in financing activities amounted to NIS 1,136 million compared to NIS 1,106 million in 2014. The increase is primarily attributable to the issuance of new series of debentures for a net consideration of NIS 326 million in 2014.

In 2014, net cash used in financing activities amounted to NIS 1,106 million compared to NIS 1,569 million in 2013. The decrease is primarily attributable to the issuance of new series of debentures for a net consideration of NIS 326 million in 2014.

During 2013, 2014 and 2015, the average outstanding amount of long-term liabilities (long-term loans and debentures) was NIS 5.75 billion, NIS 4.7 billion and NIS 3.95 billion, respectively.

Working capital

Our working capital as of December 31, 2015 was NIS 625 million, compared with NIS 837 million as of December 31, 2014. The decrease in working capital was primarily due to a decrease in trade receivables.

Our working capital as of December 31, 2014 was NIS 837 million, compared with NIS 1,082 million as of December 31, 2013. The decrease in working capital was primarily due to a decrease in trade receivables and an increase in trade payables.

Trade receivables

Trade receivables consist of outstanding amounts due from customers, mainly for cellular, ISP and landline telephony services and handsets and accessories, net of the allowance for doubtful accounts. Most of our handset sales are made on an installment basis (generally, 36 monthly payments). Installments due in the twelve months following the

balance sheet date are included in current trade receivables; the remaining installments are included in long-term receivables. As of December 31, 2015, net current trade receivables amounted to NIS 1,254 million compared with NIS 1,417 million as at December 31, 2014 and NIS 1,731 million as at December 31, 2013. Net long-term trade receivables as of December 31, 2015 amounted to NIS 467 million compared with NIS 476 million as at December 31, 2014 and NIS 512 million as at December 31, 2013. The decrease in trade receivables (current and long-term) in 2015 compared with 2014 and in 2014 compared with 2013 was mainly due to the decrease in revenues as a result of the intensified competition in the cellular market. The current maturity of long-term receivables as of December 31, 2015 was NIS 563 million, compared with NIS 606 million as of December 31, 2014 and NIS 878 million as of December 31, 2013.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

Not applicable.

D. TREND INFORMATION

Trend information is included throughout the other sections of this Item 5.

E. OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

Set forth below is a description of our contractual cash obligations, in millions of NIS, as of December 31, 2015.

				2021 andBeyond
				1,077
				240
				-
6,052	1,469	2,048	1,219	1,317
	Total4,5481,090414	2016909205355	2017- 20181,60538954	2019-20209572575

(1) Interest does not include any increase in interest that would be required based on increases in the Israeli CPI.

Application of Critical Accounting Policies and Use of Estimates

The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts reflected in the consolidated financial statements and accompanying notes, and related disclosure of contingent assets and liabilities. We base our estimates upon past experience, where applicable, various factors, external sources and on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and could have a material impact on our reported results.

In many cases, the accounting treatment of a particular transaction, event or activity is specifically dictated by accounting principles and does not require management's judgment

in its application, while in other cases, management's judgment is required in the selection of the most appropriate alternative among the available accounting principles, that allow different accounting treatment for similar transactions.

We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management's estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate and (2) changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.

Revenue recognition

Nature of critical estimate items

As described in note 3.K to our consolidated financial statements included elsewhere in this annual report, revenues derived from usage of our networks, including airtime, internet services (ISP), international calling services, fixed local calls, interconnect, content and value added services and roaming revenues are recognized when the services are provided, in proportion to the stage of completion of the transaction, and all other revenue recognition criteria are met. The sale of a handset is generally adjacent to the sale of services. Usually, the sale of a handset to the customer is executed with no contractual obligation of the customer to purchase services from us in a minimal amount for a predefined period. As a result, we refer to the sale transaction as a separate transaction and recognize revenue from the sale of the handset upon delivery of the handset to the customer. In case the customer is obligated towards the company to purchase services in a minimal amount for a predefined period, the contract is characterized as a multiple element contract and thus, revenue from sale of handset is recorded in an amount not higher than the fair value of the said handset, which is not contingent upon delivery of additional components (such as services) and is recognized upon delivery of the handset to the customer and when the criteria for revenue recognition are met. Revenues from services are recognized and recorded when the services are provided.

Assumptions / approach used

In case the customer is obligated towards the company to purchase services in a minimal amount for a predefined period (multiple element contract), we determine the fair value of the individual elements based on prices at which the deliverable is regularly sold on a standalone basis, after considering volume discounts where appropriate.

The accounting estimates used in the results of operations related to the recognition of revenue require us to make assumptions about possible future billing adjustments arising from disputes with subscribers and discounts not taken into consideration at the time of billing.

Effect if different assumptions used

Management believes that the determination of fair value of the individual elements (relevant to revenue recognition) for each reporting period represent its best estimate, but the actual fair value can differ from the estimate selected. The impact of variances in actual

performance versus the amounts recorded could have an adverse effect on the accounts receivable reported on the balance sheet and the results reported in the statements of operations, and could be material to our financial condition.

Long-lived assets – depreciation

Nature of critical estimate items

The communications industry is capital intensive. The depreciation of operating assets constitutes a significant operating cost for us. We have substantial investments in tangible long-lived assets, primarily our communications networks.

Assumptions / approach used

We depreciate our property, plant and equipment using the straight-line method. Separate individual significant components are depreciated over their individual estimated useful lives. We periodically review changes in our technology and industry conditions to determine adjustments to estimated remaining useful lives and depreciation rates.

Effect if different assumptions used

Changes in technology or changes in our intended use of these assets can cause the estimated period of use or the value of these assets to change. Actual economic lives may differ from estimated useful lives. Periodic reviews could result in a change in our assets' depreciable lives, and therefore, in our depreciation expense in future periods.

Impairment of long-lived assets

Nature of critical estimate items

Finite-lived long-lived assets

At each reporting date, we review finite-lived long-lived assets, principally consisting of property, plant and equipment, spectrum licenses and intangible assets for impairment based on the requirements of International Accounting Standard No. 36, whenever events or changes in circumstances indicate that their carrying values may not be recoverable through the present value of anticipated cash flows from the continued use of the asset, including those expected at the time of its future retirement and disposal. Where it is not possible to estimate the recoverable amount of an individual asset, we group together all of the assets that cannot be tested individually into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit"), and estimate the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of value in use and fair value less cost to sell. Value in use is determined by discounting the expected future cash flows, we expect to derive from the asset, using a pre-tax discount rate. An impairment loss is recognized if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.

Indefinite-lived intangible assets

Once a year and for the same date, or more frequently if there are indications of impairment, we estimate the recoverable amount of each cashgenerating unit that contains goodwill, or intangible assets that have indefinite useful lives. Cash-generating units to which

goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. We monitor goodwill at operating segments level. As regards cash-generating units that include goodwill, an impairment loss is recognized when the carrying amount of the cash-generating unit, after adjustment for goodwill, exceeds its recoverable amount.

Assumptions / approach used

In analyzing finite-lived long-lived assets and Indefinite-lived intangible assets for potential impairment, significant assumptions that are used in determining the discounted cash flows of the asset group include:

• x cash flows attributed to the asset group;
• x future cash flows for the asset group, including estimates of residual values, which incorporate our views of growth rates for the related business and anticipated future economic conditions; and
• x period of time over which the assets will be held and used.

Effect if different assumptions used

The use of different estimates and assumptions within our discounted cash flow models (e.g., terminal value growth rates, pre-tax discount rate, future economic conditions, estimates of residual values) could result in discounted cash flows that are lower than the current carrying value of an asset group, thereby requiring the need to reduce the carrying value to the discounted cash flow amount.

The use of different discount rates when determining the fair value of the asset group could result in different fair values, and impact any related impairment charges.

Accounts receivable - bad debt and allowance for doubtful accounts

Nature of critical estimate items

We maintain an allowance for doubtful accounts to reflect estimated losses resulting from impairment of accounts receivables.

Assumptions / approach used

We regularly evaluate the adequacy of our allowance for doubtful accounts by taking into account variables such as past experience, age of the receivable balance and current economic conditions of the party owing the receivable balance. If the financial conditions of certain customers were to deteriorate, resulting in impairment in their ability to make payments, additional allowance for doubtful accounts may be required.

Effect if different assumptions used

We believe that our allowance for doubtful accounts is adequate to cover estimated losses in customer accounts receivable balances under current conditions. However, changes to the allowance for doubtful accounts may be necessary in the event that the financial condition of our customers improves or deteriorates.

Provisions for contingent liabilities

Provisions in general are highly judgmental, especially in cases of legal disputes. We assess the probability of an adverse event as a result of a past event and if the probability is evaluated to be more likely than not and the amount of the obligation can be estimated reliably, we fully provide for the total amount of the estimated contingent liability. We continually evaluate our pending provisions to determine if additional accruals are required. It is often difficult to accurately estimate the ultimate outcome of a contingent liability. Different variables can affect the timing and amount we provide for certain contingent liabilities. Our provisions are therefore subject to estimates made by us having taken into consideration the opinion of our legal counsel, which are subject to changes as the status of legal and commercial disputes changes over time. Adverse revision in our estimates of the potential liability could materially impact our financial condition, results of operations or liquidity.

Uncertain tax positions

When assessing amounts of current and deferred taxes, we take into consideration the effect of the uncertainty that our tax positions will be accepted and the effect of incurring any additional tax and interest expenses. We are of the opinion that the cumulative tax liability is fair for all the years in respect of which final tax assessments have not yet been received, based on an analysis of a number of matters including interpretations of tax laws and the our past experience. This assessment is based on estimates and assumptions that may also include assessments and exercising judgment regarding future events. It is possible that new information will become known in future periods that will require us to change our estimate regarding the tax liability that was recognized, and any such changes will be expensed immediately in that period.

New Accounting Standards and amendments not yet adopted

IFRS 9 (2014), Financial Instruments

IFRS 9 (2014) is a final version of the standard, which includes revised guidance on the classification and measurement of financial instruments, and a new model for measuring impairment of financial assets. This guidance has been added to the chapter dealing with general hedge accounting requirements issued in 2013.

Classification and measurement

In accordance with IFRS 9 (2014), there are three principal categories for measuring financial assets: amortized cost, fair value through profit and loss and fair value through other comprehensive income. The basis of classification for debt instruments is the entity's business model for managing financial assets and the contractual cash flow characteristics of the financial asset. Investments in equity instruments will be measured at fair value through profit and loss (unless the entity elected at initial recognition to present fair value changes in other comprehensive income).

IFRS 9 (2014) requires that changes in fair value of financial liabilities designated at fair value through profit or loss that are attributable to changes in its credit risk, should usually be recognized in other comprehensive income.

Hedge accounting – general

Under IFRS 9 (2014), additional hedging strategies that are used for risk management will qualify for hedge accounting. IFRS 9 (2014) replaces the present 80%-125% test for determining hedge effectiveness, with the requirement that there be an economic relationship between the hedged item and the hedging instrument, with no quantitative threshold. In addition, IFRS 9 (2014) introduces new models that are alternatives to hedge accounting as regards credit exposures and certain contracts outside the scope of IFRS 9 (2014) and sets new principles for accounting for hedging instruments. In addition, IFRS 9 (2014) provides new disclosure requirements.

Impairment of financial assets

IFRS 9 (2014) presents a new 'expected credit loss' model for calculating impairment. For most financial assets, the new model presents a dual measurement approach for impairment: if the credit risk of a financial asset has not increased significantly since its initial recognition, an impairment provision will be recorded in the amount of the expected credit losses that result from default events that are possible within the twelve months after the reporting date. If the credit risk has increased significantly, in most cases the impairment provision will increase and be recorded at the level of lifetime expected credit losses of the financial asset.

IFRS 9 (2014) is effective for annual periods beginning on or after January 1, 2018 with early adoption being permitted. It will be applied retrospectively with some exemptions.

We have not yet commenced examining the effects of adopting IFRS 9 (2014) on the financial statements.

IFRS 15, Revenue from Contracts with Customers

IFRS 15 replaces the current guidance regarding recognition of revenues from contracts with customers and presents a new model for revenue recognition from aforesaid contracts. IFRS 15 provides two approaches for recognizing revenue: at a point in time or over time. The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount. Furthermore, IFRS 15 extends the disclosure requirements that exist under current guidance.

IFRS 15 is applicable for annual periods beginning on or after January 1, 2018 and earlier application is permitted. IFRS 15 includes various alternative transitional provisions, so that companies can choose between one of the following alternatives at initial application: full retrospective application, full retrospective application with practical expedients, or application as from the mandatory effective date, with an adjustment to the balance of retained earnings at that date in respect of transactions that are not yet complete.

We are examining the effects of adopting IFRS 15 on the financial statements.

IFRS 16, Leases

IFRS 16 replaces International Accounting Standard 17 - Leases (IAS 17) and its related interpretations. The standard's instructions annul the existing requirement from lessees to classify leases as operating or finance leases. Instead of this, for lessees, the new standard presents a unified model for the accounting treatment of all leases according to which the lessee has to recognize an asset and liability in respect of the lease in its financial statements. Similarly, the standard determines new and expanded disclosure requirements from those required at present.

The standard will become effective for annual periods as of January 1, 2019, with the possibility of early adoption, so long as the company has also early adopted IFRS 15 - Revenue from contracts with customers. The standard includes a number of alternatives for the implementation of transitional provisions, so that companies can choose one of the following alternatives at the implementation date: full retrospective implementation or implementation from the effective date while adjusting the balance of retained earnings at that date.

We have not yet commenced examining the effects of adopting the standard on the financial statements.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth information regarding our directors, executive officers and other key employees as of December 31, 2015:

Name	Age	Position
Ami Erel (2), (3)	68	Chairman of the Board
Shlomo Waxe (1), (2), (4)	70	Independent Director
Ari Bronshtein (2), (4)	46	Director
Ephraim Kunda (1), (2), (4), (5)	63	Independent Director
Joseph Barnea (1), (2), (3), (4), (5)	80	Independent / External Director
Ronit Baytel (1), (5)	48	Independent / External Director
Nir Sztern	44	President and Chief Executive Officer
Shlomi Fruhling	43	Chief Financial Officer
Yoni Sabag	43	Vice President of Marketing
Ron Shvili	48	Chief Technology Officer
Keren Shtevy	42	Vice President of Business Customers
Sharon Amit	49	Vice President of Human Resources
Amos Maor	52	Vice President of Sales and Service
Liat Menahemi Stadler	49	Vice President of Legal Affairs and Corporate Secretary
Teimuraz Romashvili	37	Vice President of Pre Paid Activity
Yaniv Gruenwald	41	Vice President of Television and Content
Ronnen Shles	48	Controller

(1) Member of our Audit Committee.

(2) Member of our Analysis Committee.

(3) Member of our Option Committee.

(4) Member of our Security Committee.

(5) Member of our Compensation Committee.

Ami Erel has served as Chairman of our Board of Directors since 2005. Mr. Erel also provides consulting services to Discount Investment Corporation Ltd. (where he served as President and Chief Executive Officer from 2001 to 2013), as of July 2014. From March to December 2007, Mr. Erel also served as the Chief Executive Officer of Netvision Ltd., where he served prior to March 2007 and from 2008 to 2011, as Chairman of the board of directors. From 1997 to 1999, he served as President and Chief Executive Officer of Bezeq – The Israeli Telecommunications Corporation Ltd. Mr. Erel also serves as deputy Chairman of the board of directors of ADAMA Agricultural Solutions Ltd. (where he served from 2006 and as a director and from January 2011 through October 2011 as Chairman of the board of directors). Mr Erel also serves as a director of Shufersal Ltd., Elron Electronic Industries Ltd. (where he served from 1999 to 2001 as President and until January 2007 as Chairman of the

board of directors), Knafaim Holdings Ltd. and Dan hotels Ltd. Mr. Erel served as the chairman of the executive committee of the Manufacturers Association of Israel from 2005 to 2009 and from 2009 to 2011 he served as the chairman of the Israel Export & International Cooperation Institute. Mr. Erel holds a B.Sc. in electrical engineering from the Technion, Israel Institute of Technology.

Shlomo Waxe has served as a member of our Board of Directors since 2006. Mr. Waxe has served as Director General of the Israel Association of Electronics and Software Industries since 2006. From 2002 to 2005, he worked in the field of communications management and consultancy. From 1999 to 2001, he served as Chief Executive Officer of Zeevi Communications Ltd. From 1997 to 1999, he served as a consultant to cellular communications projects in Sao Paulo, Brazil and in Northeast Brazil. From 1993 to 1997, he served as the Director General of Israel's Ministry of Communications. From 1990 to 1993, he served as commanding officer of the signal, electronics and computer corps of the Israel Defense Forces and he is a retired brigadier general. Mr. Waxe also serves as a member of the boards of directors of C. Mer Industries Ltd. and until 2009, served as a board member of Shrem, Fudim – Technologies Ltd. and until May 2012, served as a board member of Tambour Ltd. Mr. Waxe holds a B.A. in political science from the University of Haifa.

Ari Bronshtein has served as a member of our Board of Directors since 2008. Mr. Bronshtein has served as Vice-President of DIC since January 2006. Since July 2010, he also has served as a Chief Executive Officer, and from May 2009 to June 2010 he served as co-Chief Executive Officer of Elron Electronic Industries Ltd. Mr. Bronstein also serves as a member of the boards of directors of various private companies. From 2004 to 2005, he served as Vice President and head of the Economics and Business Development division, and from 2000 to 2003, as Director of Finance and Investments, at Bezeq – The Israeli Telecommunications Corporation Ltd. Mr. Bronshtein holds a B.A. in finance and management and M.Sc. degree in finance and accounting, both from Tel Aviv University.

Ephraim Kunda has served as a member of our Board of Directors since 2010. Mr. Kunda is an Israeli businessman and is the owner and managing director of a private consulting company that provides economic consultancy and business mediation services. From 2007 to 2010, Mr. Kunda has served as the Chairman of the board of directors and since 2010 as a member of the board of directors of Ravad Ltd., a public real estate investment company. From 2003 to 2007, Mr. Kunda served as an external director of Property and Building Corporation Ltd., a public real estate company that is a member of the IDB group. Mr. Kunda holds a B.A. in Economics from Tel Aviv University.

Joseph Barnea has served as a member of our Board of Directors since 2007. Mr. Barnea is a retired businessman*.* From 2012 to 2015, Mr. Barnea served as an external director of Imagesat International Ltd. He served as the Chief Executive Officer of Oxygen & Argon Works Ltd. from 1987 to 2005 and continued to serve as a member of its management until 2006. From 1985 to 1987, he served as the Chief Executive Officer of Telkoor Ltd. From 1980 to 1985, he served as a Vice President of Elscint Medical Imaging Ltd. Mr. Barnea is a member of the executive committee of the Israeli Industrialists Association and until 2007 he served as the Chairman of its Chemistry and Environment Association. From 2004 to 2009 Mr. Barnea served as a member of the board of the Israeli Export & International Cooperation Institute, from 2005 he serves as a member of the standard committee of the Israeli Standards Institute and prior to that, as a member of its board. From 2002 to 2004 he served first as President and then as Chairman of the International Oxygen Manufacturers Association (IOMA) USA. He served as Deputy Commander of the signal,

electronics and computer corps of the Israeli Defense Forces. Mr. Barnea holds a B.Sc. in electrical engineering from the Technion, Israel Institute of Technology and an M.Sc. in electrical engineering from Columbia University, New York, USA.

Ronit Baytel has served as a member of our Board of Directors since 2007. From 2005 to 2016, Ms. Baytel served as a director in the finance department of Ormat Technologies, Inc., a company listed on the NYSE, in charge of SOX internal controls in the preparation of financial statements and tax and special projects. From 1998 to 2005 she served as senior manager at Kesselman & Kesselman, a certified public accountants firm in Israel, which is a member of the international PriceWaterhouseCoopers Accountants firm. Ms. Baytel is a certified public accountant and holds a B.A. in economics and accountancy from Tel Aviv University and an M.B.A. from the Hebrew University.

Nir Sztern has served as our Chief Executive Officer since 2012. Mr. Sztern served as the chief executive officer of Netvision, from 2010 to 2011. From 2008 to 2010 he served as deputy CEO of Pelephone, and from 2002 to 2008 as Pelephone's vice president of marketing. From 2001 to 2002 he served as vice president of marketing and sales of Barak 013 Ltd. or Barak, a long distance operator (which was later merged into Netvision) and from 1999-2001 as head of Barak's marketing department. From 1994 to 1999 Mr. Sztern served as head of our private sector marketing department. Mr. Sztern holds a B.A. in economics and management from the Tel Aviv University and an M.B.A. in business administration, from the Israeli branch of Manchester University.

Shlomi Fruhling has served as our Chief Financial Officer since September 2013. Mr. Fruhling has served as a vice president of DIC from 2012. From 2008 to 2011 he served as VP Strategy and Finance of 013 Netvision Ltd.. From 2005 to 2008 Mr. Fruhling has served as head economist of DIC. Mr. Fruhling holds a B.A. in economics and business administration from the Tel-Aviv Management College.

Yoni Sabag has served as our Vice President of Marketing since 2011. Mr. Sabag has served as head of our private sector marketing department, in charge of the private and small business sectors from 2006 to March 2011. From 2003 to 2006, he served as a director of marketing for the private sector. Mr Sabag has been a member of our marketing department since 2000.

Ron Shvili has served as our Chief Technologies Officer since November 2013. Mr. Shvili has been an Entrepreneur in the field of cyber security since the beginning of 2013, when he retired from the Israeli Defense Forces, or IDF. From 1990 to 2012 Mr. Shvili held various key managerial and technological positions in the IDF and the Israeli Ministry of Defense. Mr. Shvili holds B.Sc and M.Sc in Electrical engineering from Tel-Aviv University.

Keren Shtevy has served as our Vice President of Business Customers since 2012. Ms. Shtevy served as Netvision's vice president of private customers from 2004 to 2011 and from 2011 as general vice president. From 1998 to 2004 she served at various positions in Netvision, from 1999 in various management positions, in charge of sales and customer service for private customers. Ms. Shtevy holds a B.A. in economics and communications from the University of Haifa.

Sharon Amit has served as our Vice President of Human Resources since 2011. Ms. Amit has served as Netvision's VP of Human Recourses from 2009 to November 2011. She served as VP of Human Recourses of Tikshoov Call Center from 2006 to 2009, of Bynat

Computer Communications from 2002 to 2006 and of ADC Israel from 1996 to 2002. Ms. Amit holds a B.A. in English literature and East Asia science, from the Hebrew University in Jerusalem and an M.A. in labor studies from the Tel Aviv University.

Amos Maor has served as our Vice President of Sales and Service as of 2012. Mr. Maor has served as our Vice President of Operations and Supply Chain from 2004 to January 2011. From 2002 to 2004, Mr. Maor served as manager of Supply Chain of Elite Industries Ltd., and from 2000 to 2002, he served as manager of Elite's sales division headquarters. Mr. Maor holds a B.Sc. in industry and management engineering from the Technion, Israel Institute of Technology.

Liat Menahemi Stadler has served as our Vice President of Legal Affairs and Corporate Secretary since 2006. From 2000 to 2006, Ms. Menahemi Stadler served as head of the technology and general purchasing division of our legal department. She has been a member of our legal department since 1998. Ms. Menahemi Stadler holds an LL.B. and a B.A. in English and French language and literature, both from the University of Haifa and is a member of both the Israeli and the New York bar associations.

Teimuraz Romashvili has served as our Vice President of Pre Paid Activity since 2011. Mr. Romashvili reports to the Company's VP Sales and Service. Mr. Romashvili has served as Netvision's head of pre-paid and international activity from 2007 to October 2011. From 2005 to 2007 he served as head of pre-paid activity in Barak and prior to that served in a variety of positions in Barak. Mr. Romashvili holds a B.A. in economics and management from the Economics Academy in Kiev, Ukraine.

Yaniv Gruenwald has served as our Vice President of television and content since August 2014. Mr. Gruenwald has served as Vice President of television and content of Netvision since 2012 and as Chief Technology Officer of Netvision from 2010 to 2011. From 2008 to 2010, he served as a Chief Technology Officer of wire-line & broadband division of Partner Communications Ltd., and from 2005 to 2008 he served as Partner's director of product development. Mr. Gruenwald Holds a B.A. in business administration from the Peres Academic Center and an Executive MBA from Tel-Aviv University.

Ronnen Shles has served as our Controller from January 2015. From 2007 to 2014, Mr. Shles served as head of the accounting unit in our financial control division. Mr. Shles is a certified public accountant and holds a B.A. in accounting and business administration from the College of Management.

B. COMPENSATION

Compensation Policy

Our compensation policy, described below, was approved by our compensation committee and board of directors and subsequently approved by our shareholders in September 2013 and shall be in effect for a period of three years therefrom.

Preamble

The Company's compensation policy is designed to align executive officer compensation with the Company's performance and to reflect best practices in executive officer compensation. The Company has created a pay-for-performance policy that is

designed to align executive officer and shareholder interests by reinforcing the long-term growth, value creation and sustainability of the Company. The structure is designed to encourage a high degree of execution and rewards individuals for the achievement of objectives that ultimately create shareholder value. The structure is further designed to prevent executive officers from taking unnecessary risks in order to enlarge their compensation. The objective of the compensation policy is to attract, motivate and retain a talented management team that will continue providing unique solutions in a highly competitive and rapidly changing marketplace and deliver long-term value for all shareholders.

The Company's executive officer compensation policy refers to three main elements of compensation that include base salary, cash bonus compensation and equity-based compensation. The compensation package for each of our executive officers will include these three components.

The Compensation Committee and Board of Directors approve, periodically review and oversee the application of the Company's executive officer compensation programs.

Our Board of Directors monitors our executive officers' compensation structure annually in order to ensure that target total compensation for our executive officers is appropriate, considering our peer companies, overall company performance, individual executive officer's scope and size of responsibilities and performance during the previous year.

The policy will apply to any compensation determined after approval by the Company's shareholders and will not, and is not intended to, apply to or deemed to amend employment and compensation terms of executive officers existing prior to such date.

The compensation policy does not grant any rights to the Company's directors and executive officers, and the adoption of the compensation policy does not grant any of the Company's Directors and executive officers a right to receive any elements of compensation set forth in the compensation policy. The elements of compensation to which a director or executive officer will be entitled will be exclusively those that are determined specifically in relation to him or her in accordance with the requirements of the Israeli Companies Law, 1999, or the Companies Law, and the regulations promulgated thereunder.

Executive Officer Pay for Performance

The Company's compensation philosophy is to encourage our executive officers to make sound decisions and drive long-term value creation for our shareholders. For our executive officers, we believe that in order to increase shareholder value, our compensation structure must:

• Have a substantial portion of pay "at risk" (i.e., pay that is not guaranteed); and
• Link "at risk" pay to performance objectives that are directly aligned to the Company's short and long-term performance objectives as well as strategic initiatives.

Effectively aligning the objectives of executive officer compensation with the interests of shareholders requires adopting compensation programs that motivate leadership to drive company performance to achieve sustainable top performance. To that end, our Board of Directors, at the recommendation of our Compensation committee, will establish cash and equity-based compensation plans with targets focused on rewarding individuals for strong company performance. In addition, because we believe that individuals should be rewarded

based on the results of their contributions, we also consider individual performance in awarding incentive compensation.

Compensation Philosophy and Strategy

Our Board, at the recommendation of our Compensation Committee, has defined the following key objectives of our compensation programs for executive officers:

• Drive the Company's overall business strategy and results as they relate to long-term value creation;
• Pay for performance by linking total compensation to defined performance objectives, both at the Company level and for each executive officer individually;
• Attract and retain key executive officers by providing competitive total compensation opportunities, considering the Company's size, nature of operations and marketplace, while avoiding unnecessary risk taking by executive officers; and
• Align executive officer and investor interests by focusing executive officer behavior on driving long-term value creation.

Compensation Risk Assessment

In designing our compensation policy, we reviewed our compensation policies and practices in order to determine whether they create risks that are likely to have a material adverse effect on the Company. We concluded that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Company. Among the elements evaluated were the following:

• The multiple elements of our compensation packages for executive officers, including base salary, annual cash incentive and equity-based compensation program which vest over a number of years and provide a balance of short-term and long-term compensations with fixed and variable components that promote the long-term sustainability of our business;
• Equity-based compensation for our executive officers aligns the interests of the executive officers with those of our shareholders;
• Independent oversight by the Compensation Committee;
• Inclusion of claw-back provisions in the event of a material restatement of our financial statements for our financial performance based compensations;
• Effective management processes for developing strategic and annual work plans, and strong internal controls over financial reporting;
• The structure of our cash bonus and equity-based compensation, which is based on a number of different performance measures to avoid employees placing undue emphasis on any particular performance measure at the expense of other aspects of the business; and
• The cap on our executive officers' cash bonus and equity-based compensation, commensurable to objectives which do not motivate increased risk taking.

Compensation Principles

Peer Group Analysis. We use benchmarking as one of the tools for setting and reviewing our compensation system. To attract and retain our key executive officers, our goal is to provide compensation opportunities at competitive market terms. The Company's peer group is made up of a minimum of 10 companies, including telecommunications companies and companies operating in other markets whose turnover are similar to the Company's , as recommended by the Company's independent compensation consultant. When using the benchmarking, our intent is to create a compensation structure that generally targets the median of our selected peer companies, but also allows total compensation to exceed the median when warranted due to company performance and/or individual experience, responsibilities and exceptional performance.

Additional Considerations. When deciding on or periodically reviewing each executive officer's total compensation, our Compensation Committee and Board of Directors consider the following: (1) each executive officer's individual attributes, including his/her education, skills, expertise, professional experience and achievements, the executive's role, his/her areas of responsibility and previous compensation arrangements (when applicable); (2) the ratio between our executive officer total target compensation and the total compensation of the rest of the company's employees and the Subcontractors' Employees engaged by the Company (as such term is defined under the Israeli Companies Law), and specifically the ratio to the average total compensation and the median total compensation of such employees, and the influence of those gaps on the working relations in the Company, taking into consideration the Company's size, nature of operations, employees composition, marketplace and comparative data. Our Compensation Committee and Board of Directors considered these ratios in the Company and determined that they do not adversely influence the working relations in the Company.

Caps and limitations. Our compensation policy sets the target total compensation comprising of the base salary, a 100% performance score for the cash award and maximum long term compensation for our executive officers, as detailed hereunder. Our Compensation Committee and Board decide on each executive officer's total actual compensation which is limited by the target compensation, based on performance metrics as detailed hereunder. Our Board will not reduce the compensation package approved or any of its components, and will not place additional limitations, not detailed in this compensation policy, other than in unusual circumstances according to our Compensation Committee's and Board of Directors' discretion.

Compensation Recovery ("Claw back"). If our financial statements are materially restated within 4 years from publication thereof (other than restatement required due to changes in financial reporting standards), then the executive officers will repay prior payouts, in an amount of the excess over what the executive officer would have received according to the restated financial statements.

Overview of Executive officer Compensation –the Elements of Pay

Elements of Executive officer Compensation. In line with the philosophy described above, the following elements compose the compensation of our executive officers:

• x Base salary;
• x A cash bonus award;
• x Equity-based compensation awards; and
• x Termination arrangements

Compensation Mix. Base salary and annual and equity-based compensation awards make up the main elements of our executive officers' total compensation package. The Company strives to ensure that a substantial portion of each executive officer's total compensation is comprised of "at-risk" pay, with the targeted weight of each element out of the total compensation package of an executive officer being as follows:

• x base salary 30%-50% for our CEO and 40%-60% for other executive officers;
• x cash bonus 25%-45% for our CEO and 20%-40% for other executive officers; and
• x equity-based compensation* 25%-45% for our CEO and 20%-40% for other executive officers.

*calculated per year, based on fair value at date of grant, with the value of the options amortized as compensation over the vesting period.

The ranges stated in the table above represent the targeted compensation mix desired by the Company; however the actual ratio between fixed and variable elements may vary based on performance. For example, in a year with no or limited bonus, the percentage of base salary out of total compensation may be higher than stated above.

Our cash bonus and equity-based compensation awards are considered "at-risk" pay because they are not guaranteed and the recipients of the cash bonus awards must achieve specific performance objectives at corporate and individual levels to receive any payment.

Base Salary. The base salary varies between executive officers, and is individually determined according to past performance, educational background, prior business experience, qualifications, role and the business responsibilities of the executive officer. Since a competitive base salary is essential to our ability to attract and retain highly skilled professionals, we will seek to establish a base salary that is competitive with the base salaries paid to executive officers of a peer group of companies.

Accordingly, base salary shall generally target the 25%-75% percentiles of each executive officer's peer group salary, taking into consideration the aforementioned individual characteristics, as shall be reflected in a peer group analysis conducted by an independent consultant and reviewed by our Compensation Committee and Board of Directors, when such salary is set and/or updated. The Company's office holders' average base salary percentile in 2015 (in relation to their peer group), based on a peer group analysis conducted by Prof. Moshe Zviran Ltd., an independent compensation consultant, was approximately 50%. The benchmarking indicates that the target Base Salary (i.e. 25%-75% percentiles of each executive officer's peer group salary), when applied to our CEO, ranges approximately between NIS 136K and NIS 166K and when applied to our other executive officers, ranges approximately between NIS 50K to NIS 92K per month.

The base salary may be linked to the Israeli Consumer Price Index, or CPI.

Benefits and Perquisites. The following benefits and perquisites may be granted to the executive officers in order, among other things, to comply with legal requirements:

• x Vacation of up to 30 days per annum;
• x Sick days of up to 30 days per annum;
• x Convalescence pay equivalent to up to 10 days per annum;
• x Monthly remuneration for an education fund, as allowed by applicable law;
• x Contribution on behalf of the executive officer to a manager's insurance policy or a pension fund, as allowed by applicable law; and

x Contribution on behalf of the executive officer towards work disability insurance, as allowed by applicable law.

We may offer additional benefits and perquisites to the executive officers, which will be comparable to customary market practices, such as: company cellular phone and the costs of the use thereof; company car benefits; medical insurance, annual medical examination, professional associations membership fees etc.; provided however, that such additional benefits and perquisites shall be determined in accordance with our policies and procedures and with reference to the practice in peer group companies. The value of such additional benefits shall not exceed 30% of the executive officer's base salary.

Cash bonus. The Compensation Committee sets the cash bonus performance objectives and target bonus for each executive officer, at the start of each year, which are then reviewed and approved by the Board. For our CEO, these objectives are based on the Company's annual work plan and objectives. For our other executive officers, these objectives are based on the Company's annual work plan and objectives at the corporate level and key strategic objectives each executive officer is expected to achieve during that year at the individual level, based on each executive officer's position and scope of responsibilities.

The cash bonus payout is determined based on actual performance of the Company and the executive officer in question (after elimination of material one time and reevaluation influences), in each of the performance objectives set for each executive officer, measured on a performance matrix. The results for each group of objectives (as detailed hereunder) are then combined into one performance score, based on the weight each performance objective was given.

• x Corporate performance objectives may include EBITDA*, net income, free cash flow*, Net Promoter Score, or NPS (indicating our subscribers' satisfaction with our services) and other Company performance objectives which the Company decides to focus on in a specific year. Corporate performance objectives weigh between 30% to 50% of the overall performance score of each executive officer and 80% for our CEO. In extreme cases, such as major changes in our market leading to annual work plan or budget adjustments, our Compensation Committee and Board of Directors may update the objectives to match such changes, during the first half of the relevant year.
• x Quantitative individual performance objectives may include specific NPS, the budget for the unit relevant to the executive officer, revenues from sales by the unit, recruiting subscribers by the unit and quality of network. These objectives weigh between 30% and 50% of the overall performance score of each executive officer.
• x Qualitative individual performance objectives may include corporate governance, risk management, leadership, response to major business changes, executing special projects, as per the CEO's evaluation of each executive officer and as per the evaluation of the CEO by the Compensation Committee and the Board of Directors. This component will weigh up to 20% of the overall performance score of each executive officer (including the CEO).

* EBITDA and Free Cash Flow are non-IFRS measures. For a definition of EBITDA see footnote (4) under "Item 5. Operating and financial review and prospects – Results of operations – Comparison of 2013, 2014 and 2015". Free

Cash Flow is defined as (a) the net cash provided by operating activities minus (b) the net cash used in investing activities, excluding (i) short-term investments in tradable debentures and deposits and (ii) proceeds from sales of such debentures (including interest received in relation to such debentures) and deposits.

Any payout of cash bonuses for any year will be subject to an additional minimum requirement of achieving an annual EBITDA of not less than 60% of the Company's EBITDA for the previous year. We have met this threshold. Such minimum requirements are in no way indicative of the Company's expectations or estimations for any fiscal year, and are provided in order to assure shareholders that no cash bonuses will be paid to office holders according to the Compensation Policy in years when the Company's performance has deteriorated materially compared to the prior year.

Our Compensation policy sets a minimal threshold score of 75% of the combined target performance and a target bonus of 10 monthly salaries for our CEO and 5-7 monthly salaries for our other executive officers ("Target Bonus") for the target performance objectives, in line with each executive officer's capability to influence the Company's results of operations. Performance below the minimum threshold results in no payout. Performance score under the combined performance target and above the threshold results in a linear reduction in which a 5% reduction of the combined performance score represents a reduction of 10% of the Target Bonus (i.e. down to 50% of the Target Bonus for a performance score of 75% of the combined performance target). Performance score above the combined target performance rewards the executive officer with a linear addition to the Target Bonus in which a 5% addition of the combined performance score represents an addition of 10% to the Target Bonus and up to a maximum of 150% of the Target Bonus.

Following is a graphic representation of the cash bonus our executive officers may be entitled to:

In order to align executive officer and investor interests for a long term value creation, once the cash bonus was calculated as detailed above, the executive officers will be entitled to 60% of that cash bonus with 40% deferred to the following year. Notwithstanding the aforesaid, for the first year in which the cash bonus was determined in accordance with this Compensation Policy, the executive officers were entitled to 80% of that cash bonus with 20% deferred to the following year. The executive officers shall be entitled to the remaining deferred portion of the cash bonus, if the performance targets set for the following year exceed the 75% threshold of the combined performance target for such following year. We have met this threshold. The deferred portion of the cash bonus shall be linked to the Israeli

CPI from the payment date of the first portion and until the payment date of the second portion (if paid).

Subject to the conditions and limitations set above, an executive officer who ceases to perform his/her role as an executive officer but has provided services to the company for at least 6 months of the relevant year, will be entitled to receive a cash bonus for that year and the deferred portion of the cash bonus of previous year, relative to the period in which he/she performed their duties during the relevant year. An executive officer who provides services to the Company for less than 6 months during the relevant year of cessation, will not be entitled to a cash bonus for that year nor to the deferred portion of the bonus for the previous year. An executive officer who joins the Company during the relevant year, will be entitled to a portion of the bonus, relative to the period in which he/she performed their duties during the relevant year and provided such period is at least 6 month long.

The aggregate maximum payout of all of the executive officers' cash bonuses per annum shall not exceed 2% of the EBITDA for that calendar year (after elimination of material one time and reevaluation influences). In case of a positive EBITDA but negative net profit in a particular year, the Compensation Committee and the Board of Directors of the Company shall examine the circumstances leading to a negative net profit and shall consider reducing or cancelling the cash bonus for that year.

Equity-based compensation Plan. Under the Company's 2006 Share Incentive Plan or under any equity-based compensation plan adopted by the Company in the future (as was done with the Company's 2015 share Incentive Plan), the Compensation Committee and Board may resolve to grant, from time to time, options or restricted share units ("RSUs"), or other instruments of equity-based compensation, to our executive officers.

The decision on equity-based compensation grant shall take into consideration each executive officer's position, scope of responsibilities, as well as its past performance and contribution to the Company.

In order to align executive officer and investor interests for creation of long term value, equity-based awards will include the following terms:

• x Awards will vest linearly over a minimum period of three years beginning on the first anniversary of the grant date. The terms of such equity-based awards may include provision for acceleration of vesting in certain events, such as in the event of a merger, a consolidation, a sale of all or substantially all of our consolidated assets, change of controlling shareholder, or the sale or other disposition of all or substantially all of our outstanding shares.
• x The exercise price of equity-based awards will be the higher of the average market price of the Company's share during the 30 day period preceding the date of grant, and 8% above the market price of the Company's share at the end of the trading day preceding the date of grant, and will be subject to customary adjustments including for dividend distributions.
• x The value of equity-based awards at the date of grant (in accordance with acceptable accounting principles) per each vesting annum (calculated on a linear basis), in addition to the Target Bonus (whether or not actually paid), will not exceed 70% of our CEO's and 60% of our other executive officers' total cost of employment in that calendar year. We believe a grant date cap is more appropriate than an exercise date cap as it better aligns long term value creation objectives.

x The annual exercise of shares reserved for issuance upon the exercise of options of all the Company's executive officers will not dilute the Company's shareholders by more than 2% (in regards to option plans which contain a 'net exercise mechanism'). In addition, our board of directors committed towards DIC that the Company will not issue options or shares pursuant to executive officers or employees compensation, which may lead to a dilution of the Company's shareholders by more than 0.5% of the Company's outstanding share capital for that year.

Termination and Retirement. Our executive officers may be entitled to up to a 3 months advance notice period upon termination of their employment with the Company if worked in the Company for up to 3 years, or up to 5 month advance notice period if worked in the Company for over three years and will be required to provide the Company with the same notice when they initiate retirement from their position. The executive officer is obligated to work during such period and Company may decide, at its sole discretion, to waive actual work during that period, in whole or in part. Under special circumstances, the Company may, as approved by our Compensation Committee and Board of directors, grant an executive officer who worked in the Company for a minimum of two years and was not terminated for cause, a termination bonus equal to up to 3 monthly salaries of the executive officer, including benefits or an adjustment period of up to 3 month during which the executive officer will be entitled to continue to enjoy all compensation and benefits. In case the executive officer worked in the Company for a minimum period of five years, such termination bonus or adjustment period, may be up to 6 monthly salaries or 6 months, respectively. In deciding on the grant of a termination bonus or the like, our Compensation Committee and Board of Directors shall take into consideration the executive officer's term of employment, his/her compensation during his/her employment with the Company, the Company's performance during that period, the contribution of the executive officer to achieving the Company's objectives and increasing its profits and the circumstances of termination.

The Company may approve, upon termination of an executive officer's employment, to amend the terms in connection with the executive officer's equity-based compensation grants, such as extending the period for exercise of equity-based compensation upon termination, for longer periods than as set forth in the applicable plan, enabling acceleration of vesting of unvested equity-based compensation, while considering the same considerations stated above for a termination bonus.

The Company will not pay its executive officers any non-competition fees for post termination periods, although executive officers may be bound by post termination non-competition obligations.

Compensation for our directors

We paid no cash compensation to our directors who are affiliated with our controlling shareholder and the chairman of the Board of Directors (appointed by our controlling shareholder) ("Controlling Shareholder Directors") for their services as directors, as we pay our controlling shareholder an annual management fee, which includes the Controlling Shareholder Directors services.

We pay all directors who are not Controlling Shareholder Directors, including external directors, independent directors and other directors, directors fees in accordance with

the amount of statutory compensation to an external director of a dual-listed company allowed by the applicable Israeli law and regulations (as shall be updated from time to time).

Our directors will not receive cash bonuses or equity-based compensation.

Indemnification

Exemption from liability and liability insurance policy. Our articles of association allow us to exempt in advance a director and executive officer, or office holders, from liability to the company, in whole or in part, for a breach of his or her duty of care (except in connection with distributions) and we may enter into a contract for insurance against liability of any of our office holders with respect to certain breaches of his/her duties and certain financial liabilities and litigation expenses.

We maintain a liability insurance policy for the benefit of our office holders. Our directors and executive officers' coverage will not exceed $100 million per claim in the aggregate, and additional reasonable expenses in connection with defending lawsuits, and the premium will not exceed US$ 1 million per annum in any renewal or extension or substitution of the policy. Any such renewal or extension or substitution of the liability insurance policy for the benefit of our office holders (including those who are or are related to controlling shareholders or in respect of whom our controlling shareholders have a personal interest, who shall be insured under identical terms) do not require a separate approval of the Company's shareholders, in addition to the approval of this compensation policy (which in itself requires approval once every three years) if our compensation committee resolves that such renewal or extension or substitution upholds the limitations set above.

Indemnification. Our articles of association provide that we may indemnify our office holders against certain financial liability and litigation expenses. We have undertaken to indemnify our office holders for certain events listed in the indemnification letters given to them. Excluding reasonable litigation expenses, as noted above, the aggregate amount payable to all directors and officers and other employees who may have been or will be given such indemnification letters is limited to the amounts we receive from our insurance policy plus 30% of our shareholders' equity as of December 31, 2001, or NIS 486 million, and to be adjusted by the Israeli CPI. The approval of the compensation policy by our shareholders in September 2013 shall not be considered as approval of the indemnification amount to the Company's office holders (over the amounts received from the Company's insurance policy).

The above exemption, indemnification and insurance coverage, are subject to the limitations set in the Companies Law.

Executive Officer and Director Compensation

The aggregate direct compensation we paid to all our executive officers and directors as a group (17 persons) for 2015 was approximately NIS 12.0 million, of which approximately NIS 2.0 million was set aside or accrued to provide for pension, retirement, severance or similar benefits. These amounts do not include expenses we incurred for other payments, including dues for professional and business associations, business travel and other expenses and benefits commonly reimbursed or paid by companies in Israel. In addition, in 2015 we recorded the sum of approximately NIS 2.1 million, as a compensation cost related to the options granted to all our executive officers under our share incentive plans. See "6. Directors, Senior Management and Employees - E. Share Ownership – Share Incentive

Plans". We pay our executive officers an annual bonus based on our overall performance and individual performance, in accordance and subject to the provisions of our compensation policy (described above). For 2015, our compensation committee and board of directors resolved to pay our executive officers (excluding our CEO) an annual bonus in an aggregate sum of approximately NIS 5.0 million, as per our compensation policy, and approximately NIS 1.2 million to Mr. Sztern, our CEO (as per his employment agreement described below).

The table below reflects the compensation granted to our five most highly compensated office holders during or with respect to the year ended December 31, 2015. We refer to the five individuals for whom disclosure is provided herein as our "Covered Executives." All amounts reported in the table are in terms of cost to the Company, as recognized in our financial statements for the year ended December 31, 2015, which includes compensation paid or to be paid to such Covered Executive following the end of the year in respect of services provided during the year. Each of the Covered Employees was covered by our D&O liability insurance policy and was entitled to indemnification and exculpation in accordance with applicable law and our articles of association. The amounts set forth in the table below are given in thousands of New Israeli Shekels (NIS).

				Equity-Based
Name and Principal Position (1)	Salary Cost (2)	Consultancy Fees	Bonus(3)	Compensation(4)	Total
Nir Sztern, President and Chief Executive	1,975	--	1,157	513	3,645
Officer
Ron Shvili, Chief Technology Officer	1,139	--	507	424	2,069
Shlomi Fruhling, Chief Financial Officer	1,120	--	504	424	2,048
Liat Menahemi Stadler, VP Legal Affairs and	991	--	442	100	1, 533
Corporate Secretary
Amos Maor, VP Sales and Service	1,037	--	374	100	1,512

(1) Unless otherwise indicated herein, all Covered Executives are or were employed on a full-time (100%) basis.

• (2) Salary cost includes the Covered Executive's gross salary plus payment of social benefits made by the Company on behalf of such Covered Executive. Such benefits may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers' Life Insurance Policy), education funds (referred to in Hebrew as "keren hishtalmut"), pension, severance, risk insurances (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, car, medical insurance and benefits, phone, convalescence or recreation pay and other benefits and perquisites consistent with our policies.
• (3) Represents annual bonuses approved by our compensation committee and board of directors to the Covered Executives with respect to the year ended December 31, 2015, based on our compensation policy. 60% of the approved annual bonus (other than with respect to Mr. Sztern) in respect of 2015, to be paid to the Covered Executives in 2016, and the balance (40%) is deferred and may be paid to them in 2017, if the conditions for the payment of the deferred amount (as detailed in the compensation policy) are met during 2016. Doesn't include the deferred portion (40%) of the annual bonuses for the year ended December 31, 2014.
• (4) Represents the equity-based compensation expenses recorded in our consolidated financial statements for the year ended December 31, 2015, based on the fair value of the applicable options on the date of grant thereof, in accordance with accounting guidance for equity-based compensation. For a discussion of the assumptions used in reaching this valuation, see Note 20 to our consolidated financial statements included elsewhere in this report.

We paid no cash compensation to our directors who are affiliated with DIC for their services as directors, but we pay DIC management fees – see "Item 8.Major Shareholders And Related Party Transactions - Related Party Transactions - Relationship With IDB". In March 2013, our Board of Directors resolved that each of our external directors be paid the maximum amount of statutory compensation to an external director of a dual-listed company allowed by the applicable law and regulations, which is in the amount of NIS 115,400 per year and NIS 3,470 per meeting which such external director attends (including meetings of committees of the Board of Directors), adjusted for changes in the Israeli CPI for December 2007. In 2015, after giving effect to the CPI adjustments, these amounts equaled approximately NIS 134,000 (approximately $34,341) per year and approximately NIS 4,000 (approximately $1,025), per meeting. As resolved in our annual shareholders meeting held in July 2011, our independent directors, (Shlomo Waxe and Ephraim Kunda) are compensated at the same level as a statutory external director of a dual listed company, as described above.

Employment Agreement of Nir Sztern

Mr. Nir Sztern, our Chief Executive Officer as of January 1, 2012, is entitled to a gross monthly salary of NIS 120,000 linked to Israeli CPI. He is also entitled to a company car and the use of a cellular phone. Mr. Sztern is entitled to an annual bonus equal to nine months salary which shall increase or decrease in proportion to our annual profits, with a minimum of six months' salary and a maximum of 15 months' salary bonus, linked to Israeli CPI, in respect of which no social benefits are accrued. Mr. Sztern's annual bonus for 2015 amounted to NIS 1.2 million. Mr. Sztern is also entitled to participate in our share option plan. Mr. Sztern's agreement contains provisions for vacation days, sick leave, managers' insurance and an education fund. The aggregate monthly cost to us of Mr. Sztern's employment in 2015 amounted to approximately NIS164,500 (approximately $41,157), not including the annual bonus. The agreement is for an unspecified period of time and can be terminated by either party with advance notice of three months. Mr. Sztern will continue to receive his salary and benefits for a period of three months after termination by either party, unless we terminate the agreement for cause.

C. BOARD PRACTICES

Corporate Governance Practices

We are incorporated in Israel and therefore are subject to various corporate governance practices under the Companies Law, relating to such matters as external directors, the audit committee, the compensation committee and the internal auditor. These matters are in addition to the applicable requirements of the New York Stock Exchange and U.S. securities laws. Under the New York Stock Exchange rules, a foreign private issuer may generally follow its home country rules of corporate governance in lieu of the comparable New York Stock Exchange requirements, except for certain matters such as composition and responsibilities of the audit committee and the independence of its members. We follow the Companies Law, the relevant provisions of which are summarized in this annual report, and comply with the New York Stock Exchange requirement to solicit proxies from our shareholders in respect of each meeting of shareholders.

For a summary of the significant differences between our corporate governance practices as a foreign private issuer and those required of U.S. domestic companies under NYSE Listing Standards see "Item 16G – Corporate Governance".

Under the Companies Law, our Board of Directors must determine the minimum number of members of our Board of directors required to have financial and accounting expertise, as defined in the regulations of the Companies Law. In determining the number of directors required to have such expertise, the Board of Directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our Board of Directors has determined that we require at least two directors with the requisite financial and accounting expertise and that Messrs. Erel, and Bronshtein have such expertise. The Companies Law and the regulations promulgated thereunder also require that at least one of our External Directors has financial and accounting expertise, and consider a person who is an audit committee independent financial expert according to U.S. law to comply with that requirement. Our Board of Directors has determined that Ms. Ronit Baytel qualifies as an "audit committee financial expert" as defined by the SEC in Item 16.A of Form 20-F.

In accordance with the Concentration Law, since we are a third layer in a pyramidal structure (a layer being a public corporation), our board of directors' composition must accord with the following requirements: the majority of the board of directors shall be independent directors, as defined in the Companies Law, and the number of external directors shall be half the number of our directors less one (rounded upwards) but not less than two (such external directors to be nominated by a shareholders meeting that shall take place within additional three months). We are in compliance with these requirements. These requirements will be in effect during a transition period of six years (until December 2019), during which we are to become a second layer corporation.

Board of Directors and Officers

Our Board of Directors currently consists of six directors, including four independent directors under the rules of the NYSE, of whom two also qualify as external directors under the Companies Law. Two of our current directors, Mr. Waxe and Mr. Kunda, are independent directors who were elected at our annual shareholders meeting held in October 2015. Our external directors, Mr. Barnea and Ms. Baytel were elected in our annual shareholders meeting held in April 2013 for a term of three years commencing May 2013. Two additional directors, Messrs. Erel and Bronshtein, were appointed by DIC, as Israeli shareholders, in accordance with our license and articles of association's requirement that at least 20% of our directors be appointed by Israeli citizens and residents from among our founding shareholders. We do not enter into service contracts with our directors. Our articles of association provide that we must have at least five directors.

Each director (other than external directors and directors required to be appointed by Israeli citizens and residents from among our founding shareholders) will hold office until the next annual general meeting of our shareholders following his or her election. The approval of at least a majority of the voting rights represented at a general meeting and voting on the matter is generally required to remove any of our directors from office (other than external directors and directors required to be appointed by Israeli citizens and residents from among our founding shareholders), provided that directors appointed by the Board of Directors may also be removed by the Board of Directors. A majority of our shareholders at a general meeting may elect directors or fill any vacancy, however created, in our Board of Directors (other than external directors and directors required to be appointed by Israeli citizens and residents from among our founding shareholders). In addition, directors, other than an external director or a director required to be appointed by Israeli citizens and residents from among our founding shareholders, may be appointed by a vote of a majority of the directors then in office.

Our articles of association provide, as allowed by Israeli law, that any director may, by written notice to us, appoint another person who is not a director to serve as an alternate director (subject to the approval of the chairman of the Board of Directors; and in the case of an appointment made by the chairman, such appointment shall be valid unless objected to by the majority of other directors) and may cancel such appointment. The term of appointment of an alternate director is unlimited in time and scope unless otherwise specified in the appointment notice, or until notice is given of the termination of the appointment. No director currently has appointed any other person as an alternate director. The Companies Law stipulates that a person who serves as a director may not serve as an alternate director except under very limited circumstances. In addition, the Companies Law provides that an external director cannot appoint an alternate director to serve on the Board of Directors, and an external director cannot appoint another external director to serve as his or her alternate on a committee of the Board of Directors unless the alternate has the same qualifications as the appointing director. Similarly, an independent director cannot appoint an alternate director, unless the alternate director has the qualifications to serve as an independent director. An alternate director has the same responsibility as a director.

Each of our executive officers serves at the discretion of our Board of Directors and holds office until his or her successor is elected or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.

External Directors

Qualifications of external directors

Companies incorporated under the laws of the State of Israel whose securities are listed on a stock exchange are required by the Companies Law to appoint at least two external directors. For the Concentration Law in this regard see "-Corporate Governance Practices" above. External directors are required to possess professional and other qualifications as set out in the Companies Law and the regulations promulgated thereunder. The appointment of our external directors was approved by our shareholders in May 2007 for an initial term of three years, and our external directors were reelected to additional three year terms in April 2010 and again in April 2013. The Companies Law provides that a person may not be appointed as an external director of a company that has a controlling shareholder if the person is a relative of the controlling shareholder, or if the person, or the person's relative, partner, employer, direct or indirect supervisor or any entity under the person's control has or during the two years preceding the date of appointment had, any affiliation with the company or any entity controlling, controlled by or under common control with the company.

The term affiliation includes:

• x an employment relationship;
• x a business or professional relationship maintained on a regular basis;
• x control; and
• x service as an office holder, excluding service as a director in a private company prior to its initial public offering if such director was appointed in order to serve as an external director following the offering.

Pursuant to the Concentration Law, for so long as we are a third layer company, additional qualifications apply to our external directors.

The term "office holder" is defined in the Companies Law as a general manager, chief business manager, deputy general manager, vice general manager, any manager directly subordinate to the general manager or any other person assuming the responsibilities of any of the foregoing positions, without regard to such person's title, and a director. Each person listed above under "Item 6.A - Directors and Senior Management," except our controller, is an office holder for this purpose.

No person may serve as an external director if the person's position or other business interests creates, or may create, a conflict of interest with the person's responsibilities as a director or may otherwise interfere with the person's ability to serve as a director. If at the time an external director is appointed all current members of the board of directors are of the same gender, then that external director must be of the other gender.

For two years following the termination of an external director's service, the company and its controlling shareholder may not appoint the external director, or his or her spouse or child, as an office holder in that company or another company under common control, and cannot employ or receive services from that person for pay or grant any benefit, either directly or indirectly, including through a corporation controlled by that person. The same restrictions apply in regards to a relative who is not the external director's spouse or child for a period of one year.

Election of external directors

External directors are typically elected by a majority vote at a shareholders' meeting, provided that either:

• x a majority of the aggregate number of shares voted at the meeting by non-controlling shareholders and shareholders who do not have a personal interest in the election of the candidate (other than a personal interest that is unrelated to a relationship with the controlling shareholders) are voted in favor of the election of the external director; or
• x the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the election of the candidate (other than a personal interest that is unrelated to a relationship with the controlling shareholders) voted against the election of the external director does not exceed 2% of the aggregate voting rights in the company.

However, under the Concentration Law, for so long as we are a third layer company, the election of an external director requires (i) the affirmative vote of the holders of a majority of the shares of non-controlling shareholders or shareholders who do not have a personal interest in the approval of the election of the external director (other than a personal interest that is not the result of the shareholder's connections with a controlling shareholder) present, in person or by proxy, at the meeting and voting on the matter; and (ii) that the total number of shares of the shareholders described in section (i) above that were voted in favor of the election of the external director exceeds 2% of the aggregate voting rights in the Company.

The initial term of an external director is three years and he or she may be reelected to up to two additional terms of three years each by means of one of the following mechanisms: (i) the board of directors proposed the nominee and the nominee's appointment was approved by the shareholders in the manner required to appoint external directors for their initial term, or (ii) a shareholder holding 1% or more of the voting rights or the external director proposed the nominee, and the nominee is approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the controlling shareholders, provided that, the aggregate votes cast by shareholders who are not controlling shareholders and do not have a personal interest in the matter as a result of their relations with the controlling shareholders in favor of the nominee constitute more than 2% of the voting rights in the company, and that the nominee is not the proposing shareholder or a 5% shareholder who is an affiliate or competitor of the company or a relative or affiliate of such a shareholder. Thereafter, in dual listed companies like us, an external director may be reelected by our shareholders for additional periods of up to three years each only if the audit committee and the board of directors confirm that, in light of the external director's expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period is beneficial to the company. An external director may only be removed by the same percentage of shareholders votes as is required for the election of an external director, or by a court, and then only if the external director ceases to meet the statutory qualifications or violates his or her duty of loyalty to the company. If an external directorship becomes vacant, a company's board of directors is required under the Companies Law to call a shareholders' meeting promptly to appoint a new external director.

Each committee of a company's board of directors that has the right to exercise a power delegated by the board of directors is required to include at least one external director, and the audit and compensation committees are required to include all of the external directors. An external director is entitled to compensation as provided in regulations adopted under the Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with services provided as an external director.

Israeli-appointed directors

Our license requires, and our articles of association provide, that at least 20% of our directors will be appointed and removed by shareholders who are Israeli citizens and Israeli residents from among our founding shareholders. If our Board of Directors is comprised of 14 directors or less, the Israeli shareholders will be entitled to appoint two directors, and if our Board of Directors is comprised of between 15 and 24 directors, the Israeli shareholders will be entitled to appoint three directors. Our articles of association provide that DIC, as founding shareholder, is responsible for complying with the requirement under our license that Israeli citizens and residents from among our founding shareholders hold at least 20% of our outstanding shares, and that so long as DIC so complies, it will be entitled to appoint and remove these directors. For details in relation to the changes in the holding in us see "Item 3. Key Information – D. Risk Factors – - Risks Related to our Business – There are certain restrictions in our licenses relating to the ownership of our shares. As a result of a change in control of IDB, we are currently not in compliance with the terms of our licenses" and "Item 4. Information on the Company – B. Business Overview – Government Regulations – Our Principle License".

Board Committees

Our Board of Directors has established an audit committee, analysis committee, option committee, compensation committee and a security committee.

Audit committee

Under the Companies Law, the board of directors of a public company must establish an audit committee. The audit committee must consist of at least three directors and must include all of the company's external directors, and the majority of its members is required to be independent (as such term is defined under the Israeli Companies Law). The chairman of the audit committee is required to be an external director. The audit committee may not include the chairman of the board, any director employed by the company or by its controlling shareholder or by an entity controlled by the controlling shareholder, a director who regularly provides services to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder, and any director who derives most of his or her income from the controlling shareholder, a controlling shareholder or any of a controlling shareholder's relatives. The members of the audit committee are also required to meet the independence requirements established by the SEC in accordance with the requirements of the Sarbanes-Oxley Act.

Our audit committee provides assistance to our Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting and internal control functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. The audit committee also oversees the audit efforts of our independent accountants and takes those actions as it deems necessary to satisfy itself that the accountants are independent of management. Under the Companies Law, the audit committee is required to identify deficiencies in the management of the company, including by consulting with the internal auditor or the independent accountants, and recommending remedial actions to the board of directors, assessing the scope of work and compensation of the company's independent accountant, assessing the company's internal audit function and the performance of its internal auditor, setting whistle blower procedures (including in respect of the protections afforded to whistle blowers) and is responsible for determining whether certain related party actions and transactions are "material" or "extraordinary" in connection with their approval procedures, reviewing and approving certain related party transactions, as described below, including determining procedures and approvals for entering into controlling shareholder transactions even if they not extraordinary transactions. The audit committee may not approve such a related party transaction unless at the time of approval the two external directors were serving as members of the audit committee and at least one of them was present at the meeting at which the approval was granted.

Our audit committee is composed entirely of independent members (both under the Israeli Companies Law and the Sarbanes-Oxley Act) and includes all the external directors - Messrs. Barnea (chairman), Waxe , Baytel and Kunda. Our board of directors determined Ms. Baytel to be qualified to serve as an "audit committee financial expert" as defined by the SEC's rules.

Financial exposure management subcommittee

Our financial exposure management subcommittee, which is a subcommittee of our audit committee, was nominated by our board of directors and reviews our financial exposures, investment and hedging policies and recommends to our board of directors how we might enhance our investment and hedging performance. Our financial exposure management subcommittee consists of our external directors, Barnea and Baytel.

Analysis committee

Our analysis committee reviews our costs and annual budget and recommends ways to achieve cost efficiency in our activities to our Board of Directors. Our Analysis committee also reviews our operations and future plans and recommends how we might enhance our present and future performance to our Board of Directors. Our analysis committee consists of Messrs. Bronshtein (chairman), Erel, Waxe, Barnea and Kunda.

Option committee

Our option committee administers the issuance of options under our 2006 Share Incentive Plan and 2015 Share Incentive Plan to our employees who are not office holders, as well as any actions and decisions necessary for the ongoing management of the plan. Our option committee consists of Messrs. Erel (chairman) and Barnea.

Security committee and observer

Our security committee, which we were required to appoint once we became a public company pursuant to our license, deals with matters concerning state security. Only directors who have the requisite security clearance by Israel's General Security Services may be members of this committee. The committee is required to be comprised of at least four members, including at least one external director. In addition, the Minister of Communications is entitled under our license to appoint a state employee with security clearance to act as an observer in all meetings of our Board of Directors and its committees. Such an observer was appointed in February 2008. Our security committee consists of Messrs. Waxe, Bronshtein, Kunda and Barnea.

Compensation committee

Under the Companies Law, the board of directors of a public company must establish a compensation committee. The compensation committee must consist of at least three directors and must include all of the company's external directors and the external directors must constitute the majority of its members. The chairman of the compensation committee must be one of the external directors. Other members of the committee should be directors whose terms of compensation are the same as external directors. Under the Companies Law, the compensation committee functions are to recommend to the board of directors , for ultimate shareholder approval by a special majority, a policy governing the compensation of office holders, based on specified criteria, to review modifications to the compensation policy from time to time, to review its implementation and to approve the actual compensation terms of office holders. The composition of our compensation committee complies with the requirements described above. Our compensation committee consists of Ms. Baytel (chairperson), Mr. Kunda and Mr. Barnea.

Internal Auditor

Under the Companies Law, the board of directors of a public company must appoint an internal auditor nominated by the audit committee. The role of the internal auditor is to examine whether a company's actions comply with applicable law and orderly business procedure. Under the Companies Law, the internal auditor may not be an interested party or an office holder, or a relative of any of the foregoing, nor may the internal auditor be the company's independent accountant or its representative. An interested party is generally defined in the Companies Law as a 5% or greater shareholder, any person or entity who has the right to designate one director or more or the chief executive officer of the company or any person who serves as a director or as the chief executive officer. Our internal auditor is Mr. Eli Nir, CPA.

Approval of Specified Related Party Transactions under Israeli Law

Fiduciary duties of office holders

The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company. The duty of care requires an office holder to act with the degree of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means, in light of the circumstances, to obtain:

• x information on the appropriateness of a given action brought for his or her approval or performed by virtue of his or her position; and
• x all other important information pertaining to these actions.

The duty of loyalty of an office holder includes a duty to act in good faith and for the best interests of the company, including to:

• x refrain from any conflict of interest between the performance of his or her duties in the company and his or her other duties or personal affairs;
• x refrain from any activity that is competitive with the company;
• x refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
• x disclose to the company any information or documents relating to the company's affairs which the office holder received as a result of his or her position as an office holder.

Personal interests of an office holder

The Companies Law requires that an office holder disclose any personal interest that he or she may have and all related material information known to him or her relating to any existing or proposed transaction by the company promptly and in any event no later than the first meeting of the board of directors at which such transaction is considered. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by the office holder's spouse, siblings, parents, grandparents, descendants, spouse's descendants and the spouses of any of these people.

Under the Companies Law, an extraordinary transaction is a transaction:

• x other than in the ordinary course of business;
• x that is not on market terms; or
• x that is likely to have a material impact on the company's profitability, assets or liabilities.

Under the Companies Law, once an office holder complies with the above disclosure requirement, the transaction can be approved, provided that it is in the best interest of the company. A director who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee, will generally not be present at this meeting or vote on this matter unless a majority of the directors or members of the audit committee have a personal interest in the matter. If a majority of the directors have a personal interest in the matter, the matter also generally requires approval of the shareholders of the company. Under the Companies Law, unless the articles of association provide otherwise, a transaction with an office holder, or a transaction with a third party in which the office holder has a personal interest, requires approval by the board of directors. If it is an extraordinary transaction, audit committee approval is required, as well. For the approval of the compensation, indemnification or insurance of an officer holder, see "Compensation arrangements" below. Our articles of association provide that a non-extraordinary transaction with an office holder, or with a third party in which an office holder has a personal interest, may be approved by our Board of Directors, by our Audit Committee or, if the transaction involves the provision of our communications services and equipment or involves annual payments not exceeding NIS 250,000 per transaction, by our authorized signatories.

Personal interests of a controlling shareholder

Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. A controlling shareholder is a shareholder who has the ability to direct the activities of a company, including a shareholder that owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights, but excluding a shareholder whose power derives solely from his or her position on the board of directors or any other position with the company. Accordingly, DIC, and entities and persons that directly or indirectly control DIC, are considered to be our controlling shareholders. Extraordinary transactions with a controlling shareholder or with relatives of a controlling shareholder or in which a controlling shareholder has a personal interest, directly and indirectly, including through a company controlled by him or her, and any transaction for him or her to provide services to the company (for arrangements regarding the compensation, indemnification or insurance of a controlling shareholder see "Compensation arrangements" below), require the approval of the audit committee, the board of directors and a majority of the shareholders of the company, in that order. In addition, the shareholders approval must fulfill one of the following requirements:

• x at least majority of the shareholders who have no personal interest in approving the transaction and who vote on the matter vote in favor of the transaction; or
• x the shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than 2% of the voting rights in the company.

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In addition, any such extraordinary transaction whose term is more than three years, require approval as described above every three years, unless (with respect to transactions not involving management fees or compensation) the audit committee approves that a longer term is reasonable under the circumstances. The audit committee is further responsible for establishing the procedures and approvals required for such transactions even if they are not extraordinary.

Compensation arrangements

Every public company must adopt a compensation policy, recommended by the compensation committee and approved by the board of directors and the shareholders, in that order. The shareholder approval requires a majority of the votes cast by shareholders, excluding any controlling shareholder and those who have a personal interest in the matter (similar to the threshold described above under "– Personal interests of a controlling shareholder"). In general, all office holders' terms of compensation – including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and the grant of an exemption from liability – must comply with the company's compensation policy.

In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder generally must be approved separately by the compensation committee, the board of directors and the shareholders of the company (by the same majority noted above), in that order. The compensation terms of other officers require the approval of the compensation committee and the board of directors.

Duties of shareholders

Under the Companies Law, a shareholder has a duty to refrain from abusing his or her power in the company and to act in good faith in exercising its rights in, and performing its obligations to the company and other shareholders, including, among other things, voting at general meetings of shareholders on the following matters:

• x an amendment to the articles of association;
• x an increase in the company's authorized share capital;
• x a merger; and
• x approval of related party transactions that require shareholders approval.

In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholders' vote and any shareholder who, under the company's articles of association, can appoint or prevent the appointment of an office holder or holds any other right in respect of the company, is required to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, and this duty is the subject of ongoing judicial interpretation.

Approval of Private Placements

Under the Companies Law, a private placement of securities requires approval by the board of directors and the shareholders of the company if it will cause a person to become a controlling shareholder or if:

• x the securities issued amount to 20% or more of the company's outstanding voting rights before the issuance;
• x some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and
• x the transaction will increase the relative holdings of a shareholder that holds 5% or more of the company's outstanding share capital or voting rights, or will cause any person to become, as a result of the issuance, a holder of more than 5% of the company's outstanding share capital or voting rights.

D. EMPLOYEES

Our ability to achieve our strategic goals largely depends on our employees. Consequently, we strive to recruit the most suitable candidates for each position, to give our employees the best training needed to qualify them for their tasks within our organization and aim to keep them satisfied while being productive and efficient. We implement a comprehensive review system that periodically analyzes our employees' performance in order to improve their performance and in order to enable us to properly compensate, retain and promote our best employees. Since we are committed to providing the best service to our subscribers, approximately 76% of our work force (excluding Netvision subsidiaries employees) is engaged in customer-facing positions.

The numbers and breakdowns of our full-time equivalent employees as of the end of the past three years are set forth in the following table:

		Number of Full-Time Equivalent Positions
Unit	December2013 ****	December2014 ****	December2015 ****
Management and headquarters	58	54	43
Human resources	67	72	92
Marketing	68	57	63
Customers*	3,170	2,887	2,653
Finance	133	101	135
Technologies	698	548	516
Operation and administration**	84	80	-
Netvision subsidiaries***	126	122	142
Total	4,403	3,921	3,645

*Includes the customer-facing units: business customers, sales and services, Netvision sales and services and supply chain.

** In 2015 the functions composing the Operation and administration unit were transferred to other units as follows: the Finance unit - 45 employees, Human resources unit – 30 employees and Marketing unit - 11 employees.

***In which Netvision has 50% or more of the issued share capital.

****Includes15, 1 and 1 employees previously engaged through subcontractors, mainly in the Technologies and Supply chain units during 2013, 2014 and 2015 respectively; also includes 323 employees of Dynamica and 990 employees of Netvision for 2013 and 352 employees of Dynamica, 806 employees of Netvision for 2014 and 385 employees of Dynamica and 737 employees of Netvision for 2015.

In February 2015, we entered a collective employment agreement with the Company's employees' representatives and the Histadrut, an Israeli labor union, for a term of three years (2015-2017). The agreement applies to the Company's and 013 Netvision Ltd.'s employees, excluding certain managerial and specific positions. The agreement defines employment policy and terms in various aspects, which are more favorable to our employees than the requirements of Israeli law, including minimum wage, annual salary increase, incentives, benefits and other one time or annual payments to the employees, as well as a welfare budget and procedures relating to manning a position, change of place of employment and dismissal, including the respective authority of management and the employees' representative with regards to each. The agreement includes innovative terms, whereby the employees are entitled to participate in our operational income over a certain threshold and enjoy additional payments, under certain conditions. The estimated cost of the agreement during its term is approximately NIS 200 million, before tax, based on our forecasts (including approximately NIS 30 million in one-time payments paid in the first quarter of 2015). In January 2016, we received a labor dispute announcement by the Histadrut with respect to outsourcing and other employment issues. Under the announcement, our employees would be entitled to take organizational steps (including a strike), as of February 7, 2016. We reject the claims made as a basis for the announcement. At this preliminary stage, we are unable to assess the effects of this announcement. See also "Item 3. Key Information – D. Risk Factors – Risks Related to our Business - The unionizing of our employees may impede necessary organizational and personnel changes, result in increased costs or disruption to our operation".

Israeli labor laws govern the length of the workday, the number of work days per week, minimum wages for employees, provisions concerning hiring and dismissing employees, including the obligation to hire certain workers retained through subcontractors who provided us services for a certain minimum period and persons with disabilities. determination of severance pay, annual leave, sick days and other conditions of employment. Israeli law generally requires severance pay upon the retirement or death of an employee or termination of employment. In addition, all Israeli employers are obligated to contribute to a pension plan, amounts equal to a certain percentage of the employee's wages, for all employees, after a certain minimum period of employment. Under that order, contribution to a pension plan increased gradually until 2014 and up to 6% of the lower of the employee's wages or the average salary in Israel, with additional identical contribution for severance pay. We contribute to part of our employees' pension arrangements a percentage higher than that required by law, which contributions are also intended to cover future severance payments. Under the collective employment agreement such contributions shall amount to 8.3% of the employee wages, after completing 3 years of employment with us. A provision in our consolidated financial statements covers severance pay in other cases, such as to those employees who were not entitled to managers' insurance or other pension arrangements. Furthermore, we and our employees are required to make payments to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Such amounts also include payments by the employee for health insurance. The total payments to the National Insurance Institute are (as of January 1, 2016) up to 18.75% of an employee's wages (up to a specified amount), of which the employee contributes approximately 12% and the employer contributes approximately 6.75%.

An Israeli labor law, passed in 2012, subjects employers to increased liability, including monetary sanctions and criminal liability, in cases of violations of certain labor

laws and certain violations by contractors providing maintenance, security and cleaning services.

In 2015, the Minimum Wage Law was amended to increase the minimum wage paid to employees in Israel in four installments, from April 2015 to January 2017. The increase may adversely affect our results of operations.

In 2016, several amendments to the regulation of pension arrangements came into effect, which, among other things, and subject to additional legislative processes, may result in an increase of the contribution percentage to pension arrangements mandated by law.

We enter into personal employment agreements with our employees on either a monthly (in most cases, full-time positions) or hourly basis. Employment agreements with our employees (with the exclusion of those employees specifically excluded from the collective agreement) are - as of January 2015 - subject to the provisions of the collective employment agreement. Substantially all of our employees have signed non-disclosure and non-competition agreements, although the enforceability of non-competition agreements is limited under Israeli law

Our employee compensation structure is aimed at encouraging and supporting employee performance towards enabling us to meet our strategic goals. Approximately 76% of our customer-facing employees are entitled to performance-based incentives, which are granted mainly to customer-facing personnel, such as sales and service employees. In addition, some of our employees are entitled to an annual bonus based on our overall performance and individual performance, subject to the discretion of our Board of Directors. As of 2015, under the collective employment agreement, some of our employees are entitled to an annual bonus. We also contribute funds on behalf of some of our employees to an education fund and as of 2015, under the collective employment agreement, to all employees after completing 3 years of employment with us.

We have entered into agreements with a number of programming companies under which they provide us with temporary workers.

In the second quarter of 2014 and 2015 we launched, together with the employees representing labor union, voluntary retirement plans for employees, in which approximately 380 and 330 employees, respectively, have retired, following which we incurred costs of approximately NIS 39 million and NIS 25 million, respectively.

E. SHARE OWNERSHIP

As of December 31, 2015, DIC beneficially owned 42,020,582 ordinary shares, and the voting rights in an additional 3,412,500 ordinary shares are held by DIC and 77,500 ordinary shares are held by indirect subsidiaries of IDB Development for their own account. This does not include a total of 2,555,392 ordinary shares held as of that date for members of the public through, among others, provident funds, mutual funds, pension funds, insurance policies and unaffiliated third-party client accounts, which are managed by indirect subsidiaries of IDB Development. IDB, DIC and each of other directors who are affiliated with IDB or DIC, disclaim beneficial ownership of such shares.

Except as described above, none of our executive officers or directors beneficially owns 1% or more of our outstanding ordinary shares.

Share Incentive Plans

We have introduced two Share Incentive Plans, the first in September 2006 and the second in March 2015, or the Plans. These are option plans open to all our employees, directors, consultants and sub-contractors and to those of our affiliates and our shareholders' affiliates. Under the plan, our Board of Directors (or an option committee to which such authority may be delegated by our Board of Directors) is authorized to determine the terms of the awards, including the identity of grantees, the number of options or restricted stock units ("RSUs") to be granted, the vesting schedule and the exercise price. The options or RSUs have a term of six years and under the 2006 plan vest in four equal installments on each of the first, second, third and fourth anniversary of the date of grant and under the 2015 plan vest in three equal installments on each of the first, second and third anniversary of the date of grant. Under the Plans, unvested options or RSUs terminate immediately upon termination of employment or service. The Plans define acceleration events of options or RSUs granted, including a merger, a consolidation, a sale of all or substantially all of our consolidated assets, or the sale or other disposition of all or substantially all of our outstanding shares. The Plans terminate upon the earlier of ten years from its adoption date or the termination of all outstanding options or RSUs pursuant to an acceleration event. The terms of the Plans provide for a net exercise mechanism, the result of which is to require us to issue a smaller number of ordinary shares than represented by the outstanding options. Unless the Board of Directors otherwise approves, the number of ordinary shares issuable by us upon the exercise of an option will represent a market value that is equal to the difference between the market price of the ordinary shares and the option exercise price of the exercised options, at the date of exercise. Distribution of cash dividends before the exercise of the options reduces the exercise price of each option by an amount equal to the gross amount of the dividend per share distributed.

In December 2013, our compensation committee and board of directors resolved to grant additional 234,000 options under the 2006 share incentive plan to two executive officers, at an exercise price of US$ 14.65 per share. The options granted, in accordance and subject to our compensation policy provisions, will vest in three equal installments on each of the first and second and third anniversary of the date of grant. The options of the first installment may be exercised within 24 months from their vesting and the second and third installments may be exercised with 18 month from their vesting.

In August 2014, senior employees and non-director officers of the Company sold an aggregate of 933,348 shares of the Company issued to them upon their exercise of vested options, constituting approximately 0.93% of the Company's issued share capital, to financial institutions. To our Knowledge, the purchasers intend to place such shares for sale outside the United States to non-US investors.

In June 2015, our board of directors annulled its March 2015 decision to grant options under the 2015 share incentive plan to non-directors officers and senior employees (i.e., the decision to grant 2,795,000 options to certain non-director officers and senior employees, of which 1,350,000 options to our executive officers, including 525,000 options to Mr. Sztern, our CEO, at an exercise price of US$ 5.70 (or, subject to the approval of the Israeli Tax Authority – NIS 22.55) per share) which had not been granted. In August 2015, our compensation committee and board of directors resolved to grant 2,660,000 options under the 2015 share incentive plan to certain non-director officers and senior employees, of which 1,740,000 options were granted to the Company's executive officers, including 525,000

options to Mr. Sztern, the Company's CEO, at an exercise price of NIS 25.65 per share. Mr. Sztern's grant was further subject to shareholders approval in accordance with the Israeli Companies Law, which was received in October 2015. The options granted will be vested in three equal installments on each of the first, second and third anniversary of the date of grant. The options of the first installment may be exercised within 24 months from their vesting, and the options of the second and third installments may be exercised with 18 month from their vesting. We will record the total sum of approximately NIS 9.3 million, as a compensation cost related to these grants, over the vesting period (2015 – 2018).

As of December 31, 2015, an aggregate of 2,873,190 ordinary shares were issuable upon exercise of options according to the terms above.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

The following table sets forth information regarding beneficial ownership of our shares as of December 31, 2015, by each person, or group of affiliated persons, known to us to be the beneficial owner of 5% or more of our outstanding shares.

In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities and includes any shares issuable pursuant to options that are exercisable within 60 days of December 31, 2015. Any shares issuable pursuant to options are deemed outstanding for computing the percentage of the person holding such options but are not outstanding for computing the percentage of any other person. The percentage of beneficial ownership for the following table is based on 100,604,578 ordinary shares outstanding as of December 31, 2015. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, our major shareholders do not have different voting rights and the persons named in the table have sole voting and investment power with respect to all ordinary shares held by them.

	Shares Beneficially Owned
Name of Beneficial Owner	Number	Percent
Discount Investment Corporation Ltd.*	45,433,082	45.16%
Psagot Investment House Ltd.**	7,955,825	7.91%
Directors and executive officers as a group (16 persons)***	210,647	0.26%

* DIC, a public Israeli company traded on the Tel Aviv Stock Exchange, is a majority-owned subsidiary of IDB. Includes 29,832,227 ordinary shares held by DIC directly, 12,188,355 ordinary shares held by a wholly-owned subsidiary of DIC (namely, DIC Communication and Technology Ltd., an Israeli company) and 3,412,500 ordinary shares, representing approximately 3.39% of our issued and outstanding shares, held by two shareholders whose voting rights are vested in DIC. Does not include 77,500 ordinary shares (representing approximately 0.08% of our issued and outstanding shares) held as of December 31, 2015 by an indirect subsidiary of IDB for its own account and a total of 2,555,392 ordinary shares (representing approximately 2.54% of our issued and outstanding shares) held as of that date for members of the public through, among others, provident funds, mutual funds, pension funds, insurance policies and unaffiliated third-party client accounts, which are managed by an indirect subsidiary of IDB.

To our best knowledge, as of December 31, 2015, IDB, a public Israeli company traded on the Tel Aviv Stock Exchange, was controlled by Mr. Eduardo Elzstain, as follows:

Dolphin Netherlands B.V.,a company incorporated in the Netherlands, or Dolphin Netherlands, owns 48.98% of the outstanding shares of IDB; Inversiones Financieras Del Sur S.A., a private company registered in Uruguay, or IFISA, owns 31.72% of the outstanding shares of IDB; and Dolphin Fund Limited, an investment fund incorporated in Bermuda, or Dolphin Fund, owns 0.02% of the outstanding shares of IDB. Dolphin Netherlands, Dolphin Fund and IFISA (which hold in aggregate 80.72% of the outstanding shares of IDB) are indirectly controlled by Eduardo Elsztain. Mr. Elsztain is the Chairman of each of the boards of directors of IDB and DIC. Alejandro Elsztain, the brother of Eduardo Elsztain, is a director in IDB and an alternate director of Eduardo Elsztain in DIC. Until February 2015, IDB was equally controlled by companies controlled by Eduardo Elsztain and a company controlled by Mordechay Ben Moshe. As a result of a rights offering effected by IDB in February 2015, the holdings of companies controlled by Eduardo Elsztain increased to approximately 61.5% of the outstanding shares of IDB, while the holdings of the company controlled by Mr. Ben Moshe decreased to approximately 16.2% of the outstanding shares of IDB.

Subsequently, in October 2015, IFISA purchased all of the IDB shares previously indirectly held by Mr. Ben Moshe, and the control in IDB and consequently indirectly in us, changed. The change in control requires the approval of the Ministry of Communications. For additional details see "Item 3. Key Information – D. Risk Factors – - Risks Related to our Business – There are certain restrictions in our licenses relating to the ownership of our shares. As a result of a change in control of IDB, we are currently not in compliance with the terms of our licenses" and "Item 4. Information on the Company – B. Business Overview – Government Regulations – Our Principle License".

Approximately 29% of DIC's outstanding shares have been pledged by IDB as collateral for a loan provided to IDB by Israeli financial investors.

Based on the foregoing, IDB (by reason of its control of DIC), companies controlled by Eduardo Elsztain (as described above), and Eduardo Elsztain may be deemed to share with DIC the power to vote and dispose of our shares beneficially owned by DIC. Each of these entities (other than DIC) and persons disclaims beneficial ownership of such shares, and all of these entities and persons disclaim beneficial ownership of our shares held under management of subsidiaries of IDB for others.

According to the Concentration Law, IDB and DIC have until December 2019 to cause us to cease being a third layer company in their pyramidal structure. IDB and DIC have announced that they are reviewing possible ways to achieve this goal without having to forfeit control of us, such as by merging with each other or by taking IDB or DIC private. There can be no assurance how or when this would occur, if at all. In March 2016, IDB announced that the Israeli court approved an arrangement for the purchase of all of IDB's shares from the public by Dolphin Netherlands, pursuant to which companies indirectly controlled by Eduardo Elsztain will own all the shares of IDB as of the end of March 2016. However, since IDB's debentures will continue to be publicly traded, we will still be considered a third layer company. For information about the Concentration Law, see the risk factor in Item 3.D above entitled "Recent legislation in Israel affecting corporate conglomerates could adversely affect us."

• ** Based on a Schedule 13G filed by Psagot Investment House Ltd. with the SEC on February 16, 2016, it has shared dispositive power with respect to 7,955,825shares and shared voting power with respect to 4,675,019 shares.
• ***Includes 156,000 ordinary shares issuable upon the exercise of stock options that are exercisable on, or within 60 days following December 31, 2015, and 54,647 ordinary shares held by Mr. Ami Erel as of December 31, 2015.

As of December 31, 2015, we had twenty holders of record of our equity securities who are, to our knowledge, located in the United States. The shares held by these holders of record represent 94.72% of our outstanding ordinary shares. However, this number is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are located because approximately 94.71% of our ordinary shares were

held of record by Cede & Co. for the account of the brokers or other nominees, including the Tel Aviv Stock Exchange; approximately 41.77% of our ordinary shares owned directly and indirectly by DIC as of December 31, 2015 is also held of record by Cede & Co.

In 2011 and February 2013, DIC sold approximately 5% and 1.7%, respectively, of our then issued share capital, in 2011 purchased approximately 0.31% of our then issued share capital in the TASE and in 2014 purchased approximately 0.33% of our issued share capital in the TASE.

B. RELATED PARTY TRANSACTIONS

Agreements Among our Shareholders

In September 2005, DIC acquired the shares and voting rights in our company held indirectly by BellSouth and the Safra brothers. In 2006, DIC sold a portion of these shares in four transactions to six financial investors based on the price of the Safra transaction, with adjustments for dividends paid and certain additions to such price accrued during the period from the closing of the Safra transaction to the applicable sale transaction. The following summaries of the agreements between DIC and certain other shareholders relate only to provisions that were in effect as of January 1, 2016 or thereafter.

Original 1997 shareholders agreements

Brian Greenspun, Daniel Steinmetz, Benjamin Steinmetz and Shlomo Piotrkowsky, who owned of record, directly or indirectly, an aggregate of approximately 5.5% of our then outstanding ordinary shares, granted the voting rights in these shares to BellSouth and the Safra brothers. These voting rights were assigned to DIC in connection with its acquisition of our control in September 2005. In 2009, DIC purchased the minority stakes held by Brian Greenspun and Benjamin Steinmetz (indirectly), representing approximately 1.97% of our then share capital. The remaining minority shareholders currently own approximately 3.39% of our outstanding ordinary shares. These minority shareholders are restricted from transferring these shares without the prior written consent of DIC and their transfer are subject to a right of first refusal in favor of DIC. Each of these minority shareholders has also committed not to compete, directly or indirectly, with our cellular communications business in Israel so long as he is a shareholder and for a period of one year thereafter.

Migdal 2006 share purchase agreement

In 2006, DIC sold 4% of our then outstanding ordinary shares to Migdal Insurance Company Ltd. and two of its affiliates, or the Migdal shareholders. As part of this transaction, DIC granted the Migdal shareholders a tag along right, in the event it sells shares resulting in it no longer being a controlling shareholder. In return, DIC has the right to force the Migdal shareholders to sell their shares in a transaction in which DIC sells all of its shares to a purchaser outside the IDB group. To the best of our knowledge, no such right has materialized.

Relationship with IDB

As of December 31, 2015, an aggregate amount of approximately NIS 6 million principal amount of our Series B, D, E, F, G, H and I Debentures were held by investors who are members of the IDB group and entities affiliated with IDB's principal shareholders or officers (other than for the benefit of members of the public through provident funds, mutual

funds, pension funds and unaffiliated third-party client accounts, which are managed by indirect subsidiaries of IDB, which amounted to NIS 53 million).

As of December 31, 2015, 77,500 of our ordinary shares were held by an indirect subsidiary of IDB for its own account and an aggregate of 2,555,392 of our ordinary shares were held by members of the public through, among others, provident funds, mutual funds, pension funds, insurance policies and unaffiliated third-party client accounts, which are managed by indirect subsidiaries of IDB. Such holdings are not included in the holdings set forth in the Beneficial Owners' table above.

In October 2006, we entered into an agreement with DIC, to benefit from the experience that DIC has in telecommunications and in the Israeli market generally, pursuant to which DIC provides us with services in the areas of management, finance, business and accountancy. Among the services included are consulting and assistance on managerial, economic and accounting issues, such as the preparation of an annual budget, strategic plans and central business processes for us. In addition, the provision of employees and officers of DIC and its affiliates and subsidiaries to be directors of Cellcom, including the services of the chairman of our board of directors, is included in the agreement. This agreement is for a term of one year and is automatically renewed for one-year terms unless either party provides 60 days' prior notice to the contrary. In July 2011, our annual shareholders meeting approved an amendment of the agreement so as to clarify that the DIC officers and employees whose service as directors are covered by the management fees, shall not include any person who serves solely as a director of a subsidiary (or several subsidiaries) of DIC (and does not serve as a director of DIC itself) and does not receive any compensation, other than director's fees, in his or her capacity as a director of any subsidiary of DIC. In October 2015, our annual shareholders meeting approved another amendment of the agreement, under which the services would be provided to us by our Chairman of the Board and any additional directors who are employees or directors of DIC or any of its subsidiaries (excluding the Company), and the annual consideration for DIC management services would be equal to the director's fees (both the annual fee and the meeting attendance fee) paid to our external and independent directors (see "-Executive Officer and Director Compensation " above), for each director that DIC nominates or proposes to our Board of Directors, but no more than five directors (replacing the fixed consideration of NIS 2.0 million (linked to the Israeli Consumer Price Index for June 2006) plus VAT per year, paid to DIC until December 31, 2014). Currently, our Board of directors includes two directors nominated by DIC (including our Chairman). Under the Israeli Companies Law, an agreement with a controlling shareholder, such as our management services agreement with DIC, cannot continue for more than three consecutive years unless re-approved by the audit committee, board of directors and shareholders every three years. Accordingly, our audit committee, board of directors and shareholders approved the agreement for a term ending in October 2018.

In the ordinary course of business, from time to time, we purchase, lease, sell and cooperate in the sale of goods and services, or otherwise engage in transactions with entities that are members of the IDB group, entities affiliated with IDB's principal shareholders or officers and entities otherwise engaged with such IDB member or affiliates in a manner that may create a personal interest of our controlling shareholders or directors. We believe that all such transactions are on commercial terms comparable to those that we could obtain from unaffiliated parties. These transactions are subject to rigorous corporate governance rules, as described under Item 6.C under "Approval of Specified Related Party Transactions under Israeli Law".

Registration Rights Agreement

In 2006, we entered into a registration rights agreement with DIC, two wholly-owned subsidiaries of DIC (one of whom ceased to exist in 2011) which are shareholders and six other shareholders (some of whom no longer hold the registrable shares). For a summary of the terms of the agreement, see "Item 10. Additional Information – C. Material Contracts."

Merger with Netvision

On August 31, 2011, we completed a merger transaction between us, a wholly-owned subsidiary of ours and Netvision, pursuant to which the abovementioned subsidiary was merged with and into Netvision as the surviving company, in accordance with the relevant provisions of the Companies Law. Following the merger, Netvision was delisted from the TASE and became a private company wholly-owned by us.

The aggregate merger consideration was approximately NIS 1.57 billion ($402 million). We financed the payment of the merger consideration by using cash on hand, as well as by issuance of debentures to the public in Israel.

Since both us and Netvision were public companies under the joint control of the IDB group, each of us obtained the approvals of the audit committee, board of directors and a special majority of shareholders for the transaction.

C. INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Consolidated Financial Statements

See Item 18.

Legal Proceedings

General

We are served from time to time with claims concerning various matters, including disputes with customers, former employees, commercial disputes with third parties with whom we do business and disputes with government entities, including local planning and building committees and the Ministry of Communications. These include purported class actions, filed mainly by our subscribers, regarding claims such as alleged overcharging of tariffs, misleading representations, providing services not in compliance with applicable law, our license's requirements or a subscriber's agreement. The following is a summary of all significant or potentially significant litigation as well as all our purported class actions, pending as of the date of this annual report.

Various legislative and regulatory changes have been imposed in recent years and additional changes may occur. As a result, the number of requests for certification of class action lawsuits against us have increased which may increase our legal exposure as a result of

such class action lawsuits and our legal costs in defending against such suits. See "Item 3. Key Information – D. Risk Factors - We are exposed to, and currently are engaged in, a variety of legal proceedings, including class action lawsuits."

In cases where the claim is approved, all amounts noted below will be adjusted to reflect changes in the Israeli CPI and statutory interest, from the date that each claim was filed.

Based on advice of counsel, we believe it is more likely than not that substantially all the claims and disputes detailed below will be determined in our favor and accordingly, no provision has been made in the financial statements in respect of these claims and disputes. We have made a provision in the amount of approximately NIS 54 million for the claim/s and dispute/s we are willing to settle or for which we cannot reach a conclusion that it is more likely than not that the claim/s and dispute/s will be determined in our favor.

Purported class actions

43 purported class actions have been filed against us in connection with allegations that we, among others (i) unlawfully, in violation of our license or agreements with our subscribers, charged or overcharged our subscribers for our services, or (ii) misled our subscribers or unlawfully sent our subscribers and other parties commercial messages, or (iii) unlawfully, in violation of our license or agreements with our subscribers, discriminated among our subscribers, or (iv) failed to provide customer care in accordance with the provisions of our license and applicable law. The amount claimed estimated by the plaintiffs in these purported class actions ranges from approximately NIS 3.2 million to NIS 405 million, or was not estimated by the plaintiffs if the lawsuits are certified as class actions or were filed against us and other defendants without specifying the amount claimed from us. One purported class action, for which no amount claimed was estimated by the plaintiffs, was dismissed with prejudice and the plaintiffs appealed the ruling. In seven purported class actions, for which the amount claimed estimated by the plaintiffs ranges from approximately NIS 15 million to NIS 361 million, or no amount claimed was estimated by the plaintiffs, or were filed against us and other defendants without specifying the amount claimed from us, settlement agreements or an agreed motion for dismissal of a purported class action were filed with the court and the proceedings are still pending.

We have recorded appropriate provisions for each of the settlement agreements filed with the courts and described above.

In March 2015, a purported class action was filed against us, by plaintiffs alleging to be subscribers of the Company, claiming compensation for non monetary damages in connection with allegations that we unlawfully violated the privacy of our subscribers. The amount claimed from us, if the lawsuit is certified as class action is estimated by the plaintiffs to be NIS 15 billion.

In August 2015 a purported class action was filed against 013 Netvision Ltd., or Netvision, and three other defendants, alleging that another defendant unlawfully sold the other defendants, including Netvision, private data of its customers, which was used by the other defendants to approach such customers with commercial proposals. The amount claimed from each of the defendants allegedly purchasing the data, including Netvision, if the lawsuit is certified as a class action, was estimated by the plaintiff to be NIS 1000 for each customer whose private data it allegedly purchased and/or each approach made to such

customers, the total of which was assessed by the plaintiff to be approximately 1.5 million customers.

In December 2015, a purported class action was filed against us and two other Israeli cellular operators, alleging that the defendants unlawfully offer cellular pre-paid calling cards for very high prices by allegedly coordinating such prices. The total amount claimed from all defendants, including us, if the lawsuit is certified as a class action, was estimated by the plaintiffs to be approximately NIS 13 billion (out of which, based on the data specified in the lawsuit by the plaintiff, an estimated amount of approximately NIS 6.7 billion is claimed from us).

Class actions

In November 2013, the District Court of Central Region approved a request to certify a lawsuit filed against us in September 2011 as a class action, relating to an allegation that we breached the agreements with our subscribers by failing to provide them with the full rebates they are entitled to under their agreements. The total amount claimed was estimated by the plaintiff to be approximately NIS 15 million.

In July 2014, the Court dismissed the motion to certify two class actions filed against us in May 2010 and June 2011 with prejudice except in respect of three issues that were detailed in settlements of similar class action claims made against Pelephone and Partner and approved by the court, which the Company was willing to adopt as well. These three issues relate to the cellular operators undertaking to provide certain information regarding nonionizing radiation, sell certain accessories at a discount and conduct certain tests to handsets at certain circumstances. We estimate the settlement's costs to be immaterial. In October 2014, the plaintiffs filed an appeal in respect of the settlements approved by court with Pelephone and Partner, inter alia, with respect to the tests to be conducted as aforesaid. The purported class actions were filed against us in connection with allegations that we unlawfully build and operate our network and sell handsets and related equipment, including in relation to alleged hazards relating to non-ionizing radiation emitted from cell sites and end-user equipment in amounts estimated by the plaintiffs to be from approximately NIS 1 billion to approximately NIS 3.7 billion, had the lawsuits been certified as class actions, as filed.

Dividend Policy

In February 2006, our board of directors adopted a dividend policy to distribute each year at least 75% of our annual net income determined (in accordance with IFRS for periods commencing on or after January 1, 2008), subject to applicable law, our license and our contractual obligations and provided that such distribution would not be detrimental to our cash needs or to any plans approved by our Board of Directors. In March 2007, our Board of Directors resolved to distribute dividends within the boundaries of the February 2006 dividend policy and until resolved otherwise, on a quarterly basis. Our series F through I debentures and our other credit facilities include additional limitations, including a covenant not to distribute more than 95% of the profits available for distribution according to the applicable Israeli law ("Profits"), provided that if net leverage (defined as the ratio of net debt to EBITDA over four consecutive quarters) exceeds 3.5:1, we will not distribute more than 85% of the Profits and if net leverage exceeds 4.0:1, we will not distribute more than 70% of the Profits. See "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Debt Service" and "-Other Credit Facilities". Our Board of Directors will

consider, among other factors, our expected results of operation, including changes in pricing, regulation and competition, planned capital expenditure for technological upgrades, financing the purchase of Golan, which will require raising additional equity and debt (see details under "Item 4. Information on the Company – B. Business Overview – Agreement for the Purchase of Golan" (and changes in debt service needs, including due to changes in interest rates or currency exchange rates, as well as our debentures' rating, in order to conclude whether there is no reasonable concern that a distribution of dividends will prevent us from satisfying our existing and foreseeable obligations as they become due. Dividend payments are not guaranteed and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends or to pay dividends at a ratio to net income that is less than that paid in the past. For example, our Board of Directors may determine not to distribute dividends in order to strengthen our balance sheet, that market conditions are uncertain or that our cash needs for debt service, capital expenditures or operations require that we do not pay dividends when considered. Accordingly, shareholders should not expect that any particular amount or at all will be distributed by us as dividends at any time, even if we have previously made dividend payments in such amount.

Our ability to pay dividends is subject to the following limitations under Israeli law: (1) dividends may only be paid out of cumulative retained earnings or out of retained earnings over the prior two years, provided that there is no reasonable concern that the payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due; and (2) our license requires that we and our 10% or more shareholders maintain at least $200 million of combined shareholders' equity. Our shareholders' equity on December 31, 2015 was over $ 200 million.

When we declare dividends, we do so in NIS and convert them for payment in US$ (where applicable) based upon the daily representative rate of exchange as published by the Bank of Israel prior to the distribution date.

During 2013, we distributed a dividend in the amount of approximately NIS 85 million ($22 million) for the third quarter of 2013 only, based on our retained earnings. Our Board of Directors chose not to declare dividends for the first, second, and fourth quarters, for the above reasons. In 2014 and 2015 our Board of Directors chose not to declare dividends for the above reasons.

B. SIGNIFICANT CHANGES

No significant change has occurred since December 31, 2014, except as otherwise disclosed in this annual report.

ITEM 9. THE OFFER AND LISTING

A. OFFER AND LISTING DETAILS

Trading in Israel

Our ordinary shares have traded on the Tel Aviv Stock Exchange, or the TASE, under the symbol CEL since July 1, 2007. Our ordinary shares do not trade on any other trading market in Israel.

The following table sets forth, for the periods indicated, the reported high and low prices in NIS for our ordinary shares on the TASE, as retroactively adjusted by the TASE to reflect the payment of dividends.

	High	Low
	NIS	NIS
Annually
2011	97.4	54.7
2012	58.0	19.8
2013	49.3	26.3
2014	48.5	33.5
2015	32.7	13.9
Quarterly
2014
First Quarter	48.5	42.2
Second Quarter	48.4	41.9
Third Quarter	44.2	39.5
Fourth Quarter	41.7	33.5
2015
First Quarter	32.7	19.2
Second Quarter	20.2	14.5
Third Quarter	27.6	13.9
Fourth Quarter	30.7	23.6
Monthly
2015
September	27.3	24.6
October	30.6	23.6
November	30.7	27.5
December	28.2	24.2
2016
January	19.2	16.6
February	18.5	16.8

On March 17, 2016, the closing price per share of our ordinary shares on the TASE was NIS 25.55.

Trading in the United States

Our ordinary shares have traded on the New York Stock Exchange, or NYSE, under the symbol CEL since February 7, 2007.

The following table sets forth, for the periods indicated, the high and low prices in $ for our ordinary shares on the NYSE, as retroactively adjusted by the NYSE to reflect the payment of dividends.

	High$	Low$
Annually
2011	28.2	14.7
2012	15.4	5.1
2013	14.1	7.1

2014	14.0	8.5
2015	8.4	3.6
Quarterly
2014
First Quarter	13.9	11.7
Second Quarter	14.0	12.1
Third Quarter	12.4	11.0
Fourth Quarter	11.2	8.5
2015
First Quarter	8.4	4.8
Second Quarter	5.2	3.8
Third Quarter	7.2	3.6
Fourth Quarter	8.1	5.8
Monthly
2015
September	8.4	4.8
October	5.2	3.8
November	7.2	3.6
December	8.1	5.8
2016
January	6.9	6.1
February	6.5	5.8

On March 18, 2016, the closing price per share of our ordinary shares on the NSYE was $6.58.

B. PLAN OF DISTRIBUTION

Not applicable.

C. MARKETS

Our ordinary shares are listed on the NYSE and TASE under the symbol "CEL."

D. SELLING SHAREHOLDERS

Not applicable.

E. DILUTION

Not applicable.

F. EXPENSES OF THE ISSUE

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. SHARE CAPITAL

Not applicable.

Objects and Purposes

Our registration number with the Israeli registrar of companies is 51-1930125. Our object is to engage, directly or indirectly, in any lawful undertaking or business whatsoever as determined by our Board of Directors, including, without limitation, as stipulated in our memorandum of association.

Transfer of Shares

Fully paid ordinary shares are issued in registered form and may be freely transferred unless the transfer is restricted or prohibited by our articles of association, applicable law, our licenses, the rules of the SEC or the rules of a stock exchange on which the shares are traded. The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by our articles of association or the laws of the State of Israel, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.

According to our licenses, investors are prohibited from acquiring (alone or together with relatives or with other parties who collaborate on a regular basis) or transferring our shares, directly or indirectly (including by way of creating a pledge which if foreclosed, will result in the transfer of shares), in one transaction or a series of transactions, if such acquisition or transfer will result in a holding or transfer of 10% or more of any of our means of control, or from transferring any of our means of control if as a result of such transfer, control over our company will be transferred from one party to another, without the prior approval of the Ministry of Communications. Our specific licenses also require approval of the Minister of Communications before acquiring the ability to effect a significant influence over us. In this context, holding 25% of our means of control is presumed to confer significant influence. In addition, according to our licenses, if you hold more than 5% of our means of control, you may not hold, directly or indirectly, more than 5% of the means of control in Bezeq or another cellular operator in Israel (subject to certain exceptions) and may not serve as an office holder of one of our competitors, other than in specific circumstances and subject to the approval of the Ministry of Communications. For more details relating to these restrictions, please see "Item 4. Information on the Company – B. Business Overview – Government Regulations - Our Principal License" and our principal license, a convenience translation of which has been filed with the SEC. See "Item 19 – Exhibits". The holding and transfer restrictions under our licenses are posted on our website at www.cellcom.co.il under "Investor Relations – Corporate Governance –Legal and Corporate."

Voting

Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting. Shareholders may vote at shareholder meetings either in person, by proxy or by written ballot. Shareholder voting rights may be affected by the grant of special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting at general meetings on matters such as changes to the articles of association, increasing the company's registered capital, mergers and approval of related party transactions. A shareholder also has a general

duty to refrain from depriving any other shareholder of their rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under the company's articles of association, can appoint or prevent the appointment of an office holder, is required to act with fairness towards the company. The Companies Law does not describe the substance of this duty, except to state that the remedies generally available upon a breach of contract will apply also in the event of a breach of the duty to act with fairness, and this duty is the subject of ongoing judicial interpretation. As required under our license, our articles of association provide that any holdings of our ordinary shares that contravene the holding or transfer restrictions contained in our license, which are summarized under "—Transfer of Shares" and "Item 4. Information on the Company – B. Business Overview - Government Regulations—Our Principal License," will not be entitled to voting rights. In addition, our license requires that as a condition to voting at any meeting of shareholders, in person or by proxy, each shareholder must certify that its holdings of our shares do not contravene the restrictions contained in our license.

Election of Directors

Our ordinary shares do not have cumulative voting rights for the election of directors. Rather, under our articles of association our directors (other than external directors and directors appointed by Israeli citizens and residents from among our founding shareholders) are elected at a shareholders meeting by a simple majority of our ordinary shares. As a result, the holders of our ordinary shares that represent more than 50% of the voting power represented at a shareholders meeting, have the power to elect any or all of our directors whose positions are being filled at that meeting, subject to the special approval requirements for external directors described under "Item 6.A – Directors and Senior Management—External Directors" and the right of DIC to directly appoint 20% of our directors described under "Item 6.A – Directors and Senior Management—Israeli Appointed Directors." Directors may also be appointed for office by our Board of Directors until the next annual general meeting of shareholders.

Dividend and Liquidation Rights

Our board of directors may declare a dividend to be paid to the holders of ordinary shares on a pro rata basis. Dividends may only be paid out of our profits and other surplus funds, as defined in the Companies Law, as of our most recent financial statement or as accrued over the past two years, whichever is higher, or, in the absence of such profits or surplus, with court approval. In any event, a dividend is permitted only if there is no reasonable concern that the payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro rata basis. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future. For a description of a covenant we undertook in connection with our series F through I debentures, in regards to our dividend distributions under certain circumstances see "Item 8. Financial Information – A. Statements and Other Financial Information - Dividend Policy" and "- B. Liquidity and Capital Resources – Debt Service" and "- Other Credit Facilities".

Shareholders Meetings

We are required to convene an annual general meeting of our shareholders once every calendar year within a period of not more than 15 months following the preceding annual general meeting. Our board of directors is required to convene a special general meeting of our shareholders at the request of two directors or one quarter of the members of our Board of Directors or at the request of one or more holders of 5% or more of our share capital and 1% of our voting power or the holder or holders of 5% or more of our voting power. All shareholders meetings require prior notice of at least 21 days, or up to 35 days if required by applicable law or regulation. We provide at least 40 day advance written notice, in accordance with the NYSE's rules. The chairperson of our Board of Directors presides over our general meetings. Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and 40 days prior to the date of the meeting.

Quorum

Our articles of association provide that the quorum required for any meeting of shareholders shall consist of at least two shareholders present, in person or by proxy or written ballot, who hold or represent between them at least one-third of the voting power of our issued share capital. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or, if not set forth in the notice to shareholders, to a time and place set by the chairperson of the meeting with the consent of the holders of a majority of the voting power represented at the meeting and voting on the question of adjournment. At the reconvened meeting, the required quorum consists of at least two shareholders present, in person or by proxy or written ballot, unless the meeting was called pursuant to a request by our shareholders in which case the quorum required is the number of shareholders required to call the meeting as described under "—Shareholder Meetings."

Resolutions

An ordinary resolution at a shareholders meeting requires approval by a simple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the resolution. Under the Companies Law, unless otherwise provided in the articles of association or applicable law, all resolutions of the shareholders require a simple majority. A resolution for the voluntary winding up of the company requires the approval by holders of 75% of the voting rights represented at the meeting, in person or by proxy or written ballot, and voting on the resolution.

Modification of Class Rights

The rights attached to any class, such as voting, liquidation and dividend rights, may be amended by written consent of holders of a majority of the issued shares of that class, or by adoption of a resolution by a simple majority of the shares of that class represented at a separate class meeting.

Indemnification of Directors and Officers

Under the Companies Law, an Israeli company may not exempt an office holder from liability for breach of his duty of loyalty, but may exempt in advance an office holder from

liability to the company, in whole or in part, for a breach of his or her duty of care (except in connection with distributions), provided the articles of association of the company allow it to do so. Our articles of association allow us to do so.

Our articles of association provide that, subject to the provisions of the Companies Law, we may enter into a contract for insurance against liability of any of our office holders with respect to each of the following:

• x a breach of his or her duty of care to us or to another person;
• x a breach of his or her duty of loyalty to us, provided that the office holder acted in good faith and had reasonable grounds to assume that his or her act would not prejudice our interests;
• x a financial liability imposed upon him or her in favor of another person concerning an act performed in the capacity as an office holder.
• x reasonable litigation expenses, including attorney fees, incurred by the office holder as a result of an administrative enforcement proceeding instituted against him, including a payment imposed on the office holder in favor of an injured party as set forth in the Israeli Securities Law and expenses that the office holder incurred in connection with a relevant proceeding under the Securities Law, including reasonable legal expenses, which term includes attorney fees.

We maintain a liability insurance policy for the benefit of our officers and directors. See details under "Item 6. Directors, Senior Management and Employees - B. Compensation – Compensation Policy – Indemnification."

Our articles of association provide that we may indemnify an office holder against:

• x a financial liability imposed on or incurred by an office holder in favor of another person by any judgment, including a settlement or an arbitrator's award approved by a court concerning an act performed in his or her capacity as an office holder. Such indemnification may be approved (i) after the liability has been incurred or (ii) in advance, provided that the undertaking is limited to types of events which our Board of Directors deems to be foreseeable in light of our actual operations at the time of the undertaking and limited to an amount or criterion determined by our Board of Directors to be reasonable under the circumstances, and further provided that such events and amounts or criteria are set forth in the undertaking to indemnify;
• x reasonable litigation expenses, including attorney's fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by a competent authority, provided that such investigation or proceeding was concluded without the filing of an indictment against him or her and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; or in connection with an administrative enforcement proceeding or a financial sanction, including a

payment imposed on the office holder in favor of an injured party as set forth in the Israeli Securities Law, 1968, as amended (the "Securities Law"), and expenses that the office holder incurred in connection with a relevant proceeding under the Securities Law, including reasonable legal expenses, which term includes attorney fees; and

x reasonable litigation expenses, including attorneys' fees, incurred by the office holder or charged to him or her by a court, in proceedings instituted by us or on our behalf or by another person, or in a criminal indictment from which he or she was acquitted, or a criminal indictment in which he or she was convicted for a criminal offense that does not require proof of intent, in each case relating to an act performed in his or her capacity as an office holder.

We have undertaken to indemnify our directors, officers and certain other employees for certain events listed in the indemnification letters given to them. In respect of office holders whom our controlling shareholders have a personal interest in their receiving indemnification letters from us, such indemnification was approved for a period of three years from our annual shareholder meeting held on July 2011 and in 2014 was extended by our audit committee and board of directors for a three year period until 2017, according to regulations promulgated under the Israeli Companies Law. Excluding reasonable litigation expenses, as described above, the aggregate amount payable to all directors and officers and other employees who may have been or will be given such indemnification letters is limited to the amounts we receive from our insurance policy plus 30% of our shareholders' equity as of December 31, 2001, or NIS 486 million, and to be adjusted by the Israeli CPI.

The Companies Law provides that a company may not exempt or indemnify an office holder, or enter into an insurance contract, which would provide coverage for any monetary liability incurred as a result of any of the following:

• x a breach by the office holder of his or her duty of loyalty unless, with respect to insurance coverage or indemnification, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
• x a breach by the office holder of his or her duty of care if the breach was done intentionally or recklessly;
• x any act or omission done with the intent to derive an illegal personal benefit; or
• x any fine or penalty levied against the office holder.

Any exemption of, indemnification of, or procurement of insurance coverage for, our office holders must be approved according to the procedures required for the approval of compensation under "Item 6. Directors, Senior Management and Employment – C. Board Practices - Approval Of Specified Related Party Transactions Under Israeli Law - Compensation Arrangements".

Mergers and Acquisitions under Israeli Law

The Companies Law requires that each company that is a party to a merger have the transaction approved by its board of directors and a vote of the majority of its shares at a

shareholders meeting. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the shares or the right to appoint 25% or more of the directors of the other party, vote against the merger. Upon the request of a creditor of either party of the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, a merger may not be completed unless at least (i) 50 days have passed from the time that the requisite proposal for the merger has been filed by each party with the Israeli Registrar of Companies and (ii) 30 days have passed since the merger was approved by the shareholders of each party.

The Companies Law also provides that an acquisition of shares of a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a 25% or greater shareholder of the company and there is no existing 25% or greater shareholder in the company. An acquisition of shares of a public company must also be made by means of a tender offer if as a result of the acquisition the purchaser would become a 45% or greater shareholder of the company and there is no existing 45% or greater shareholder in the company. These requirements do not apply if the (i) acquisition occurs in the context of a private placement by the company that received shareholder approval, (ii) the purchase of shares is from a 25% shareholder of the company and results in the acquirer becoming a 25% shareholder of the company or (iii) the purchase of shares is from a 45% shareholder of the company and results in the acquirer becoming a 45% shareholder of the company. The special tender offer must be extended to all shareholders but the offeror is not required to purchase shares representing more than 5% of the voting power attached to the company's outstanding shares, regardless of how many shares are tendered by shareholders. The special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company's outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.

If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company's outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares. If less than 5% of the outstanding shares are not tendered in the tender offer, all the shares that the acquirer offered to purchase will be transferred to it. The law provides for appraisal rights if any shareholder files a request in court within six months following the consummation of a full tender offer, but the acquirer may stipulate that any shareholder tendering his shares will not be entitled to appraisal rights. If more than 5% of the outstanding shares are not tendered in the tender offer, then the acquirer may not acquire shares in the tender offer that will cause his shareholding to exceed 90% of the outstanding shares.

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders who are not exempt from Israeli income tax under Israeli law or an applicable tax treaty. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies by

certain shareholders are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, tax then becomes payable even if no actual disposition of the shares has occurred. For information regarding Israeli tax on the sale of our shares, please see "Item 10.E - Taxation—Israeli Tax Considerations—Capital Gains Tax on Sales of Our Ordinary Shares."

Anti-Takeover Measures under Israeli Law

The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred or additional rights to voting, distributions or other matters and shares having preemptive rights. We do not have any authorized or issued shares other than ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to our articles of association and to our memorandum, which requires the prior approval of a simple majority of our shares represented and voting at a shareholders meeting. Our articles of association provide that our Board of Directors may, at any time in its sole discretion, adopt protective measures to prevent or delay a coercive takeover of us, including, without limitation, the adoption of a shareholder rights plan.

C. MATERIAL CONTRACTS

For a description of our material suppliers, see "Item 4. Information on the Company – A. History and Development of the Company – Acquisition of Netvision Ltd. during 2011", "Item 4. Information on the Company – B. Business Overview – Agreement for the Purchase of Golan", "Item 4. Information on the Company – B. Business Overview – Customer Care", "Item 4. Information on the Company – B. Business Overview – Cellular Services and Products" and "-Landline services" and "Item 4. Information on the Company – B. Business Overview – Netvision."

For a description of our debt agreements, see "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Debt Service" and "- Other Credit Facilities".

Registration Rights Agreement

Upon the sale of shares by DIC to Goldman Sachs International on March 15, 2006, we entered into a registration rights agreement with Goldman Sachs International, DIC and two other shareholders who are subsidiaries of DIC (one of whom ceased to exist in 2011) on customary terms and conditions. Upon the subsequent sales of shares by DIC to financial investors in 2006, these shareholders also joined the registration rights agreement. We refer to DIC, its two subsidiaries and the additional shareholders who are parties to the registration rights agreement as the registration rights holders. The shares eligible for registration under the agreement are ordinary shares held by the registration rights holders as of the respective dates they entered into the registration rights agreement and any additional ordinary shares such holders may thereafter acquire, so long as they are held by a registration rights holder or a "permitted transferee" (a person directly or indirectly controlling, controlled by or under common control with such registration rights holder) thereof. As of December 31, 2015, 42,020,582 ordinary shares, held by DIC directly and through its wholly-owned subsidiary,

are entitled to registration rights as well as any additional shares still held, if held, by the other shareholders who joined the agreement.

Commencing August 9, 2008, the registration rights holders are entitled to one demand registration per 12-month period, so long as such request is initiated by registration rights holders of at least 3.25% of the then outstanding registrable securities and the demand refers to a minimum of 3% of our then outstanding share capital, subject to customary deferral rights. In addition, in connection with any public offerings that we initiate in the future, if we propose to register any of our securities for our own account or for the account of any of our shareholders other than in a demand registration or in a registration relating solely to an incentive plan, the registration rights holders have piggyback rights to include their shares subject to customary underwriters' cutback rights. In the case of a cut back, each registration rights holder that is not a member of the IDB group will be entitled to register registrable shares in an amount equal to its percentage holding of the aggregate number of registrable shares held by all registration rights holders wishing to participate in such registration, or, if such registration rights holder then holds more than 20% of its holdings as of the date it signed the registration rights agreement, registrable shares in an amount equal to twice its percentage holding of the aggregate number of registrable shares held by all registration rights holders wishing to participate in such registration. Members of the IDB group will be entitled to register a number of registrable shares equal to the aggregate number of registrable shares to be included in the registration, less the registrable shares of all the other registration rights holders being registered pursuant to the foregoing calculation.

All registration rights terminate, with respect to any individual registration rights holder, at such time as all registrable shares of such holder may be sold without registration pursuant to Rule 144 under the Securities Act during any three-month period. We are required to pay all expenses incurred in carrying out the above registrations, as well as the reasonable fees and expenses of one legal counsel for the selling registration rights holders, except for underwriter discounts and commissions with respect to the shares of such holders. The agreement provides for customary indemnification and contribution provisions. Our initial public offering on February 2007 was effected in accordance with the registration rights agreement, except that the selling shareholders agreed to bear the expenses of the offering.

D. EXCHANGE CONTROLS

There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.

E. TAXATION

U.S. Federal Income Tax Considerations

The following is a general discussion of certain material U.S. federal income tax consequences to the U.S. holders described below of ownership and disposition of the Company's shares. This discussion does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a U.S. holder in light of the U.S. holder's particular circumstances and does not address U.S. state, local and non-U.S. tax

consequences. This discussion does not address the potential application of the provisions of the Internal Revenue Code of 1986, as amended, or the Code, known as the Medicare contribution tax or any alternative minimum tax consequences. The discussion applies only to U.S. holders that hold the Company's shares as capital assets for U.S. federal income tax purposes, and it does not describe all of the tax consequences that may be relevant to U.S. holders subject to special rules, such as certain financial institutions, insurance companies, dealers or traders in securities or foreign currencies, persons holding the shares as part of a hedge, straddle, conversion transaction or other integrated transaction, persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar, partnerships or other entities classified as partnerships for U.S. federal income tax purposes, tax-exempt organizations, shareholders that own or are deemed to own 10% or more of the Company's voting power, or shareholders that own our shares in connection with a trade or business conducted outside of the United States.

This discussion is based on the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations and the U.S.-Israel income tax treaty, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. Shareholders are urged to consult their tax advisors regarding the U.S. federal, state, local and foreign tax consequences of purchasing, owning and disposing of the Company's shares in light of their particular circumstances.

The discussion below applies only to U.S. holders. As used herein, a "U.S. holder" is a person that is for U.S. federal income tax purposes, a beneficial owner of the Company's shares that is either:

• x a citizen or resident of the United States;
• x a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision thereof; or
• x an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

If an entity that is classified as a partnership for U.S. federal income tax purposes owns Company's shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and upon the activities of the entity. Such entities and their partners or members should consult their tax advisors regarding the tax consequences of ownership of the Company's shares.

Except as described below, this discussion assumes that the Company is not a passive foreign investment company, or PFIC, for any taxable year.

Taxation of Distributions

Distributions paid on the Company's shares, other than certain pro rata distributions of ordinary shares, will be treated as dividends to the extent paid out of current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Since the Company does not maintain calculations of its earnings and profits under U.S. federal income tax principles, U.S. holders will generally be required to treat such distributions as taxable dividends and include them in income on the date of receipt. Subject to applicable limitations, dividends paid to certain non-corporate U.S. holders will be taxable at favorable rates applicable to long-term capital gains. The dividend income will include

any amounts withheld by the Company or its paying agent in respect of Israeli taxes. The dividend will be treated as foreign-source income and will not be eligible for the dividends-received deduction generally allowed to U.S. corporations under the Code.

Dividends paid in NIS will be included in a U.S. holder's income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt of the dividend, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Such gain or loss would generally be treated as U.S.-source ordinary income or loss.

Subject to applicable limitations that vary depending upon a U.S. holder's particular circumstances, Israeli taxes withheld from dividends at a rate not exceeding any applicable rate provided by the U.S.-Israel income tax treaty may be creditable against the U.S. holder's U.S. federal income tax liability. The limitation on foreign taxes credit is calculated separately with respect to specific classes of income. Instead of claiming a credit, a U.S. holder may, at the U.S. holder's election, deduct the otherwise creditable foreign taxes in computing the taxable income for the year, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year. The rules governing foreign tax credits are complex and U.S. holders should consult their tax advisors regarding the availability of foreign tax credits and the deductibility of foreign taxes in their particular circumstances.

Sale and Other Disposition of the Company's Shares

Gain or loss realized on the sale or other disposition of the Company's shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. holder held the shares for more than one year. The amount of gain or loss will be equal to the difference between the U.S. holder's tax basis in the shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. Such gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.

Passive Foreign Investment Company Rules

The Company believes that it was not a PFIC for the taxable year of 2015. However, since PFIC status depends upon the composition of a company's income and assets and the market value of its assets from time to time, there can be no assurance that the Company will not be a PFIC for any taxable year. If the Company were a PFIC for any taxable year during which a U.S. holder owned a share in the Company, certain adverse consequences could apply to the U.S. holder. Specifically, gain recognized by a U.S. holder on a sale or other disposition of a share would be allocated ratably over the U.S. holder's holding period for the share. The amounts allocated to the taxable year of the sale or other disposition and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the resulting tax liability. Further, any distribution in excess of 125% of the average of the annual distributions received by the U.S. holder on the Company's shares during the preceding three years or the U.S. holder's holding period, whichever is shorter,

would be subject to taxation as described immediately above. Certain elections (such as a mark-to-market election) may be available to U.S. holders and may result in alternative tax treatment. In addition, if the Company were a PFIC for a taxable year in which we pay a dividend or the prior taxable year, the favorable dividend rates discussed above with respect to dividends paid to certain non-corporate holders would not apply. If the Company were a PFIC for any taxable year in which a U.S. holder owned the Company's shares, the U.S. holder would generally be required to file annual returns with the Internal Revenue Service, or the IRS, on IRS Form 8621.

Information Reporting and Backup Withholding

Payment of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding unless (i) the U.S. holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. holder provides a correct taxpayer identification number and certifies that the U.S. holder is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against the U.S. holder's U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided that the required information is timely furnished to the IRS.

Certain U.S. holders who are individuals and certain entities controlled by individuals may be required to report on IRS Form 8938 information relating to their holdings of the Company's shares, subject to certain exceptions (including an exception for securities held in accounts maintained by U.S. financial institutions). U.S. holders should consult their tax advisers regarding the application of these rules in the U.S. holders' particular circumstances.

Israeli Tax Considerations

The following is a discussion of certain material Israeli tax consequences to purchasers of our ordinary shares. The discussion also contains a description of certain relevant material provisions of the current Israeli income tax system applicable to companies in Israel, with special reference to its effect on us. To the extent that the discussion is based on new tax legislation that has not been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion.

This discussion applies to shareholders that hold our ordinary shares as capital assets and does not address all of the tax consequences that may be relevant to holders of our ordinary shares in light of their particular circumstances or certain types of holders of our ordinary shares subject to special tax treatment. Because individual circumstances may differ, shareholders should consult their tax advisors to determine the applicability of the rules discussed below to them, including the application of Israeli or other tax laws. The discussion below is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.

Taxation of Israeli Companies

General Corporate Tax Structure

Generally, Israeli companies were subject to corporate tax at the rate of 26.5% for the 2015 tax year. On January 5, 2016, the Israeli Parliament approved the reduction of the

corporate tax rate to 25.0%, starting from January 1, 2016. Israeli companies are generally subject to capital gains tax at the corporate tax rate.

Amendment No. 174 to the Income Tax Ordinance, enacted in January 2010, provides that Israeli Accounting Standard No. 29 will not apply with respect to the tax years 2007, 2008 and 2009, and as a result the International Financial Reporting Standards (IFRS) will not apply for purposes of determining taxable income for such tax years. In January 2012, Amendment No. 188 to the Income Tax Ordinance was enacted which provides that Israeli Accounting Standard No. 29 (and as a result IFRS) also will not apply with respect to the tax years 2010 and 2011. This provision was extended by Amendment No. 202 on July 30, 2014 and it applies to tax years 2012 and 2013 as well. The effect of this amendment on our consolidated financial statements, included elsewhere in this annual report, is not material.

Capital Gains Tax on Sales of Our Ordinary Shares

Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli resident companies, by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder's country of residence provides otherwise. In calculating capital gain, the law distinguishes between real gain and inflationary surplus. The inflationary surplus is the portion of the total capital gain equal to the increase in the relevant asset's value that is attributable to the increase in the Israeli CPI between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus. A non-resident that invests in taxable assets with foreign currency, or any individual who holds securities the price of which is stated in foreign currency, may elect to calculate the amount of inflationary surplus in that foreign currency.

Taxation of Israeli Residents

The tax rate generally applicable to real capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a significant shareholder at any time during the 12-month period preceding such sale, the tax rate will be 30%. For this purpose, a significant shareholder is one that holds, directly or indirectly, including with others, at least 10% of certain means of control in a company.

Israeli companies are generally subject to the corporate tax rate (see above) on capital gains derived from the sale of shares listed on a stock market.

As of January 1, 2013, shareholders that are individuals who have taxable income that exceeds NIS 800,000 in a tax year (linked to the Israeli CPI each year) (NIS 810,720 in 2015), will be subject to an additional tax, referred to as High Income Tax, at the rate of 2% on their taxable income for such tax year which exceeds such threshold. For this purpose, taxable income will include taxable capital gains from the sale of our shares and taxable income from dividend distributions.

Taxation of Non-Israeli Residents

Non-Israeli residents are generally exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on the Tel Aviv Stock Exchange or a recognized stock exchange outside of Israel (including the New York Stock Exchange), provided that such shareholders did not acquire their shares prior to the issuer's initial public offering (in which case a partial exemption may be available) and that the gains were not derived from a permanent establishment maintained by such shareholders in Israel. Shareholders that do not engage in activity in Israel generally should not be subject to such tax. However, a non-Israeli corporation will not be entitled to the exemption from capital gains tax if Israeli residents (i) have a controlling interest of more than 25% in such non-Israeli corporation or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.

In addition, under the U.S.-Israel income tax treaty, the sale of our ordinary shares by a shareholder who qualifies as a resident of the United States within the meaning of the U.S.-Israel income tax treaty and who is entitled to claim the benefits afforded to such person by the U.S.-Israel income tax treaty, referred to as a treaty U.S. resident, and who holds its ordinary shares as a capital asset, is also exempt from Israeli capital gains tax unless either (i) the treaty U.S. resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale or (ii) the capital gains arising from such sale are attributable to a permanent establishment of the treaty U.S. resident that is located in Israel. However, under the U.S.-Israel income tax treaty, a treaty U.S. resident would be permitted to claim a credit for taxes paid in Israel against the U.S. federal income tax imposed on the sale, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel income tax treaty does not relate to U.S. state or local taxes.

Taxation of Dividends Paid on Our Ordinary Shares

Taxation of Israeli Residents

Individuals who are Israeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, unless the recipient is a significant shareholder (as defined above) at any time during the 12-month period preceding the distribution, in which case the applicable tax rate is 30%. The company distributing the dividend is required to withhold tax at the rate of 25% (a different rate may apply to dividends paid on shares deriving from the exercise of stock options or other equity-based awards granted as compensation to employees or office holders of the company). Companies which are Israeli residents are generally exempt from income tax on the receipt of dividends from another Israeli company, unless the source of such dividends is located outside of Israel, in which case tax will generally apply at a rate of 25%.

For information with respect to the applicability of Israeli High Income Tax on distributions of dividends, see "-Capital Gains Tax on Sales of Our Ordinary Shares - Taxation of Israeli Residents" above.

Taxation of Non-Israeli Residents

Non-residents of Israel are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25% unless the recipient is a significant shareholder at any time during the 12-month period preceding the distribution, in which case

the applicable tax rate will be 30%. The company distributing the dividend is required to withhold tax at the source at the rate of 25%.

Under the U.S.-Israel income tax treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who is a treaty U.S. resident is 25%. The maximum rate of withholding tax on dividends that are paid in certain circumstances to a U.S. corporation holding 10% or more of our outstanding voting power throughout the tax year in which the dividend is distributed as well as the previous tax year, is 12.5%.

A non-resident of Israel who has dividend income derived from or accrued in Israel, from which tax was withheld at source, is generally exempt from the obligation to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by such non-Israeli resident.

F. DIVIDENDS AND PAYING AGENTS

Not applicable.

G. STATEMENT BY EXPERTS

Not applicable.

H. DOCUMENTS ON DISPLAY

We are subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act, applicable to foreign private issuers. As a foreign private issuer, we are exempt from certain rules and regulations under the Exchange Act prescribing the content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchase and sale of our ordinary shares. In addition, we are not required to file reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we file annual reports with the SEC on Form 20-F containing financial statements audited by an independent accounting firm. We also furnish reports to the SEC on Form 6-K containing unaudited financial information for the first three quarters of each fiscal year and other material information, in accordance with the reporting requirements applicable to us as a dual listed company and as required due to our controlling shareholder's reporting obligations with respect to us. You may read and copy any document we file, including any exhibits, with the SEC without charge at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. Copies of such material may be obtained by mail from the Public Reference Branch of the SEC at such address, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Substantially all of our SEC filings are also available to the public at the SEC's website at http://www.sec.gov and as of July 2007 also at the TASE's website at http://maya.tase.co.il and at the Israeli Securities Authority's website at http://www.magna.isa.gov.il.

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the course of our normal operations, we are exposed to market risks including fluctuations in foreign currency exchange rates, interest rates and the Israeli CPI. We are exposed to currency risks primarily as a result of purchasing inventory and fixed assets mainly in U.S. dollars while almost all of our cash receipts are in NIS. A substantial amount of our cash payments are incurred in, or linked to foreign currencies. In particular, in 2014 and 2015, such payments represented approximately 20% and 24%, respectively, of total cash outflows (including payments of principal and interest on our debentures). Also, we are exposed to interest rate risks through our hedging instruments and to possible fluctuations in the Israeli CPI through our Series B , D, F and H debentures.

In order to protect ourselves from fluctuations in foreign currency exchange rates, we have established a foreign currency hedging program. Under this program, we currently hedge part of our U.S. dollar liabilities, firm commitments and budgeted expenditures for the next 3 to 5 months using foreign currency forward exchange contracts and currency options. A foreign currency forward exchange contract is a contract whereby we agree to buy or sell a foreign currency at a predetermined exchange rate at a future date. A currency option is an option to buy or sell a foreign currency at a predetermined exchange rate at a future date. The exchange rate fluctuations that impact our foreign currency denominated financial liabilities, firm commitments and budgeted expenditures are intended to be offset by gains and losses on these hedging instruments.

The goal of our hedging program is to limit the impact of exchange rate fluctuations on our transactions denominated in U.S. dollars. We do not hold derivative financial instruments for trading purposes. Nevertheless, under IFRS, we are required to treat our hedges of budgeted expenditures for which there is no contractual commitment as though they were speculative investments. As a result, we are required to value these hedge positions at the end of each fiscal quarter and record a gain or loss equal to the difference in their market value from the last balance sheet date, without any reference to the change in value to the related budgeted expenditures. Accordingly, these differences could result in significant fluctuations in our reported net income.

As of December 31, 2015, we had four outstanding series of debentures, which are linked to the Israeli CPI, in an aggregate principal amount of approximately NIS 2.8 billion. As of December 31, 2015, we had forward Israeli CPI / NIS transactions, in a total amount of approximately NIS 1.2 billion, with an average maturity period of 15 months, in order to hedge our exposure to fluctuations in the Israeli CPI. We periodically review the possibility of entering into additional transactions in order to lower the exposure in respect of the debentures.

Set forth below is the composition of the derivative financial instruments at the following dates:

				As of December 31,
	2013		2014		2015
	Par Value	Fair Value	Par Value	Fair Value	Par Value	Fair Value
	(In NIS millions)
Forward contracts on foreign currency exchange rate
(mainly US$– NIS)	160	(7)	19	-	98	1
Forward contracts on Israeli CPI rate	1,675	(22)	1,925	(31)	1,200	(32)
Options on the foreign currency exchange rate
(mainly US$– NIS)	231	1	97	1	137	-
Total	2,066	(28)	2,041	(30)	1,435	(31)

Sensitivity information

Without taking into account our hedging instruments and based upon our debt outstanding as at December 31, 2015, fluctuations in foreign currency exchange rates, or the Israeli CPI would affect us as follows:

• x an increase of 0.1% of the Israeli CPI would result in an increase of approximately NIS 3.2 million in our financing expenses;
• x a devaluation of the NIS against the U.S. dollar of 1.0% would increase our financing expenses by approximately NIS 1.0 million.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of December 31, 2015, have concluded that, as of such date, our disclosure controls and procedures were effective and ensured that

information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.

Management Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS and includes those policies and procedures that:

• x Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
• x Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
• x Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting, as of December 31, 2015. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Based on our assessment, management believes that as of December 31, 2015 our internal control over financial reporting is effective based on these criteria.

The effectiveness of management's internal control over financial reporting as of December 31, 2015 has been audited by the Company's independent registered public accounting firm, Somekh Chaikin, a member of KPMG International and their report as of March 14, 2016, herein expresses an unqualified opinion on the Company's internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

Our independent registered public accounting firm have issued an audit report on the effectiveness of our internal control over financial reporting. This report is included in page F-3 of this Form 20-F.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this annual report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Ms. Baytel qualifies as "audit committee financial expert" as defined in Item 16A of Form 20-F. Ms. Baytel qualifies as an independent director under the independence standards applicable to listed company audit committee members, pursuant to Rule 10A-3 under the Securities Exchange Act.

ITEM 16B. CODE OF ETHICS

Our Code of Ethics applies to all of our officers, directors and employees. We have posted a copy of our Code of Ethics on our website at www.cellcom.co.il under "Investor Relations – Corporate Governance – Legal and Corporate - Code of Ethics."

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Somekh Chaikin, a member of KPMG International, has served as our independent registered public accounting firm for 2014 and 2015. These accountants billed the following fees to us for professional services in each of those fiscal years:

	2014	2015
	(NIS in thousands)
Audit Fees	2,575	2,400
Audit-Related Fees	85	170
Tax Fees	23	2
Total	2,683	2,572

"Audit Fees" are the aggregate fees billed for the audit of our annual financial statements. This category also includes services that generally the independent accountant provides, such as consents and assistance with and review of documents filed with the SEC. "Audit-Related Fees" are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit and are not reported under Audit Fees. These fees include mainly accounting consultations regarding the accounting treatment of matters that occur in the regular course of business, implications of new accounting pronouncements and other accounting issues that occur from time to time. "Tax Fees" are the aggregate fees billed for professional services rendered for tax compliance, tax advice, other than in connection with the audit. Tax compliance involves audit of original and amended tax returns, tax planning and tax advice.

Our Audit Committee has adopted a pre-approval policy for the engagement of our independent accountant to perform certain audit and non-audit services. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee preapproves annually a catalog of specific audit and non-audit services in the categories of audit service, audit-related service and tax services that may be performed by our independent accountants, and the maximum pre-approved fees that may be paid as compensation for each pre-approved service in those categories. Any proposed services exceeding the maximum pre-approved fees require specific approval by the Audit Committee.

The Audit Committee has delegated part of its pre-approval authority to the chairman of the Audit Committee, subject to ratification by the entire Audit Committee.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

None.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

None.

ITEM 16G. CORPORATE GOVERNANCE

The following are the significant ways in which our corporate governance practices differ from those followed by domestic companies under the listing standards of the NYSE:

*Nominating/Corporate Governance Committee -*Under Section 303A.04 of the LCM, a U.S. domestic listed company, other than a controlled company, must have a nominating/corporate governance committee composed entirely of independent directors. We do not have a nominating/corporate governance committee as we are not required to have such a committee under the Israeli Companies Law.

Compensation Committee - Under Section 303A.05 of the LCM, a U.S. domestic listed company, other than a controlled company, must have a compensation committee composed entirely of independent directors that operates pursuant to a written charter addressing its purpose, responsibilities and membership qualifications and may receive counseling from independent consultants, after evaluating their independence. We have a compensation committee whose purpose, responsibilities and membership qualifications are governed by the Israeli Companies Law. There are no specific independence evaluation requirements for outside counsel. Israeli Companies law requires our compensation committee to include a majority of external directors (who are also independent directors). Our compensation committee is currently composed entirely of independent directors.

Separate Meetings of Non-Management Directors - Under Section 303A.03 of the LCM, the non-management directors of each U.S. domestic listed company must meet at regularly scheduled executive sessions without management. We do not have a similar requirement

under the Israeli Companies Law, and our independent directors do not meet separately from directors who are not independent, other than in the context of audit committee meetings.

Audit Committee - Under Section 303A.06 of the LCM, domestic listed companies are required to have an audit committee that complies with the requirements of Rule 10A-3 of the Securities and Exchange Act of 1934. Rule 10A-3 requires the audit committee of a U.S. company to be directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services, and that each such firm must report directly to the audit committee. However, Rule 10A-3 provides that foreign private issuers may comply with applicable home country law that (i) requires or permits shareholders to appoint the registered public accounting firm or (ii) prohibits the delegation of responsibility to the issuer's audit committee without being in conflict with Rule 10A-3. Pursuant to the Israeli Companies Law, our registered public accounting firm is appointed by the shareholders at the annual meeting of shareholders. Our audit committee is responsible for recommending to the shareholders the appointment of our registered public accounting firm and to pre-approve the amounts to be paid to our registered public accounting firm. Pursuant to our audit committee charter, our audit committee is responsible for overseeing the work of our registered public accounting firm.

Equity Compensation Plans - Under Section 303A.08 of the LCM, shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, with certain limited exemptions as described in the Rule. We follow the requirements of the Israeli Companies Law, under which approval of equity-compensation plans and material revisions thereto is within the authority of the board of directors. However, any compensation to directors or the chief executive officer, including equity based compensation, generally requires the approval of the compensation committee, the board of directors and the shareholders, in that order. The compensation of office holders is generally required to comply with a shareholder-approved compensation policy, which is required to include a monetary cap on the value of equity compensation that may be granted to any office holder. Our compensation policy complies with that requirement.

Corporate Governance Guidelines - Under Section 303A.09 of the LCM, domestic listed companies must adopt and disclose their corporate governance guidelines. We do not have a similar requirement under the Israeli Companies Law and therefore, other than as disclosed in this annual report on Form 20-F, we do not to disclose our corporate governance guidelines.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

PART III

ITEM 17. FINANCIAL STATEMENTS

See Item 18.

ITEM 18. FINANCIAL STATEMENTS

See pages F-1 through F-71 of this annual report.

ITEM 19. EXHIBITS

ExhibitNumber	Description
1.1	Updated Articles of Association and Memorandum of Association ††††
2.1	Form of Ordinary Share Certificate†
4.2	Series B Indenture dated December 21, 2005 and an addendum dated February 27, 2006 between Cellcom and Hermetic Trust (1975)Ltd. †
4.4	Series D Indenture dated September 20, 2007, between Cellcom and Hermetic Trust (1975) Ltd. ††
4.5	Series E Indenture dated March 31, 2009, between Cellcom and Hermetic Trust (1975) Ltd. †††
4.6	Shelf Prospectus Indenture dated July 14, 2011, between Cellcom and Hermetic Trust (1975) Ltd. ††††
4.7	Shelf Prospectus Indenture dated March 7, 2012, between Cellcom and Strauss Lazar Trust Company (1992) Ltd. ††††
4.7.1	Amendment and Addendum no. 1 to the Indenture from January 19, 2012, dated March 7, 2012, between Cellcom and Strauss LazarTrust Company (1992) Ltd. ††††
4.8	Series H and I Indenture dated June 23, 2014, between Cellcom and Mishmeret Trust Services Company Ltd., as amended in Addendumno.1 dated June 26, 2014†††††
4.9	Amended 2006 Share Incentive Plan††††††
4.10	Registration Rights Agreement dated March 15, 2006 among Cellcom, Goldman Sachs International, DIC, DIC Communication andTechnology Ltd. and PEC Israel Economic Corporation†
4.11	Amended Non-Exclusive General License for the Provision of Mobile Radio Telephone Services in the Cellular Method dated June 27,1994*
4.12	Netvision Ltd. Merger Agreement††††
4.13	Amended 2015 Share Incentive Plan†††††††
4.14	Agreement for the purchase of Golan Telecom Ltd. *
4.15	Instruments defining the terms of deferred loans provided to Cellcom
8.1	We agree to furnish to the SEC upon request, copies of our deferred loan agreements.Subsidiaries of the Registrant††††

12.1 Certification of Principal Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act *

Exhibit
Number	Description
12.2	Certification of Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act *
13.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 ofthe Sarbanes-Oxley Act *
15	Consent of Independent Registered Public Accounting Firm *

* Filed herewith.

† Incorporated by reference to our registration statement on Form F-1 (registration no. 333-140030) filed with the SEC on January 17, 2007.

†† Incorporated by reference to our annual report on Form 20-F for the year 2007 filed with the SEC on March 18, 2008.

††† Incorporated by reference to our annual report on Form 20-F for the year 2009 filed with the SEC on March 2, 2010.

†††† Incorporated by reference to our annual report on Form 20-F for the year 2011 filed with the SEC on March 7, 2012.

††††† Incorporated by reference to our annual report on Form 20-F for the year 2014 filed with the SEC on March 16, 2015.

††††††Incorporated by reference to our registration statement on Form S-8 filed with the SEC on November 14, 2012.

††††††† Incorporated by reference to our registration statement on Form S-8 filed with the SEC on August 13, 2015.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

CELLCOM ISRAEL LTD.

By: /s/ Nir Sztern

Date: March 21, 2016

175

Name: Nir Sztern

Title: President and Chief Executive Officer

Cellcom Israel Ltd. and Subsidiaries

Consolidated Financial Statements

As at December 31, 2015 (Audited)

Contents

	Page
Report of Independent Registered Public Accounting Firm	F3-F4
Consolidated Financial Statements
Consolidated Statements of Financial Position	F5
Consolidated Statements of Income	F6
Consolidated Statements of Comprehensive Income	F7
Consolidated Statements of Changes in Equity	F8
Consolidated Statements of Cash Flows	F9-F10
Notes to the Consolidated Financial Statements	F11-F71

Report of Independent Registered Public Accounting Firm

To Board of Directors and Shareholders of Cellcom Israel Ltd.

We have audited the accompanying consolidated statements of financial position of Cellcom Israel Ltd. (hereinafter – "the Company") and subsidiaries as of December 31, 2015 and 2014 and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2015. We also have audited the Company's internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Cellcom Israel Ltd.'s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The accompanying consolidated financial statements as of and for the year ended December 31, 2015 have been translated into United States dollars ("dollars") solely for the convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial statements expressed in New Israeli Shekels have been translated into dollars on the basis set forth in Note 2D to the consolidated financial statements.

Somekh Chaikin Certified Public Accountants (Isr.) Member Firm of KPMG International Tel Aviv, Israel March 14, 2016

		December 31,2014	December 31,2015	Conveniencetranslation intoUS dollar (Note 2D)December 31,2015
	Note	NIS millions	NIS millions	US$ millions
Assets
Cash and cash equivalentsCurrent investments, including derivatives	8	1,158521	761281	19572
Trade receivables	9	1,417	1,254	321
Other receivables	9	65	104	27
Inventory	10	89	85	22
Total current assets		3,250	2,485	637
Trade and other receivables	9	824	785	201
Property, plant and equipment, net	11	1,834	1,745	447
Intangible assets, net	12	1,315	1,254	322
Deferred tax assets	28	17	9	2
Total non- current assets		3,990	3,793	972
Total assets		7,240	6,278	1,609
Liabilities
Current maturities of debentures	17	1,092	734	188
Trade payables and accrued expenses	13	773	677	173
Current tax liabilities	28	77	53	14
Provisions	14	101	110	28
Other payables, including derivatives	15	370	286	73
Total current liabilities		2,413	1,860	476
Debentures	17	3,548	3,054	783
Provisions	14	21	20	5
Other long-term liabilities	16	12	24	6
Liability for employee rights upon retirement, net	18	14	12	3
Deferred tax liabilities	28	140	123	32
Total non- current liabilities		3,735	3,233	829
Total liabilities		6,148	5,093	1,305
Equity attributable to owners of the Company	19
Share capital		1	1	-
Cash flow hedge reserve		(3)	(2)	-
Retained earnings		1,078	1,170	300
Non-controlling interests		16	16	4
Total equity		1,092	1,185	304
Total liabilities and equity		7,240	6,278	1,609

Date of approval of the consolidated financial statements: March 14, 2016.

The accompanying notes are an integral part of these consolidated financial statements.

		Year endedDecember 31,2013	Year endedDecember 31,2014	Year endedDecember 31,2015	Conveniencetranslation intoUS dollar (Note 2D)Year endedDecember 31,2015
	Note	NIS millions	NIS millions	NIS millions	US$ millions
Revenues	22	4,927	4,570	4,180	1,071
Cost of revenues	23	(2,990)	(2,727)	(2,763)	(708)
Gross profit		1,937	1,843	1,417	363
Selling and marketing expenses	24	(717)	(672)	(620)	(159)
General and administrative expenses	25	(570)	(463)	(465)	(119)
Other income (expenses), net	26	1	(46)	(22)	(6)
Operating profit		651	662	310	79
Financing income		156	100	55	14
Financing expenses		(402)	(298)	(232)	(59)
Financing expenses, net	27	(246)	(198)	(177)	(45)
Profit before taxes on income		405	464	133	34
Taxes on income	28	(117)	(110)	(36)	(9)
Profit for the year		288	354	97	25
Attributable to:
Owners of the Company		287	351	95	25
Non-controlling interests		1	3	2	-
Profit for the year		288	354	97	25
Earnings per share	19
Basic earnings per share (in NIS)		2.89	3.51	0.95	0.24
Diluted earnings per share (in NIS)
		2.86	3.48	0.95	0.24
Weighted-average number of shares used in the calculation ofbasic earnings per share (in shares)		99,495,525	99,924,306	100,589,458	100,589,458
Weighted-average number of shares used in the calculation of
diluted earnings per share (in shares)		100,319,724	100,706,282	100,589,530	100,589,530

	Year endedDecember 31,2013NIS millions	Year endedDecember 31,2014NIS millions	Year endedDecember 31,2015NIS millions	Conveniencetranslation intoUS dollar (Note 2D)Year endedDecember 31,2015US$ millions
Profit for the year	288	354	97	25
Other comprehensive income items that after initial recognition incomprehensive income were or will be transferred to profit or loss
Changes in fair value of cash flow hedges transferred to profit or loss	14	13	1	-
Changes in fair value of cash flow hedges	(16)	-	-	-
Tax on other comprehensive income items that were or will be transferred
to profit or loss in subsequent years	1	(3)	-	-
Total other comprehensive income (loss) for the year that after initial
recognition in comprehensive income was or will be transferred to
profit or loss, net of tax	(1)	10	1	-
Other comprehensive income items that will not be transferred toprofit or loss
Actuarial losses on defined benefit plan, net of tax	(1)	(1)	(2)	-
Total other comprehensive loss for the year that will not be
transferred to profit or loss, net of tax	(1)	(1)	(2)	-
Total other comprehensive income (loss) for the year, net of tax	(2)	9	(1)	-
Total comprehensive income for the year	286	363	96	25
Total comprehensive income attributable to:
Owners of the Company	285	360	94	25
Non-controlling interests	1	3	2	-
Total comprehensive income for the year	286	363	96	25

			Attributable to owners of the Company		Noncontrollinginterests	Totalequity	Conveniencetranslationinto US dollar(Note 2D)
		Capital	Retained
	Share capital	reserve	earnings	Total
			NIS millions				US$ millions
Balance as of January 1, 2013Comprehensive income for theyear	1	(12)	509	498	2	500	128
Profit for the year	-	-	287	287	1	288	74
Other comprehensive loss for theyear, net of tax	-	(1)	(1)	(2)	-	(2)	-
Transactions with owners,recognized directly in equity
Share based payments	-	-	9	9	-	9	2
Dividend paid in cash	-	-	(85)	(85)	-	(85)	(22)
Balance as of December 31, 2013	1	(13)	719	707	3	710	182
Comprehensive income for theyear
Profit for the year	-	-	351	351	3	354	91
Other comprehensive income
(loss) for the year, net of tax	-	10	(1)	9	-	9	2
Transactions with owners,
recognized directly in equityShare based payments	-	-	3	3	-	3	1
Expiration of put option over noncontrolling interests in a
consolidated company	-	-	6	6	10	16	4
Balance as of December 31, 2014	1	(3)	1,078	1,076	16	1,092	280
Comprehensive income for theyear
Profit for the year	-	-	95	95	2	97	25
Other comprehensive income
(loss) for the year, net of tax	-	1	(2)	(1)	-	(1)	-
Transactions with owners,recognized directly in equity
Share based payments	-	-	3	3	-	3	1
Dividend to non-controlling
intererst in a subsidiary	-	-	-	-	(1)	(1)	-
Options written over noncontrolling interests in a
consolidated company	-	-	(4)	(4)	(1)	(5)	(2)
Balance as of December 31, 2015	1	(2)	1,170	1,169	16	1,185	304

				Conveniencetranslation intoUS dollar (Note 2D)
	Year ended	Year ended	Year ended	Year ended
	December 31,	December 31,	December 31,	December 31,
	2013	2014	2015	2015
	NIS millions	NIS millions	NIS millions	US$ millions
Cash flows from operating activities
Profit for the year	288	354	97	25
Adjustments for:
Depreciation and amortization	676	610	562	144
Share based payment	9	3	3	1
Loss (gain) on sale of property, plant and equipment	2	7	(1)	-
Income tax expense	117	110	36	9
Financing expenses, net	246	198	177	45
Other income	(3)	-	-	-
Changes in operating assets and liabilities:
Change in inventory	27	(5)	4	1
Change in trade receivables (including long- term amounts)	576	422	209	54
Change in other receivables (including long- term amounts)	(34)	(35)	(34)	(9)
Change in trade payables, accrued expenses and provisions	(185)	(24)	(54)	(14)
Change in other liabilities (including long-term amounts)	(33)	36	(95)	(24)
Payments for derivative hedging contracts, net	(17)	(6)	-	-
Income tax paid	(119)	(119)	(68)	(18)
Income tax received	6	6	-	-
Net cash from operating activities	1,556	1,557	836	214
Cash flows used in investing activities
Acquisition of property, plant, and equipment	(275)	(289)	(305)	(78)
Acquisition of intangible assets	(90)	(77)	(91)	(23)
Dividend received	1	-	2	-
Change in current investments, net	(16)	(15)	231	59
Proceeds from (payments for) other derivative contracts, net	(10)	4	-	-
Proceeds from sale of property, plant and equipment	17	4	4	1
Interest received	29	23	15	4
Repayment of a long term deposit	-	-	48	12
Net cash used in investing activities	(344)	(350)	(96)	(25)

	Year endedDecember 31,2013NIS millions	Year endedDecember 31,2014NIS millions	Year endedDecember 31,2015NIS millions	Conveniencetranslation intoUS dollar (Note 2D)Year endedDecember 31,2015US$ millions
Cash flows used in financing activities
Payments for derivative contracts, net	(8)	(29)	(32)	(8)
Repayment of long term loans from banks	(6)	(12)	-	-
Repayment of debentures	(1,124)	(1,092)	(873)	(224)
Proceeds from issuance of debentures, net of issuance costs	-	326	(3)	(1)
Dividend paid	(81)	(4)	(1)	-
Interest paid	(350)	(295)	(227)	(58)
Net cash used in financing activities	(1,569)	(1,106)	(1,136)	(291)
Changes in cash and cash equivalents	(357)	101	(396)	(102)
Cash and cash equivalents as at the beginning of the year	1,414	1,057	1,158	297
Effect of exchange rate fluctuations on cash and cash equivalents	-	-	(1)	-
Cash and cash equivalents as at the end of the year	1,057	1,158	761	195

Note 1 - Reporting Entity

A. Reporting Entity

Cellcom Israel Ltd. ("the Company") is a company incorporated and domiciled in Israel and its official address is 10 Hagavish Street, Netanya 4250708, Israel. The consolidated financial statements of the Group as at December 31, 2015 comprise the Company and its subsidiaries (together referred to as the "Group"). The Group operates and maintains a cellular mobile telephone system in Israel and provides cellular and landline telecommunications services, internet infrastructure and connectivity services, international calls services and television over the internet services (known as Over the Top TV services, or OTT TV services). The Company is a consolidated subsidiary of Discount Investment Corporation (the parent company "DIC"), which is controlled by IDB Development Corporation Ltd., or IDB. In 2015, the control in IDB and consequently indirectly in the Company, has changed (for additional details, see Note 32(5)).

B. Material event in the reporting period - Change in estimate

In the reporting period, the Company has changed the expected useful life of certain fixed asset items. For further information see Note 2E, regarding the basis of preparation of the financial statements.

Note 2 - Basis of Preparation

A. Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB).

These consolidated financial statements were approved by the Company's Board of Directors on March 14, 2016.

B. Functional and presentation currency

These consolidated financial statements are presented in New Israeli Shekels ("NIS"), which is the Group's functional currency, and are rounded to the nearest million. NIS is the currency that represents the primary economic environment in which the Group operates.

C. Basis of measurement

These consolidated financial statements have been prepared on the basis of historical cost except for the following assets and liabilities: current investments and derivative financial instruments that are measured at fair value through profit or loss, inventory is measured at the lower of cost or net realizable value, deferred tax assets and liabilities, assets and liabilities in respect of employee benefits and provisions.

For further information regarding the measurement of these assets and liabilities see Note 3, regarding Significant Accounting Policies.

$$ F-11 $$

Note 2 - Basis of Preparation (cont'd)

D. Convenience translation into U.S. dollars ("dollars" or "$")

For the convenience of the reader, the reported NIS figures as of December 31, 2015 and for the year then ended, have been presented in dollars, translated at the representative rate of exchange as of December 31, 2015 (NIS 3.902 = US$ 1.00). The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable in dollars or convertible into dollars, unless otherwise indicated.

E. Use of estimates and judgments

Use of estimates

Information about estimates, uncertainty and critical judgments about provisions and contingent liabilities, is described in Notes 14 and 31. In addition, information about critical estimates, made while applying accounting policies and that have the most significant effect on the consolidated financial statements are described below:

Impairment testing of trade and other receivables

The financial statements include an impairment loss in trade and other receivables which properly reflect, according to management's estimation, the potential loss from non-recoverable amounts. The Group provides for impairment loss based on its experience in collecting past debts, as well as on information on specific debtors. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. See also Note 21.

Impairment testing and useful life of assets

The Group regularly reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. See also Note 3H.

The useful economic life of the Group's assets is determined by management at the time the asset is acquired and regularly reviewed for appropriateness. The Group defines useful life of its assets in terms of the assets' expected utility to the Group. This judgment is based on the experience of the Group with similar assets. The useful life of licenses is based on the duration of the license agreement. See also Notes 3D and 3F.

Impairment testing of goodwill

The Group reviews a cash generating unit containing goodwill for the purpose of testing it for impairment at least once a year. Determining the recoverable amount requires management to make an estimate of the projected future cash flows from the continuing use of the cash-generating unit and also to choose a suitable discount rate for those cash flows which represents market estimates as for the time value of the money and the specific risks that are related to the cash-generating unit. Determining the estimates of the future cash flows is based on management past experience and management best estimates as for the economic conditions that will exist over the rest of the remaining useful life of the cash generating unit. Further details are given in Note 3H.

$$ F-12 $$

Note 2 - Basis of Preparation (cont'd)

Legal claims

In estimating the likelihood of outcome of legal claims filed against the Company and its investees, the Group takes into consideration the opinion of its legal counsel. These estimates are based on the legal counsel's best professional judgment, taking into account the stage of proceedings and historical legal precedents in respect of the different issues. Since the outcome of the claims will be determined in courts, the results could differ from these estimates. See also Note 31.

Uncertain tax positions

When assessing amounts of current and deferred taxes, the Group takes into consideration the effect of the uncertainty that its tax positions will be accepted and of the Group incurring any additional tax and interest expenses. The Group is of the opinion that the cumulative tax liability is fair for all the years in respect of which final tax assessments have not yet been received, based on an analysis of a number of matters including interpretations of tax laws and the Group's past experience. This assessment is based on estimates and assumptions that may also include assessments and exercising judgment regarding future events. It is possible that new information will become known in future periods that will require the Group to change its estimate regarding the tax liability that was recognized, and any such changes will be expensed immediately in that period. See also Note 28.

Change in estimate

During the year ended December 31, 2015, management has updated an estimate as follows:

The estimated useful life of the cellular cell sites passive components, which mostly include masts and constructed structures ("passive components"), has been re-evaluated for the first time starting the beginning of the second quarter of 2015, by ten additional years, as opposed to ten years, as previously estimated, so the depreciation period will end in 2025.

During the reporting period, the Company was awarded additional 4G frequencies (for additional details, see Note 32(4)). In addition, the Company has invested and expects to continue investing substantial amounts in radio equipment for the 4G technology, which is installed over the existing cellular sites. In light of the aforesaid, a re-evaluation of the passive components' expected useful life was necessary. The expected useful life of the passive components was examined by a Periodic Depreciation Committee and according to engineering expert's opinion, the Company will continue to use the passive components for the next ten years. Therefore, it has been decided to extend the depreciation period as mentioned above.

The effect of this change on the annual financial statements, in current and future years is as follows:

	2015	2016	2017	2018	2019	Subsequently
				NIS millions
Decrease (increase) in depreciation expenses	27	25	18	10	1	(81)

Note 2 - Basis of Preparation (cont'd)

F. Exchange rates and known Consumer Price Indexes are as follows:

	of US$	Index (points)*
As of December 31, 2015	3.902	221.35
As of December 31, 2014	3.889	223.36
As of December 31, 2013	3.471	223.58
Change during the year:
Year ended December 31, 2015	0.33%	(0.90%)
Year ended December 31, 2014	12.04%	(0.10%)
Year ended December 31, 2013	(7.02%)	1.91%

Exchange rates

Consumer Price

*According to 1993 base index.

Note 3 - Significant Accounting Policies

The accounting policies set out below have been applied consistently by the Group for all periods presented in these consolidated financial statements.

A. Basis of consolidation

1. Subsidiaries

Subsidiaries are entities controlled directly or indirectly by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control is lost. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.

2. Non-controlling interests

Non-controlling interests comprise the equity of a subsidiary that cannot be attributed, directly or indirectly, to the parent company. Profit or loss and each component of other comprehensive income are attributable to the owners of the parent company and to non-controlling interests.

Issuance of put option to non-controlling interests

A put option issued by the Group to non-controlling interests that is settled in cash or another financial instrument is recognized as a liability at the present value of the exercise price. In subsequent periods, changes in the value of the liability in respect of put options are recognized in profit or loss according to the effective interest method.

The Group's share of a subsidiary's profits includes the share of the non-controlling interests to which the Group issued a put option.

$$ F-14 $$

A. Basis of consolidation (cont'd)

3. Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

B. Foreign currency transactions

Transactions in foreign currencies are translated to NIS at the prevailing foreign exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies as of the reporting date are translated to NIS at the prevailing foreign exchange rate at that date. Nonmonetary assets and liabilities denominated in foreign currencies that are measured in terms of historical cost, are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to NIS at the exchange rate at the date that the fair value was determined. Foreign exchange differences arising on translation are recognized in profit and loss.

C. Financial instruments

The Group early adopted IFRS 9 (2009), Financial Instruments, with respect to classification and measurement of financial assets. According to IFRS 9 (2009), an entity shall classify and measure its financial assets at amortized cost or at fair value, considering its business model for managing financial assets and with respect to the contractual cash flows of these financial assets.

(1) Non-derivative financial assets

Initial recognition of financial assets

The Group initially recognizes receivables and deposits on the date that they are created. All other financial assets acquired in a regular way purchase, including assets designated at fair value through profit or loss, are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument, meaning on the date the Group undertook to purchase or sell the asset. Financial assets are initially measured at fair value. If the financial asset is not subsequently accounted for at fair value through profit or loss, then the initial measurement includes transaction costs that are directly attributable to the asset acquisition or creation.

The Group subsequently measures financial assets at either fair value or amortized cost, as described below:

Financial assets measured at amortized cost

A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment loss, if:

• the asset is held within a business model with an objective to hold assets in order to collect contractual cash flows;
• the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest; and
• the Group has not elected to designate them at fair value through profit or loss in order to reduce or eliminate an accounting mismatch.

Financial assets measured at amortized cost include cash and cash equivalents, current investments and trade and other receivables.

Cash and cash equivalents comprise cash balances available for immediate use and call deposits.

Cash equivalents comprise short-term highly liquid investments (with original maturities of three months or less) that are readily convertible into known amounts of cash and are exposed to insignificant risks of change in value.

Financial assets measured at fair value

Financial assets other than those classified as measured at amortized cost are subsequently measured at fair value with all changes in fair value recognized in profit or loss.

Derecognition of financial assets

Financial assets are derecognized when the contractual rights of the Group to the cash flows from the asset expire, or the Group transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Regular way sales of financial assets are recognized on the trade date, meaning on the date the Group undertook to sell the asset. As to the Group's policy on impairment see Paragraph H.

Offset of financial instruments

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

(2) Non-derivative financial liabilities

The Group initially recognizes debt securities issued on the date they originated. All other financial liabilities are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. Financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. The Group subsequently measures financial liabilities at amortized cost using the effective interest method.

Non-derivative financial liabilities include debentures and trade and other payables.

Financial liabilities are derecognized when the obligation of the Group, as specified in the agreement, expires or when it is discharged or cancelled.

Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Change in terms of debt instruments

An exchange of debt instruments having substantially different terms, between an existing borrower and lender is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability at fair value. In such cases the entire difference between the amortized cost of the original financial liability and the fair value of the new financial liability is recognized in profit or loss as financing income or expense.

The terms are substantially different if the discounted present value of the cash flows according to the new terms, including any commissions paid, less any commissions received and discounted using the original effective interest rate, is different by at least ten percent from the discounted present value of the remaining cash flows of the original financial liability. In addition to the aforesaid quantitative criterion, the Group examines, inter alia, whether there have also been changes in various economic parameters inherent in the exchanged debt instruments, therefore as a rule, exchanges of CPI-linked debt instruments with unlinked instruments are considered exchanges with substantially different terms even if they do not meet the aforementioned quantitative criterion.

Expansion of debentures for cash

When expanding debentures for cash, debentures are initially measured at their fair value, which is the proceeds received from the issuance (since this is the best market which the issuer has an immediate access to), with no effect on profit or loss in respect of the difference between the proceeds from issuance and the market value of the tradable debentures close to their issuance.

(3) Derivative financial instruments, including hedge accounting

The Group holds derivative financial instruments to hedge its foreign currency and CPI risks exposures.

Derivatives are initially recognized at fair value; transaction costs that can be attributed are recognized to profit and loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value. Changes in fair value are accounted for as follows:

Cash flow hedges

Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized through other comprehensive income directly in a hedging reserve to the extent that the

hedge is effective. To the extent that the hedge is ineffective, changes in the fair value are recognized in profit and loss when the hedged item is sold or leaves the Group's possession, and is presented under the same line item in the consolidated statements of income as the hedged item.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in comprehensive income and presented in the hedging reserve in equity remains there until the forecasted transaction occurs or is no longer expected to occur. The amount recognized in comprehensive income is transferred to profit and loss in the same period that the hedged item affects profit and loss.

Economic Hedges

Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies or linked to the CPI. Changes in the fair value of such derivatives are recognized in profit and loss, as financing income or expenses*.*

(4) Financial instruments linked to the Israeli CPI that are not measured at fair value

The carrying amount of a CPI linked financial instrument and the payments derived from it are revalued in each period according to the actual rate of change in the CPI.

D. Property, plant and equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and an estimate of the costs of dismantling and removing the items and restoring the site on which they are located (when the Group has an obligation to dismantle and remove the asset or to restore the site). Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

Communications networks consist of several significant components with different useful lives. Each component is treated separately and is depreciated over its useful life.

Changes in the obligation to dismantle and remove the items and to restore the site on which they are located, other than changes deriving from the passing of time, are added or deducted from the cost of the asset in the period in which they occur. The amount deducted from the cost of the asset shall not exceed the balance of the carrying amount on the date of change, and any balance is recognized in profit or loss.

Gains or losses on disposal of an item of property, plant and equipment are determined by comparing the net disposal net proceeds with the carrying amount of property, plant and equipment and are recognized net within "other expenses, net" in profit or loss.

The cost of replacing part of a fixed asset item is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of day-to-day servicing are recognized in profit or loss as incurred.

Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. An asset is depreciated from the date it is ready for use, meaning the date it reaches the location and condition required for it to operate in the manner intended by management.

Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of the fixed asset item. The annual depreciation rates for the current and comparative periods are as follows:

	%
Communications network	5-25
Control and testing equipment	15-25
Vehicles	15-33
Computers and hardware	15-33
Furniture and equipment	6-33

Leasehold improvements are depreciated over the shorter of their estimated useful lives or the expected lease terms.

Depreciation methods, useful lives and residual values are reviewed at least at the end of each reporting year and adjusted if appropriate.

E. Rights of use of communications lines

The Group implements IFRIC 4, "Determining Whether an Arrangement Contains a Lease", which defines criteria for determining at the beginning of the arrangement, whether the right to use asset constitutes a lease arrangement.

According to IFRIC 4, as mentioned above, acquisition transactions of irrevocable rights of use of underwater cables capacity are treated as service receipt transactions. The amount which was paid for the rights of use of communications lines is recognized as a prepaid expense and is amortized on a straight-line basis over the period stated in the agreements, including the option period, which constitutes the estimated useful life of those capacities.

F. Intangible assets

Intangible assets consist of goodwill, assets recognized during business combination, licenses, computer software costs, information systems and deferred expenses.

• 1. Goodwill that arises upon the acquisition of subsidiaries is presented as part of intangible assets. In subsequent periods goodwill is measured at cost less accumulated impairment losses.
• 1. Customer relationship purchase price allocated to subsidiaries' customer relationship. Customer relationship has a finite useful life.
• 1. Other intangible assets are measured at cost less accumulated amortization and accumulated impairment losses and including direct costs necessary to prepare the asset for its intended use.
• 1. Certain direct and indirect development costs associated with internally developed information system software, and payroll costs for employees devoting time to the software projects, incurred during the application development stage, are capitalized. The costs are amortized using the straight-line method beginning when the asset is substantially ready for use. Costs incurred during the research stage and after the asset is substantially ready for use, are recognized in profit or loss as incurred.
• 1. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognized in profit or loss as incurred.
• 1. Amortization is a systematic allocation of the amortizable amount of an intangible asset over its useful life. Amortization is calculated using the straight-line method, except for customer relationship recognized during business combinations, which is amortized according to the economic benefit expected from this asset each period (and up to 2019). The annual amortization rates for the current and comparative periods are as follows:

	%
Licenses	5-6 (mainly 6)
Information systems	25
Software	15-25

Goodwill has an indefinite useful life and is not systematically amortized but tested for impairment at least once a year.

Amortization methods, useful lives and residual values are reviewed at least each year-end and adjusted if appropriate.

The Group examines the useful life of an intangible asset that is not periodically amortized at least once a year in order to determine whether events and circumstances continue to support the decision that the intangible asset has an indefinite useful life.

G. Inventory

Inventory of cellular phone equipment, accessories and spare-parts are measured at the lower of cost and net realizable value. Cost is determined by the moving average method.

The cost of inventory which serves the landline communications is determined on a "first-in, first-out" basis.

The Group periodically evaluates the condition and age of inventories and makes provisions for impairment of inventories accordingly.

H. Impairment

1. Non-derivative financial assets

A financial asset not carried at fair value through profit or loss is tested for impairment when objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the

loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

An impairment loss in respect of a financial asset measured at amortized cost, is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate of that asset. All impairment losses are recognized in profit or loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost, the reversal is recognized in profit or loss.

2. Property, plant and equipment and intangible assets

The carrying amounts of the Group's property, plant and equipment and finite lived intangible assets are reviewed at each reporting date, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, then the asset's recoverable amount is estimated.

Once a year and on the same date, or more frequently if there are indications of impairment, the Group estimates the recoverable amount of each cash generating unit that contains goodwill, or intangible assets that have indefinite useful lives.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cashgenerating unit").

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit, for which the estimated future cash flows from the asset or cash-generating unit were not adjusted.

Cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. The Group monitors goodwill at operating segments level.

An impairment loss is recognized if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the cashgenerating unit on a pro rata basis.

I. Employee benefits

1. Post employment benefits

Part of the Group's liability for post employment benefits is covered by a defined contribution plan financed by deposits with insurance companies or with funds managed by a trustee. A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. The Group's

obligation of contribution to defined contribution pension plan is recognized as an expense in profit and loss in the periods during which services are rendered by employees. In addition, the Group has a net obligation in respect of defined benefit plan. A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. This benefit is presented at present value deducting the fair value of any plan assets and is determined using actuarial assessment techniques which involves, among others, determining estimates regarding the capitalization rates, anticipated return on the assets, the rate of the increase in salary and the rates of employee turnover. There is significant uncertainty in respect to these estimates because of the long-term programs. For further information, see Note 18.

The Group recognizes immediately, directly in retained earnings through other comprehensive income, all actuarial gains and losses arising from defined benefit plans. Interest costs and expected return on plan assets that were recognized in profit or loss are presented under financing income and expenses, respectively.

2. Termination benefits

Termination benefits are recognized as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary retirement. Termination benefits for voluntary retirements are recognized as an expense if the Group has made an offer of voluntary retirement, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

3. Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. The employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits depending on when the Group expects the benefits to be wholly settled.

4. Share based payments

The grant date fair value of options granted to employees is recognized as salaries and related expenses, with a corresponding increase in retained earnings, over the period that the employees become unconditionally entitled to the options.

Fair value is measured using the Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, to consider exercise restrictions and behavioral considerations.

J. Provisions

A provision is recognized if the Group has a present legal or constructive obligation, as a result of a past event, that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at management's best estimate of the expenditure required to settle the obligation at the reporting date.

A provision for claims is recognized if the Group has a present legal or constructive obligation, as a result of a past event, and it is more likely than not that an outflow of economic benefits will be required to settle the obligation and the amount of obligation can be estimated reliably.

K. Revenue

Revenues derived from services, including cellular services, internet infrastructure and connectivity services, international calls services, fixed local calls, interconnect, roaming revenues, content and value added services and television over the internet services, are recognized when the services are provided, in proportion to the stage of completion of the transaction and all other revenue recognition criteria are met.

The sale of a handset is generally adjacent to the sale of services. Usually, the sale of handset to the customer is executed with no contractual obligation of the client to consume services in a minimal amount for a predefined period. As a result, the Group refers to the sale transaction as a separate transaction and recognizes revenue from sale of handset upon delivery of the handset to the customer. Revenue from services is recognized and recorded when the services are provided.

In case the customer is obligated towards the Group to consume services in a minimal amount for a predefined period, the contract is characterized as a multiple element arrangement and thus, revenue from sale of handset is recorded in an amount not higher than the fair value of the said handset, which is not contingent upon delivery of additional components (such as services) and is recognized upon delivery to the customer and when the criteria for revenue recognition are met. The Group determines the fair value of the individual elements based on prices at which the deliverable is regularly sold on a standalone basis, after considering discounts where appropriate.

The Group also offers other services, such as extended equipment warranty plans, which are provided for a monthly fee and are either sold separately or bundled and included in packaged rate plans. Revenues from those services are recognized over the service period.

Revenues from long-term credit arrangements are recognized on the basis of the present value of future cash flows, discounted according to market interest rates at the time of the transaction. The difference between the original credit and its present value is recorded as interest income over the credit period.

Prepaid wireless airtime sold to customers is recorded as deferred revenue prior to the commencement of services and is recognized when the airtime is used or expires.

When the Group acts as an agent or an intermediary without bearing the risks and rewards resulting from the transaction, revenues are presented on a net basis (as a profit or a commission). However, when the Group acts as a principal supplier and bears the risks and rewards resulting from the transaction, revenues are presented on a gross basis, distinguishing the revenue from the related expenses.

L. Cost of revenues

Cost of revenues mainly include equipment purchase costs, salaries and related expenses, value added services costs, royalties expenses, ongoing license fees, interconnection and roaming expenses, cell site

$$ F-23 $$

leasing costs, depreciation and amortization expenses and maintenance expenses, directly related to services rendered. The Group recognizes discounts from suppliers as a decrease in Cost of Sales. Therefore, discounts in respect of purchases that are added to the closing inventory balance are treated as inventory and the remainder as a decrease in Cost of Sales.

M. Advertising expenses

Advertising costs are expensed as incurred.

N. Lease payments

Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease.

O. Financing income and expenses

Financing income is comprised of interest income on cash deposits, interest income on installment sales, gain from hedging transactions, income from exchange rate differences and from investment in debt securities. Interest income is recognized in the consolidated statements of income as it accrues using the effective interest method.

Financing expenses are comprised of interest and indexing expenses on loans and debentures, loss from hedging transactions, expenses from exchange rate differences and unwinding of the discount on provisions. All borrowing costs are recognized in profit and loss using the effective interest method.

In the statements of cash flows, interest received and dividends received are presented as part of cash flows from investing activities. Interest paid and dividends paid are presented as part of cash flows from financing activities.

Foreign currency, investment in debt securities and hedging instruments gains and losses that are recognized in profit or loss are reported on a net basis.

Changes in the fair value of financial assets at fair value through profit or loss also include income from dividends and interest.

P. Taxes on income

Taxes on income comprise current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or are recognized directly in equity or in other comprehensive income to the extent they relate to items recognized directly in equity or in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Current tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and there is intent to settle current tax liabilities and assets on a net basis or the tax assets and liabilities will be realized simultaneously.

Deferred tax is recognized for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset deferred tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle deferred tax liabilities and assets on a net basis or their deferred tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

A provision for uncertain tax positions, including additional tax and interest expenses, is recognized when it is more probable than not that the Group will have to use its economic resources to pay the obligation.

Q. Earnings per share

The Company presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit and loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

R. New standards not yet adopted

IFRS 9 (2014), Financial Instruments

IFRS 9 (2014) is a final version of the standard, which includes revised guidance on the classification and measurement of financial instruments, and a new model for measuring impairment of financial assets. This guidance has been added to the chapter dealing with general hedge accounting requirements issued in 2013.

Classification and measurement

In accordance with IFRS 9 (2014), there are three principal categories for measuring financial assets: amortized cost, fair value through profit and loss and fair value through other comprehensive income. The basis of classification for debt instruments is the entity's business model for managing financial assets and the contractual cash flow characteristics of the financial asset. Investments in equity instruments will be measured at fair value through profit and loss (unless the entity elected at initial recognition to present fair value changes in other comprehensive income).

IFRS 9 (2014) requires that changes in fair value of financial liabilities designated at fair value through profit or loss that are attributable to changes in its credit risk, should usually be recognized in other comprehensive income.

R. New standards not yet adopted (cont'd)

Hedge accounting – general

Under IFRS 9 (2014), additional hedging strategies that are used for risk management will qualify for hedge accounting. IFRS 9 (2014) replaces the present 80%-125% test for determining hedge effectiveness, with the requirement that there be an economic relationship between the hedged item and the hedging instrument, with no quantitative threshold. In addition, IFRS 9 (2014) introduces new models that are alternatives to hedge accounting as regards credit exposures and certain contracts outside the scope of IFRS 9 (2014) and sets new principles for accounting for hedging instruments. In addition, IFRS 9 (2014) provides new disclosure requirements.

Impairment of financial assets

IFRS 9 (2014) presents a new 'expected credit loss' model for calculating impairment. For most financial assets, the new model presents a dual measurement approach for impairment: if the credit risk of a financial asset has not increased significantly since its initial recognition, an impairment provision will be recorded in the amount of the expected credit losses that result from default events that are possible within the twelve months after the reporting date. If the credit risk has increased significantly, in most cases the impairment provision will increase and be recorded at the level of lifetime expected credit losses of the financial asset.

IFRS 9 (2014) is effective for annual periods beginning on or after January 1, 2018 with early adoption being permitted. It will be applied retrospectively with some exemptions.

The Group has not yet commenced examining the effects of adopting IFRS 9 (2014) on the financial statements.

IFRS 15, Revenue from Contracts with Customers

IFRS 15 replaces the current guidance regarding recognition of revenues from contracts with customers and presents a new model for revenue recognition from aforesaid contracts. IFRS 15 provides two approaches for recognizing revenue: at a point in time or over time. The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount. Furthermore, IFRS 15 extends the disclosure requirements that exist under current guidance.

IFRS 15 is applicable for annual periods beginning on or after January 1, 2018 and earlier application is permitted. IFRS 15 includes various alternative transitional provisions, so that companies can choose between one of the following alternatives at initial application: full retrospective application, full retrospective application with practical expedients, or application as from the mandatory effective date, with an adjustment to the balance of retained earnings at that date in respect of transactions that are not yet complete.

The Group is examining the effects of adopting IFRS 15 on the financial statements.

R. New standards not yet adopted (cont'd)

IFRS 16, Leases

The standard replaces International Accounting Standard 17 - Leases (IAS 17) and its related interpretations. The standard's instructions annul the existing requirement from lessees to classify leases as operating or finance leases. Instead of this, for lessees, the new standard presents a unified model for the accounting treatment of all leases according to which the lessee has to recognize an asset and liability in respect of the lease in its financial statements. Similarly, the standard determines new and expanded disclosure requirements from those required at present.

The standard will become effective for annual periods as of January 1, 2019, with the possibility of early adoption, so long as the company has also early adopted IFRS 15 - Revenue from contracts with customers. The standard includes a number of alternatives for the implementation of transitional provisions, so that companies can choose one of the following alternatives at the implementation date: full retrospective implementation or implementation from the effective date while adjusting the balance of retained earnings at that date.

The Group has not yet commenced examining the effects of adopting the standard on the financial statements.

Note 4 - Fair Value

A. Determination of Fair Value

A number of the Group's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and /or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

1. Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the appropriate interest rate at the reporting date.

2. Current investments and derivatives

The fair value of forward exchange contracts is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using market interest rates appropriate for similar instruments, including the adjustment required for the parties' credit risks.

The fair value of investments in debt securities is based on quoted market prices.

3. Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

4. Share- based payment transactions

Fair value of employee stock options is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behavior) and the risk-free interest rate (based on government bonds). Service conditions attached to the transactions are not taken into account in determining fair value.

B. Fair Value Hierarchy

When determining the fair value of an asset or liability, the Group uses observable market data as much as possible. There are three levels of fair value measurements in the fair value hierarchy that are based on the data used in the measurement, as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical instruments.
• Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.
• Level 3: inputs that are not based on observable market data (unobservable inputs).

Note 5 - Financial Risk Management

The Board of Directors has overall responsibility for the establishment and oversight of the Group's financial risk management framework. The Board has established a sub-committee for financial exposures management, which is responsible for developing and monitoring the Group's financial exposures management policies. The sub-committee recommends to the Board of Directors changes in the Group's financial exposures management policy.

The Group's risk management policies are established to identify and analyze the financial risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities through training and procedures. The Group aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group Audit Committee oversees how management monitors compliance with the Group's financial risk management policies and procedures, and reviews the adequacy of the financial risk management framework in relation to the risks faced by the Group. See also Note 21.

Credit risk

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis.

Trade and other receivables

The Group conducts credit evaluations on receivables over a certain amount, and requires financial guarantees against them. Management monitors outstanding receivable balances and the financial statements include appropriate allowances for estimated irrecoverable amounts. The Group is exposed to credit risk arising mainly from its operation in Israel.

Cash and cash equivalents

The Group's cash and cash equivalents are maintained with major banking institutions in Israel.

Investments in debt instruments

The Group limits its exposure to credit risk by investing only in liquid debt instruments and only with counterparties that have a credit rating of at least "AA-" from S&P Maalot. Management actively monitors credit ratings and given these high credit ratings, management does not expect any counterparty to fail to meet its obligations.

Derivatives

The counterparties of the derivatives held by the Group are major banks in Israel.

At the reporting date, there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivatives, in the consolidated statement of financial position. Financial instruments that could potentially subject the Group to credit risks consist primarily of trade receivables. Credit risk with respect to these receivables is limited due to the composition of the subscriber base, which includes a large number of individuals and businesses.

Note 5 - Financial Risk Management (cont'd)

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and extreme conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The cash surpluses held by Group companies that are not required for financing their current activity, are invested in interest-bearing investment channels such as: short-term deposits and debentures. These investment channels are chosen based on future forecasts of the cash Group will require in order to meet its liabilities.

The Group examines current forecasts of its liquidity requirements so as to make certain that there is sufficient cash for its operating needs, and it is careful at all times to have enough unused credit facilities so that the Group does not exceed its credit limits and is in compliance with its financial covenants. These forecasts take into consideration matters such as the Group's plan to use debt for financing its activity, compliance with required financial covenants, and compliance with external requirements such as laws or regulation.

The Group has contractual commitments to purchase inventories, fixed assets and other current services. For further information regarding material commitments see Note 30.

Market risk

In the ordinary course of business, the Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out according to the policy established by the Board of Directors.

Interest rate and CPI risk

The Group is exposed to fluctuations in the interest rate, including changes in the CPI, as the majority of its borrowings are linked to the CPI. As part of its risk management policy the Group has entered into forward contracts that partially hedge the exposure to changes in the CPI. All such transactions are carried out within the policy established by the Board of Directors.

Currency risk

The Group's operating income and cash flows are exposed to currency risk, mainly due to handset and network related acquisitions and its international roaming services activity. The Group also manages bank accounts that are denominated in a currency other than its respective functional currency, primarily USD and Euro. As part of its financial exposures hedging policy, the Group uses forward and option contracts to partially hedge the exposure to fluctuations in foreign exchange rates.

Note 5 - Financial Risk Management (cont'd)

Capital management

The Group's capital management aim is to ensure a sound and efficient capital structure which takes into consideration, among others, the following factors:

A gearing ratio that supports the Group's cash flow needs with respect to its potential cash flow generation and also supporting its dividend policy, considering the limitation imposed on dividend distribution as established in the indenture of the Group's Series F, G, H and I debentures and in the Company's deferred loans, while maintaining a Net Debt to EBITDA ratio (see definition in Note 17, regarding Debentures) as established in such documents, and that meets the industry standards. The Group considers Net Debt to EBITDA ratio to be an important measure for investors, debentures holders, analysts, and rating agencies. This ratio is a non-GAAP figure not governed by International Financial Reporting Standards and its definition and calculation may vary from one Group to another. The Group's debt mainly consists of short and long-term debentures traded publicly in the Tel Aviv Stock Exchange.

Note 6 - Operating Segments

The Group operates in two reportable segments, as described below, which are the Group's strategic business units. The strategic business unit's allocation of resources and evaluation of performance are managed separately. The operating segments were determined based on internal management reports reviewed by the Group's chief operating decision maker (CODM). The CODM does not examine assets or liabilities for those segments and therefore, they are not presented.

• y Cellcom the segment includes Cellcom Israel Ltd. and its subsidiaries, excluding Netvision Ltd. and its subsidiaries.
• y Netvision the segment includes Netvision Ltd. and its subsidiaries.

The accounting policies of the reportable segments are the same as described in Note 3, regarding Significant Accounting Policies.

Information regarding the results of each reportable segment is included below based on the internal management reports that are reviewed by the CODM.

Note 6 - Operating Segments (cont'd)

			Year ended December 31, 2015
			NIS millions
			Reconciliation
	Cellcom	Netvision	for consolidation	Consolidated
External revenues	3,315	865	-	4,180
Inter-segment revenues	56	126	(182)	-
EBITDA*	642	224	6	872
Reconciliation of reportable segment EBITDA to profit for the year
Depreciation and amortization	(442)	(89)	(31)	(562)
Taxes on income	(6)	(37)	7	(36)
Financing income				55
Financing expenses				(232)
Other income				3
Share based payments				(3)
Profit for the year	11	103	(17)	97

			Year ended December 31, 2014
			NIS millions
	Cellcom	Netvision	Reconciliationfor consolidation	Consolidated
External revenues	3,667	903	-	4,570
Inter-segment revenues	50	57	(107)	-
EBITDA*	967	315	-	1,282
Reconciliation of reportable segment EBITDA to profit for the year
Depreciation and amortization	(475)	(85)	(50)	(610)
Taxes on income	(80)	(44)	14	(110)
Financing income				100
Financing expenses				(298)
Other expenses				(7)
Share based payments				(3)
Profit for the year	211	189	(46)	354

Note 6 - Operating Segments (cont'd)

			Year ended December 31, 2013
	NIS millions
	Reconciliation
	Cellcom	Netvision	for consolidation Consolidated
External revenues	3,944	983	-	4,927
Inter-segment revenues	50	56	(106)	-
EBITDA*	1,066	269	-	1,335
Reconciliation of reportable segment EBITDA to profit for the year
Depreciation and amortization	(504)	(96)	(76)	(676)
Taxes on income	(91)	(45)	19	(117)
Financing income				156
Financing expenses				(402)
Other income				1
Share based payments				(9)
Profit for the year	210	135	(57)	288

* EBITDA as reviewed by the CODM, represents earnings before interest (financing expenses, net), taxes, other income (expenses) (except for expenses in the amount of approximately NIS 25 million and NIS 39 million in respect of voluntary retirement plans for employees, which have been recorded in the second quarter of 2015 and in the second quarter of 2014, respectively. See also Note 26, regarding Other Expenses), depreciation and amortization and share based payments, as a measure of operating profit. EBITDA is not a financial measure under IFRS and cannot be compared to other similarly titled measures in other companies.

Note 7 - Subsidiaries

Presented hereunder is a list of the Group's significant subsidiaries:

		December 31	The Group's ownership interest inthe subsidiary for the year ended
	Principal locationof the subsidiary'sactivity	2014	2015
Name of subsidiary
Netvision Ltd.	Israel	100%	100%
013 Netvision Ltd.	Israel	100%	100%

Note 8 - Cash and Cash Equivalents

Composition

		December 31,
	2014	2015
	NIS millions	NIS millions
Bank balances	133	57
Call deposits	1,025	704
	1,158	761

The Group's exposure to interest rate risk and sensitivity analysis for financial assets and liabilities are disclosed in Note 21.

Note 9 - Trade and Other Receivables

Composition

	December 31,
	2014	2015
	NIS millions	NIS millions
Current
Trade Receivables*
Open accounts	531	445
Checks and credit cards receivables	179	164
Accrued income	101	82
Current maturity of long-term receivables	606	563
	1,417	1,254
Other Receivables
Prepaid expenses	57	43
Government institutions and others	8	61
	65	104
	1,482	1,358
Non-current
Trade receivables*	476	467
Rights of use of communications lines	272	302
Deposits and other receivables	65	3
Other	11	13
	824	785
	2,306	2,143

* Net of allowance for doubtful debts.

The Group is exposed to credit risks and impairment losses related to trade and other receivables as disclosed in Note 21.

Non-current trade receivables balances are in respect of equipment sold in installments (mainly 36 monthly payments) which current amount as of December 31, 2015, is calculated at a 3.3% discount rate (December 31, 2014 - 3.9%).

Note 10 - Inventory

A. Composition

	December 31,
	2014	2015
	NIS millions	NIS millions
Handsets	71	67
Accessories	10	7
Spare parts	8	11
	89	85

B. In 2015, the Group tested slow moving inventory for impairment and wrote down inventory to its net realizable value by the amount of NIS 4 million (2014 - NIS 6 million). The write-down is included in Cost of Sales.

Note 11 - Property, Plant and Equipment, Net

	Communications	Control andtesting		Computers,furniture and	Leasehold
	network	equipment	Vehicles	equipment	improvements	Total
	NIS millions	NIS millions	NIS millions	NIS millions	NIS millions	NIS millions
Cost
Balance at January 1, 2014	5,351	144	18	393	155	6,061
Additions	336	4	1	39	11	391
Disposals	(135)	(26)	(10)	(116)	(13)	(300)
Balance at December 31, 2014	5,552	122	9	316	153	6,152
Additions	203	2	-	85	6	296
Disposals	(84)	-	(2)	(54)	(3)	(143)
Balance at December 31, 2015	5,671	124	7	347	156	6,305
Accumulated Depreciation
Balance at January 1, 2014	3,765	90	10	237	94	4,196
Depreciation for the year	328	19	2	48	14	411
Disposals	(128)	(28)	(5)	(115)	(13)	(289)
Balance at December 31, 2014	3,965	81	7	170	95	4,318
Depreciation for the year	301	15	1	52	12	381
Disposals	(81)	-	(1)	(54)	(3)	(139)
Balance at December 31, 2015	4,185	96	7	168	104	4,560
Carrying amounts
At January 1, 2014	1,586	54	8	156	61	1,865
At December 31, 2014	1,587	41	2	146	58	1,834
At December 31, 2015	1,486	28	-	179	52	1,745

In the ordinary course of business, the Group acquires property, plant and equipment in credit. The cost of acquisitions, which has not yet been paid at the reporting date, amounted to NIS 169 million (December 31, 2014 and 2013, NIS 169 million and NIS 67 million, respectively).

Note 12 - Intangible Assets, Net

						Customer
		Information		Deferred		relationship
	Licenses	systems	Software	expenses	Goodwill	and other	Total
	NIS millions	NIS millions	NIS millions	NIS millions	NIS millions	NIS millions	NIS millions
Cost
Balance at January 1, 2014	532	342	89	4	830	347	2,144
Additions	-	87	9	-	-	-	96
Disposals	-	(75)	(21)	(4)	-	-	(100)
Balance at December 31, 2014	532	354	77	-	830	347	2,140
Additions	20	57	11	-	-	-	88
Disposals	-	(115)	(26)	-	-	(23)	(164)
Balance at December 31, 2015	552	296	62	-	830	324	2,064
Accumulated Amortization
Balance at January 1, 2014	292	162	53	3	-	244	754
Amortization for the year	29	70	16	1	-	55	171
Disposals	-	(75)	(21)	(4)	-	-	(100)
Balance at December 31, 2014	321	157	48	-	-	299	825
Amortization for the year	30	74	12	-	-	33	149
Disposals	-	(115)	(26)	-	-	(23)	(164)
Balance at December 31, 2015	351	116	34	-	-	309	810
Carrying amounts
At January 1, 2014	240	180	36	1	830	103	1,390
At December 31, 2014	211	197	29	-	830	48	1,315
At December 31, 2015	201	180	28	-	830	15	1,254

In the ordinary course of business, the Group acquires Intangible assets in credit. The cost of acquisitions, which has not yet been paid at the reporting date, amounted to NIS 33 million (December 31, 2014 and 2013, NIS 34 million and NIS 10 million, respectively).

A. Impairment testing for cash-generating unit containing goodwill

For the purpose of impairment testing, goodwill is allocated to Netvision, which represents the lowest level within the Group, at which goodwill is monitored for internal management purposes, which is not higher than the reported operating segments. See Note 6, regarding Operating Segments.

The aggregate carrying amount of goodwill allocated to Netvision as of December 31, 2015, is NIS 753 million (2014 - NIS 753 million).

The recoverable amount of Netvision was based on its value in use and was determined by discounting the expected future cash flows to be generated from the continuing use. The recoverable amount of Netvision as of December 31, 2015 and 2014, was determined to be higher than its carrying amount and thus, no impairment loss has been recognized.

Note 12 - Intangible Assets, Net (cont'd)

B. Key assumptions used in calculation of recoverable amount

Key assumptions used in the calculation of recoverable amounts are discount rate and terminal value growth rate. These assumptions are as follows:

(1) Pre-tax discount rate and terminal value growth rate

	Pre-taxdiscountrate	Terminal valuegrowth rate
		2015
Netvision	11.4%	1.5%

x The discount rate and the terminal value growth rate are denominated in real terms.

x Netvision has cash flows for 5 years, as included in its discounted cash flow model.

• x The long-term growth rate has been determined as 1.5% which represents, among others, the natural population growth rate.
• x The pre-tax discount rate is estimated and calculated using several assumptions, among other, Netvision's Cost of Equity, risk premium for normative debt leveraging of the Group and estimates of the normative leverage ratio for the industry.

(2) Sensitivity to changes in assumptions

The estimated recoverable amount of Netvision exceeds its carrying amount by approximately NIS 50 million. Management has identified two key assumptions for which there reasonably could be a possible change that could cause the carrying amount to exceed the recoverable amount. The table below shows the amount that these two assumptions are required to change individually in order for the estimated recoverable amount to be equal to the carrying amount.

	2015
Pre-tax discount rate	11.8%
Terminal value growth rate	0.9%

Note 13 - Trade Payables and Accrued Expenses

Composition

		December 31,
	2014	2015
	NIS millions	NIS millions
Trade payables	441	227
Accrued expenses	332	450
	773	677

Note 14 - Provisions

Composition

	Dismantling andrestoringsites	Litigations	Othercontractualobligations	Provision forwarranty	Total
	NIS millions	NIS millions	NIS millions	NIS millions	NISmillions
Balance as at January 1, 2014	21	66	116	5	208
Provisions made during the year	1	17	11	-	29
Provisions reversed during the year	(1)	(36)	(75)	(3)	(115)
Balance as at January 1, 2015	21	47	52	2	122
Provisions made during the year	3	27	11	-	41
Provisions reversed during the year	(4)	(20)	(7)	(2)	(33)
Balance as at December 31, 2015	20	54	56	-	130
Non-current	20	-	-	-	20
Current	-	54	56	-	110
	20	54	56	-	130

Dismantling and restoring sites

The Group is required to incur certain costs in respect of a liability to dismantle and remove assets and to restore sites on which the assets were located. These dismantling costs are calculated on the basis of the identified costs for the current financial year, extrapolated for future years using the best estimate of future trends in prices, inflation, etc., and are discounted at a risk-free rate. Forecast of estimated site departures or asset returns is revised in light of future changes in regulations or technological requirements.

Litigations

The Group is involved in a number of legal and other disputes with third parties. The Group's management, after taking legal advice, has established provisions which take into account the facts of each case. The timing of cash outflows associated with legal claims cannot be reasonably determined. For detailed information regarding legal proceedings against the Group, refer to Note 31.

Other contractual obligations

Provisions for other contractual obligations and exposures include various obligations that are derived either from a constructive obligation or legislation for which there is a high uncertainty regarding the timing and amount of future expenditure required for settlement.

Note 15 - Other Payables, Including Derivatives

Composition

	December 31,
	2014	2015
	NIS millions	NIS millions
Employees and related liabilities	102	123
Government institutions	40	11
Interest payable	167	108
Accrued expenses	7	8
Deferred revenue	30	21
Derivative financial instruments	24	15
	370	286

Note 16 - Other Long-term Liabilities

Composition

	December 31,
	2014	2015
	NIS millions	NIS millions
Long-term liabilities to trade payables	1	1
Deferred revenue	2	2
Derivative financial instruments	8	17
Other	1	4
	12	24

Note 17 - Debentures

This note provides information about the contractual terms of the Group's debentures, which are measured at amortized cost. For more information about the Group's exposure to interest rate, foreign currency and liquidity risk, see Note 21.

	December 31,
	2014	2015
	NIS millions	NIS millions
Non- current liabilities
Debentures	3,548	3,054
Current liabilities
Current maturities of debentures	1,092	734

Note 17 - Debentures (cont'd)

Terms and debt repayment schedule

The terms and conditions debentures are as follows:

				December 31, 2014		December 31, 2015
				NIS millions		NIS millions
	Currency	Nominalinterest rate	Year ofmaturity	Face value	Carryingamount	Face value	Carryingamount
Debentures (Series B) - linked to
the Israeli CPI	NIS	5.30%	until 2017	555	668	370	441
Debentures (Series D) - linked to
the Israeli CPI	NIS	5.19%	until 2017	1,454	1,722	599	702
Debentures (Series E) - unlinked	NIS	6.25%	until 2017	899	897	327	327
Debentures (Series F) - linked to
the Israeli CPI	NIS	4.60%	2017-2020	715	741	715	733
Debentures (Series G) - unlinked	NIS	6.99%	2017-2019	285	286	285	286
Debentures (Series H) - linked to
the Israeli CPI	NIS	1.98%	2018-2024	106	105	950	801
Debentures (Series I) - unlinked	NIS	4.14%	2018-2025	223	221	558	498
Total interest- bearing liabilities				4,237	4,640	3,804	3,788

In connection with the issuance of Series F and G debentures, the Company has undertaken to comply with certain financial and other covenants. Inter alia:

• x a Net Leverage* exceeding 5, or exceeding 4.5 during four consecutive quarters, shall constitute an event of default; As of December 31, 2015, the Net Leverage is 3.06.
• x not to distribute more than 95% of the profits available for distribution according to the Israeli Companies law ("Profits"); provided that if the Net Leverage* exceeds 3.5:1, the Company will not distribute more than 85% of its Profits and if the Net Leverage* exceeds 4:1, the Company will not distribute more than 70% of its Profits. Failure to comply with this covenant shall constitute an event of default;
• x cross default, excluding following an immediate repayment initiated in relation to a liability of NIS 150 million or less, shall constitute an event of default;
• x a negative pledge, subject to certain exceptions. Failure to comply with this covenant shall constitute an event of default;
• x an obligation to pay additional interest of 0.25% for two-notch downgrade in the debentures' rating and additional interest of 0.25% for each additional one-notch downgrade and up to a maximum addition of 1%, in comparison to the rating given to the debentures prior to their issuance;
• x failure to have the debentures rated over a period of 60 days, shall constitute an event of default.

* Net Leverage - the ratio of Net Debt to EBITDA, excluding one-time influences. Net Debt defined as credit and loans from banks and others and debentures, net of cash and cash equivalents and current investments in tradable securities. EBITDA defined as in relation to the twelve month period preceding the Group's most updated consolidated financial statements and calculated as profit before depreciation and amortization, other expenses/ income, net, financing expenses/ income, net and taxes on income.

Note 17 - Debentures (cont'd)

In June 2013, the Company's rating was updated from an "ilAA-/negative" to an "ilA+/stable" rating, in relation to the Company's debentures traded on the Tel Aviv Stock Exchange. Following this update of rating and since this was the second downgrade in the Debentures' rating since their issuance, the annual interest rate that the Company pays for its Series F and G debentures has been increased by 0.25% to 4.60% and 6.99%, respectively, beginning July 5, 2013.

In connection with the issuance of Series H and Series I debentures in July 2014, the Company undertook additional undertakings, in addition to those previously undertaken by the Company in its Series F and G indenture (as detailed above), including: (1) in addition to being an event of default, meeting the financial covenants previously undertaken by the Company (a maximum net leverage ratio (Net Debt to EBITDA ratio) in excess of 5.0:1, or in excess of 4.5:1 for four consecutive quarters) would be a condition for dividend distribution; and (2) meeting such financial covenants would also be a condition for the issuance of additional debentures of each of the two new series.

The Series H and Series I Indenture contains substantially similar events of default to those found in the Series F and Series G Indenture, with the exception of certain new events of default that do not appear in the Series F and Series G Indenture as well as certain modifications to the events of default that are found in the Series F and Series G Indenture, including: (1) breach of the above limitation on dividend distributions; (2) the minimum amount required for triggering a cross default shall not apply to a cross default triggered by another series of debentures; (3) the existence of a real concern that the Company shall not meet its material undertakings towards the debenture holders; (4) the inclusion in the Company's financial statements during a period of two consecutive quarters of a note regarding the existence of significant doubt as to the Company's ability to continue as a going concern; and (5) breach of the Company's undertakings regarding the issuance of additional debentures.

As of December 31, 2015, the Group is in compliance with the required covenants.

In February 2015, pursuant to an exchange offer for the exchange of a portion of the Company's Series D and E debentures with new debentures of the Company's Series H and I, respectively, or the Exchange Offer, under the Company's 2014 shelf prospectus and in a private offering, the Company issued approximately NIS 844 million principal amount of new debentures of Series H and approximately NIS 335 million principal amount new debentures of Series I (in exchange with approximately NIS 555 million principal amount of Series D and approximately NIS 272 million principal amount of Series E, respectively).

Described hereunder is the principal amount of the above mentioned debentures:

	Before theexchange	After theexchange
	NIS millions
Series D	1,454	899
Series E	599	327
Series F	106	950
Series G	223	558

In January 2016, after the end of the reporting period, the Group repaid interest and principal of debentures in a total sum of approximately NIS 476 million.

Note 18 - Liability for Employee Rights Upon Retirement, Net

The obligation of the Group, under law and labor agreements, to pay severance pay employees who are not covered by the pension or insurance plans as mentioned in section A below, is NIS 12 million and NIS 14 million as of December 31, 2015 and 2014, respectively, as included in the consolidated statements of financial position, under Liability for employee rights upon retirement, net.

A. Post-employment benefit plans - defined contribution plan

The Group's liability for severance pay for its Israeli employees is calculated pursuant to Israeli Severance Pay Law. The Group's liability is mostly covered by monthly deposits with severance pay funds, insurance policies and by an accrual on the consolidated statements of financial position. For most of the Group's employees, the payments to pension funds and to insurance companies exempt the Group from any obligation towards its employees, in accordance with Section 14 of the Severance Pay Law-1963. Accumulated amounts in pension funds and in insurance companies are not under the Group's control or management and accordingly, neither those amounts nor the corresponding accrual for severance pay are presented in the consolidated statements of financial position.

B. Post-employment benefit plans - defined benefit plan

The portion of the severance payments which is not covered by deposits in defined contribution plans, as aforementioned, is accounted for by the Group as a defined benefit plan, according to which a liability for employee benefits is recognized and in respect of which, the Group deposits amounts in central severance pay funds and in appropriate insurance policies. The total liability as at December 31, 2015 is NIS 23 million (2014 - NIS 24 million). The fair value of the plan assets, the severance pay fund, is NIS 19 million (2014 - NIS 21 million). The expense recognized in the consolidated statement of income for the year ended December 31, 2015 in respect of defined benefit plans, is NIS 3 million (2014 - NIS 2 million).

C. As of December 31, 2015 the Group's liability for adaptation grants to employees is NIS 8 million (2014 - NIS 11 million).

Note 19 - Capital and Reserves

Share capital

	2013	2014	2015
		NIS
Issued and paid at January 1	994,814	995,316	1,005,845
Exercise of share options	502	10,529	201
Issued and paid at December 31	995,316	1,005,845	1,006,046

The share capital is comprised of ordinary shares of NIS 0.01 par value each.

At December 31, 2015, the authorized share capital was comprised of 300 million ordinary shares (December 31, 2014, 2013 - 300 million each). The holders of ordinary shares are entitled to receive dividends as declared.

Note 19 - Capital and Reserves (cont'd)

Basic and diluted earnings per share

The calculation of basic earnings per share was based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding (99,495,525, 99,924,306 and 100,589,458 during the years 2013, 2014 and 2015, respectively). The calculations of diluted earnings per share was based on the profit attributable to ordinary shares and the weighted average number of ordinary shares in the basic earnings per share in addition of 824,199, 781,976 and 72 incremental shares (NIS 0.01 par value each) that would be issued resulting from exercise of all options for the years ended December 31, 2013, 2014 and 2015, respectively.

At December 31, 2015, 616 thousand options (2014 and 2013 - 453 thousand and 776 thousand options, respectively) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.

The average market value of the Company's shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.

Dividends

Dividends paid by the Company during the reported periods are as follows:

In 2015 and 2014 the Company did not pay dividend to the shareholders of the Company. In 2013, the Company paid to the shareholders of the Company a cash dividend in the amount of NIS 0.85 per share, totaling approximately NIS 85 million.

Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred or exercised.

Rights offering

In June 2015, the Company filed a registration statement with the Securities and Exchange Commission, or the SEC, and the Israeli Securities Authority, or the ISA, in preparation for a possible rights offering that proposed to raise approximately NIS 120-150 million (assuming a full exercise of subscription rights), or "the Rights Offering".

The execution, timing, terms (including subscription ratio) and amount of such proposed Rights Offering have not yet been determined and are subject to further approvals of the Company's Board of Directors, declaration of effectiveness of the registration statement by the SEC, and approvals of the ISA, the Tel Aviv Stock Exchange and the New York Stock Exchange. There is no assurance that such approvals will be received or that the Rights Offering will be executed, nor as to its timing, terms or amount.

DIC notified the Company that if the Company executes an equity offering (whether through ordinary shares offering or rights offering or in any other manner), DIC intends, to the extent DIC's cash flows needs will allow it, to invest in such offering so that DIC's relative holdings in the Company's share capital does not fall below its pre-offering holding, and to make an additional investment, if possible, so that DIC's total investment in such offering shall not exceed NIS 100 million.

Note 20 - Share-Based Payments

In September 2006, the Company's Board of Directors approved a share based incentive plan for employees, directors, consultants, sub-contractors of the Company and the Company's affiliates. The terms of share-based payments include a dividend adjustment mechanism. The options will be exercised at net, with no cash transfer.

In March 2015, the Company's board of directors approved a new shared based incentive plan - "2015 Share Incentive Plan" for employees, directors, consultants and sub-contractors of the Company and the Company's affiliates. Under the plan, the Company's board of directors is authorized to determine the terms of the grants, including the identity of grantees, the number of options or restricted stock units ("RSUs") to be granted, the vesting schedule and the exercise price. The terms of the share based payments include a dividend adjustment mechanism. The options will be exercised at net exercise mechanism, with no cash transfer.

Grant date/employees entitled	Number ofinstrumentsIn thousands	Vesting conditions	Contractuallife ofoptions	Adjusted exerciseprice per share asof December 31,2015
Share options granted in November 2010 to senior		Four equal installments over
employees	12	four years of employment	6 years	$23.15
		Three equal installments over
Share options granted in May 2011 to senior employees	1,060	three years of employment	4.5 years	$28.95
Share options granted in August 2012 to senior		Two equal installments over
employees	2,410	two years of employment	3.5 years	$5.67
Share options granted in March 2013 to senior		Two equal installments over
employees	75	two years of employment	3.5 years	$7.34
Share options granted in December 2013 to senior		Three equal installments over
employees	234	three years of employment	4.5 years	$14.65
Share options granted in August 2015 to senioremployees	2,660	Three equal installments overthree years of employment	4.5 years	NIS 25.65

The total compensation expense during the year ended December 31, 2015, related to the options granted is NIS 3 million (2014 - NIS 3 million, 2013 - NIS 9 million).

Note 20 - Share-Based Payments (cont'd)

The changes in the balances of the options were as follows:

		Weightedaverage		Weightedaverage		Weightedaverage
	Number of	of exerciseprice	Number of	of exerciseprice	Number of	of exerciseprice
	options	(US Dollars)	options	(US Dollars)	options	(US Dollars)
	2013		2014		2015
Balance as at January 1	3,019,152	10.89	2,965,964	10.35	638,865	15.86
Granted during the year	309,000	12.88	-	-	2,660,000	6.69
Forfeited during the year	(258,878)	18.91	(341,006)	27.01	(292,798)	19.52
Exercised during the year	(103,310)	5.91	(1,986,093)	5.72	(132,877)	5.67
Total options outstanding as at December 31	2,965,964	10.35	638,865	15.86	2,873,190	7.40
Total of exercisable options as at December 31*	1,426,232	11.27	445,365	17.00	170,190	15.13

* The weighted average of the remaining contractual life of options outstanding as at December 31, 2015 is 2.5 years.

	2013	2014	2015
Fair value of share options and assumptions:
Fair value at grant date	$1.51-$2.89	-	NIS 3.5
Fair value assumptions:
Share price at grant date	$7.2-$13.57	-	NIS 23.75
Exercise price	$7.58-$14.66	-	NIS 25.65
Expected volatility (weighted average)	37.72%-41.12%	-	35.9%
Option life (expected weighted average life)	2.3 years	-	2.3 years
Risk free interest rate	0.23%-0.59%	-	0.4%

Note 21 - Financial Instruments

Credit risk

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

	December 31, December 31,2014	2015
	NIS millions	NIS millions
Trade receivables including long-term amounts	1,893	1,721
Loans and other receivables including long-term amounts	74	9
Investment in debt securities	520	280
Cash and cash equivalents in banks	1,158	761
Derivative financial instrument	1	1
	3,646	2,772

The maximum exposure to credit risk of financial assets at the reporting date by type of counterparty is:

		December 31, December 31,
	2014	2015
	NIS millions	NIS millions
Receivables from subscribers	1,687	1,588
Receivables from distributors and other operators	206	133
Investment in government of Israel debt securities	293	151
Investment in institutional debt securities	227	129
Cash and cash equivalents in banks	1,158	761
Other	75	10
	3,646	2,772

Impairment losses

The aging of financial assets at the reporting date was as follows:

	Gross	Impairment	Gross	Impairment
	2014		2015
	NIS millions	NIS millions	NIS millions	NIS millions
Not past due	3,553	30	2,675	28
Past due less than one year	143	58	136	53
Past due more than one year	181	143	163	121
	3,877	231	2,974	202

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

2014	2015
NIS millions	NIS millions
274	231
(74)	(61)
31	32
231	202

The allowance accounts in respect of trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amount considered irrecoverable is written off against the trade receivable directly.

Liquidity risk

The following are the maturities of contractual of financial liabilities and other non-contractual liabilities, including estimated interest payments and excluding the impact of netting agreements:

December 31, 2015	Carryingamount	ContractualCash flows	1st year	2nd year	3rd year	4-5 years	More than5 years
				NIS millions
Debentures*	(3,896)	(4,549)	(909)	(996)	(610)	(957)	(1,077)
Trade and other payables	(808)	(808)	(808)	-	-	-	-
Forward exchange contracts on
CPI	(32)	(32)	(15)	(3)	(14)	-	-
Long-term liabilities to trade
payables	(5)	(5)	-	-	-	(5)	-
	(4,741)	(5,394)	(1,732)	(999)	(624)	(962)	(1,077)

* Including accrued interest on debentures. In February 2015, the Company exchanged a portion of Series D and E debentures with new debentures of the Company's Series H and I, respectively. For further details, see Note 17.

December 31, 2014	Carrying	Contractual					More than
	amount	Cash flows	1st year	2nd year	3rd year	4-5 years	5 years
				NIS millions
Debentures*	(4,807)	(5,295)	(1,338)	(1,278)	(1,345)	(817)	(517)
Trade and other payables	(882)	(882)	(882)	-	-	-	-
Forward exchange contracts on
CPI	(31)	(31)	(23)	(4)	-	(4)	-
Long-term liabilities to trade
payables	(1)	(1)	-	(1)	-	-	-
	(5,721)	(6,209)	(2,243)	(1,283)	(1,345)	(821)	(517)

* Including accrued interest on debentures.

Currency risk and CPI

The Group's exposure to foreign currency risk and CPI is as follows:

		December 31, 2014			December 31, 2015
	In or linkedto foreigncurrencies(mainly USD)	Linkedto CPINIS millions	Unlinked	In or linkedto foreigncurrencies(mainly USD)	Linkedto CPINIS millions	Unlinked
Current assets
Cash and cash equivalents	39	-	1,119	42	-	719
Current investments, including derivatives	1	268	252	1	141	139
Trade receivables	110	-	1,307	77	-	1,177
Other receivables, including derivatives	1	-	6	-	1	5
Non- current assets
Long-term receivables	-	18	525	-	3	467
Current liabilities
Current maturities of debentures	-	(792)	(300)	-	(570)	(164)
Trade payables and accrued expenses	(262)	-	(511)	(325)	-	(352)
Other current liabilities, including derivatives	(1)	(120)	(179)	-	(82)	(172)
Non- current liabilities
Debentures	-	(2,444)	(1,104)	-	(2,107)	(947)
Other non- current liabilities	(1)	(8)	-	-	(17)	(5)
	(113)	(3,078)	1,115	(205)	(2,631)	867

Currency risk and CPI (cont'd)

The Group's exposure to linkage and foreign currency risk in respect of derivatives is as follows:

			December 31, 2015
	Currency/linkagereceivable	Currency/linkagepayable	Notional Value	Fair value
			NIS millions
Instruments not used for hedging
Forward exchange contracts on foreign currencies	USD	NIS	98	1
Forward exchange contracts on CPI	CPI	NIS	1,200	(32)
Foreign currency call options	USD	NIS	20	-
Foreign currency put options	NIS	USD	117	-

			December 31, 2014
	Currency/linkage	Currency/linkage
	receivable	payable	Notional Value	Fair value
			NIS millions
Instruments not used for hedging
Forward exchange contracts on foreign currencies	USD	NIS	19	-
Forward exchange contracts on CPI	CPI	NIS	1,925	(31)
Foreign currency call options	USD	NIS	97	1

Currency risk and CPI (cont'd)

Sensitivity analysis

A change of the CPI as at December 31, 2015 and 2014 would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2014.

	Change	EquityNIS millions	Net incomeNIS millions
December 31, 2015
Increase in the CPI of	2.0%	(16)	(16)
Increase in the CPI of	1.0%	(6)	(6)
Decrease in the CPI of	(1.0%)	4	4
Decrease in the CPI of	(2.0%)	9	9
December 31, 2014
Increase in the CPI of	2.0%	(17)	(17)
Increase in the CPI of	1.0%	(8)	(8)
Decrease in the CPI of	(1.0%)	8	8
Decrease in the CPI of	(2.0%)	17	17

Sensitivity of change in foreign exchange rate is immaterial as at December 31, 2015 and 2014.

Interest rate risk

Profile

At the reporting date the interest rate profile of the Group's interest-bearing financial instruments, not including derivatives, was:

	Carrying amount
	2014	2015
		NIS millions NIS millions
Fixed rate instruments
Financial assets	1,541	985
Financial liabilities	(4,640)	(3,788)
	(3,099)	(2,803)
Variable rate instruments
Financial assets	6	2
Financial liabilities	-	-
	6	2

Fair value sensitivity analysis for fixed rate instruments

A change of interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

		Equity				Profit or loss
			0.5%			1.0%	0.5%
		1.0% increase 1.0% decrease	increase	0.5% decrease	1.0% increase	decrease	increase	0.5% decrease
		NIS millions				NIS millions
December 31, 2015
Fair value sensitivity (net)	(8)	8	(4)	4	(8)	8	(4)	4
		Equity				Profit or loss
		1.0%	0.5%			1.0%	0.5%
	1.0% increase	decrease	increase	0.5% decrease	1.0% increase	decrease	increase	0.5% decrease
		NIS millions				NIS millions
December 31, 2014
Fair value sensitivity (net)	(14)	14	(7)	7	(14)	14	(7)	7

Cash flow sensitivity analysis for variable rate instruments

A change of 1% in interest rates at the end of the reporting period would have increased (decreased) equity and profit or loss by immaterial amounts.

Fair Values

(1) Financial instruments measured at fair value for disclosure purposes only

The book value of certain financial assets and liabilities, including cash and cash equivalents, trade and other receivables, current investments, including derivatives, trade and other payables, including derivatives and other long-term liabilities, are equal or approximate to their fair value.

The fair values of the remaining financial liabilities and their book values as presented in the consolidated statements of financial position are as follows:

	December 31, 2014		December 31, 2015
	Book value	Fair value	Book value	Fair value*
	NIS millions		NIS millions
Debentures including current
maturities and accrued interest	(4,807)	(5,107)	(3,896)	(4,198)

* The fair value includes principal and interest in a total sum of approximately NIS 476 million, paid in January 2016, after the end of the reporting period.

The fair value of marketable debentures is determined by reference to the quoted closing asking price at the reporting date (level 1).

$$ F-51 $$

(2) Fair value hierarchy of financial instruments measured at fair value

The table below analyses financial instruments carried at fair value, by valuation method.

			December 31, 2015
	Level 1	Level 2	Level 3	Total
	NIS millions	NIS millions	NIS millions	NIS millions
Financial assets at fair value through profit or loss
Current investments in debt securities	280	-	-	280
Derivatives	-	1	-	1
Total assets	280	1	-	281
Financial liabilities at fair value through profit or loss
Derivatives	-	(32)	-	(32)
Total liabilities	-	(32)	-	(32)

There have been no transfers during the year between Levels 1 and 2.

Total
NIS millions
520
49
1
570
(32)
(32)

(3) Details regarding fair value measurement at Level 2

Financial instrument	Valuation method for determining fair value
Forward contracts	Fair value measured on the basis of discounting the difference between the forward price inthe contract and the current forward price for the residual period until redemption usingmarket interest rates appropriate for similar instruments, including the adjustment requiredfor the parties' credit risks.
Foreign currency options	Fair value is measured based on the Black-Scholes formula.

(4) Offset of financial assets and financial liabilities

The following table sets out the carrying amounts of recognized financial instruments that were offset in the consolidated statements of financial position:

			Net amounts of financial
			assets (liabilities)
			presented in the
			consolidated statements
Note	assets (liabilities)	of financial position	of financial position
	NIS millions	NIS millions	NIS millions
9	362	(303)	59
	362	(303)	59
13	(336)	303	(33)
	(336)	303	(33)
		Gross amounts ofrecognized financial	December 31, 2015Gross amounts offinancial assets(liabilities) recognizedand offset in theconsolidated statements

(4) Offset of financial assets and financial liabilities (cont'd)

		December 31, 2014
			Gross amounts of
			financial assets	Net amounts of financial
			(liabilities) recognized	assets (liabilities)
		Gross amounts of	and offset in the	presented in the
		recognized financial	consolidated statements	consolidated statements
	Note	assets (liabilities)	of financial position	of financial position
		NIS millions	NIS millions	NIS millions
Financial assets
Trade receivables	9	342	(238)	104
		342	(238)	104
Financial liabilities
Trade payables and accrued expenses	13	(264)	238	(26)
		(264)	238	(26)

Note 22 - Revenues

Composition

		Year ended December 31,
	2013	2014	2015
	NIS millions	NIS millions	NIS millions
Revenues from equipment	942	1,005	1,048
Revenues from services:
Cellular services	2,797	2,487	2,121
Land-line communications services	*1,042	*940	866
Other services	146	138	145
Total revenues from services	3,985	3,565	3,132
Total revenues	4,927	4,570	4,180

*Reclassified

Note 23 - Cost of Revenues

Composition

		Year ended December 31,
	2013	2014	2015
	NIS millions	NIS millions	NIS millions
According to source of income:
Cost of revenues from equipment	719	744	763
Cost of revenues from services	2,271	1,983	2,000
	2,990	2,727	2,763
According to its components:
Cost of revenues from equipment	719	744	763
Rent and related expenses	365	310	332
Salaries and related expenses	298	260	265
Fees to other operators and others	882	761	789
Cost of value added services	149	114	86
Depreciation and amortization	418	410	381
Royalties and fees	91	98	96
Other	68	30	51
Total cost of revenues from services	2,271	1,983	2,000
	2,990	2,727	2,763

Note 24 - Selling and Marketing Expenses

Composition

		Year ended December 31,
	2013	2014	2015
	NIS millions	NIS millions	NIS millions
Salaries and related expenses	305	277	278
Commissions	161	197	196
Advertising and public relations	62	46	26
Depreciation and amortization	86	59	38
Other	103	93	82
	717	672	620

Note 25 - General and Administrative Expenses

Composition

		Year ended December 31,
	2013	2014	2015
	NIS millions	NIS millions	NIS millions
Salaries and related expenses	137	121	114
Depreciation and amortization	172	141	143
Rent and maintenance	74	62	59
Data processing and professional services	48	57	51
Allowance for doubtful accounts	81	31	32
Other	58	51	66
	570	463	465

Note 26 - Other Expenses

In April 2015, the Group, in collaboration with the employees' representatives, launched a new voluntary retirement plan for employees, following which, the Company recorded an expense in an amount of approximately NIS 25 million in the second quarter of 2015, with respect to employees joining this plan (in the second quarter of 2014, the Company recorded an expense in an amount of approximately NIS 39 million in respect of another voluntary retirement plan for employees).

Note 27 - Financing Income and Expenses

Composition

		Year ended December 31,
	2013	2014	2015
	NIS millions	NIS millions	NIS millions
Interest income on deposits	15	6	2
Interest income from installment sale transactions	83	61	47
Net change in fair value of financial assets measured at fair value through profit or loss	20	15	5
Premium amortization	21	18	-
Foreign exchange differences and other	17	-	1
Financing income	156	100	55
Linkage expenses to CPI and interest expenses on long-term liabilities	(385)	(251)	(169)
Net change in fair value of derivatives	(14)	(33)	(32)
Discount amortization	-	-	(22)
Foreign exchange differences and other	(3)	(14)	(9)
Financing expenses	(402)	(298)	(232)
Net financing expenses recognized in profit or loss	(246)	(198)	(177)

Note 28 - Income Tax

A. Details regarding the tax environment of the Group

income in the amount of NIS 7 million.

Corporate tax rate

(a) Presented hereunder are the tax rates relevant to the Company in the years 2013-2015:

2013 - 25%

2014 - 26.5% 2015 - 26.5%

Current taxes for the reported periods are calculated according to the tax rates presented above.

On January 4, 2016, after the end of the reporting period, the Knesset plenum passed The Law for the Amendment of the Israeli Tax Ordinance (Amendment 216), by which, inter alia, the corporate tax rate would be reduced by 1.5% to a rate of 25% as from 2016. If the law had been substantively enacted before December 31, 2015, the effect of the change on the financial statements as at December 31, 2015 would have been reflected in a decrease in the deferred tax liabilities in the amount of NIS 14 million and a decrease in the deferred tax assets in the amount of NIS 7 million. The effect of the change in the deferred tax balances would have been recognized against deferred tax

(b) On January 12, 2012, Amendment 188 to the Ordinance was issued, by which the Temporary Order was amended so that Standard 29 shall not apply also when determining the taxable income for 2010 and 2011. On July 31, 2014 an amendment no. 202 to the Ordinance was issued, by which the Temporary Order was extended to the 2012 and 2013 tax years, effective retroactively as from January 1, 2012.

B. Composition of income tax expense (income)

		Year ended December 31,
	2013	2014	2015
	NIS millions	NIS millions	NIS millions
Current tax expense (income)
Current year	128	96	45
Adjustments for prior years, net	(1)	(5)	-
	127	91	45
Deferred tax expense (income)
Creation and reversal of temporary differences	(17)	19	(9)
Change in tax rate	7	-	-
	(10)	19	(9)
Income tax expense	117	110	36

C. Income tax in respect of other comprehensive income

		Year ended December 31, 2015
	Before tax	Tax benefit	Net of tax
	NIS millions	NIS millions	NIS millions
Other comprehensive loss items	(2)	1	(1)

C. Income tax in respect of other comprehensive income (cont'd)

		Year ended December 31, 2014
	Before tax	Tax expenses	Net of tax
	NIS millions	NIS millions	NIS millions
Other comprehensive income items	12	(3)	9
		Year ended December 31, 2013
	Before tax	Tax benefit	Net of tax
	NIS millions	NIS millions	NIS millions
Other comprehensive loss items	(3)	1	(2)

D. Reconciliation between the theoretical tax on the pre-tax profit and the tax expense

		Year ended December 31,
	2013	2014	2015
	NIS millions	NIS millions	NIS millions
Profit before taxes on income	405	464	133
Primary tax rate of the Group	25%	26.5%	26.5%
Tax calculated according to the Group's primary tax rate	101	123	35
Additional tax (tax saving) in respect of:
Non-deductible expenses	6	3	5
Taxes in respect of previous years	(1)	(5)	-
Effect of change in tax rate	7	-	-
Tax exempt income	(2)	(6)	(1)
Other differences	6	(5)	(3)
Income tax expenses	117	110	36

E. Deferred tax assets and liabilities

(1) Recognized deferred tax assets and liabilities

Deferred taxes are calculated according to the tax rate anticipated to be in effect on the date of reversal as stated above.

The movement in deferred tax assets and liabilities is attributable to the following items:

	Allowance fordoubtful debtsNISmillions	Property,plant andequipmentandintangibleassetsNISmillions	HedgingtransactionsNISmillions	Carry forwardtax deductionsand lossesNISmillions	OtherNISmillions	TotalNISmillions
Balance of deferred tax asset (liability) as at
January 1, 2015	61	(211)	1	11	15	(123)
Changes recognized in profit or loss	(8)	10	-	(3)	10	9
Changes recognized in other comprehensive income	-	-	-	-	-	-
Balance of deferred tax asset (liability) as atDecember 31, 2015	53	(201)	1	8	25	(114)
Deferred tax asset	53	39	1	8	26	127
Offset of balances						(118)
Deferred tax asset in the consolidated statementsof financial position as at December 31, 2015						9
Deferred tax liability	-	(240)	-	-	(1)	(241)
Offset of balances						118
Deferred tax liability in the consolidatedstatements of financial position as at December31, 2015						(123)

E. Deferred tax assets and liabilities (cont'd)

(1) Recognized deferred tax assets and liabilities (cont'd)

	Allowance fordoubtful debts	Property,plant andequipmentand intangibleassets	Hedgingtransactions	Carry forwardtax deductionsand losses	Other	Total
	NIS	NIS	NIS	NIS	NIS	NIS
	millions	millions	millions	millions	millions	millions
Balance of deferred tax asset (liability) as atJanuary 1, 2014	73	(205)	5	15	12	(100)
Changes recognized in profit or loss	(12)	(6)	-	(4)	3	(19)
Changes recognized in other comprehensive income	-	-	(4)	-	-	(4)
Balance of deferred tax asset (liability) as at
December 31, 2014	61	(211)	1	11	15	(123)
Deferred tax asset	61	36	1	11	18	127
Offset of balances						(110)
Deferred tax asset in the consolidated statementsof financial position as at December 31, 2014						17
Deferred tax liability	-	(247)	-	-	(3)	(250)
Offset of balances						110
Deferred tax liability in the consolidatedstatements of financial position as at December31, 2014						(140)

(2) Unrecognized deferred tax liability

As at December 31, 2015 and 2014, a deferred tax liability for temporary differences related to an investment in a subsidiary was not recognized because the decision as to whether to sell the investment rests with the Group and it is satisfied that it will not be sold in the foreseeable future.

F. Tax assessments

The Company and Netvision have received final tax assessments up to and including the year ended December 31, 2011 (2011 fiscal year).

$$ F-60 $$

Note 29 - Operating Leases

Non-cancelable operating lease rentals are payable as follows:

	December 31,
	2015
	NIS millions
Less than one year	205
Between one and five years	646
More than five years	240
	1,091

During the year ended December 31, 2015, NIS 285 million was recognized as expenses in respect of operating leases in the consolidated statements of income (2014 and 2013, NIS 258 million and NIS 276 million, respectively).

Major operating lease and service agreements:

• a. Office buildings and warehouses there are lease agreements for periods of up to 14 years.
• b. Switching stations- there are lease agreements for switching station locations for periods of up to 18 years.
• c. Cell sites- there are lease agreements for cell sites for periods of up to 21 years.
• d. Service centers, retail stores and stands there are lease agreements for service and installation centers and stands for periods of up to 13 years.
• e. Motor vehicles lease for a period of 3 years.

Note 30 - Commitments

• 1. The Group has commitments regarding the license it was granted in 1994, most of which are:
  • a. Not to pledge any of the assets used to execute the license without the advance consent of the Ministry of Communications.
  • b. The Company's shareholders' joint equity, combined with the Company's equity, shall not amount to less than US$ 200 million. Regarding this stipulation, a shareholder holding less than 10% of the rights to the Company's equity is not taken into account.

The Group is in compliance with the above conditions. See also Note 32(5), regarding the change in control in IDB and consequently indirectly in the Company.

2. As at December 31, 2015, the Group has commitments to purchase equipment for the communications networks, end user equipment, systems and software maintenance, and content and related services, in a total amount of approximately NIS 414 million.

Note 30 - Commitments (cont'd)

• 3. In September 2014, the Company and Pelephone Communications Ltd, or Pelephone, entered into a co-operation agreement regarding maintenance services for passive elements of cell sites, including unifying passive elements and streamlining costs, through a common contractor. In July 2015, the Israeli Antitrust Commissioner approved the co-operation agreement for a period of ten years under certain conditions. However, the parties have been unable to progress its execution and the Company can provide no assurance that such cooperation will occur in the future.
• 4. Between 2003 and 2015, Netvision entered into a number of agreements with Mediterranean Nautilus Ltd. and Mediterranean Nautilus (Israel) Ltd., or collectively Med Nautilus, for the purchase of rights of use of certain telecommunications capacities on Med Nautilus' communications cables, as well as maintenance and operation services relating to these cables. Over the last few years Netvision has increased the capacity purchased for significantly lower prices, as well as reduced maintenance costs. The term of the agreement with respect to capacity purchased from Med Nautilus is in effect until May 2032. Netvision has the option to terminate agreements with respect to parts of the capacity in 2022 and 2027. The remainder of the obligation under all existing agreements as of December 31, 2015 is NIS 204 million.
• 5. In February 2015, the Company entered a collective employment agreement with its employees' representatives and the Histadrut (an Israeli union labor) for a term of 3 years (2015-2017). The agreement applies to the Company's and 013 Netvision Ltd.'s (the Company's indirect wholly owned subsidiary) employees, excluding certain managerial and specific positions. The agreement defines employment policy and terms in various aspects, including: minimum wages, annual salary increase, incentives, benefits and other one time or annual payments to the employees, as well as a welfare budget and procedures relating to manning a position, change of place of employment and dismissal, including management and employees' representative respective authority with regards to each. The agreement includes terms, whereby the employees are entitled to participate in the Company's operational income over a certain threshold and enjoy additional payments, under certain conditions. The estimated cost of the agreement over its term is expected to be approximately NIS 200 million, before tax, based on the Group's forcasts. In the first quarter of 2015, the Company has recorded a one-time expense in the amount of approximately NIS 30 million in the statements of income in respect of the agreement.
• 6. In May 2015, the Company entered into a loan agreement with two Israeli financial institutions, or Lenders, according to which the Lenders have agreed, subject to certain customary conditions, to provide the Company two deferred loans for the total principal amount of NIS 400 million, without any linkage, as follows:
  • a. A loan principal amount of NIS 200 million will be provided to the Company in June 2016, and will bear an annual fixed interest of 4.6%. The loan's principal amount will be payable in four equal annual payments on June 30 of each of the years 2018 through 2021 (inclusive). The interest will be paid in ten semi-annual installments on June 30 and December 31, of each calendar year commencing December 31, 2016 through and including June 30, 2021.

Note 30 - Commitments (cont'd)

b. A loan principal amount of NIS 200 million will be provided to the Company in June 2017, and will bear an annual fixed interest of 5.1%. The loan's principal amount will be payable in four equal annual payments on June 30 of each of the years 2019 through 2022 (inclusive). The interest will be paid in ten semi-annual installments on June 30 and December 31, of each calendar year commencing December 31, 2017 through and including June 30, 2022.

Under the agreement, the interest rate may be subject to certain adjustments. Until the provision of the loans, the Company is required to pay the Lenders a commitment fee. The Company may cancel or prepay one or both loans, subject to a certain cancelation fee or prepayment fee, as applicable. The agreement includes standard terms and obligations and also generally includes the negative pledge, limitations on distributions, events of default and financial covenants applicable to the Company's series F through I debentures (which are included in Note 17 to the annual financial statements).

• 7. In August 2015, the Company entered into a loan agreement with an Israeli bank, or Lender, according to which the Lender has agreed, subject to certain customary conditions, to provide the Company a deferred loan in a principal amount of NIS 140 million, without any linkage, which will be provided to the Company in December 2016, and will bear an annual fixed interest of 4.9%. The loan's principal amount will be payable in five equal annual payments on June 30 of each of the years 2018 through 2022 (inclusive). Under the Agreement, the interest rate may be subject to certain adjustments. Until the provision of the loan, the Company is required to pay the Lender a commitment fee and if the Company does not borrow - certain additional fees. The Company may borrow the loan earlier, in which case the repayment shall be earlier and may prepay the loan, subject to a prepayment fee. The agreement also includes certain events which if not approved by the Lender allow the Lender to notify the Company of an acceleration of the repayment of the loan. The agreement includes standard terms and obligations and also generally includes the negative pledge, limitations on distributions, financial covenants and event of defaults applicable to the Company's series F through I debentures, with certain modifications, including foreclosure, materialization of a pledge, execution actions, receivership and (subject to certain exclusions) sale of assets, in a specified certain lower amount, a failure to operate in a field which is material to the Company's operations and mergers and changes of formation (with more limited exclusions) will trigger an event of default. In case the Company provides stricter financial covenants to another financial institution or debenture holder, those will apply to this agreement as well.
• 8. In November 2015, the Company entered an agreement (the "Agreement") with Golan Telecom Ltd., or Golan, and its shareholders for the purchase of 100% of the shares of Golan, an Israeli cellular operator, for the sum of NIS 1.17 billion ("Purchase Price").

The main provisions of the Agreement include:

x In consideration of 100% of Golan's shares, the Company shall pay Golan's shareholders the Purchase Price, subject to certain receivables and payables adjustments and adjustments due to specified material adverse events with respect to Golan that are specified in the Agreement.

Note 30 - Commitments (cont'd)

• x Up to NIS 400 million out of the Purchase Price shall be paid in the form of a 5 year mandatorily convertible note issued to the sellers by the Company. The note shall be repaid through the issuance of ordinary shares of the Company, with a value equal to the principal amount of the note (the number of shares to be computed based on the Company's average share trading price in the Tel Aviv Stock Exchange shortly after the closing date, minus a certain discount). The sellers may request conversion or assign the note at any time after the second anniversary of the closing date. Until conversion, the note will entitle its holder to a fixed deferred amount equal to 3.5% of the principal per annum paid semi-annually and other customary adjustments. Upon conversion or maturity, the Company may elect, at its sole discretion, to repay the sellers by the equivalent market value of the shares, rather than issue the shares. Golan's shareholders will receive limited customary registration rights in relation to such shares.
• x Previous network sharing agreements between the Company and Golan, which were subject to the approvals of the Israeli Ministry of communications, or MOC, and the Israeli Antitrust Commissioner, which were not granted, are void. According to a previous agreement between the parties, if the said approvals will not have been granted until December 31, 2015, Golan would have been obligated to pay the Company the difference between the reduced payment it actually paid and the full payment it was required to pay according to the national roaming agreement, for the national roaming services provided and to be provided by the Company to Golan from July 2014 until December 31, 2015. As part of the Agreement, the parties further agreed to postpone the payment date for such difference, which was set to NIS 600 million, until the earlier of the valid termination of the Agreement or the lapse of 12 months from the signing of the Agreement, if no closing is reached by then.
• x Golan shall continue to purchase national roaming services from the Company, until the earlier of the closing date or a certain date specified in the Agreement following its termination date and as of January 2016, shall increase its monthly payment to the Company to approximately NIS 21 million. After closing, the Company shall no longer receive national roaming revenues from Golan.
• x The Agreement contains generally customary representations, covenants, indemnification arrangements, closing conditions and termination terms. Specific closing conditions include the receipt of the approvals of the MOC and the Antitrust Commissioner, and absence of a material adverse change in Golan's condition, as defined in the Agreement. The Agreement can be terminated by either party if closing does not occur until the lapse of 12 months from the Agreement date.

The Company intends to finance the Purchase Price through a combination of equity and debt. The Company expects that in addition to the said NIS 400 million convertible note, it would issue approximately NIS 200 million of equity (which may include a rights offering - for additional details see Note 19, regarding Capital and Reserves) and will finance the remainder from internal sources and debt raising.

There is no assurance that the Agreement shall be approved by the Israeli regulators, nor as to the execution of such a sale.

Note 31 - Contingent Liabilities

In the ordinary course of business, the Group is involved in various lawsuits against it. The costs that may result from these lawsuits are only accrued for when it is more likely than not that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. The amount of the provisions recorded is based on a case-by-case assessment of the risk level, while events that occur in the course of the litigation may require a reassessment of this risk. The Group's assessment of risk is based both on the advice of its legal counsels and on the Group's estimate of the probable settlements amounts that are expected to be incurred, if such settlements will be agreed by both parties. The provision recorded in the consolidated financial statements in respect of all lawsuits against the Group amounted to NIS 54 million (see also Note 14, regarding Provisions).

Described hereunder are the outstanding lawsuits against the Group, classified into groups with similar characteristic. The amounts presented below are calculated based on the claims amounts as of the date of their submission to the Group.

1. Consumer claims

In the ordinary course of business, lawsuits have been filed against the Group by its customers. These are mostly purported class actions, particularly concerning allegations of illegal collection of funds, unlawful conduct or breach of license, or a breach of agreements with customers, causing monetary and non-monetary damage to them. As of December 31, 2015, the amounts claimed from the Group by its customers sum up to NIS 23.84 billion (including a class action as detailed below). In addition, there are other purported class actions against the Group, in which the amount claimed has not been quantified if certified as class actions and in respect of which the Group has an additional exposure to the above mentioned. In addition, there are other purported class actions for approximately NIS 2.35 billion, that have been filed against the Group and other defendants together without specifying the amount claimed from the Group, which the Group has an additional exposure to the above mentioned and there are other purported class actions, that have been filed against the Group and other defendants together in which the amount claimed has not been quantified if certified as class actions and in respect of which the Group has an additional exposure to the above mentioned.

In November 2013, the District Court of Central Region approved a request to certify a lawsuit filed against the Group in September 2011 as a class action, relating to an allegation that the Group breached the agreements with its subscribers by failing to provide them with the full rebates they are entitled to under their agreements. The total amount claimed was estimated by the plaintiff to be approximately NIS 15 million.

Of all the consumer purported class actions, in five purported class actions in a total amount estimated by the plaintiffs to be approximately NIS 80 million and in two purported class action for approximately NIS 481 million that has been filed against the Group and other defendant together without specifying the amount claimed from the Group, and in three purported class actions that has been filed against the Group without specifying the amount claimed from the Group, settlement agreements or dismissal arrangements were filed with the court and the procedures are still pending.

Of all the consumer purported class actions, there are five purported class actions for approximately NIS 353 million, and another purported class action, in which the amount claimed has not been quantified if certified, which at this early stage it is not possible to assess their chances of success.

After the end of the reporting period, seven purported class actions against the Group, in the total sum estimated by the plaintiffs to be approximately NIS 360 million, a purported class action for

Note 31 - Contingent Liabilities (cont'd)

approximately NIS 139 million, that has been filed against the Group and other defendants together without specifying the amount claimed from the Group and another purported class action against the Group without specifying the amount claimed from the Group, were concluded.

After the end of the reporting period, a purported class action has been filed against the Group in the total sum estimated by the plaintiffs to be approximately NIS 11 million and two purported class actions have been filed against the Group, without specifying the amount claimed from the Group. At this early stage it is not possible to assess their chances of success.

Described hereunder are the outstanding consumer class actions and purported class actions against the Group broken down by amount claimed if the lawsuit is certified as class action, as of December 31, 2015:

Claim amount	Number of claims	Total claims amount (NIS millions)
Up to NIS 100 million	22	517
NIS 100-500 million	8	1,646
Above NIS 1 billion	2	21,675
Unquantified claims	13	-
Up to NIS 1 billion against the Groupand other defendants together	5	845
Above NIS 1 billion against the Groupand other defendants together	1	1,500
Unquantified claims against the Groupand other defendants	2	-

Described hereunder are purported class actions against the Group, in which the amount claimed was NIS 1 billion or more:

• 1. During the reporting period, a purported class action in a total amount estimated by the plaintiffs to be approximately NIS 15 billion, if the lawsuit is certified as class action, was filed against the Company, by plaintiffs alleging to be subscribers of the Company, in connection with allegations that the Company unlawfully violated the privacy of its subscribers.
• 1. During the reporting period, a purported class action was filed against 013 Netvision Ltd., or Netvision, the Company's wholly owned subsidiary and three other defendants, alleging that another defendant unlawfully sold the other defendants, including Netvision, private data of its customers, which was used by the other defendants to approach such customers with commercial proposals. The amount claimed from each of the defendants allegedly purchasing the data, including Netvision, if the lawsuit is certified as a class action, was estimated by the plaintiff to be NIS 1,000 for each customer whose private data it allegedly purchased and/or each approach made to such customers, the total of which was assessed by the plaintiff to be approximately 1.5 million customers.
• 1. During the reporting period, purported class action was filed against the Company and two other defendants, alleging that the defendants unlawfully offer cellular pre-paid calling cards for very high prices by allegedly coordinating such prices among them. The total amount claimed from all defendants, including the Company, if the lawsuit is certified as a class action, was estimated by the plaintiffs to be approximately NIS 13 billion, out of which, based on the data specified in the lawsuit by the plaintiff, an estimated amount of approximately NIS 6.7 billion is claimed from the Company.

Note 31 - Contingent Liabilities (cont'd)

2. Environmental claims

In the ordinary course of business, lawsuits have been filed against the Group in issues related to the environment, including lawsuits regarding nonionizing radiation from cellular handsets and lawsuits in connection with the Company's sites. These are mostly purported class actions, relating to allegations for unlawful conduct or breach of license causing monetary and non-monetary damage (including claims for future damages).

As of December 31, 2015, there are two purported class actions against the Group in which the original total amounts claimed from the Group were approximately NIS 4.7 billion. In July 2014, the Court dismissed the motion to certify the class actions with prejudice except in respect of three issues that were detailed in settlements of similar class action claims made against Pelephone and Partner and approved by the court, which the Company was willing to adopt as well. These three issues relate to the cellular operators undertaking to provide certain information regarding nonionizing radiation, sell certain accessories at a discount and conduct certain tests to handsets at certain circumstances, the execution of such undertakings is estimated by the Group in an immaterial amounts to the Group. In October 2014, the plaintiffs filed an appeal in respect of the settlements approved by court with Pelephone and Partner, inter alia, with respect to the tests to be conducted as aforesaid.

3. Employees, subcontractors, suppliers, authorities and others claims

In the ordinary course of business, lawsuits have been filed against the Group by employees, subcontractors, suppliers, authorities and others which deal mostly in claims for breach of provisions of the law governing termination of employment and obligatory payments to employees, claims for breach of agreements, copyright and patent infringement and compulsory payments to authorities.

As of December 31, 2015, the amounts that are claimed from the Group under the said claims total approximately NIS 91 million. In addition, a lawsuit has been filed against the Company and two other cellular operators, for an alleged patent infringement in iPhone handsets, for nonmonetary remedies.

Liens and guarantees

As part of issuance of the Series B, F ,G, H and I debentures and deferred loan agreements which the Company entered into, the Company committed not to create liens on its assets, subject to certain exceptions.

The Group has given bank guarantees as follows:

• a. To the Government of Israel (to guarantee performance of the Cellular License) NIS 80 million.
• b. To the Government of Israel (to guarantee performance of the Licenses of the Group) NIS 44 million.
• c. To suppliers, government institutions and other NIS 227 million.

Note 32 - Regulation and Legislation

• 1. Under an interim order issued by the Supreme Court in September 2010, the Company is unable to rely on the exemption from obtaining a building permit for the construction of radio access devices in cellular networks, other than to replace existing radio access devices in certain conditions, until regulations limiting such reliance are enacted or a different decision by the court is made. In 2015, the Attorney General notified the Israeli Supreme Court that a recommendation to enact regulations setting conditions for the application of the exemption is being considered. The Company requested a certain relaxation of the order and is awaiting the Court's decision.
• 2. In May 2012, the Israeli Minister of Communications published a policy document regarding landline wholesale services, which mainly provided for: (1) the creation of an effective wholesale telecommunications access market in Israel, as Bezeq and Hot will allow other operators that do not own an infrastructure, to use their infrastructure in order to provide services to end users; (2) the gradual annulment of the structural separation in the Bezeq and Hot groups and its replacement with an accounting separation and change of the supervision on Bezeq retail tariffs to maximum tariffs rather than the current setting of fixed tariffs , generally depending on the development of a wholesale market and the state of competition in the market, and with relation to television broadcasting services, if there is a reasonable possibility of providing a basic package of television services through the internet by providers without a national landline infrastructure.

In February 2015, the wholesale landline market was formally launched in Israel (through non-automated operation) in regards to internet infrastructure services and in May 2015 the automated stage of the wholesale landline market was effected in regards to internet infrastructure services. Landline telephony service which was to be provided as of May 2015, has not been provided yet and in December 2015 the Ministry of Communications published a hearing for an alternative temporary one year resale telephony service for Bezeq's landline telephony, at substantially higher tariffs than those set for the telephony wholesale service. Further, although the wholesale market was formally applicable to Hot's infrastructure as well, Hot's infrastructure has been effectively excluded from the wholesale market and in January 2016, after the end of the reporting period, the Ministry of Communications published a hearing proposing to set maximum tariffs for Hot's wholesale internet infrastructure services and noting it will not interfere with the tariffs Hot has set for its wholesale telephony service.

In January 2016, after the end of the reporting period, the Ministry of Communications announced its intention to annul Bezeq and Hot's structural separation as part of its plan to ensure massive investment in fiber optics infrastructure in Israel and setting a framework for a wholesale market using such infrastructure.

3. In May and July 2014, the Ministry of Communications set certain requirements for the approval of network sharing by the Ministry of Communications, including the following principles: (1) sharing of passive elements of cell sites and active sharing of antennas among all cellular operators are encouraged; (2) active sharing of radio networks using shared equipment and frequencies will be allowed only between an operator with a partial 3G network deployment and an operator with a full 3G network deployment, whereas such sharing will not be allowed for two operators with full 3G network deployment; (3) sharing of transmission from cell sites among operators sharing frequencies is generally allowed; (4) investing in a 4G network will be considered as meeting an operator's undertaking to deploy a 3G network under certain conditions; (5) approval of active sharing of radio networks using shared equipment and frequencies shall be for a limited period, only if there are at least three independent cellular networks in Israel, and is conditioned upon certain conditions, including: (i) the obligation to allow other operators to join on terms equal to the terms granted to the sharing operator with the smallest market share; (ii) the obligation to host a Mobile Virtual Network Operator without the other sharing operators' consent; (iii) the shared radio network must be operated through a joint entity held equally by the sharing operators, which entity will be required to obtain a license from the

Note 32 - Regulation and Legislation (cont'd)

Ministry of Communications and will use the frequencies allocated to sharing operators; and (iv) the radio elements of the shared network will be held in equal parts by the sharing operators, and each of the sharing operators will have the right to use other sharing operators' passive infrastructure following termination of the agreement.

• 4. In January 2015, the Israeli Ministry of Communications completed an 1800MHz frequencies tender, for 4G technologies (such as LTE, LTE Advanced). Participation in the tender was open for all current MNOs, MVNOs and other entities meeting certain condition and bands were awarded to the highest bidders. All existing MNOs and Marathon 018 Ltd., or Marathon, won bands in the tender (the Company was awarded 3MHz , for a period of 10 years, for the sum of NIS 6.5 million per 1MHz) and Marathon is expected to be awarded an MNO license. Under the tender terms, Marathon, Golan and Hot Mobile are eligible for up to 50% discount, 10% discount for each 1% addition to their market share, obtained over the next 5 years.
• 5. As a result of a rights offering effected by IDB in February 2015 and the subsequent purchase of IDB shares previously indirectly held by Mr. Ben Moshe, one of IDB's controlling shareholders at the time, by corporations controlled by Mr. Elsztain, the other controlling shareholder in October 2015, the control of IDB and consequently indirectly of the Company, has changed and requires the approval of the Ministry of Communications, including in relation to the Israeli holding requirements included in our communications licenses, since Mr. Elsztain is not an Israeli citizen and resident. The Company has filed a formal request with the Ministry of Communications for its approval of such changes, which includes a request to amend the Company's communications licenses, including with regard to the Israeli holdings requirement in the Company set forth in such licenses and an extension period in order for the Company to comply with the updated provisions (which has not been granted yet). If the Company's request is not granted and some other accommodation is not provided by the Ministry of Communications, the Company may face sanctions, which, according to the terms of the Company's licenses, could include the suspension or revocation of the Company's licenses.

Note 33 - Related Parties

A. Balance sheet

	December 31,2014	December 31,2015
	NIS millions	NIS millions
Current assets	5	3
Current liabilities	1	-
Long-term liability - debentures (including current maturity)*	136	6

* Debentures balance held by related parties, which includes debentures held for the benefit of the public, through, among others, provident funds, mutual funds and pension funds, as of December 31, 2015 and 2014, is NIS 53 million par value linked to the CPI and NIS 179 million par value linked to the CPI, respectively.

Note 33 - Related Parties (cont'd)

B. Transactions with related and interested parties executed in the ordinary course of business at regular commercial terms:

		Year ended December 31,
	2013	2014	2015
	NIS millions	NIS millions	NIS millions
Income:
Revenues	8	12	16
Expenses:
Cost of revenues and other	26	24	25

In the ordinary course of business, from time to time, the Group purchases, leases, sells and cooperates in the sale of goods and services or otherwise engages in transactions with entities that are members of the IDB group or other interested or related parties.

The Group has examined said transactions and believes them to be on commercial terms comparable to those that the Group could obtain from/ provide to unaffiliated parties.

C. Key management personnel compensation

In addition to their salaries, the Group also provides non-cash benefits to executive officers (such as a car, medical insurance, etc.), and contributes to a post-employment defined benefit plan on their behalf.

The Group has undertaken to indemnify the Group's directors and officers, as well as certain other employees for certain events listed in the indemnifications letters given to them. The aggregate amount payable to all directors and officers and other employees who may have been or will be given such indemnification letters is limited to the amounts the Group receives from the Group's insurance policy plus 30% of the Group's shareholders' equity as of December 31, 2001 or NIS 486 million, adjusted for changes in the Israeli CPI.

Executive officers also participate in the Group's share option program (see Note 20, regarding Share-Based Payments).

Key management personnel compensation is comprised of:

		Year ended December 31,
	2013	2014	2015
	NIS millions	NIS millions	NIS millions
Short-term employee benefits	4	3	4
Share-based payments	1	-	1
	5	3	5

Note 33 - Related Parties (cont'd)

D. Agreements with DIC

In October 2006, the Company entered into an agreement with DIC pursuant to which DIC provides the Company with advisory services in the areas of management, finance, business and accountancy. In October 2015, the agreement was amended so that the annual consideration for DIC management services would be equal to the director's fees (both the annual fee and the meeting attendance fee) paid to the Company's external and independent director (which is in the amount of NIS 115,400 per year and NIS 3,470 per meeting, adjusted for changes in the Israeli CPI for December 2007. In 2015, after giving effect to the CPI adjustments, these amounts equaled approximately NIS 135,000 and approximately NIS 4,000, respectively), for each director that DIC nominates or proposes to our Board of Directors, but no more than five directors (replacing the fixed consideration of NIS 2 million (linked to the Israeli Consumer Price Index for June 2006) plus VAT per year, paid to DIC until December 31, 2014). Currently, the Company's Board of directors includes two directors nominated by DIC. This agreement is for a term of one year and is automatically renewed for one-year terms (however the extension thereof after October 2018 requires the approvals of the parties organs according to the Israeli Companies Law), unless either party provides 60 days prior notice to the contrary.

סלקום ישראל בע"מ וחברות מאוחדות שלה

תרגום נוחות בלבד לדוחות הכספיים המאוחדים ליום 13 בדצמבר 0235 )מבוקר(

)הנוסח המחייב הינו הנוסח של הדוחות הכספיים באנגלית(

עמוד

תוכן העניינים

2	ימצב הכספחדים על הדוחות מאו
3	וחדיםוהפסד מאדוחות רווח
4	רווח הכוללחדים על הדוחות מאו
5	וןשינויים בהחדים על הדוחות מאו
6	מניםזרימי המזוחדים על תדוחות מאו
8	ייםוחות הכספביאורים לד

			מברליום 31 בדצ
			תרגום נוחות
			אילדולר אמריק
			)ביאור 2 ד(
		2015	2015	2014
	ביאור מי	ליוני ש"ח	מיליוני דולר	מיליוני ש"ח
נכסים
םשווי מזומנימזומנים ו	8	761	195	1,158
לל נגזריםשוטפות, כוהשקעות		281	72	521
לקוחות	9	1,254	321	1,417
רות חובהחייבים וית	9	104	27	65
מלאי	10	85	22	89
ם שוטפיםסה"כ נכסי		2,485	637	3,250
םיבים אחרילקוחות וחי	9	785	201	824
, נטורכוש קבוע	11	1,745	447	1,834
נטוי מוחשיים,נכסים בלת	12	1,254	322	1,315
נדחיםנכסי מיסים	28 9		2	17
שוטפיםם שאינםסה"כ נכסי		3,793	972	3,990
םסה"כ נכסי		6,278	1,609	7,240
תהתחייבויו
"חפות של אגחלויות שוט	17	734	188	1,092
םצאות לשלספקים והו	13	677	173	773
תמס שוטפוהתחייבויות	28	53	14	77
הפרשות	14	110	28	101
לל נגזריםות זכות, כוזכאים ויתר	15	286	73	370
וטפותחייבויות שסה"כ הת		1,860	476	2,413
אגרות חוב	17	3,054	783	3,548
הפרשות	14	20	5	21
ארוךזכאים לזמן	16	24	6	12
מעבידחסי עובדבגין סיום יהתחייבות	18	12	3	14
יםמיסים נדחהתחייבויות	28	123	32	140
ותאינן שוטפחייבויות שסה"כ הת		3,233	829	3,735
חייבויותסה"כ הת		5,093	1,305	6,148
החברהמניות שלך לבעלי ההון המשויי	19
הון מניות		1	-	1
קרן גידור		(2)	-	(3)
עודפים		1,170	300	1,078
שליטהינן מקנותזכויות שא		16	4	16
סה"כ הון		1,185	304	1,092
הוןחייבויות וסה"כ הת		6,278	1,609	7,240

תאריך אישור הדוחות הכספיים: 44 במרס, .2146

			לשנה שהסת	בדצמבריימה ביום 31
			תרגום נוחות
			אילדולר אמריק
			)ביאור 2 ד(
		2015	2015	2014	2013
	ביאור מיל	יוני ש"ח	מיליוני דולר	מיליוני ש"ח	מיליוני ש"ח
רותיםמכירות ושיהכנסות מ	22	4,180	1,071	4,570	4,927
תיםרות והשירועלות המכי	23 (	2,763)	(708)	(2,727)	(2,990)
רווח גולמי		1,417	363	1,843	1,937
ירה ושיווקהוצאות מכ	24 (	620)	(159)	(672)	(717)
תהלה וכלליוהוצאות הנ	25 (	465)	(119)	(463)	(570)
רות, נטווצאות( אחהכנסות )ה	26 (	22)	(6)	(46)	1
תלות רגילורווח מפעו		310	79	662	651
מוןהכנסות מי		55	14	100	156
מוןהוצאות מי		(232)	(59)	(298)	(402)
מון, נטוהוצאות מי	27 (	177)	(45)	(198)	(246)
הכנסהמיסים עלרווח לפני		133	34	464	405
הכנסהמיסים על	28 (	36)	(9)	(110)	(117)
רווח לשנה		97	25	354	288
ס ל:רווח מיוח
החברהבעלים של		95	25	351	287
שליטהנן מקנותזכויות שאי		2	-	3	1
רווח לשנה		97	25	354	288
הרווח למני	19
"ח(למניה )בשרווח בסיסי		0.95	0.24	3.51	2.89
"ח(למניה )בשרווח מדולל		0.95	0.24	3.48	2.86
ספרוקלל של מממוצע מש
רך חישובשימשו לצוהמניות ש
במניות(יסי למניה )הרווח הבס		100,589,458	100,589,458	99,924,306	99,495,525
ספרוקלל של מממוצע מש
רך חישובשימשו לצוהמניות ש
)במניות(ולל למניההרווח המד		100,589,530	100,589,530	100,706,282	100,319,724

		לשנה שהסת	בדצמבריימה ביום 31
	2015	תרגום נוחותאילדולר אמריק)ביאור 2 ד(2015	2014	2013
	מיליוני ש"ח	מיליוני דולר	מיליוני ש"ח	מיליוני ש"ח
רווח לשנה	97	25	354	288
שלאחרכולל אחרפריטי רווח
סגרתאשונה במההכרה לר
או יועברולל הועברוהרווח הכו
סדלרווח והפ
ל גידוריווי ההוגן ששינויים בש
ברו לדוחמנים שהועתזרים מזו
דרווח והפס	1	-	13	14
ל גידוריווי ההוגן ששינויים בש
מניםתזרים מזו	-	-	-	(16)
כוללפריטי רווחמסים בגין
עברוברו או שיואחר שהוע
עוקבותסד בשניםלרווח והפ	-	-	(3)	1
לל אחר)הפסד( כוסה"כ רווח
הה לראשונאחר ההכרלשנה של
לל הועברהרווח הכובמסגרת
ד, נטו ממרווח והפסאו יועבר ל	ס 1	-	10	(1)
שלאכולל אחרפריטי רווח
וח והפסדיועברו לרו
תכניתקטוארים בהפסדים א
ממסדרת, נטוהטבה מוג	(2)	-	(1)	(1)
חר לשנהסד כולל אסה"כ הפ
פסד, נטור לרווח והשלא יועב
ממס	(2)	-	(1)	(1)
חר, נטוד( כולל ארווח )הפס
ממס	(1)	-	9	(2)
הכולל לשנסה"כ רווח	96	25	363	286
ס ל:כולל מיוחסה"כ רווח
החברהבעלים של	94	25	360	285
שליטהנן מקנותזכויות שאי	2	-	3	1
הכולל לשנסה"כ רווח	96	25	363	286

דוחות מאוחדים על השינויים בהון

							תרגום נוחות
		הון המשוייך	ת של החברלבעלי המניו	ה	זכויות שאינן		אילדולר אמריק
	הון מניותמיליוני ש"ח	קרן הוןמיליוני ש"ח	עודפיםמיליוני ש"ח	סך הכלמיליוני ש"ח	מקנות שליטמיליוני ש"ח	ל הון (ביה סך הכמיליוני ש"ח	אור 2 ד)מיליוני דולר
20131 בינואריתרה ליום	1	(12)	509	498	2	500	128
לשנהרווח כולל
רווח לשנה	-	-	287	287	1	288	74
נה, נטול אחר לשהפסד כול
ממס	-	(1)	)1(	(2)	-	)2(	-
שנזקפום בעליםעסקאות ע
וןישירות לה
וסס מניותתשלום מב	-	-	9	9	-	9	2
מןשולם במזודיבידנד ש	-	-	(85)	(85)	-	(85)	(22)
ר 201331 בדצמביתרה ליום	1	(13)	719	707	3	710	182
לשנהרווח כולל
רווח לשנה	-	-	351	351	3	354	91
חרד( כולל ארווח )הפס
ממסלשנה, נטו	-	10	)1(	9	-	9	2
שנזקפום בעליםעסקאות ע
וןישירות לה
וסס מניותתשלום מב	-	-	3	3	-	3	1
כר בגיןאופציית מפקיעה של
שליטהנן מקנותזכויות שאי
אוחדתבחברה מ	-	-	6	6	10	16	4
ר 201431 בדצמביתרה ליום	1	(3)	1,078	1,076	16	1,092	280
לשנהרווח כולל
רווח לשנה	-	-	95	95	2	97	25
חרד( כולל ארווח )הפס
ממסלשנה, נטו	-	1	(2)	(1)	-	(1)	-
שנזקפום בעליםעסקאות ע
וןישירות לה
וסס מניותתשלום מב	-	-	3	3	-	3	1
מקנותכויות שאינןדיבידנד לז
ברת בתשליטה בח	-	-	-	-	(1)	(1)	-
זכויותנרשמו בגיןאופציות ש
בחברהת שליטהשאינן מקנו
מאוחדת	-	-	(4)	(4)	(1)	(5)	(2)
ר 201531 בדצמביתרה ליום	1	(2)	1,170	1,169	16	1,185	304

		לשנה שהס	ר31 בדצמבתיימה ביום
		תתרגום נוחוקאילדולר אמרי)ביאור 2 ד(
	2015	2015	2014	2013
	חמיליוני ש"	רמיליוני דול	חמיליוני ש"	חמיליוני ש"
תילות שוטפומנים מפעתזרימי מז
רווח לשנה	97	25	354	288
התאמות:
תותפחת והפח	562	144	610	676
וסס מניותתשלום מב	3	1	3	9
ועת רכוש קבח( ממכירהפסד )רוו	(1)	-	7	2
סיםהוצאות מ	36	9	110	117
מון, נטוהוצאות מי	177	45	198	246
חרותהכנסות א	-	-	-	(3)
בויות:ש והתחייסעיפי רכושינויים ב
ישינוי במלא	4	1	(5)	27
ארוך(חובות לזמןחות )כוללשינוי בלקו	209	54	422	576
ארוך(בות לזמןים )כולל חושינוי בחייב	(34)	(9)	(35)	(34)
הפרשותת לשלם וקים, הוצאושינוי בספחובותחרות )כוללחייבויות אשינוי בהת	(54)	(14)	(24)	(185)
לזמן ארוך(	(95)	(24)	36	(33)
נטוים נגזרים,בגין מכשירתשלומים	-	-	(6)	(17)
ששולםמס הכנסה	(68)	(18)	(119)	(119)
שהתקבלמס הכנסה	-	-	6	6
שוטפתמפעילותטו שנבעומזומנים נ	836	214	1,557	1,556

		לשנה שהס	ר31 בדצמבתיימה ביום
		תתרגום נוחו
		קאילדולר אמרי
		)ביאור 2 ד(
	2015	2015	2014	2013
	חמיליוני ש"	רמיליוני דול	חמיליוני ש"	חמיליוני ש"
לותמשו לפעיומנים ששיתזרימי מז
השקעה
ש קבוערכישת רכו	(305)	(78)	(289)	(275)
חשייםים בלתי מורכישת נכס	(91)	(23)	(77)	(90)
התקבלדיבידנד ש	2	-	-	1
פות, נטוקעות שוטשינוי בהש	231	59	(15)	(16)
ים נגזריםבגין מכשירתשלומים(תקבולים )
ואחרים, נט	-	-	4	(10)
קבועימוש רכושתמורה ממ	4	1	4	17
תקבלהריבית שה	15	4	23	29
ן ארוךפיקדון לזמפידיון של	48	12	-	-
ת השקעהשו לפעילוטו ששיממזומנים נ	(96)	(25)	(350)	(344)
לות מימוןמשו לפעיומנים ששיתזרימי מז
נטוים נגזרים,בגין מכשירתשלומים	(32)	(8)	(29)	(8)
יםארוך מבנקאות לזמןפרעון הלוו	-	-	(12)	(6)
חובבגין אגרותתשלומים	(873)	(224)	(1,092)	(1,124)
וי עלויותת חוב בניכנפקת אגרותמורה מה
הנפקה	(3)	(1)	326	-
שולםדיבידנד ש	(1)	-	(4)	(81)
למהריבית ששו	(227)	(58)	(295)	(350)
ת מימוןשו לפעילוטו ששיממזומנים נ	(1,136)	(291)	(1,106)	(1,569)
יםשווי מזומנמזומנים ושינויים ב	(396)	(102)	101	(357)
תחילתמזומנים למנים ושווייתרת מזו
השנה	1,158	297	1,057	1,414
ן עלער החליפינודות בשהשפעת ת
מזומניםמנים ושווייתרות מזו	(1)	-	-	-
סוף השנהמזומנים למנים ושווייתרת מזו	761	195	1,158	1,057

ביאור 3 - כללי

א. הישות המדווחת

סלקום ישראל בע"מ )להלן - "החברה"( הינה חברה תושבת ישראל, אשר התאגדה בישראל וכתובתה הרשמית היא רחוב הגביש 41 נתניה .4251718 הדוחות הכספיים המאוחדים של הקבוצה ליום 34 בדצמבר, ,2145 כוללים את החברה והחברות הבנות שלה )להלן - "הקבוצה"(. הקבוצה מפעילה ומתחזקת מערכת תקשורת סלולארית בישראל ומספקת שירותי תקשורת סלולארית וקווית, שירותי תשתית וגישה לאינטרנט, שירות שיחות בינלאומיות ושירותי טלוויזיה על גבי האינטרנט )הידועים כ- Services TV top the Over או Services TV OTT). החברה הינה חברת בת של חברת דיסקונט השקעות )חברת האם "דסק"ש"(, שבשליטת אי.די.בי חברה לפיתוח בע"מ, או אי.די.בי. בשנת 2145 השתנתה השליטה באי.די.בי וכתוצאה מכך בעקיפין בחברה )ראה בנוסף ביאור 32)5((.

ב. אירוע מהותי בתקופת הדיווח - שינוי אומדן

במהלך תקופת הדיווח שינתה החברה את אומדן משך השימוש החזוי בפרטי רכוש קבוע מסוימים. למידע נוסף ראה ביאור 2ה', בדבר בסיס עריכת הדוחות הכספיים.

ביאור 0 - בסיס עריכת הדוחות הכספיים

א. הצהרה על עמידה בתקני דיווח כספי בינלאומיים

הדוחות הכספיים המאוחדים הוכנו על ידי הקבוצה בהתאם לתקני דיווח כספי בינלאומיים )להלן: "IFRS)".

דוחות כספיים מאוחדים אלו, אושרו לפרסום על ידי דירקטוריון החברה ביום 44 במרס, .2146

ב. מטבע פעילות ומטבע הצגה

הדוחות הכספיים המאוחדים מוצגים בש"ח, שהינו מטבע הפעילות של הקבוצה, ומעוגלים למיליון הקרוב, למעט אם צוין אחרת. השקל הינו המטבע שמייצג את הסביבה הכלכלית העיקרית בה פועלת הקבוצה.

ג. בסיס המדידה

הדוחות הכספיים המאוחדים הוכנו על בסיס העלות ההיסטורית למעט הנכסים וההתחייבויות הבאים: השקעות שוטפות ומכשירים פיננסיים נגזרים הנמדדים בשווי הוגן דרך רווח והפסד, מלאי נמדד כנמוך מבין עלות או שווי מימוש נטו, נכסי והתחייבויות מיסים נדחים, נכסים והתחייבויות בגין הטבות לעובדים והפרשות.

למידע נוסף בדבר אופן המדידה של נכסים והתחייבויות אלו ראה ביאור ,3 בדבר עיקרי המדיניות החשבונאית.

ד. תרגום נוחות לדולרים של ארה"ב )"דולרים" או "$"(

לצורך נוחות קורא הדוחות הכספיים, המספרים המדווחים בש"ח ליום 34 בדצמבר 2145 ולשנה שהסתיימה באותו תאריך, הוצגו בדולר ארה"ב, לפי השער היציג של דולר ארה"ב כפי שפורסם על ידי בנק ישראל ליום 34 בדצמבר 2145 )$4.11 = 3.912 ש"ח(. אין להסיק כי, הסכום הדולרי המוצג בדוחות הכספיים מייצג סכומים לקבל או לשלם בדולרים, או שניתן להמירם לדולרים, אלא אם צוין אחרת.

ביאור 0 - בסיס עריכת הדוחות הכספיים )המשך(

ה. שימוש באומדנים ובשיקול דעת

שימוש באומדנים

מידע בדבר הערכות, אי ודאות ושיקול דעת קריטי לגבי הפרשות והתחייבויות תלויות, מפורט בביאורים 44 ו.34- בנוסף, מידע לגבי אומדנים קריטיים שנערכו תוך יישום המדיניות החשבונאית והם בעלי השפעה מהותית על הדוחות הכספיים מוצג להלן:

בחינת ירידת ערך של יתרות לקוחות וחייבים אחרים

הדוחות הכספיים כוללים ירידת ערך לקוחות וחייבים אחרים המשקפים באופן נאות, בהתאם להערכות ההנהלה, את ההפסד הפוטנציאלי מיתרות שאינן ניתנות לגביה. הקבוצה מפרישה לירידת ערך בהתבסס על ניסיון העבר בגביית חובות, וכן על בסיס מידע ספציפי על בעלי חוב. המרכיבים העיקריים של הפרשה זו הינם רכיב הפסד ספציפי המיוחס לחשיפות משמעותיות המזוהות בנפרד, ולרכיב הפסד גלובלי המבוסס על קבוצה של נכסים דומים בהתייחס להפסדים שאירעו אך עדיין לא זוהו. ההפרשה הגלובלית להפסד נקבעת על בסיס סטטיסטיקה של היסטוריית התשלומים בגין נכסים דומים. ראה בנוסף ביאור .24

בחינת ירידת ערך ואורך חיי נכסים

הקבוצה בוחנת באופן שוטף את הערך בספרים של נכסיה על מנת לקבוע האם קיימת אינדיקציה לביצוע ירידת ערך. ראה בנוסף ביאור 3ח'.

ערך החיים הכלכלי של נכסי הקבוצה נקבע על ידי ההנהלה בזמן רכישת הנכסים, ונאותותו נבחנת באופן שוטף. הקבוצה מגדירה את אורך חיי נכסיה בהתאם לתקופה הצפויה שבה עתידים הנכסים להפיק תועלת לקבוצה. הערכה זו מבוססת על ניסיון הקבוצה עם נכסים דומים. אורך החיים של רישיונות מבוסס על משך תקופת הרישיון. ראה בנוסף ביאורים 3ד' ו3-ו'.

בחינת ירידת ערך מוניטין

הקבוצה בוחנת ירידת ערך של יחידה מניבת מזומנים שיוחס לה מוניטין לפחות אחת לשנה. קביעת שווי שימוש מחייבת את ההנהלה לבצע אומדן של תזרימי מזומנים עתידיים הצפויים לנבוע משימוש מתמשך ביחידה מניבת המזומנים ואף לאמוד שיעור ניכיון מתאים לתזרימי מזומנים אלה המשקף את הערכות השוק לגבי ערך הזמן של הכסף והסיכונים הספציפיים המתייחסים ליחידה מניבת המזומנים. קביעת האומדנים של תזרימי המזומנים מתבססת על ניסיון העבר של ההנהלה, ועל מיטב הערכת ההנהלה לגבי התנאים הכלכליים שישררו במהלך יתרת אורך החיים השימושיים של היחידה מניבת המזומנים. ראה מידע נוסף בביאור 3ח'.

תביעות משפטיות

בהערכות סיכויי התביעות המשפטיות שהוגשו נגד החברה וחברות מוחזקות שלה, הקבוצה מביאה בחשבון את חוות דעת יועציה המשפטיים. הערכות אלה של היועצים המשפטיים מתבססות על מיטב שיפוטם המקצועי, בהתחשב בשלב בו מצויים ההליכים, וכן על הניסיון המשפטי שנצבר בנושאים השונים. מאחר שתוצאות התביעות תקבענה בבתי המשפט, עלולות תוצאות אלה להיות שונות מהערכות אלה. ראה בנוסף ביאור .34

עמדות מס לא וודאיות

בקביעת סכומי המיסים השוטפים והנדחים, הקבוצה לוקחת בחשבון את ההשפעה של אי הוודאות לעניין קבלת עמדות המס שלה )positions tax uncertain )והאם הקבוצה תישא בהוצאות מס וריבית נוספות. הקבוצה בדעה כי התחייבות המס המצטברת הינה נאותה עבור כל השנים אשר טרם נתקבלו בגינן שומות מס סופיות בהתבסס על ניתוח של מספר גורמים, לרבות פרשנויות של חוקי המס וניסיון העבר של הקבוצה. הערכה זו מתבססת על אומדנים והנחות אשר עשויים לכלול גם הערכות והפעלת שיקול דעת באשר לאירועים עתידיים. יתכן, כי בתקופות עתידיות, יתגלה מידע חדש אשר יצריך את הקבוצה לשנות את האומדן שלה באשר להתחייבות המס שהוכרה, שינויים כאמור ייזקפו כהוצאה מיידית באותה תקופה. ראה בנוסף ביאור .28

ביאור 0 - בסיס עריכת הדוחות הכספיים )המשך(

ה. שימוש באומדנים ובשיקול דעת )המשך(

שינוי באומדנים

במהלך שנת ,2145 עדכנה ההנהלה אומדן כדלהלן:

אומדן אורך החיים השימושיים של הרכיבים הפאסיביים של אתרי התא הסלולרי שכוללים בעיקר עבודות בינוי ותרנים )להלן - "הרכיבים הפאסיביים"(, הוערך מחדש לראשונה החל מתחילת הרבעון השני של 2145 ב41- שנים נוספות, לעומת 41 שנים כפי שהוערך בעבר, כך שמועד סיום ההפחתה בגינם יחול בשנת .2125

במהלך תקופת הדיווח, זכתה החברה בתדרים נוספים עבור רשת דור 4 )לפרטים נוספים, ראה ביאור 32)4((. בנוסף, החברה משקיעה וצפויה להמשיך להשקיע סכומים משמעותיים בגין ציוד רדיו עבור טכנולוגיית הדור הרביעי, המוצב על אתרי התא הסלולרי הקיימים. לאור האמור, נדרשה בחינה מחודשת של אומדן אורך החיים השימושיים של הרכיבים הפאסיביים. אומדן אורך החיים השימושיים של הרכיבים הפאסיביים נבחן בוועדת פחת תקופתית, ועל פי הערכת מומחי הנדסה, הרכיבים הפאסיביים ימשיכו לשמש את החברה בעשר השנים הקרובות. לפיכך, הוחלט על הארכת תקופת הפחת כאמור.

השפעת השינוי על הדוחות הכספיים השנתיים בשנה השוטפת ובשנים העוקבות הינה כדלקמן:

לאחר מכן	0232	0232	0232	0232	0235
		מיליוני ש"ח
)23(	3	32	32	05	02	ת הפחתל( בהוצאוקיטון )גידו

ו. להלן פירוט מדדי המחירים לצרכן )מדד ידוע( ושערי החליפין של הדולר של ארה"ב:

	של הדולרשערי חליפיןשל ארה"ב	ם לצרכןמדד המחירי)בנקודות(*
0235דצמבר,ליום 13 ב	1.220	003.15
2144דצמבר,ליום 34 ב	3.889	223.36
2143דצמבר,ליום 34 ב	3.474	223.58
ינוי :שיעורי הש
0235מבר,ום 13 בדצסתיימה בילשנה שנ	2.11%	)2.22%(
2144מבר,ם 34 בדצתיימה ביולשנה שנס	42.14%	)1.41%(
2143מבר,ם 34 בדצתיימה ביולשנה שנס	)7.12%(	4.94%

* לפי מדד בסיס .4993

ביאור 1 - מדיניות חשבונאית

כללי המדיניות החשבונאית המפורטת להלן יושמו בעקביות לכל התקופות המוצגות בדוחות מאוחדים אלה על ידי הקבוצה.

א. בסיס האיחוד

.3 חברות בנות

חברות בנות הינן ישויות הנשלטות על ידי החברה במישרין או בעקיפין. הדוחות הכספיים של חברות בנות נכללים בדוחות הכספיים המאוחדים מיום השגת השליטה ועד ליום אובדן השליטה. המדיניות החשבונאית של חברות בנות שונתה במידת הצורך על מנת להתאימה למדיניות החשבונאית שאומצה על ידי הקבוצה.

.0 זכויות שאינן מקנות שליטה

זכויות שאינן מקנות שליטה הן ההון בחברה בת שאינו ניתן לייחוס, במישרין או בעקיפין, לחברה האם. רווח או הפסד וכל רכיב של רווח כולל אחר מיוחסים לבעלים של החברה האם ולזכויות שאינן מקנות שליטה.

הנפקת אופציית מכר )put )לבעלי זכויות שאינן מקנות שליטה

אופציית מכר שהונפקה על ידי הקבוצה לבעלי זכויות שאינן מקנות שליטה המסולקת במזומן או במכשיר פיננסי אחר, מוכרת כהתחייבות בגובה הערך הנוכחי של תוספת המימוש. בתקופות עוקבות, שינויים בהתחייבויות בגין אופציית מכר שהונפקה על ידי הקבוצה לבעלי זכויות שאינן מקנות שליטה מוכרים בדוח רווח והפסד לפי שיטת הריבית האפקטיבית.

חלק הקבוצה ברווחי חברה בת כולל את חלקם של בעלי הזכויות שאינן מקנות שליטה, להם הנפיקה הקבוצה אופציית מכר.

.1 עסקאות שבוטלו באיחוד

יתרות הדדיות בקבוצה והכנסות והוצאות שטרם מומשו, הנובעות מעסקאות בין חברתיות, מבוטלות במסגרת הכנת הדוחות הכספיים המאוחדים.

ב. עסקאות במטבע חוץ

עסקאות במטבע חוץ מתורגמות לש"ח לפי שער החליפין שבתוקף בתאריכי העסקאות. נכסים והתחייבויות כספיים הנקובים במטבע חוץ במועד הדיווח, מתורגמים לש"ח לפי שער החליפין שבתוקף לאותו יום. נכסים והתחייבויות לא כספיים הנקובים במטבע חוץ והנמדדים לפי עלות היסטורית, מתורגמים לפי שער החליפין שבתוקף למועד העסקה. נכסים והתחייבויות לא כספיים הנקובים במטבע חוץ והנמדדים לפי שווי הוגן, מתורגמים לש"ח לפי שער החליפין שבתוקף ביום בו נקבע השווי ההוגן. הפרשי שער הנובעים מתרגום לש"ח מוכרים ברווח והפסד.

ג. מכשירים פיננסיים

הקבוצה יישמה באימוץ מוקדם את תקן דיווח כספי בינלאומי )2009) 9 IFRS, מכשירים פיננסיים )להלן "תקן 9"(, בהתייחס לסיווג ולמדידה של נכסים פיננסיים. תקן 9 דורש שחברה תסווג את נכסיה הפיננסיים כנמדדים בעלות מופחתת או בשווי הוגן בהתחשב במודל העסקי שלה לניהול הנכסים הפיננסיים ובתזרימי המזומנים החוזיים של אותם נכסים פיננסיים.

.3 נכסים פיננסיים שאינם נגזרים

הכרה לראשונה בנכסים פיננסיים

הקבוצה מכירה לראשונה בחייבים ובפיקדונות במועד היווצרותם. יתר הנכסים הפיננסיים הנרכשים בדרך הרגילה ) regular purchase way), לרבות נכסים אשר יועדו לשווי הוגן דרך רווח והפסד, מוכרים לראשונה במועד קשירת העסקה ) trade date )בו הקבוצה הופכת לצד לתנאים החוזיים של המכשיר, משמע המועד בו התחייבה הקבוצה לקנות או למכור את הנכס. נכסים פיננסיים נמדדים לראשונה בשווי הוגן. אם המדידה העוקבת של הנכס הפיננסי איננה בשווי הוגן דרך רווח והפסד, אזי המדידה לראשונה כוללת עלויות עסקה הניתנות לייחוס במישרין לרכישה או ליצירה של הנכס.

ג. מכשירים פיננסיים )המשך(

.3 נכסים פיננסיים שאינם נגזרים )המשך(

לאחר ההכרה לראשונה הקבוצה מודדת נכסים פיננסיים בשווי הוגן או בעלות מופחתת כמפורט להלן:

נכסים פיננסיים הנמדדים בעלות מופחתת

נכס פיננסי נמדד לאחר ההכרה לראשונה בעלות מופחתת, תוך שימוש בשיטת הריבית האפקטיבית ובניכוי הפסד מירידות ערך, אם הוא:

• מוחזק במסגרת מודל עסקי שמטרתו להחזיק בנכסים כדי לגבות את תזרימי המזומנים החוזיים;
• אם על פי התנאים החוזיים של הנכס הפיננסי, הוא מניב בתאריכים ספציפיים תזרימי מזומנים המהווים תשלומי קרן וריבית בלבד, וכן
• הקבוצה לא בחרה לייעדו לשווי הוגן דרך רווח והפסד כדי להפחית משמעותית או לבטל חוסר עקביות חשבונאית .)accounting mismatch(

נכסים פיננסיים הנמדדים בעלות מופחתת כוללים: מזומנים ושווי מזומנים, השקעות שוטפות, לקוחות, וחייבים ויתרות חובה. מזומנים ושווי מזומנים כוללים יתרות מזומנים הניתנים לשימוש מיידי ופיקדונות לפי דרישה. שווי מזומנים כוללים השקעות לזמן קצר אשר משך הזמן ממועד ההפקדה המקורי ועד למועד הפדיון הינו עד 3 חודשים, ברמת נזילות גבוהה אשר ניתנות להמרה בנקל לסכומים ידועים של מזומנים ואשר חשופות לסיכון בלתי משמעותי של שינויים בשווי.

נכסים פיננסיים הנמדדים בשווי הוגן

כל הנכסים הפיננסיים שאינם נמדדים בעלות מופחתת, נמדדים לאחר ההכרה לראשונה בשווי הוגן, כאשר כל השינויים בשוויים ההוגן נזקפים לרווח והפסד.

גריעת נכסים פיננסיים

נכסים פיננסיים נגרעים כאשר הזכויות החוזיות של הקבוצה לתזרימי המזומנים הנובעים מהנכס הפיננסי פוקעות, או כאשר הקבוצה מעבירה את הזכויות לקבל את תזרימי המזומנים הנובעים מהנכס הפיננסי בעסקה בה כל הסיכונים וההטבות מהבעלות על הנכס הפיננסי עוברים למעשה. מכירות נכסים פיננסים הנעשות בדרך הרגילה )sale way regular), מוכרות במועד קשירת העסקה )date trade), משמע, במועד בו התחייבה הקבוצה למכור את הנכס. לעניין מדיניות הקבוצה באשר לירידת ערך ראה סעיף ח'.

קיזוז מכשירים פיננסיים

נכס פיננסי והתחייבות פיננסית מקוזזים והסכומים מוצגים בנטו בדוח על המצב הכספי כאשר לקבוצה קיימת באופן מיידי )currently )זכות משפטית ניתנת לאכיפה לקזז את הסכומים שהוכרו וכן כוונה לסלק את הנכס וההתחייבות על בסיס נטו או לממש את הנכס ולסלק את ההתחייבות בו-זמנית.

.0 התחייבויות פיננסיות שאינן נגזרים

הקבוצה מכירה לראשונה במכשירי חוב שהונפקו במועד היווצרותם. יתר ההתחייבויות הפיננסיות מוכרות לראשונה במועד קשירת העסקה )date trade )בו הקבוצה הופכת לצד לתנאים החוזיים של המכשיר. התחייבויות פיננסיות מוכרות לראשונה בשווי הוגן בתוספת כל עלויות העסקה הניתנות לייחוס. לאחר ההכרה לראשונה, התחייבויות פיננסיות נמדדות בעלות המופחתת בהתאם לשיטת הריבית האפקטיבית.

התחייבויות פיננסיות שאינן נגזרים כוללות: אגרות חוב, ספקים וזכאים ויתרות זכות.

התחייבויות פיננסיות נגרעות כאשר מחויבות הקבוצה, כמפורט בהסכם, פוקעת או כאשר היא סולקה או בוטלה. נכסים פיננסיים והתחייבויות פיננסיות מקוזזים והסכומים מוצגים בנטו בדוח על המצב הכספי כאשר לקבוצה קיימת באופן מיידי )currently )זכות משפטית ניתנת לאכיפה לקזז את הסכומים שהוכרו וכן כוונה לסלק את הנכס וההתחייבות על בסיס נטו או לממש את הנכס ולסלק את ההתחייבות בו-זמנית.

שינוי תנאים של מכשירי חוב

החלפת מכשירי חוב, בעלי תנאים שונים באופן מהותי, בין לווה לבין מלווה קיימים מטופלת כסילוק ההתחייבות הפיננסית המקורית והכרה בהתחייבות פיננסית חדשה בשווי הוגן. במקרים כאמור כל ההפרש בין העלות המופחתת של ההתחייבות הפיננסית המקורית לבין השווי ההוגן של ההתחייבות הפיננסית החדשה מוכר ברווח והפסד בסעיף הכנסות או הוצאות מימון.

ג. מכשירים פיננסיים )המשך(

.0 התחייבויות פיננסיות שאינן נגזרים )המשך(

התנאים שונים באופן מהותי אם הערך הנוכחי המהוון של תזרימי המזומנים לפי התנאים החדשים, כולל עמלות כלשהן ששולמו, בניכוי עמלות כלשהן שהתקבלו ומהוון באמצעות שיעור הריבית האפקטיבי המקורי, הינו שונה לפחות בעשרה אחוזים מהערך הנוכחי המהוון של תזרימי המזומנים הנותרים של ההתחייבות הפיננסית המקורית. בנוסף למבחן הכמותי כאמור, הקבוצה בוחנת, בין היתר, האם חלו שינויים גם בפרמטרים כלכליים שונים הגלומים במכשירי החוב המוחלפים. לפיכך, ככלל, החלפות של מכשירי חוב צמודים למדד במכשירים שאינם צמודים למדד נחשבות כהחלפות בעלות תנאים שונים באופן מהותי גם אם אינן מקיימות את המבחן הכמותי שבוצע לעיל.

הרחבת סדרות אגרות חוב תמורת מזומן

בעת הרחבת סדרות אגרות חוב תמורת מזומן, נמדדות לראשונה אגרות החוב בהתאם לשווין ההוגן שהינו התמורה שנתקבלה בהנפקה )מאחר וזהו השוק המיטבי ביותר אשר למנפיק יש גישה מיידית אליו(, ללא כל הכרה ברווח או בהפסד בגין ההפרש בין תמורת ההנפקה לשווין הבורסאי של אגרות החוב הסחירות בסמוך להנפקתן.

.1 מכשירים פיננסיים נגזרים, לרבות חשבונאות גידור

הקבוצה מחזיקה מכשירים פיננסיים נגזרים לצרכי גידור סיכוני מטבע חוץ וסיכוני מדד המחירים לצרכן.

נגזרים מוכרים לראשונה לפי שווי הוגן; עלויות עסקה הניתנות לייחוס נזקפות לרווח והפסד עם התהוותן. לאחר ההכרה הראשונית, נמדדים הנגזרים לפי שווי הוגן. השינויים בשווי ההוגן מטופלים כמתואר להלן:

גידור תזרימי מזומנים

שינויים בשווי ההוגן של נגזרים המשמשים לגידור תזרימי מזומנים, בגין החלק המגדר האפקטיבי, נזקפים דרך רווח כולל אחר ישירות לקרן גידור. בגין החלק שאינו אפקטיבי, נזקפים השינויים בשווי ההוגן לרווח והפסד. הסכום שנצבר בקרן גידור נזקף לדוח רווח והפסד לכשהפריט המגודר נמכר או יוצא מרשות הקבוצה, ומוצג באותו הסעיף בדוח רווח והפסד בו נמצא הפריט המגודר.

אם המכשיר המגדר אינו עונה עוד לקריטריונים לגידור חשבונאי, או שהוא פוקע או נמכר, מבוטל או ממומש, אזי נפסק הטיפול לפי חשבונאות גידור מאותו מועד ואילך. הרווח או ההפסד שנצבר קודם לכן בקרן גידור דרך רווח כולל אחר, נשאר בקרן עד אשר תתקיים העסקה החזויה או עד אשר העסקה החזויה אינה צפויה עוד להתקיים. הסכום שנצבר בקרן הגידור מועבר לרווח והפסד בתקופה שבה משפיע הסעיף המגודר על רווח והפסד.

גידור כלכלי

חשבונאות גידור אינה מיושמת לגבי מכשירים נגזרים המשמשים לגידור כלכלי של נכסים והתחייבויות פיננסיים הנקובים במטבע חוץ או צמודים למדד המחירים לצרכן. השינויים בשווי ההוגן של נגזרים אלה נזקפים לדוח רווח והפסד, כהכנסות או הוצאות מימון.

.4 מכשירים פיננסיים צמודי מדד שאינם נמדדים לפי שווי הוגן

ערכם של נכסים והתחייבויות צמודי מדד, שאינם נמדדים לפי שווי הוגן, משוערך בכל תקופה בהתאם לשיעור עליית או ירידת המדד בפועל.

ד. רכוש קבוע

פריטי רכוש קבוע נמדדים לפי העלות בניכוי פחת שנצבר והפסדים מצטברים מירידת ערך. העלות כוללת את העלויות הניתנות לייחוס ישיר לרכישת הנכס.

עלות נכסים שהוקמו באופן עצמי כוללת את עלות החומרים ושכר עבודה ישיר, וכן כל עלות נוספת שניתן לייחס במישרין להבאת הנכס למיקום ולמצב הדרושים לכך שהוא יוכל לפעול באופן שהתכוונה ההנהלה, וכן אומדן עלויות פירוק ופינוי הפריטים ושיקום האתר בו ממוקם הפריט )כאשר קיימת מחויבות לפירוק ופינוי או שיקום האתר(. עלות תוכנה שנרכשה, המהווה חלק בלתי נפרד מהציוד הקשור, מוכרת כחלק מעלות ציוד זה.

רשתות התקשורת מורכבות ממספר רכיבים משמעותיים בעלי אורך חיים שונה. רכיבים אלו מטופלים בנפרד, כאשר כל רכיב מופחת על פני אורך החיים השימושיים שלו.

שינויים במחויבות לפירוק ופינוי פריטים ושיקום האתר בו הם ממוקמים, למעט שינויים הנובעים מחלוף הזמן, מתווספים או מנוכים מעלות הנכס בתקופה בה מתרחשים. הסכום שמנוכה מעלות הנכס אינו עולה על ערכו בספרים והיתרה, אם קיימת, מוכרת בדוח רווח והפסד.

ד. רכוש קבוע )המשך(

רווח או הפסד מגריעת פריט רכוש קבוע נקבע באמצעות השוואת התמורה נטו מגריעת הרכוש הקבוע לערכו בספרים, ומוכר בנטו בסעיף "הוצאות אחרות, נטו" בדוח רווח והפסד.

עלות החלפת חלק מפריט רכוש קבוע ועלויות עוקבות אחרות מוכרות כחלק מהערך בספרים של אותו פריט אם צפוי כי ההטבה הכלכלית העתידית הגלומה בחלק שהוחלף תזרום אל הקבוצה ואם עלותו ניתנת למדידה באופן מהימן. הערך בספרים של החלק שהוחלף נגרע. עלויות תחזוקה שוטפות של פריטי רכוש קבוע נזקפות לרווח והפסד עם התהוותן.

פחת הוא הקצאה שיטתית של הסכום בר-פחת של נכס על פני אורך חייו השימושיים. נכס מופחת כאשר הוא זמין לשימוש, דהיינו, כאשר הוא הגיע למיקום ולמצב הדרושים על מנת שיוכל לפעול באופן שהתכוונה ההנהלה.

פחת נזקף לדוח רווח והפסד לפי שיטת הקו הישר על פני אומדן אורך החיים השימושי של כל חלק מפריטי הרכוש הקבוע. שיעורי הפחת לתקופה השוטפת ולתקופות ההשוואה הינם כדלקמן:

	%
שורתרשת התק	5-25
דיקהשת וציוד בבקרת הר	45-25
כלי רכב	45-33
יוד חומרהמחשבים וצ	45-33
ריהוט וציוד	6-33

שיפורים במושכר - מופחתים על פני הקצר מבין תקופת השכירות לבין אורך החיים השימושיים.

האומדנים בדבר שיטת הפחת ואורך החיים השימושיים נבחנים מחדש לפחות בכל סוף שנת דיווח ומותאמים בעת הצורך.

ה. זכויות שימוש בקווי תקשורת

הקבוצה מיישמת את 4 IFRIC -" קביעה האם הסדר כולל חכירה", אשר מגדיר קריטריונים לקביעה בתחילת ההסדר, האם זכות לשימוש בנכס מהווה הסדר חכירה.

בהתאם ל- 4 IFRIC, כאמור לעיל, עסקאות לרכישת זכות שימוש בלתי הדירה בקיבולת כבלים תת ימיים מטופלות כעסקאות קבלת שירות. הסכום ששולם בגין זכויות השימוש בקווי תקשורת מוכר כהוצאה מראש ומופחת בקו ישר על פני התקופה הנקובה בהסכם, לרבות תקופת האופציה אשר מהווים את אומדן אורך החיים השימושיים של אותן קיבולות.

ו. נכסים בלתי מוחשיים

נכסים בלתי מוחשיים כוללים מוניטין, נכסים שנרכשו במהלך צירוף עסקים, עלויות בגין רישיונות ,תוכנות, מערכות מידע והוצאות נדחות.

• .4 מוניטין שנוצר כתוצאה מרכישה של חברות בנות, מוצג במסגרת נכסים בלתי מוחשיים. בתקופות עוקבות מוניטין נמדד לפי עלות בניכוי הפסדים מירידת ערך שנצברו.
  • .2 קשרי לקוחות עודף עלות שיוחס בחברות בנות לקשרי לקוחות. קשרי לקוחות אלה הינם בעלי אורך חיים מוגדר.
• .3 נכסים בלתי מוחשיים אחרים מוצגים על בסיס עלות, בניכוי הפחתה שנצברה ובניכוי הפסדים מירידת ערך, וכוללים עלויות ישירות הנדרשות להבאת הנכסים לכלל הפעלה.
• .4 עלויות פיתוח ישירות ועקיפות מסוימות הנובעות מפיתוח תוכנת מערכת מידע לשימוש עצמי, ועלויות שכר עבודה לעובדים העוסקים בפיתוח תוכנות במהלך שלב הפיתוח, מהוונות. עלויות אלו מופחתות לפי שיטת הקו הישר החל מהמועד בו הנכס מוכן לשימוש. עלויות שהתהוו במהלך שלב המחקר ולאחר שהנכס מוכן לשימוש, נרשמות כהוצאה בדוח רווח והפסד.
• .5 עלויות עוקבות מוכרות כנכס בלתי מוחשי אך ורק כאשר הן מגדילות את ההטבה הכלכלית העתידית הגלומה בנכס בגינו הן הוצאו. יתר העלויות נזקפות לרווח והפסד עם התהוותן.

ו. נכסים בלתי מוחשיים )המשך(

.6 הפחתה היא הקצאה שיטתית של הסכום בר-פחת של נכס בלתי מוחשי על פני אורך חייו השימושיים. הפחתה נזקפת לדוח רווח והפסד לפי שיטת הקו הישר, למעט קשרי לקוחות שנרכשו במהלך צירופי עסקים אשר מופחתים על פי קצב ההטבות הצפויות מנכס זה בכל תקופה )ועד 2149(. שיעורי ההפחתה לתקופה השוטפת ולתקופות ההשוואה הינם כדלקמן:

	%
רישיונות	ר 6(5-6 )בעיק
דעמערכות מי	25
תוכנות	45-25

למוניטין יש אורך חיים בלתי מוגדר ואינו מופחת באופן שיטתי אך נבחנת לגביו ירידת ערך לפחות אחת לשנה.

האומדנים בדבר שיטת ההפחתה ואורך החיים השימושיים נבחנים מחדש לפחות בכל סוף שנה ומותאמים בעת הצורך.

הקבוצה בוחנת את אומדן אורך החיים השימושי של נכס בלתי מוחשי שאינו מופחת לפחות אחת לשנה על מנת לקבוע האם האירועים והנסיבות ממשיכים לתמוך בקביעה כי לנכס הבלתי מוחשי אורך חיים בלתי מוגדר.

ז. מלאי

מלאי הטלפונים הסלולאריים, האביזרים הנלווים וחלקי החילוף נמדד כנמוך מבין העלות וערך המימוש נטו. העלות נקבעת לפי שיטת הממוצע הנע. עלות המלאי המשמש את התקשורת הקווית נקבעת לפי בסיס "נכנס ראשון - יוצא ראשון". הקבוצה בוחנת מדי תקופה את מצב המלאי וגילו ומבצעת הפרשות לירידת ערך מלאי בהתאם לצורך.

ח. ירידת ערך

.3 נכסים פיננסיים שאינם נגזרים

ירידת ערך של נכס פיננסי שאינו מוצג בשווי הוגן דרך רווח והפסד נבחנת כאשר קיימת ראייה אובייקטיבית לכך שאירוע הפסד התרחש לאחר מועד ההכרה לראשונה בנכס ואירוע הפסד זה השפיע באופן שלילי על אומדן תזרימי המזומנים העתידיים של הנכס הניתן לאמידה מהימנה.

הפסד מירידת ערך של נכס פיננסי, הנמדד לפי עלות מופחתת, מחושב כהפרש בין ערך הנכס בספרים לבין הערך הנוכחי של אומדן תזרימי המזומנים העתידיים, מהוון בשיעור הריבית האפקטיבית המקורית של הנכס. כל ירידות הערך נזקפות לרווח והפסד.

הפסד מירידת ערך מבוטל כאשר ניתן לייחסו באופן אובייקטיבי לאירוע שהתרחש לאחר ההכרה בהפסד מירידת הערך. ביטול הפסד מירידת ערך בגין נכסים פיננסיים הנמדדים לפי עלות מופחתת, נזקף לרווח והפסד.

.0 רכוש קבוע ונכסים בלתי מוחשיים

הערך בספרים של רכוש קבוע ונכסים בלתי מוחשיים בעלי אורך חיים מוגדר, נבדק בכל מועד דיווח כדי לקבוע האם קיימים סימנים המצביעים על ירידת ערך. באם קיימים סימנים, כאמור, מחושב אומדן סכום בר ההשבה של הנכס.

אחת לשנה בתאריך קבוע, עבור כל יחידה מניבת מזומנים הכוללת מוניטין, או נכסים בלתי מוחשיים בעלי אורך חיים בלתי מוגדר, מבצעת הקבוצה הערכה של הסכום בר ההשבה, או באופן תכוף יותר אם קיימים סימנים לירידת ערך.

למטרת בחינת ירידת ערך, נכסים אשר אינם ניתנים לבחינה פרטנית מקובצים יחד לקבוצת הנכסים הקטנה ביותר אשר מניבה תזרימי מזומנים משימוש מתמשך, אשר הינם בלתי תלויים בעיקרם בנכסים ובקבוצות אחרות )"יחידה מניבת מזומנים"(.

הסכום בר ההשבה של נכס או של יחידה מניבת מזומנים הינו הגבוה מבין שווי שימוש לבין שווי הוגן, בניכוי הוצאות מכירה. בקביעת שווי השימוש, מהוונת הקבוצה את תזרימי המזומנים העתידיים החזויים לפי שיעור היוון לפני מיסים, המשקף את הערכות השוק לגבי ערך הזמן של הכסף והסיכונים הספציפיים המתייחסים לנכס או ליחידה מניבת המזומנים, בגינם לא הותאמו תזרימי המזומנים העתידיים הצפויים לנבוע מהנכס או מהיחידה מניבת המזומנים.

ח. ירידת ערך )המשך(

יחידות מניבות מזומנים אליהן הוקצה מוניטין מקובצות כך שהרמה בה נבחנת ירידת ערך של מוניטין משקפת את הרמה הנמוכה ביותר בה המוניטין נתון למעקב למטרת דיווח פנימי. הקבוצה עוקבת אחר המוניטין ברמת מגזרי פעילות.

הפסד מירידת ערך מוכר כאשר הערך בספרים של הנכס או של יחידה מניבת מזומנים עולה על הסכום בר ההשבה, ונזקף לרווח והפסד. הפסדים מירידת ערך שהוכרו לגבי יחידות מניבות מזומנים, מוקצים תחילה להפחתת הערך בספרים של מוניטין שיוחס ליחידות אלה ולאחר מכן להפחתת הערך בספרים של הנכסים האחרים ביחידה מניבת המזומנים, באופן יחסי.

ט. הטבות לעובדים

.3 הטבות לאחר סיום העסקה

חלק מהמחויבות של הקבוצה להטבות לאחר סיום העסקה מכוסות על ידי תכנית הפקדה מוגדרת הממומנת על ידי הפקדות לחברות ביטוח או לקרנות המנוהלות בידי נאמן. תכנית להפקדה מוגדרת הינה תכנית לאחר סיום העסקה שלפיה הקבוצה משלמת תשלומים קבועים לישות נפרדת מבלי שתהיה לה מחויבות משפטית או משתמעת לשלם תשלומים נוספים. מחויבות הקבוצה להפקיד בתכנית הפקדה מוגדרת נזקפת כהוצאה לרווח והפסד בתקופות שבמהלכן סיפקו העובדים שירותים. כמו כן, קיימת בקבוצה התחייבות נטו בגין תכנית הטבה מוגדרת. תכנית להטבה מוגדרת הינה תכנית הטבה לאחר סיום העסקה שאינה תכנית להפקדה מוגדרת. הטבה זו מוצגת לפי ערך נוכחי בניכוי השווי ההוגן של נכסי התוכנית ומחושבת על בסיס אקטוארי, הכרוך, בין היתר, בקביעת הנחות לגבי שיעורי היוון, תשואה על נכסי התוכנית, שיעור עליית השכר ושיעורי תחלופת עובדים. קיימת אי ודאות משמעותית בגין אומדנים אלו בשל היות התוכניות לזמן ארוך. למידע נוסף, ראה ביאור .48

הקבוצה זוקפת מיידית, דרך רווח כולל אחר ישירות לעודפים, את כל הרווחים וההפסדים האקטואריים הנובעים מתכנית הטבה מוגדרת. עלויות ריבית ותשואה צפויה על נכסי התוכנית שנזקפו לרווח והפסד, מוצגות בסעיפי הכנסות והוצאות מימון בהתאמה.

.0 הטבות בגין פיטורין

הטבות בגין פיטורין מוכרות כהוצאה כאשר הקבוצה התחייבה באופן מובהק, ללא אפשרות ממשית לביטול, לפיטורי עובדים, לפני הגיעם למועד הפרישה המקובל על פי תכנית פורמלית מפורטת, או לספק הטבות בגין פיטורין כתוצאה מהצעה שנעשתה בכדי לעודד פרישה מרצון. הטבות הניתנות לעובדים בפרישה מרצון נזקפות כהוצאה כאשר הקבוצה הציעה לעובדים תכנית המעודדת פרישה מרצון, וכאשר צפוי שההצעה תתקבל וניתן לאמוד באופן מהימן את מספר הנענים להצעה.

.1 הטבות עובד לזמן קצר

מחויבות בגין הטבות לעובדים לזמן קצר נמדדות על בסיס לא מהוון, וההוצאה נזקפת בעת שניתן השירות המתייחס. הפרשה בגין הטבות לעובדים לזמן קצר מוכרת כאשר לקבוצה יש מחויבות נוכחית משפטית או משתמעת לשלם את הסכום האמור בגין שירות שניתן על ידי העובד בעבר וניתן לאמוד באופן מהימן את הסכום.

סיווג הטבות לעובדים, לצרכי מדידה, כהטבות לטווח קצר או כהטבות אחרות לטווח ארוך נקבע בהתאם לתחזית הקבוצה לסילוק המלא של ההטבות.

.4 תשלומים מבוססי מניות

השווי ההוגן במועד ההענקה של אופציות לעובדים נזקף כהוצאת שכר ונלוות במקביל לגידול בעודפים, על פני התקופה בה מושגת זכאות בלתי מותנית של העובדים לאופציות.

השווי ההוגן נמדד תוך שימוש במודל בלק ושולס. משך החיים הצפוי של האופציות לפי המודל הותאם, בהתאם להערכות ההנהלה, כדי להביא בחשבון הגבלות מימוש ושיקולים התנהגותיים.

י. הפרשות

הפרשה מוכרת כאשר לקבוצה יש מחויבות נוכחית, משפטית או משתמעת, כתוצאה מאירוע שהתרחש בעבר, הניתנת לאמידה בצורה מהימנה, וכאשר צפוי כי יידרש תזרים שלילי של הטבות כלכליות לסילוק המחויבות. ההפרשות נמדדות על פי אומדן ההנהלה הטוב ביותר באשר להוצאות הדרושות לסילוק ההתחייבות לתאריך הדיווח.

הפרשה בגין תביעות משפטיות מוכרת כאשר לקבוצה קיימת מחויבות משפטית בהווה או מחויבות משתמעת כתוצאה מאירוע שהתרחש בעבר, יותר סביר מאשר לא )not than likely more )כי הקבוצה תידרש למשאביה הכלכליים לסילוק המחויבות וניתן לאמוד אותה באופן מהימן.

יא. הכנסות

הכנסות הנובעות ממתן שירותים, הכוללות שירותי סלולר, שירותי תשתית וגישה לאינטרנט, שיחות בינלאומיות, שיחות נייחות מקומיות, קישורי גומלין, שירותי נדידה, שירותי תוכן וערך מוסף ושירותי טלוויזיה על גבי האינטרנט, נרשמות עם מתן השירותים באופן יחסי לשלב השלמת העסקה, כאשר כל הקריטריונים להכרה בהכנסה התקיימו.

עסקת מכירת ציוד קצה כרוכה, בדרך כלל, בעסקה למכירת שירותים. על פי רוב, מכירת הציוד ללקוח נעשית ללא התחייבות חוזית של הלקוח לצרוך שירותים בסכום מינימאלי לתקופה מוגדרת מראש. כפועל יוצא, הקבוצה מתייחסת לעסקת הציוד כעסקה נפרדת ומכירה בהכנסות מציוד טלפון סלולארי בהתאם לשווי העסקה במועד מסירת הציוד ללקוח. ההכנסות משירותים מוכרות ונרשמות עם מתן השירותים.

כאשר ללקוח יש התחייבות חוזית מול הקבוצה לצרוך שירותים בסכום מינימאלי לתקופה מוגדרת מראש, החוזה מאופיין כעסקה מרובת רכיבים, ההכנסה מציוד טלפון סלולארי נרשמת בסכום שאינו גבוה משוויו ההוגן של הציוד האמור שאינו תלוי במסירת רכיבים נוספים )כגון שירותים( ומּוכרת כהכנסות מציוד בעת המסירה ללקוח וכאשר מתקיימים התנאים להכרה בהכנסה. הקבוצה קובעת את השווי ההוגן של כל רכיב על בסיס המחיר בו הוא נמכר באופן נפרד במהלך העסקים הרגיל, לרבות הנחות, במידה וניתנות.

הקבוצה מציעה שירותים אחרים, כגון אחריות מורחבת על ציוד, הניתנים עבור תשלום חודשי ונמכרים בנפרד או בחבילה כחלק מתוכנית תעריפים. הכנסות משירותים אלו מוכרות על פני תקופת השירות.

הכנסות הנובעות מהסדרי אשראי לזמן ארוך נרשמות על בסיס הערך הנוכחי של תזרימי המזומנים העתידיים, מהוונים לפי שיעורי ריבית השוק במועד העסקה. ההפרש בין הסכום המקורי של האשראי לבין ערכו הנוכחי, כאמור לעיל, נפרס על פני תקופת האשראי ונרשם כהכנסות ריבית לאורך תקופת האשראי.

תקבולים ממכירת כרטיסי חיוג נרשמים תחילה כהכנסה נדחית ונזקפים כהכנסה בהתאם לשימוש בהם או כאשר פג תוקפם.

כאשר הקבוצה פועלת כסוכנת או כמתווכת מבלי לשאת בסיכונים ובהטבות הנגזרים מהעסקה, ההכנסות מוצגות על בסיס נטו )כרווח או עמלה(. לעומת זאת, כאשר הקבוצה פועלת כספק עיקרי ונושאת בסיכונים ובתשואות הנגזרים מהעסקה, ההכנסות מוצגות על בסיס ברוטו, תוך אבחנה בין ההכנסה וההוצאה בגינה.

יב. עלות המכירות

עלות המכירות כוללת בעיקר עלויות רכישת ציוד קצה, משכורות והוצאות נלוות, עלויות שירותי ערך מוסף, הוצאות תמלוגים, דמי רישוי שוטפים, הוצאות על קישורי גומלין ונדידה, עלויות שכירות של אתרי תא, הוצאות פחת והפחתות והוצאות תחזוקה, הקשורות באופן ישיר למתן השירותים.

הקבוצה מכירה בהנחות המתקבלות מספקיה כהקטנת עלות הקניות. לפיכך, חלק מההנחות, בגין אותו חלק מהקניות המתווסף למלאי הסגירה, מיוחס למלאי, והחלק הנותר של ההנחות מקטין את עלות המכירות.

יג. הוצאות פרסום

הוצאות פרסום מוכרות כהוצאה עם התהוותן.

יד. תשלומי חכירה

תשלומים שבוצעו במסגרת חכירות תפעוליות נזקפים לדוח רווח והפסד לפי שיטת הקו הישר על פני תקופת החכירה.

טו. הכנסות והוצאות מימון

הכנסות מימון כוללות הכנסות ריבית בגין פיקדונות, הכנסות ריבית ממכירות באשראי, רווח מעסקאות הגנה, הכנסות בגין הפרשי שער והכנסות מהשקעות בבטוחות חוב. הכנסות ריבית מוכרות בדוח רווח והפסד עם צבירתן באמצעות שיטת הריבית האפקטיבית.

הוצאות מימון כוללות הוצאות ריבית והצמדה על הלוואות ואגרות חוב, הפסד מעסקאות הגנה, הוצאות בגין הפרשי שער ושינויים בהיוון הפרשות הנובעות מחלוף הזמן. עלויות האשראי נזקפות לדוח רווח והפסד לפי שיטת הריבית האפקטיבית.

בדוחות על תזרימי מזומנים, ריבית שהתקבלה ודיבידנדים שהתקבלו מוצגים במסגרת תזרימי מזומנים מפעילות השקעה. ריביות ששולמו ודיבידנדים ששולמו מוצגים במסגרת תזרימי מזומנים מפעילות מימון.

טו. הכנסות והוצאות מימון )המשך(

הכנסות או הוצאות מימון בגין רווחים והפסדים ממטבע חוץ, שערוך השקעות בבטוחות חוב ומכשירים מגדרים המוכרים ברווח והפסד מוצגים בנטו.

שינויים בשווי ההוגן של נכסים פיננסיים המוצגים בשווי הוגן דרך רווח והפסד כוללים גם הכנסות מדיבידנדים וריביות.

טז. מיסים על ההכנסה

מיסים על הכנסה כוללים מיסים שוטפים ונדחים. מיסים שוטפים ונדחים נזקפים לדוח רווח והפסד, אלא אם המס נובע מצירוף עסקים, או נזקפים ישירות להון או לרווח כולל אחר במידה ונובעים מפריטים אשר מוכרים ישירות בהון או ברווח כולל אחר.

המס השוטף הינו סכום המס הצפוי להשתלם על ההכנסה החייבת במס לשנה, כשהוא מחושב לפי שיעורי המס החלים לפי החוקים שנחקקו או נחקקו למעשה למועד הדיווח, והכולל שינויים בתשלומי המס המתייחסים לשנים קודמות.

הקבוצה מקזזת נכסי והתחייבויות מיסים שוטפים במידה וקיימת זכות משפטית ניתנת לאכיפה לקיזוז נכסי והתחייבויות מיסים שוטפים, וכן קיימת כוונה לסלק נכסי והתחייבויות מיסים שוטפים על בסיס נטו או שנכסי והתחייבויות המיסים השוטפים מיושבים בו זמנית.

ההכרה במיסים נדחים הינה בהתייחס להפרשים זמניים בין הערך בספרים של נכסים והתחייבויות לצורך דיווח כספי לבין ערכם לצרכי מיסים. המיסים הנדחים נמדדים לפי שיעורי המס הצפויים לחול על ההפרשים הזמניים במועד בו ימומשו, בהתבסס על החוקים שנחקקו נכון לתאריך הדיווח. הקבוצה מקזזת נכסי והתחייבויות מיסים נדחים במידה וקיימת זכות משפטית ניתנת לאכיפה לקיזוז נכסי והתחייבויות מיסים נדחים, והם מיוחסים לאותה הכנסה חייבת במס הממוסה על ידי אותה רשות מס באותה קבוצה נישומה, או בחברות שונות, אשר בכוונתן לסלק נכסי והתחייבות מיסים נדחים על בסיס נטו או שנכסי והתחייבויות המיסים הנדחים מיושבים בו-זמנית.

נכס מס נדחה מוכר בספרים כאשר צפוי שבעתיד תהיה הכנסה חייבת, שכנגדה ניתן יהיה לנצל את ההפרשים הזמניים. נכסי המיסים הנדחים נבדקים בכל תאריך מאזן, ובמידה ולא צפוי כי הטבות המס המתייחסות יתממשו, הם מופחתים.

הפרשה בגין עמדות מס לא וודאיות, לרבות הוצאות מס וריבית נוספות, מוכרת כאשר יותר צפוי מאשר לא כי הקבוצה תידרש למשאביה הכלכליים לסילוק המחויבות.

יז. רווח למניה

החברה מציגה נתוני רווח למניה בסיסי ומדולל לגבי הון המניות הרגילות שלה. הרווח הבסיסי למניה מחושב על ידי חלוקת הרווח או ההפסד המיוחסים לבעלי המניות הרגילות של החברה במספר הממוצע המשוקלל של המניות הרגילות שהיו במחזור במשך התקופה. הרווח המדולל למניה נקבע על ידי התאמת הרווח או ההפסד, המתייחס לבעלי המניות הרגילות והתאמת הממוצע המשוקלל של המניות הרגילות שבמחזור בגין ההשפעות של כל המניות הרגילות הפוטנציאליות המדללות, הכוללות אופציות למניות שהוענקו לעובדים.

יח. תקנים חדשים שטרם אומצו

תקן דיווח כספי בינלאומי )2014) 9 IFRS, מכשירים פיננסיים

)2014) 9 IFRS הינו גרסה סופית של התקן, הכוללת הוראות מעודכנות לסיווג ומדידה של מכשירים פיננסיים, וכן מודל חדש למדידת ירידת ערך של נכסים פיננסיים. הוראות אלו מתווספות לפרק בנושא חשבונאות גידור - כללי שפורסם בשנת .2143

סיווג ומדידה

בהתאם לתקן, ישנן שלוש קטגוריות עיקריות למדידת נכסים פיננסיים: עלות מופחתת, שווי הוגן דרך רווח והפסד ושווי הוגן דרך רווח כולל אחר. בסיס הסיווג לגבי מכשירי חוב מתבסס על המודל העסקי של הישות לניהול נכסים פיננסיים ועל מאפייני תזרימי המזומנים החוזיים של הנכס הפיננסי. השקעה במכשירים הוניים תימדד בשווי הוגן דרך רווח והפסד )אלא אם החברה בחרה, בעת ההכרה הראשונית, להציג את השינויים בשווי ההוגן ברווח הכולל האחר(. התקן דורש כי השינויים בשווי ההוגן של התחייבויות פיננסיות שיועדו לשווי הוגן דרך רווח והפסד המיוחסים לשינוי בסיכון האשראי העצמי יוכרו לרוב ברווח כולל אחר.

חשבונאות גידור - כללי

בהתאם לתקן, אסטרטגיות גידור נוספות אשר נעשה בהן שימוש לצורכי ניהול סיכונים עשויות להיות כשירות לחשבונאות גידור. התקן מחליף את מבחן ה- 425% - 81% הנוכחי לקביעת אפקטיביות הגידור, בדרישה לקשר כלכלי בין הפריט המגודר לבין המכשיר המגדר, מבלי לקבוע סף כמותי. בנוסף, התקן מציג מודלים חדשים המהווים חלופות לחשבונאות גידור בהתייחס לחשיפות אשראי ולחוזים מסוימים אשר אינם בתחולת התקן וקובע עקרונות חדשים לטיפול במכשירים מגדרים. כמו כן, התקן קובע דרישות גילוי חדשות.

ירידת ערך של נכסים פיננסיים

התקן כולל מודל חדש להכרה בהפסדי אשראי צפויים )'model' loss credit expected). עבור מרבית נכסי החוב הפיננסיים. המודל החדש מציג גישת מדידה דואלית של ירידת ערך: אם סיכון האשראי המיוחס לנכס הפיננסי לא עלה באופן משמעותי מאז ההכרה לראשונה, תירשם הפרשה להפסד בגובה הפסדי האשראי הצפויים בשל אירועי כשל אשר התרחשותם אפשרית במהלך שנים-עשר החודשים לאחר מועד הדיווח. אם סיכון האשראי עלה באופן משמעותי, במרבית המקרים ההפרשה לירידת ערך תגדל ותירשם בגובה הפסדי האשראי הצפויים על פני מלוא אורך החיים של הנכס הפיננסי.

התקן ייושם לתקופות שנתיות המתחילות ביום 4 בינואר ,2148 עם אפשרות לאימוץ מוקדם. התקן ייושם, למפרע, למעט מספר הקלות.

הקבוצה טרם החלה בבחינת ההשלכות של אימוץ התקן על הדוחות הכספיים.

תקן דיווח כספי בינלאומי 15 IFRS, הכנסה מחוזים עם לקוחות

התקן מחליף את ההנחיות הקיימות כיום בנוגע להכרה בהכנסה מחוזים עם לקוחות ומציג מודל חדש להכרה בהכנסה מחוזים כאמור. התקן קובע שתי גישות להכרה בהכנסה: בנקודת זמן אחת או על פני זמן. המודל כולל חמישה שלבים לניתוח עסקאות על מנת לקבוע את עיתוי ההכרה בהכנסה ואת סכומה. כמו כן, התקן מרחיב את דרישות הגילוי הקיימות כיום.

התקן ייושם לתקופות שנתיות המתחילות ביום 4 בינואר ,2148 עם אפשרות ליישום מוקדם. התקן כולל חלופות שונות עבור יישום הוראות המעבר, כך שחברות יוכלו לבחור באחת מהחלופות הבאות בעת היישום לראשונה: יישום רטרוספקטיבי מלא; יישום רטרוספקטיבי מלא הכולל הקלות פרקטיות; או יישום התקן החל מיום היישום לראשונה תוך התאמת יתרת העודפים למועד זה בגין עסקאות שטרם הסתיימו.

הקבוצה בוחנת את השלכות התקן על הדוחות הכספיים.

תקן דיווח כספי בינלאומי 16 IFRS, חכירות

התקן מחליף את תקן בינלאומי מספר 47 חכירות )17 IAS )ואת הפרשנויות הקשורות. הוראות התקן מבטלות את הדרישה הקיימת מחוכרים לסיווג החכירה כתפעולית או כמימונית. חלף זאת, לעניין חוכרים, מציג התקן החדש מודל אחד לטיפול החשבונאי בכל החכירות, לפיו על החוכר להכיר בנכס ובהתחייבות בגין החכירה בדוחותיו הכספיים. כמו כן, התקן קובע דרישות גילוי חדשות ונרחבות יותר מאלו הקיימות כיום.

התקן ייושם לתקופות שנתיות המתחילות ביום 4 בינואר ,2149 עם אפשרות ליישום מוקדם, ובלבד שהחברה מיישמת באימוץ מוקדם גם את 15 IFRS, הכנסה מחוזים עם לקוחות. התקן כולל חלופות שונות עבור יישום הוראות המעבר, כך שחברות יוכלו לבחור באחת מהחלופות הבאות בעת היישום לראשונה: יישום רטרוספקטיבי מלא או יישום התקן החל מיום היישום לראשונה תוך התאמת יתרת העודפים למועד זה.

הקבוצה טרם החלה בבחינת ההשלכות של אימוץ התקן על הדוחות הכספיים.

ביאור 4 - שווי הוגן

א. קביעת שווי הוגן

כחלק מכללי המדיניות החשבונאית ודרישות הגילוי, נדרשת הקבוצה לקבוע את השווי ההוגן של נכסים והתחייבויות פיננסיים ושאינם פיננסיים. ערכי השווי ההוגן נקבעו לצרכי מדידה ו/או גילוי על בסיס השיטות המתוארות להלן. מידע נוסף לגבי ההנחות ששימשו בקביעת ערכי השווי ההוגן, ניתן בביאורים המתייחסים לאותו נכס או התחייבות.

.3 לקוחות וחייבים אחרים

השווי ההוגן של לקוחות וחייבים אחרים נקבע על בסיס הערך הנוכחי של תזרימי המזומנים העתידיים, המהוונים על פי שיעור הריבית המתאים למועד הדיווח.

.0 השקעות שוטפות ונגזרים

השווי ההוגן של חוזי אקדמה )Forward )על מטבע חוץ נאמד על ידי היוון ההפרש בין מחיר ה- Forward הנקוב בחוזה לבין מחיר ה- Forward הנוכחי בגין יתרת התקופה של החוזה עד לפדיון, תוך שימוש בריביות שוק מתאימות למכשירים דומים כולל ההתאמות הנדרשות בגין סיכוני האשראי של הצדדים.

השווי ההוגן של השקעות בבטוחות חוב מבוסס על מחירי שוק מצוטטים.

.1 התחייבויות פיננסיות שאינן נגזרות

השווי ההוגן, אשר נקבע לצורך מתן גילוי, מחושב על בסיס הערך הנוכחי של תזרימי המזומנים העתידיים בגין מרכיב הקרן והריבית, המהוונים על פי שיעור ריבית השוק למועד הדיווח.

.4 עסקאות תשלום מבוסס מניות

השווי ההוגן של כתבי אופציה לעובדים נמדד באמצעות מודל בלק ושולס. הנחות המודל כוללות את מחיר המניה למועד המדידה, מחיר המימוש של המכשיר, תנודתיות צפויה )על בסיס ממוצע משוקלל של תנודתיות היסטורית המותאם לשינויים צפויים בעקבות מידע זמין לציבור(, הממוצע המשוקלל של אורך החיים הצפוי של המכשירים )על בסיס ניסיון העבר וההתנהגות הכללית של המחזיקים בכתב האופציה( ושיעור ריבית חסרת סיכון )על בסיס אגרות חוב ממשלתיות(. תנאי שירות אינם נלקחים בחשבון בעת קביעת השווי ההוגן.

ב. היררכיית שווי הוגן

בקביעת השווי ההוגן של נכס או התחייבות, משתמשת הקבוצה בנתונים נצפים מהשוק ככל שניתן. מדידות שווי הוגן מחולקות לשלוש רמות במידרג השווי ההוגן בהתבסס על הנתונים ששימשו בהערכה, כדלקמן:

הרמות השונות הוגדרו כדלקמן:

• רמה :4 מחירים מצוטטים )לא מתואמים( בשוק פעיל למכשירים זהים.
• רמה :2 נתונים נצפים, במישרין או בעקיפין, שאינם כלולים ברמה 4 לעיל.
  • רמה :3 נתונים שאינם מבוססים על נתוני שוק נצפים.

ביאור 5 - ניהול סיכונים פיננסיים

האחריות המקיפה לבסס את מסגרת ניהול הסיכונים הפיננסיים של הקבוצה ולפקח עליה מצויה בידי הדירקטוריון. הדירקטוריון הקים תת ועדה לניהול חשיפות פיננסיות, האחראית על פיתוח ומעקב אחר מדיניות ניהול החשיפות הפיננסיות של הקבוצה. תת הוועדה ממליצה לדירקטוריון על שינויים במדיניות ניהול החשיפות הפיננסיות של הקבוצה.

מדיניות ניהול הסיכונים של הקבוצה גובשה בכדי לזהות ולנתח את הסיכונים הפיננסיים העומדים בפני הקבוצה, לקבוע הגבלות הולמות לסיכונים ובקרות ולפקח על הסיכונים והעמידה בהגבלות. המדיניות והשיטות לניהול הסיכונים נסקרות באופן שוטף בכדי לשקף שינויים בתנאי השוק ובפעילות הקבוצה באמצעות הכשרה ונהלים. הקבוצה פועלת לפיתוח סביבת בקרה יעילה בה כל העובדים מבינים את תפקידם ומחויבותם.

ועדת הביקורת של הדירקטוריון מפקחת על מעקב ההנהלה אחר הציות למדיניות ניהול הסיכונים הפיננסיים של הקבוצה ונהליה והיא בוחנת את ההתאמה של מסגרת ניהול הסיכונים הפיננסיים ביחס לסיכונים העומדים בפני הקבוצה. ראה בנוסף ביאור .24

ביאור 5 - ניהול סיכונים פיננסיים )המשך(

סיכון אשראי

להנהלה מדיניות אשראי והיא מקיימת מעקב שוטף אחר חשיפת הקבוצה לסיכוני אשראי.

לקוחות וחייבים אחרים

הקבוצה מבצעת הערכת אשראי בגין לקוחות מעל לסכום מסוים ודורשת ביטחונות כנגדם. ההנהלה עוקבת באופן שוטף אחר חובות הלקוחות ובדוחות הכספיים כוללת הפרשות לחובות מסופקים המשקפות בצורה נאותה את ההפסד הגלום בחובות שגבייתם מוטלת בספק. הקבוצה חשופה לסיכוני אשראי הנובעים בעיקר מפעילותה בישראל.

מזומנים ושווי מזומנים

המזומנים ושווי המזומנים של הקבוצה מופקדים במוסדות הבנקאיים המרכזיים בישראל.

השקעות במכשירי חוב

הקבוצה מגבילה את החשיפה לסיכון אשראי על ידי השקעה במכשירי חוב נזילים בלבד ורק כאשר לצד שכנגד יש דירוג אשראי של לפחות "-AA "על ידי סוכנות דירוג מעלות. ההנהלה עוקבת באופן פעיל אחר דירוגי אשראי ובהתחשב בדירוגי אשראי גבוהים אלה, ההנהלה אינה צופה שהצדדים שכנגד לא יעמדו בהתחייבויותיהם.

נגזרים

הצדדים שכנגד לנגזרים שמחזיקה הקבוצה הינם בנקים מרכזיים בישראל.

לתאריך הדיווח לא קיים ריכוז משמעותי של סיכוני אשראי. החשיפה המרבית לסיכון אשראי מיוצגת על ידי הערך בספרים של כל נכס פיננסי, כולל נגזרים בדוח על המצב הכספי המאוחד. מכשירים פיננסיים שבאופן פוטנציאלי מהווים סיכון אשראי לקבוצה הם בעיקרם יתרות לקוחות. סיכון האשראי בגין יתרות הלקוחות הינו מוגבל בגלל הרכב בסיס הלקוחות הכולל מספר רב של לקוחות בודדים ועסקים.

סיכון נזילות

מדיניות הקבוצה לניהול הנזילות שלה היא להבטיח, ככל הניתן, שתמיד תהיה לה נזילות מספקת למילוי התחייבויותיה במועד, בתנאים רגילים ובתנאי קיצון מבלי שיגרמו לה הפסדים בלתי רצויים או פגיעה במוניטין.

עודפי המזומנים המוחזקים על ידי הקבוצה, אשר אינם נדרשים למימון הפעילות השוטפת, מושקעים באפיקי השקעה נושאי ריבית כגון: פיקדונות לזמן קצר ואגרות חוב. אפיקי השקעה אלו נבחרים בהתאם לתחזיות עתידיות לגבי צורכי המזומנים של הקבוצה לצורך עמידה בהתחייבויותיה.

הקבוצה בוחנת תחזיות שוטפות של דרישות הנזילות שלה כדי לוודא שקיימים די מזומנים לצרכיה התפעוליים, תוך הקפדה שבכל עת יהיו מספיק מסגרות אשראי לא מנוצלות כך שהקבוצה לא תחרוג ממסגרות האשראי שנקבעו לה ומאמות המידה הפיננסיות בהן היא מחויבת לעמוד. תחזיות אלו מביאות בחשבון גורמים כגון תכנית הקבוצה להשתמש בחוב לצורך מימון פעילותה, עמידה באמות מידה פיננסיות מחייבות וכן עמידה בדרישות חיצוניות כגון חוקים או רגולציה.

לקבוצה קיימות מחויבות חוזיות לרכישות מלאי, רכוש קבוע ושירותים שוטפים אחרים. למידע נוסף בדבר ההתקשרויות המהותיות ראה ביאור .31

סיכון שוק

במהלך העסקים הרגיל הקבוצה קונה ומוכרת נגזרים וכן לוקחת על עצמה התחייבויות פיננסיות לצורך ניהול סיכוני שוק. העסקאות האמורות מתבצעות בהתאם למדיניות שנקבעה על ידי הדירקטוריון.

סיכון ריבית ומדד

הקבוצה חשופה לתנודתיות בשיעור הריבית, כולל שינויים במדד המחירים לצרכן )"מדד"(, מכיוון שרוב הלוואותיה צמודות למדד. במסגרת מדיניות ניהול הסיכונים, הקבוצה ביצעה עסקאות פורוורד המגדרות באופן חלקי את החשיפה לשינויים במדד. העסקאות האמורות מתבצעות בהתאם למדיניות שנקבעה על ידי דירקטוריון החברה.

סיכון מטבע

הרווח התפעולי ותזרימי המזומנים של הקבוצה חשופים לסיכון מטבע, בעיקר בשל תשלומים עבור רכישות מכשירים סלולאריים, ציוד רשת ופעילות שירותי נדידה בינלאומית. כמו-כן, הקבוצה מנהלת חשבונות במטבעות השונים ממטבע הפעילות של הקבוצה, בעיקר בדולר ואירו. במסגרת מדיניות גידור חשיפות פיננסיות, הקבוצה מבצעת עסקאות פורוורד ואופציות על מנת לגדר באופן חלקי את החשיפה מתנודתיות בשערי החליפין.

ביאור 5 - ניהול סיכונים פיננסיים )המשך(

ניהול הון

ניהול ההון של הקבוצה נועד להבטיח מבנה הון מבוסס ויעיל הלוקח בחשבון, בין שאר הדברים, את הגורמים הבאים:

יחס מינוף התומך בצרכי תזרים המזומנים של הקבוצה בהתייחס לפוטנציאל יצור תזרימי המזומנים ובמדיניות הדיבידנדים של הקבוצה וזאת בהתחשב במגבלות חלוקת דיבידנדים שנקבעו בשטר הנאמנות של אגרות החוב )סדרות ו', ז', ח' ו-ט'( של הקבוצה ובהלוואות נדחות של החברה, תוך שמירה על יחס חוב נטו ל- EBITDA( ראה הגדרה בביאור ,47 בדבר אג"ח( שנקבעו במסמכים האמורים והעומד בסטנדרטים של הענף. הקבוצה מתייחסת ליחס החוב נטו ל-EBITDA כגורם מדידה חשוב למשקיעים, מחזיקי אגרות החוב, אנליסטים וסוכנויות דירוג. יחס זה אינו מונח חשבונאי ואינו נתמך על ידי תקני דיווח כספי בינלאומיים )IFRS), אי לכך הגדרתו וחישובו עשויים להיות שונים בין קבוצה אחת לאחרת. חוב הקבוצה כולל בעיקר אגרות חוב לזמן קצר ולזמן ארוך הנסחרות בבורסה לניירות ערך בתל אביב.

ביאור 2 - מגזרי פעילות

הקבוצה פועלת בשני מגזרי פעילות ברי דיווח כמפורט להלן, אשר מהווים יחידות עסקיות אסטרטגיות של הקבוצה. יחידות עסקיות אסטרטגיות אלו מנוהלות בנפרד לצורך הקצאת משאבים והערכת ביצועים. מגזרי הפעילות נקבעו בהתבסס על דוחות הנהלה פנימיים שנסקרים על ידי מקבל ההחלטות התפעוליות הראשי של הקבוצה. מקבל החלטות זה אינו בוחן את יתרת הנכסים או ההתחייבויות עבור מגזרים אלה, ולכן הם אינם מוצגים.

• סלקום המגזר כולל את סלקום ישראל בע"מ והחברות הבנות שלה, מלבד נטוויז'ן בע"מ וחברות הבנות שלה.
  • נטוויז'ן המגזר כולל את נטוויז'ן בע"מ והחברות הבנות שלה.

המדיניות החשבונאית של מגזרי הפעילות המדווחים זהה לזו המוצגת בביאור ,3 בדבר עיקרי המדיניות החשבונאית.

להלן מידע לגבי התוצאות של כל מגזר מדווח כפי שנכללו בדוחות ההנהלה הפנימיים שנסקרים על ידי מקבל ההחלטות התפעוליות הראשי של הקבוצה.

	2015בדצמבר	יימה ביום 31לשנה שהסת
		מיליוני ש"ח
	התאמות
מאוחד	למאוחד	נטוויז'ן	סלקום
4,180	-	865	3,315	ונייםהכנסות מחיצ
-	(182)	126	56	גזריותהכנסות בין מ
872	6	224	642	*EBITDA
				ווח לשנהזרי מדווח לרEBITDA מגהתאמה של
(562)	(31)	(89)	(442)	תפחת והפחתו
(36)	7	(37)	(6)	סהמיסים על הכנ
55				הכנסות מימון
(232)				הוצאות מימון
3				תהכנסות אחרו
(3)				ססי מניותתשלומים מבו
97	(17)	103	11	רווח לשנה

ביאור 2 - מגזרי פעילות )המשך(

	2014בדצמבריימה ביום 31	לשנה שהסת
	מיליוני ש"ח
	התאמות
מאוחד	למאוחד	נטוויז'ן	סלקום
4,570	-	903	3,667	ונייםהכנסות מחיצ
-	(107)	57	50	גזריותהכנסות בין מ
1,282	-	315	967	*EBITDA
				ווח לשנהזרי מדווח לרEBITDA מגהתאמה של
(610)	(50)	(85)	(475)	תפחת והפחתו
(110)	14	(44)	(80)	סהמיסים על הכנ
100				הכנסות מימון
(298)				הוצאות מימון
(7)				תהוצאות אחרו
(3)				ססי מניותתשלומים מבו
354	(46)	189	211	רווח לשנה

		לשנה שהסת	2013בדצמבריימה ביום 31
			מיליוני ש"ח
			התאמות
	סלקום	נטוויז'ן	למאוחד	מאוחד
ונייםהכנסות מחיצ	3,944	983	-	4,927
גזריותהכנסות בין מ	50	56	(106)	-
*EBITDA	1,066	269	-	1,335
ווח לשנהזרי מדווח לרEBITDA מגהתאמה של
תפחת והפחתו	(504)	(96)	(76)	(676)
סהמיסים על הכנ	(91)	(45)	19	(117)
הכנסות מימון				156
הוצאות מימון				(402)
תהכנסות אחרו				1
ססי מניותתשלומים מבו				(9)
רווח לשנה	210	135	(57)	288

* EBITDA שנסקר על ידי מקבל ההחלטות התפעוליות הראשי, מייצג את הרווח לפני ריבית )הוצאות מימון, נטו(, מיסים, הכנסות )הוצאות( אחרות )למעט הוצאות בסך כ25- מיליון ש"ח ו39- מיליון ש"ח בגין תוכניות פרישה מרצון לעובדים, שנרשמו ברבעון השני של 2145 וברבעון השני של שנת ,2144 בהתאמה. ראה בנוסף ביאור ,26 בדבר הוצאות אחרות(, פחת והפחתות ותשלומים מבוססי מניות, ככלי למדידת הרווח התפעולי. EBITDA אינו מדד פיננסי בהתאם ל-IFRS ואין להשוות אותו למדדים דומים בחברות אחרות.

ביאור 2 - חברות בנות

להלן רשימה של החברות הבנות המהותיות בקבוצה:

הבתצה בחברהר13 בדצמב	ת של הקבוזכויות בעלותיימה ביוםלשנה שהס	י שלמיקום עיקר
0234	0235	ברה הבתפעילות הח	הבתשם החברה
411%	322%	ישראל	מנטוויז'ן בע"
411%	322%	ישראל	ן בע"מ143 נטוויז'

ביאור 2 - מזומנים ושווי מזומנים

ההרכב:
		13 בדצמבר
	0235	0234
	מיליוני ש"ח	מיליוני ש"ח
םפות בבנקייתרות שוט	52	433
פי דרישהפיקדונות ל	224	4,125
	223	4,458

חשיפת הקבוצה לסיכון שיעור ריבית וניתוח רגישות לנכסים ולהתחייבויות הפיננסיים, מפורטים בביאור .24

ביאור 2 - לקוחות וחייבים

ההרכב:

		13 בדצמבר
	0235	0234
	מיליוני ש"ח	מיליוני ש"ח
שוטף
לקוחות*
חיםחובות פתו	445	534
שראיי כרטיסי אגביה ושוברהמחאות ל	324	479
בלהכנסות לק	20	414
ארוךוחות לזמןפות של לקחלויות שוט	521	616
	3,054	4,447
רות חובהחייבים וית
אשהוצאות מר	41	57
חריםשלתיים ואמוסדות ממ	23	8
	324	65
	3,152	4,482
לא שוטף
לקוחות*	467	476
שורתש בקווי תקזכויות שימו	120	272
חייביםפיקדונות ו	1	65
אחרים	31	44
	225	824
	0,341	2,316

* בניכוי הפרשה לחובות מסופקים.

הקבוצה חשופה לסיכוני אשראי ולהפסדים בגין ירידת ערך המתייחסים ללקוחות וחייבים אחרים, כפי שמפורט בביאור .24

יתרות לקוחות שאינן שוטפות, הינן בגין מכירות ציוד קצה בתשלומים )בעיקר 36 תשלומים חודשיים( וערכן הנוכחי ליום 34 בדצמבר, ,2145 מחושב לפי שיעור היוון של 3.3% )34 בדצמבר 2144 - 3.9%(.

ביאור 32 - מלאי

א. ההרכב:

	13 בדצמבר
0235	0234
מיליוני ש"ח	מיליוני ש"ח
22	74
2	41
33	8
25	89

ב. בשנת ,2145 בדקה הקבוצה את הצורך בירידת ערך של מלאי שצריכתו הייתה איטית והפחיתה ב4- מיליון ש"ח את ערכו בהתאם לשווי המימוש נטו )2144 - 6 מיליון ש"ח(. ההפחתה נזקפה לסעיף עלות המכר.

ביאור 33 - רכוש קבוע, נטו

				בקרת
	שיפורים	מחשבים,	כלי	הרשת	רשת
סך הכל	במושכר	ריהוט וציוד	רכב	וציוד בדיקה	תקשורת
מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
						עלות
6,164	455	393	48	444	5,354	21444 בינואריתרה ליום
394)311(	44)43(	39)446(	4)41(	4)26(	336)435(	תוספותגריעות
6,452	453	346	9	422	5,552	ר 214434 בדצמביתרה ליום
022	2	25	-	0	021	תוספות
)341(	)1(	)54(	)0(	-	)24(	גריעות
2,125	352	142	2	304	5,223	ר 023513 בדצמביתרה ליום
						פחת נצבר
4,496	94	237	41	91	3,765	21444 בינואריתרה ליום
444	44	48	2	49	328	הפחת השנ
)289(	)43(	)445(	)5(	)28(	)428(	תגריעת פח
4,348	95	471	7	84	3,965	ר 214434 בדצמביתרה ליום
123	30	50	3	35	123	הפחת השנ
)312(	)1(	)54(	)3(	-	)23(	תגריעת פח
4,522	324	322	2	22	4,325	ר 023513 בדצמביתרה ליום
4,865	64	456	8	54	4,586	2144בינוארתת ליום 4יתרה מופח
4,834	58	446	2	44	4,587	ר 214434 בדצמבתת ליוםיתרה מופח
3,245	50	322	-	02	3,422	ר 023513 בדצמבחתת ליוםיתרה מופ

במהלך העסקים הרגיל, הקבוצה רוכשת רכוש קבוע באשראי. עלות הרכישה, שטרם שולמה למועד הדיווח, הסתכמה לסך של 469 מיליון ש"ח )ליום 34 בדצמבר 2144 ו2143- סך של 469 מיליון ש"ח ו- 67 מיליון ש"ח, בהתאמה(.

ביאור 30 - נכסים בלתי מוחשיים, נטו

						קשרי
		מערכות		הוצאות		לקוחות
	רישיונות	מידע	תוכנות	נדחות	מוניטין	ואחר	סך הכל
	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
עלות
21444 בינואריתרה ליום	532	342	89	4	831	347	2,444
תוספות	-	87	9	-	-	-	96
גריעות	-	)75(	)24(	)4(	-	-	)411(
ר 214434 בדצמביתרה ליום	532	354	77	-	831	347	2,441
תוספות	02	52	33	-	-	-	22
גריעות	-	)335(	)02(	-	-	)01(	)324(
ר 023513 בדצמביתרה ליום	550	022	20	-	212	104	0,224
פחת נצבר
21444 בינואריתרה ליום	292	462	53	3	-	244	754
שנההפחתות ה	29	71	46	4	-	55	474
חתותגריעת הפ	-	)75(	)24(	)4(	-	-	)411(
ר 214434 בדצמביתרה ליום	324	457	48	-	-	299	825
שנההפחתות ה	12	24	30	-	-	11	342
חתותגריעת הפ	-	)335(	)02(	-	-	)01(	)324(
ר 023513 בדצמביתרה ליום	153	332	14	-	-	122	232
2144בינוארתת ליום 4יתרה מופח	241	481	36	4	831	413	4,391
ר 214434 בדצמבתת ליוםיתרה מופח	244	497	29	-	831	48	4,345
ר 023513 בדצמבחתת ליוםיתרה מופ	023	322	02	-	212	35	3,054

במהלך העסקים הרגיל, הקבוצה רוכשת נכסים בלתי מוחשיים באשראי. עלות הרכישה, שטרם שולמה למועד הדיווח, הסתכמה לסך של 33 מיליון ש"ח )ליום 34 בדצמבר 2144 ו2143- סך של 34 מיליון ש"ח ו- 41 מיליון ש"ח, בהתאמה(.

א. בדיקת ירידת ערך ליחידה מניבת מזומנים הכוללת מוניטין

לצורך בדיקת ירידת ערך, יוחס המוניטין לנטוויז'ן, המהווה את הרמה הנמוכה ביותר בקבוצה, במסגרתה נערך מעקב אחר המוניטין לצרכי ניהול פנימיים ואשר אינה גבוהה ממגזרי הפעילות המדווחים. ראה ביאור 6 בדבר מגזרי פעילות.

הערך בספרים של המוניטין שיוחס לנטוויז'ן ליום 34 בדצמבר, ,2145 הינו 753 מיליון ש"ח )2144 - 753 מיליון ש"ח(.

סכום בר ההשבה של נטוויז'ן התבסס על שווי השימוש שלה ונקבע על ידי היוון תזרימי המזומנים העתידיים הצפויים להיות מופקים מהשימוש המתמשך. הסכום בר ההשבה של נטוויז'ן ליום 34 בדצמבר, 2145 ו,2144- הינו גבוה מערכה בספרים ולכן, לא הוכר הפסד מירידת ערך.

ב. הנחות מפתח ששימשו לחישוב הסכום בר ההשבה

הנחות המפתח ששימשו לחישוב הסכום בר ההשבה הינן שיעור היוון ושיעור צמיחה לטווח ארוך. להלן ההנחות:

ביאור 30 - נכסים בלתי מוחשיים, נטו )המשך(

ב. הנחות מפתח ששימשו לחישוב סכום בר ההשבה )המשך(

)3( שיעור היוון לפני מס ושיעור צמיחה לטווח ארוך

ארוךחה לטווחשיעור צמי	ן לפני מסשיעור היוו
0235
1.5%	11.4%	נטוויז'ן

שיעור ההיוון לפני מס ושיעור הצמיחה לטווח ארוך נקובים במונחים ריאליים.

לנטוויז'ן תזרים מזומנים ל5- שנים, כפי שנכלל במודל ה-DCF שלה.

שיעור הצמיחה השנתי לטווח הארוך נאמד ב1.5%- המשקף, בין היתר, את קצב הגידול הטבעי באוכלוסייה.

שיעור ההיוון לפני מס, נאמד ומחושב לפי מספר הנחות, ביניהן, התשואה הנדרשת על ההון העצמי של נטוויז'ן, פרמיית סיכון על חוב נורמטיבי בקבוצה והערכות של שיעור המינוף הנורמטיבי בענף.

)0( רגישות לשינויים בהנחות

הסכום בר ההשבה המוערך של נטוויז'ן עולה על ערכה בספרים בכ51- מיליון ש"ח. ההנהלה זיהתה שתי הנחות מפתח שבהן ייתכן ובאופן סביר יתרחש שינוי אפשרי אשר יגרום לערך בספרים לגדול מעל הסכום בר ההשבה. להלן פרטים בדבר סכום השינוי הנדרש בהשפעת שתי ההנחות, כל אחת בנפרד, בכדי להביא לשוויון בין הערך בספרים לבין הסכום בר ההשבה:

0235
11.8%	לפני מסשיעור היוון
2.2%	ארוךחה לטווחשיעור צמי

ביאור 31 - ספקים והוצאות לשלם

ההרכב:

13 בדצמבר
0234	0235
מיליוני ש"ח	מיליוני ש"ח
444	002
332	452
773	222

ביאור 34 - הפרשות

ההרכב:
	פירוק ושיקום	תביעות	התחייבויות	הפרשה
	אתרים	משפטיות	חוזיות אחרות	לאחריות	סך הכל
	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
21444 בינואריתרה ליום	24	66	446	5	218
ך השנהנוצרו במהלהפרשות ש	4	47	44	-	29
לך השנהבוטלו במההפרשות ש	)4(	)36(	)75(	)3(	)445(
21454 בינואריתרה ליום	24	47	52	2	422
ך השנהנוצרו במהלהפרשות ש	3	27	11	-	41
לך השנהבוטלו במההפרשות ש	(4)	(20)	(7)	(2)	(33)
ר 023513 בדצמביתרה ליום	20	54	56	-	130
לא שוטף	20	-	-	-	20
שוטף	-	54	56	-	110
	20	54	56	-	130

הפרשות בגין פירוק ושיקום אתרים

הקבוצה נדרשת להכיר בעלויות מסוימות לסילוק נכסים ולשיקום האתרים בהם היו ממוקמים הנכסים. הוצאות פירוק אלו מחושבות בהתבסס על שווי הפירוק בשנה הנוכחית תוך התחשבות בהערכה הטובה ביותר לשינויים עתידיים של מחירים, אינפלציה וכדומה, ומהוונות בריבית חסרת סיכון. תחזית לגבי היקף הנכסים המסולקים או המוקמים מעודכנת בהתאם לשינויים רגולטוריים ודרישות טכנולוגיות צפויות.

הפרשות בגין תביעות משפטיות

הקבוצה מעורבת במספר נושאים משפטיים ומחלוקות אחרות עם צדדים שלישיים. ההנהלה לאחר קבלת יעוץ משפטי יצרה הפרשות אשר מתייחסות לעובדות לגבי כל מקרה לגופו. לא ניתן לקבוע בצורה מהימנה את העיתוי של תזרים המזומנים שקשור לתביעות אלו. לפרטים נוספים בנוגע לתביעות משפטיות כנגד הקבוצה, ראה ביאור .34

הפרשות בגין התחייבויות חוזיות אחרות

הפרשות בגין התחייבויות חוזיות וחשיפות אחרות כוללות מספר התחייבויות הנובעות מהתחייבות חוזית או חקיקה שבהם יש מרכיב של אי ודאות גבוהה ביחס לעיתוי ולסכומים הנדרשים לצורך סיום ההתחייבות.

ביאור 35 - זכאים ויתרות זכות, לרבות נגזרים

ההרכב:

		13 בדצמבר
	0235	0234
	מיליוני ש"ח	מיליוני ש"ח
נלוותתחייבויותעובדים וה	301	412
משלתייםמוסדות מ	33	41
םריבית לשל	322	467
לםהוצאות לש	2	7
ראשהכנסות מ	03	31
ריםיננסיים נגזמכשירים פ	35	24
	022	371

ביאור 32 - זכאים לזמן ארוך

הרכב:

		13 בדצמבר
	0235	0234
	מיליוני ש"ח	מיליוני ש"ח
לספקיםלזמן ארוךהתחייבויות	3	4
ראשהכנסות מ	0	2
ריםיננסיים נגזמכשירים פ	32	8
אחרים	4	4
	04	42

ביאור 32 - אג"ח

ביאור זה נותן מידע לגבי התנאים החוזיים של אגרות החוב של הקבוצה, אשר נמדדות בעלות מופחתת. למידע נוסף בדבר חשיפת הקבוצה לסיכוני ריבית, מטבע חוץ ונזילות, ראה ביאור .24

		13 בדצמבר
	0235	0234
	מיליוני ש"ח	מיליוני ש"ח
וךת לזמן ארהתחייבויו
אגרות חוב	1,254	3,548
ת שוטפותהתחייבויו
רות חובפות של אגחלויות שוט	214	4,192

תנאים וטבלת החזר חוב

תנאי אגרות החוב ותקופות ההחזר מפורטות בטבלה הבאה:

2014	31 בדצמבר	2015	31 בדצמבר
מיליוני ש"ח		מיליוני ש"ח
					שיעור
ערך		ערך			ריבית
בספרים	ערך נקוב	בספרים	ערך נקוב	ת הפרעון	נלית שנ	מטבע נומי
668	555	441	370	עד 2017	5.30%	ש"ח	מוד מדדסדרה ב- צאגרות חוב
1,722	1,454	702	599	עד 2017	5.19%	ש"ח	מוד מדדסדרה ד- צאגרות חוב
897	899	327	327	עד 2017	6.25%	ש"ח	א צמודסדרה ה- לאגרות חוב
741	715	733	715	20202017 עד	4.60%	ש"ח	מוד מדדסדרה ו- צאגרות חוב
286	285	286	285	20192017 עד	6.99%	ש"ח	א צמודסדרה ז- לאגרות חוב
105	106	801	950	20242018 עד	1.98%	ש"ח	מוד מדדסדרה ח- צאגרות חוב
221	223	498	558	20252018 עד	4.14%	ש"ח	א צמודסדרה ט- לאגרות חוב
4,640	4,237	3,788	3,804				אות ריביתבויות נושסך התחיי

ביאור 32 - אג"ח )המשך(

בקשר עם הנפקת אגרות חוב סדרה ו' ואגרות חוב סדרה ז', התחייבה הקבוצה לעמוד באמות מידה פיננסיות ואחרות, ביניהן:

• יחס חוב ל-EBITDA *העולה על ,5 או העולה על 4.5 במשך ארבעה רבעונים עוקבים, יחשב כעילה לפירעון מיידי. ליום 34 בדצמבר, ,2145 יחס החוב ל-EBITDA הינו 3.16;
• לא לחלק יותר מ95%- מהרווחים הראויים לחלוקה לפי חוק החברות הישראלי )"הרווחים"(, ובלבד שאם יחס החוב ל- EBITDA *עולה על ,3.5:4 החברה לא תחלק יותר מ85%- מהרווחים ואם יחס החוב ל-EBITDA * עולה על ,4:4 החברה לא תחלק יותר מ71%- מהרווחים. אי עמידה באמת מידה זו, תחשב כעילה לפירעון מיידי;
• העמדה לפירעון מיידי של חוב של החברה )default cross), למעט פירעון מיידי ביחס לחוב בסך 451 מיליון ש"ח או פחות, תחשב כעילה לפירעון מיידי;
  • התחייבות לאי יצירת שעבודים, בכפוף לחריגים מסוימים. אי עמידה בהתחייבות זו, תחשב כעילה לפירעון מיידי;
• התחייבות לשלם ריבית נוספת של 1.25% בגין ירידה של שתי דרגות בדירוג אגרות החוב וכן, התחייבות לשלם ריבית נוספת של 1.25% בגין כל ירידה של דרגה נוספת ועד לתוספת מקסימאלית של ,4% בהשוואה לדירוג שניתן לאגרות החוב לפני הנפקתן;
  • אי דירוג של אגרות החוב במשך 61 יום, יחשב כעילה לפירעון מיידי.

* יחס חוב ל-EBITDA - היחס בין החוב נטו ל-EBITDA, בנטרול השפעות חד פעמיות. חוב נטו מוגדר כאשראי והלוואות מתאגידים בנקאיים ומאחרים וכן התחייבויות בגין אגרות חוב, בניכוי מזומנים ושווי מזומנים והשקעות שוטפות בניירות ערך סחירים. EBITDA מוגדר ביחס לתקופה של 42 החודשים שקדמו למועד הדוחות הכספיים המאוחדים האחרונים של הקבוצה ומחושב כרווח לפני פחת והפחתות, הוצאות/הכנסות אחרות, נטו, הוצאות/הכנסות מימון, נטו ומיסים על הכנסה.

בחודש יוני ,2143 עודכן הדירוג של החברה מדירוג "-ilAA /שלילי" לדירוג "+ilA /יציב", ביחס לאגרות החוב של החברה הנסחרות בבורסת תל אביב. בעקבות עדכון זה של הדירוג ומאחר שזו הייתה ירידת הדירוג השנייה של אגרות החוב ממועד הנפקתן, שיעור הריבית השנתית שהחברה משלמת עבור אגרות החוב סדרה ו' וסדרה ז' הועלה ב- 1.25% ל- 4.61% ו- ,6.99% בהתאמה, החל מה5- ביולי, .2143

בקשר עם הנפקת אגרות חוב סדרה ח' ואגרות חוב סדרה ט' התחייבה החברה בהתחייבויות נוספות, בנוסף להתחייבויות שניטלו על ידי החברה ביחס לאגרות חוב )סדרה ו'( ו-)סדרה ז'( שלה )כמפורט לעיל(, לרבות: )4( בנוסף להיותה עילת פירעון מיידי, עמידה באמות המידה הפיננסיות שהחברה התחייבה בהן בעבר )יחס מינוף נטו )יחס חוב נטו ל-EBITDA )מקסימלי העולה על 5.1:4 או העולה על 4.5:4 לארבעה רבעונים עוקבים( תהווה תנאי לחלוקת דיבידנד; ו-)2( עמידה באמות המידה הפיננסיות תהווה תנאי להנפקת אגרות חוב נוספות מכל אחת משתי הסדרות החדשות.

שטר הנאמנות לאגרות חוב סדרה ח' ואגרות חוב סדרה ט' כולל עילות להעמדת אגרות החוב לפירעון מיידי הדומות בעיקרן לעילות להעמדה לפירעון מיידי הכלולות בשטר הנאמנות לאגרות חוב )סדרה ו'( ו-)סדרה ז'(, למעט עילות חדשות מסוימות להעמדה לפירעון מיידי שלא כלולות בשטר הנאמנות לאגרות חוב )סדרה ו'( ו-)סדרה ז'( ושינויים מסוימים לעילות ההעמדה לפירעון מיידי שקיימות בשטר הנאמנות לאגרות חוב )סדרה ו'( ו-)סדרה ז'(, לרבות: )4( הפרה של המגבלה האמורה בעניין חלוקת דיבידנדים; )2( הסכום המינימלי הנדרש כדי להוות עילה לפירעון מיידי של default cross לא יחול על default cross שנגרם על ידי סדרה אחרת של אגרות חוב; )3( קיום חשש ממשי שהחברה לא תעמוד בהתחייבויות המהותיות שלה כלפי מחזיקי אגרות החוב; )4( הכללת הערת "עסק חי" בדוחות הכספיים של החברה לתקופה של שני רבעונים רצופים; ו-)5( הפרת התחייבויות החברה ביחס להנפקת אגרות חוב נוספות.

נכון ליום 34 בדצמבר ,2145 הקבוצה עומדת באמות המידה שנקבעו.

בחודש פברואר ,2145 בהתאם להצעת חליפין להחלפת חלק מאגרות החוב מסדרות ד' ו-ה' של החברה באגרות חוב חדשות מסדרות ח' ו-ט' הקיימות של החברה, בהתאמה, או הצעת ההחלפה, במסגרת תשקיף המדף של החברה משנת 2144 ובהנפקה פרטית, הנפיקה החברה אגרות חוב חדשות )סדרה ח'( בסך כולל של כ- 844 מיליון ש"ח ע.נ ואגרות חוב חדשות )סדרה ט'( בסך כולל של כ- 335 מיליון ש"ח ע.נ )בתמורה לאגרות חוב )סדרה ד'( בסך כולל של כ555- מיליון ש"ח ע.נ ואגרות חוב )סדרה ה'( בסך כולל של כ272- מיליון ש"ח ע.נ, בהתאמה(.

להלן פירוט הערך הנקוב של סדרות אגרות החוב האמורות לעיל:

לפהאחר ההח	לפה ללפני ההח
ח	מיליוני ש"
899	1,454	סדרה ד'
327	599	סדרה ה'
950	106	סדרה ח'
558	223	סדרה ט'

ביאור 32 - התחייבות בשל סיום יחסי עובד-מעביד, נטו

התחייבויות הקבוצה על פי החוק והסכמי עבודה, לתשלום פיצויי פיטורין לעובדים אשר אינם מכוסים על ידי תכניות פנסיה וביטוח כאמור בסעיף א' להלן, הסתכמו לסך של 42 ו44- מיליון ש"ח ליום 34 בדצמבר 2145 ו,2144- בהתאמה, כמופיע בדוחות המאוחדים על המצב הכספי, תחת סעיף התחייבות בגין סיום יחסי עובד מעביד, נטו**.**

א. תכנית הפקדה מוגדרת

התחייבות הקבוצה בגין סיום יחסי עובד-מעביד בגין עובדיה הישראלים מחושבת על פי החוק הישראלי בנוגע לפיצויי פיטורין. התחייבות הקבוצה מכוסה ברובה על ידי הפקדות חודשיות בקרנות פיצויים, פוליסות ביטוח והתחייבות בדוחות המאוחדים על המצב הכספי. בגין מרבית עובדי הקבוצה התשלומים לקרנות הפנסיה ולחברות הביטוח פוטרות את הקבוצה ממחויבותה לעובדים בהתאם לסעיף 44 לחוק פיצויי פיטורין, התשכ"ג.4963- הסכומים שנצברו בקרנות פנסיה וחברות ביטוח אינם תחת השליטה או הניהול של הקבוצה, ובהתאם לכך גם סכומים אלה וגם ההתחייבות לפיצויי פיטורין בגינם אינם מוצגים בדוחות המאוחדים על המצב הכספי.

ב. תכנית הטבה מוגדרת

החלק של תשלומי הפיצויים שאינו מכוסה על ידי הפקדות בתוכניות הפקדה מוגדרת, כאמור לעיל, מטופל על ידי הקבוצה כתוכנית הטבה מוגדרת לפיה מוכרת התחייבות בגין הטבות עובדים ובגינה הקבוצה מפקידה סכומים בקופות מרכזיות לפיצויים ובפוליסות ביטוח מתאימות. סך ההתחייבות ליום 34 בדצמבר ,2145 עומדת על סך של 23 מיליון ש"ח )2144 - 24 מיליון ש"ח(. השווי ההוגן של נכסי התוכנית, היעודה לפיצויים, עומד על סך של 49 מיליון ש"ח )2144 - 24 מיליון ש"ח(. ההוצאה שהוכרה במסגרת דוח רווח והפסד המאוחד לשנה שהסתיימה ב34- בדצמבר ,2145 הינה 3 מיליון ש"ח )2144 - 2 מיליון ש"ח(.

ג. ליום 34 בדצמבר, ,2145 התחייבות הקבוצה בגין מענקי הסתגלות לעובדים, הינה 8 מיליון ש"ח )2144 - 44 מיליון ש"ח(.

ביאור 32 - הון וקרנות

הון מניות

	2015	2014	2013
	ש"ח	ש"ח	ש"ח
ינוארע ליום 1 במונפק ונפר	1,005,845	995,316	994,814
תמשו למניופציות שמו	201	10,529	502
בדצמברע ליום 31מונפק ונפר	1,006,046	1,005,845	995,316

הון המניות מורכב ממניות רגילות בערך נקוב של 1.14 ש"ח כל אחת.

ביום 34 בדצמבר ,2145 הון המניות הרשום כלל סך של 311 מיליון מניות רגילות )34 בדצמבר ,2144 2143 - 311 מיליון בכל אחת מהשנים(. מחזיקי המניות הרגילות זכאים לקבל דיבידנדים לכשמוכרזים.

רווח בסיסי ומדולל למניה

החישוב בגין רווח למניה בסיסי הסתמך על הרווח שאותו ניתן לייחס לבעלי המניות הרגילות ומספר המניות המשוקלל שהוחזקו וטרם נפרעו ),99,495,525 99,924,316 ו411,589,458- בשנים ,2143 2144 ו,2145- בהתאמה(. החישוב בגין רווח למניה מדולל הסתמך על הרווח שאותו ניתן לייחס לבעלי המניות הרגילות והממוצע המשוקלל של מספר המניות הרגילות ששימשו לצורך חישוב הרווח הבסיסי למניה בתוספת של ,824,499 784,976 ו72- מניות נוספות )1.14 ש"ח ערך נקוב כל אחת( שיתווספו כתוצאה ממימוש כל האופציות במלואן לשנים שהסתיימו ביום 34 בדצמבר ,2143 2144 ו2145- בהתאמה.

ביום 34 בדצמבר ,2145 646 אלפי כתבי אופציה )בשנים 2144 ו2143- - 453 אלפי ו776- אלפי כתבי אופציה, בהתאמה( לא נכללו בחישוב הממוצע המשוקלל של מספר המניות הרגילות )מדולל(, מאחר והשפעתם אנטי-מדללת.

שווי השוק הממוצע של מניות החברה לצורך חישוב ההשפעה המדללת של כתבי האופציה למניות, התבסס על מחירי שוק מצוטטים לתקופה במהלכה היו כתבי האופציה במחזור.

דיבידנדים

בשנים 2145 ו2144- החברה לא שילמה דיבידנד לבעלי מניותיה. בשנת 2143 שילמה החברה דיבידנד במזומן לבעלי מניותיה בסך של 1.85 ש"ח למניה, ובסך כולל של כ85- מיליון ש"ח.

ביאור 32 - הון וקרנות )המשך(

קרן גידור

קרן הגידור כוללת את החלק האפקטיבי של השינוי הנצבר נטו בשווי ההוגן של מכשירים המגדרים את תזרים המזומנים והמתייחסים לעסקאות שגודרו וטרם התרחשו או מומשו.

הנפקת זכויות

בחודש יוני ,2145 החברה הגישה טיוטת תשקיף הנפקת זכויות )statement registration )ל- Exchange and Securities Commission, או ה-SEC, ולרשות לניירות ערך, כהכנה להנפקת זכויות מוצעת במטרה לגייס כ- 421-451 מיליון ש"ח )בהנחה של מימוש מלוא הזכויות(, או "הנפקת הזכויות".

הביצוע, העיתוי, תנאי )לרבות יחס הזכויות למניות( והיקף הנפקת הזכויות המוצעת כאמור לא נקבעו עדיין והינם כפופים לאישורים נוספים של דירקטוריון החברה, הכרזה על אפקטיביות התשקיף )statement registration )על ידי ה- SEC, ואישורים של הרשות לניירות ערך, בורסת תל אביב ובורסת ניו יורק. אין כל וודאות שהאישורים האמורים ינתנו או שהנפקת הזכויות תצא לפועל, או באשר לעיתויה, תנאיה והיקפה.

דסק"ש הודיעה לחברה שאם החברה תבצע הנפקה לגיוס הון )בין אם בהנפקת מניות, בהנפקת זכויות או בכל אופן אחר(, בכוונת דסק"ש, ככל שצרכי תזרים המזומנים של דסק"ש יאפשרו זאת, להשקיע במסגרת הנפקה זו באופן ששיעור ההחזקה היחסית של דסק"ש בהון מניות סלקום לא יפחת משיעורו לפני ההנפקה, וכן לבצע השקעה נוספת, אם יתאפשר הדבר, בסכום השקעה כולל שלא יעלה על סך של 411 מיליון ש"ח.

ביאור 02 - תשלומים מבוססי מניות

בחודש ספטמבר ,2116 אישר דירקטוריון החברה תכנית הטבות מבוססת מניות לטובת עובדים, דירקטורים, יועצים, קבלני משנה של החברה וצדדים קשורים לחברה. תנאי תשלומי מבוססי מניות כוללים מנגנון התאמה לדיבידנד. האופציות ימומשו בנטו, ללא העברת מזומן.

בחודש מרס ,2145 אישר דירקטוריון החברה תכנית הטבות מבוססת מניות חדשה - "2145 Plan Incentive Share "לטובת עובדים, דירקטורים, יועצים וקבלני משנה של החברה וצדדים קשורים לחברה. בהתאם לתוכנית, רשאי דירקטוריון החברה להחליט על תנאי ההענקות שכוללות זהות הניצעים, כמות האופציות או המניות החסומות שיוענקו, תקופת ההבשלה ומחיר המימוש. תנאי התשלום מבוסס המניות כוללים מנגנון התאמה לדיבידנד. האופציות ימומשו במנגנון מימוש נטו, ללא העברת מזומן.

שמחיר מימוניהמותאם למליום 13בדצמבר,0235	םמשך החיילהחוזיים שהאופציות	שלהתנאי ההב	כשיריםמספר המבאלפים	ם זכאיםקה/ עובדימועד הענ
		שוויםתשלומיםארבעה		יםבדים בכירפציות לעוהענקת או
$23.15	6 שנים	ודהע שנות עבלמשך ארב	42	מבר 2141בחודש נוב
		שוויםתשלומיםשלושה		יםבדים בכירפציות לעוהענקת או
$28.95	4.5 שנים	בודהש שנות עלמשך שלו	4,161	י 2144בחודש מא
		למשךמים שוויםשני תשלו		יםבדים בכירפציות לעוהענקת או
$5.67	3.5 שנים	של עבודהשנתיים	2,441	וסט 2142בחודש אוג
		למשךמים שוויםשני תשלו		יםבדים בכירפציות לעוהענקת או
$7.34	3.5 שנים	עבודהשנתיים של	75	ס 2143בחודש מר
		שוויםתשלומיםשלושה		יםבדים בכירפציות לעוהענקת או
$14.65	4.5 שנים	עבודהש שנותלמשך שלו	234	מבר 2143בחודש דצ
		שוויםתשלומיםשלושה		יםבדים בכירפציות לעוהענקת או
ח25.65 ש"	4.5 שנים	עבודהש שנותלמשך שלו	2,661	וסט 2145בחודש אוג

סך ההוצאה בגין ההטבה במהלך השנה שהסתיימה ביום 34 בדצמבר ,2145 המתייחסת לאופציות שהוענקו הינה בסך של 3 מיליון ש"ח )-2144 3 מיליון ש"ח, 2143 - 9 מיליון ש"ח(.

ביאור 02 - תשלומים מבוססי מניות )המשך(

השינויים ביתרות האופציות היו כדלקמן:

	מספרהאופציות0235	ממוצעמשוקללשל מחירהמימוש)דולרארה"ב(	ציותמספר אופ0234	ממוצעלמשוקלל שמחירהמימוש)דולרארה"ב(	מספרהאופציות0231	ממוצעלמשוקלל שמחירהמימוש)דולרארה"ב(
4 בינואריתרה ליוםהלך השנההוענקו במלך השנהחולטו במההלך השנהמומשו במ	212,2250,222,222()020,222()310,222	35.222.2219.525.67	2,965,964-()344,1164,986,193)	41.35-27.145.72(	3,149,452319,111()258,878()413,341	41.8942.8848.945.94
34פציות ליוםיתרת האובדצמבר	0,221,322	2.42	638,865	45.86	2,965,964	41.35
בשלופציות שהויתרת האו34מימוש ליוםהניתנות לבדצמבר*	322,322	35.31	445,365	47.11	4,426,232	44.27

* יתרת משך החיים הממוצע המשוקלל של יתרת האופציות נכון ליום 34 בדצמבר ,2145 הינו 2.5 שנים.

ת והנחות:של אופציושווי הוגן	0235	0234	0231
קהמועד ההענשווי הוגן ב	1.5 ש"ח	-	$4.54-$2.89
וגן:שוב שווי ההנחות בחיהענקהה במועד המחיר המני	01.25 ש"	ח -	$7.2-$43.57
שמחיר מימו	05.25 ש"	ח -	$7.58-$44.66
ע משוקלל(פויה )ממוצתנודתיות צע משוקללציה )ממוצם של האופמשך החיי	15.2%	-	37.72%-44.42%
צפוי(	0.1 שנים	-	2.3 שנים
יכוןת חסרת סשיעור ריבי	2.4%	-	1.23%-1.59%

ביאור 03 - מכשירים פיננסיים

סיכון אשראי

חשיפה לסיכון אשראי

הערך בספרים של הנכסים הפיננסיים מייצג את חשיפת האשראי המרבית. החשיפה המרבית לסיכון אשראי בתאריך הדיווח, הייתה כדלקמן:

מבר	ליום 13 בדצ
0234	0235
מיליוני ש"ח	מיליוני ש"ח
1,893	3,203	זמן ארוךלל יתרות ללקוחות, כו
74	2	רוךרות לזמן אם, כולל יתייבים אחריהלוואות וח
520	022	בבטוחות חוהשקעה ב
1,158	223	ם בבנקיםשווי מזומנימזומנים ו
1	3	גזריםמכשירים נ
3,646	0,220

החשיפה המרבית לסיכון אשראי בגין נכסים פיננסים למועד הדוח, לפי סווג הצד שכנגד היא:

מבר	ליום 13 בדצ
0234	0235
מיליוני ש"ח	מיליוני ש"ח
1,687	1,588	הלקוחות קצ
206	133	חריםמפעילים אמשווקים ו
293	353	לת ישראלב של ממשבטוחות חוהשקעה ב
227	302	ב מוסדיותבטוחות חוהשקעה ב
1,158	223	ם בבנקיםשווי מזומנימזומנים ו
75	32	אחרים
3,646	0,220

הפסדים מירידת ערך

להלן גיול נכסים פיננסים למועד הדוח:

	ברוטו	ירידת ערך	ברוטו	ירידת ערך
		0235		0234
	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
ראינם בפיגו	0,225	02	3,553	30
נהפיגור עד ש	312	51	143	58
מעל שנהפיגור של	321	303	181	143
	0,224	020	3,877	231

התנועה בהפרשה לירידת ערך בגין יתרות לקוחות במשך השנה הייתה כדלקמן:

	יימה ביום 13לשנה שהסת02340235מיליוני ש"ח274013(74))23(	בדצמבר
		מיליוני ש"ח
4 בינואריתרה ליום
ות אבודיםמחיקת חוב
יםבות מסופקהוצאות חו	10	31
ר34 בדצמביתרה ליום	020	231

ההפרשה המחושבת, בהתייחס ללקוחות, משמשת לרישום ירידת הערך אלא אם כן הקבוצה מעריכה שלא קיימת אפשרות שסכום החוב יוחזר. במקרה זה, הסכום שמוגדר כסכום שאינו בר- השבה נמחק ישירות כנגד יתרת הלקוח.

סיכון נזילות

להלן מועדי הפירעון החוזיים של התחייבויות פיננסיות והתחייבויות לא חוזיות אחרות, כולל אומדן תשלומי ריבית. גילוי זה אינו כולל סכומים אשר לגביהם קיימים הסכמי קיזוז:

				מבר 0235ליום 13 בדצ
	הערךבספרים	תזריםמזומניםחוזי	שנהראשונה	שנה שנייהמיליוני ש"ח	שנהשלישית	4-5שנים	מעל חמששנים
*אגרות חוב	)1,222(	)4,542(	)222(	)222(	)232(	)252(	)3,222(
אים אחריםספקים וזכ	)222(	)222(	)222(	-	-	-	-
צרכןהמחירים לה על מדדחוזי אקדמ	)10(	)10(	)35(	)1(	)34(	-	-
לספקיםלזמן ארוךהתחייבויות	)5(	)5(	-	-	-	)5(	-
	)4,243(	)5,124(	)3,210(	)222(	)204(	)220(	)3,222(

* כולל ריבית לשלם בגין אג"ח. בחודש פברואר ,2145 החברה החליפה חלק מאגרות החוב מסדרות ד' ו-ה' באגרות חוב חדשות מסדרות ח' ו-ט' הקיימות של החברה, בהתאמה. לפירוט נוסף, ראה ביאור .47

				מבר 0234ליום 13 בדצ
	הערךבספרים	תזריםמזומניםחוזי	שנהראשונה	שנה שנייהמיליוני ש"ח	שנהשלישית	4-5שנים	מעל חמששנים
*אגרות חובאים אחריםספקים וזכצרכןהמחירים לה על מדדחוזי אקדמ	)4,817()882()34(	)5,295()882()34(	)4,338()882()23(	)4,278(-)4(	)4,345(--	)847(-)4(	)547(--
לספקיםלזמן ארוךהתחייבויות	)4()5,724(	)4()6,219(	-)2,243(	)4()4,283(	-)4,345(	-)824(	-)547(

* כולל ריבית לשלם בגין אג"ח.

סיכון מטבע ומדד המחירים לצרכן

חשיפת הקבוצה לסיכון מטבע חוץ ולמדד המחירים לצרכן הינה כדלקמן:

		023513 בדצמבר			023413 בדצמבר
	ד מט"ח צמט"ח או צמוארה"ב()בעיקר דולר	מוד מדדמחירים לצרכ	ד )בעין לא צמו	ד מט"ח צמט"ח או צמוקר דולר ארה	מוד מדדם לצרכן"ב( מחירי	לא צמוד
		מיליוני ש"ח			מיליוני ש"ח
פיםנכסים שוט
ווי מזומניםמזומנים וש	40	-	232	39	-	1,119
ל נגזריםוטפות, כולהשקעות ש	3	343	312	1	268	252
לקוחות	22	-	3,322	110	-	1,307
םכולל נגזרירות חובה,חייבים וית	-	3	5	1	-	6
ן ארוךנכסים לזמ
מן ארוךת חובה לזחייבים ויתרו	-	1	422	-	18	525
ת שוטפותהתחייבויו
"חפות של אגחלויות שוט	-	)522(	)324(	-	)792(	)311(
םצאות לשלספקים והו	)105(	-	)150(	)262(	-	)544(
לל נגזריםות זכות, כוזכאים ויתר	-	)20(	)320(	)4(	)421(	)479(
וךת לזמן ארהתחייבויו
אגרות חוב	-	)0,322(	)242(	-	)2,444(	)4,414(
מן ארוךאחרות לזהתחייבויות	-	)32(	)5(	)4(	)8(	-
	)025(	)0,213(	222	)443(	)3,178(	4,445

החשיפה של הקבוצה להצמדה וסיכון מטבע חוץ היא בגין מכשירים נגזרים היא כדלקמן:

		ר 023513 בדצמב
	מדהמטבע/הצ	מדהמטבע/הצ
	לקבל	לשלם	ערך נקוב	שווי הוגן
				חמיליוני ש"
ורמשים לגידשאינם משמכשירים
חליפיןה על שעריחוזי אקדמ	בדולר ארה"	ש"ח	22	3
דה על המדחוזי אקדמ	רים לצרכןמדד המחי	ש"ח	3,022	)10(
ע חוץש על מטבאופציות רכ	בדולר ארה"	ש"ח	02	-
חוץר על מטבעאופציות מכ	ש"ח	בדולר ארה"	332	-
		ר 023413 בדצמב
	מדהמטבע/הצ	מדהמטבע/הצ
	לקבל	לשלם	ערך נקוב	שווי הוגן
				חמיליוני ש"
ורמשים לגידשאינם משמכשירים
חליפיןה על שעריחוזי אקדמ	בדולר ארה"	ש"ח	49	-
דה על המדחוזי אקדמ	רים לצרכןמדד המחי	ש"ח	4,925	)34(
ע חוץש על מטבאופציות רכ	בדולר ארה"	ש"ח	97	4

ניתוח רגישות

השינוי במדד המחירים לצרכן לימים 34 בדצמבר 2145 ו,2144- היה מגדיל )מקטין( את ההון העצמי ואת הרווח או ההפסד בסכומים המוצגים להלן. ניתוח זה נעשה בהנחה שכל שאר המשתנים, ובמיוחד שעורי הריבית, נשארו קבועים. הניתוח לגבי שנת 2144 נעשה בהתאם לאותו בסיס.

רווח נקי	הון עצמי
מיליוני ש"ח	מיליוני ש"ח	שינוי
			ר 023513 בדצמב
)32(	)32(	0.2%	לצרכןהמחיריםעליה במדד
)2(	)2(	3.2%	לצרכןהמחיריםעליה במדד
4	4	)3.2%(	לצרכןד המחיריםירידה במד
2	2	)0.2%(	לצרכןד המחיריםירידה במד
			ר 023413 בדצמב
(17)	(17)	2.0%	לצרכןהמחיריםעליה במדד
(8)	(8)	1.0%	לצרכןהמחיריםעליה במדד
8	8	(1.0%)	לצרכןד המחיריםירידה במד
17	17	(2.0%)	לצרכןד המחיריםירידה במד

רגישות השינוי בשער חליפין הינה לא מהותית לימים 34 בדצמבר 2145 ו.2144-

סיכון שיעורי ריבית

סוג ריבית

להלן פירוט בדבר סוג הריבית של מכשירים פיננסיים נושאי ריבית של הקבוצה לתאריך הדיווח לא כולל נגזרים:

		ערך בספרים
	0235	0234
	מיליוני ש"ח	מיליוני ש"ח
ועהבריבית קבמכשירים
סייםנכסים פיננ	225	4,544
פיננסיותהתחייבויות	)1,222(	)4,641(
	)0,221(	)3,199(
שתנהבריבית ממכשירים
סייםנכסים פיננ	0	6
פיננסיותהתחייבויות	-	-
	0	6

ניתוח רגישות השווי ההוגן לגבי מכשירים בריבית קבועה

השינוי של הריבית במועד הדיווח היה מגדיל )מקטין( את ההון העצמי והרווח או ההפסד בסכומים המוצגים להלן. ניתוח זה מתבסס על ההנחה כי כל המשתנים האחרים, ובמיוחד שערי מטבע זר, נשארים קבועים.

			הון עצמי			רווח או הפסד2.5%3.2%
	3.2%גידול	3.2%קיטון	2.5%גידול	2.5%קיטון	3.2%גידול	קיטון	גידול	2.5%קיטון
			מיליוני ש"ח				מיליוני ש"ח
ר 023513 בדצמב)נטו(שווי ההוגןרגישות ה	)2(	2	)4(	4	)2(	2	)4(	4

			הון עצמי				רווח או הפסד
	3.2%גידול	3.2%קיטון	2.5%גידול	2.5%קיטון	3.2%גידול	3.2%קיטון	2.5%גידול	2.5%קיטון
			מיליוני ש"ח				מיליוני ש"ח
ר 023413 בדצמב
)נטו(שווי ההוגןרגישות ה	)44(	44	)7(	7	)44(	44	)7(	7

ניתוח רגישות תזרים המזומנים לגבי מכשירים בריבית משתנה

שינוי של 4% בשיעורי הריבית במועד הדיווח, היה מגדיל )מקטין( את ההון העצמי ואת הרווח והפסד בסכומים שאינם מהותיים.

שווי הוגן

.3 מכשירים פיננסים שנמדדים בשווי הוגן לצורכי גילוי בלבד

הערך בספרים של נכסים והתחייבויות מסוימים, כולל מזומנים ושווי מזומנים, לקוחות, חייבים ויתרות חובה, השקעות שוטפות, כולל נגזרים, ספקים וזכאים ויתרות זכות, כולל נגזרים וזכאים לזמן ארוך, שווה או קרוב לשווי ההוגן שלהם.

השווי ההוגן של ההתחייבויות הפיננסיות שנותרו וכן, ערכן בספרים כפי שמוצגים בדוחות המאוחדים על המצב הכספי הינם כדלקמן:

	31 בדצמב	ר 2015	31 בדצמב	ר 2014
	ערך בספר	הוגן*ים שווי	ערך בספר	י הוגןים שוו
	מיליוני ש"	ח	מיליוני ש"	ח
ת, כולל חלויואגרות חוב
בית לשלםשוטפות ורי	(3,896)	(4,198)	(4,807)	(5,107)

* השווי ההוגן כולל ריבית וקרן בסכום כולל של כ476- מיליון ש"ח, ששולמו בחודש ינואר ,2146 לאחר סוף תקופת הדיווח.

השווי ההוגן של אגרות חוב נסחרות נקבע תוך התייחסות למחיר הרכישה המצוטט שלהן בסגירת המסחר ) closing Quoted price asking), במועד הדיווח )רמה 4(.

.0 היררכיית שווי הוגן של מכשירים פיננסיים הנמדדים בשווי הוגן

הטבלה להלן מציגה ניתוח של המכשירים הפיננסיים הנמדדים בשווי הוגן תוך שימוש בשיטת הערכה, לרמות השונות:

	מבר 0235	ליום 13 בדצ
סה"כ	רמה 1	רמה 0	רמה 3
מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
				סדרווח או הפהוגן דרךסיים בשווינכסים פיננ
022	-	-	022	וחות חובוטפות בבטהשקעות ש
3	-	3	-	נגזרים
023	-	3	022	םסה"כ נכסי
				וח אווגן דרך רות בשווי הת פיננסיוהתחייבויו
				הפסד
)10(	-	)10(	-	נגזרים
)10(	-	)10(	-	חייבויותסה"כ הת

לא היה מעבר במהלך השנה בין רמה 4 לרמה .2

	מבר 0234	ליום 13 בדצ
סה"כ	רמה 1	רמה 0	רמה 3
מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
				סדרווח או הפהוגן דרךסיים בשווינכסים פיננ
521	-	-	521	וחות חובוטפות בבטהשקעות ש
49	-	49	-	ן ארוךחייבים לזמ
4	-	4	-	נגזרים
571	-	51	521	םסה"כ נכסי
				וח אווגן דרך רות בשווי הת פיננסיוהתחייבויו
				הפסד
)32(	-	)32(	-	נגזרים
)32(	-	)32(	-	חייבויותסה"כ הת

שווי הוגן )המשך(

.1 נתונים בדבר מדידות שווי הוגן של מכשירים פיננסיים ברמה 0

נסימכשיר פינ	ההוגןיעת השוויערכה לקבטכניקות ה
)Forwardה )חוזי אקדמ	חיר ה-זה לבין מהנקוב בחוForwardין מחיר ה-ההפרש בבסיס היווןן נאמד עלהשווי ההוגות שוקמוש בריבי, תוך שיעד לפידיוןל החוזהתקופה שן יתרת ההנוכחי בגיForwardם.של הצדדיני האשראית בגין סיכות הנדרשול ההתאמודומים, כוללמכשיריםמתאימות
מטבע חוץאופציות על	Black)Scholes-formulaס )ל בלק ושולתאם למודן נקבע בההשווי ההוג

.4 קיזוז נכסים פיננסים והתחייבויות פיננסיות

הטבלה להלן מציגה את הערך בספרים של מכשירים פיננסיים שהוכרו, אשר קוזזו בדוח על המצב הכספי:

			צמברליום 13 בד	0235
	ביאור	סכומיםברוטו שלנכסים)התחייבויופיננסייםשהוכרו	סכומיםברוטו של)התחייבויונכסיםפיננסייםשהוכרוו בדוחותת( וקוזזהמאוחדיםהמצב הכס	סכומים נטות(של נכסיםת()התחייבויופיננסייםהמוצגיםם עלת המאוחדיעל בדוחופיהמצב הכספי
		מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
סיםנכסים פיננלקוחות	9	120	)121(	52
		120	)121(	52
ת פיננסיותהתחייבויו
אות לשלםספקים והוצ	43 )	112(	121	)11(
		)112(	121	)11(
			צמברליום 13 בד	0234
	ביאור	סכומיםברוטו שלנכסים)התחייבויופיננסייםשהוכרו	סכומיםברוטו של)התחייבויונכסיםפיננסייםשהוכרוו בדוחותת( וקוזזהמאוחדיםהמצב הכס	סכומים נטות(של נכסיםת()התחייבויופיננסייםהמוצגיםם עלת המאוחדיעל בדוחופיהמצב הכספי
		מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
סיםנכסים פיננלקוחות	9	342	)238(	414
		342	)238(	414
ת פיננסיותהתחייבויואות לשלםספקים והוצ	43 )	264(	238	)26(

לשנה שנסתיימה ביום 13 בדצמבר

ביאור 00 - הכנסות ממכירות ושירותים

ההרכב:

		ימה ביום 13לשנה שנסתי	בדצמבר
	0235	0234	0231
	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
ציוד קצהמכירה שלהכנסות מ	3,242	4,115	942
שירותיםהכנסות מ
ריתשורת סלולשירותי תקהכנסות מ	0,303	2,487	2,797
תשורת נייחשירותי תקהכנסות מ	222	941*	4,142*
חריםשירותים אהכנסות מ	345	438	446
תיםסות משירוסה"כ הכנ	1,310	3,565	3,985
סותסה"כ הכנ	4,322	4,571	4,927

* סווג מחדש

ביאור 01 - עלות המכירות והשירותים

ההרכב:

	0235	0234	0231
	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
ת הכנסהלפי מקורו
קצהעלות ציוד	221	744	749
השירותיםעלות מתן	0,222	4,983	2,274
	0,221	2,727	2,991
יםלפי מרכיב
קצהעלות ציוד	221	744	749
נלוותת והוצאותדמי שכירו	110	341	365
ת אחרותהוצאות נלוומשכורות ו	025	261	298
םשורת אחרימפעילי תקתשלומים ל	222	764	882
סףתי ערך מועלות שירו	22	444	449
תותפחת והפח	123	441	448
גרותתמלוגים וא	22	98	94
אחרות	53	31	68
ירותיםת בגין השסה"כ עלו	0,222	4,983	2,274
	0,221	2,727	2,991

ביאור 04 - הוצאות מכירה ושיווק

ההרכב:

בדצמברימה ביום 13לשנה שנסתי02310234מיליוני ש"חמיליוני ש"ח3152774644976246865941393
		0235
		מיליוני ש"ח
		022	תהוצאות נלוומשכורות ו
		322	עמלות
		02	סי ציבורפרסום ויח
		12	תותפחת והפח
		20	אחרות
747	672	202

ביאור 05 - הוצאות הנהלה וכלליות

ההרכב:

בדצמבר	ימה ביום 13לשנה שנסתי
0231	0234	0235
מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
437	424	334	תהוצאות נלוומשכורות ו
472	444	341	תותפחת והפח
74	62	52	ת ואחזקהדמי שכירו
48	57	53	מקצועייםם ושירותיםעיבוד נתוני
84	34	10	פקיםחובות מסו
58	54	22	אחרות
571	463	425

ביאור 02 - הוצאות אחרות

בחודש אפריל ,2145 השיקה הקבוצה, בשיתוף וועד העובדים, תוכנית פרישה מרצון חדשה לעובדים, שבעקבותיה רשמה החברה הוצאה בסך של כ25- מיליון ש"ח ברבעון השני של ,2145 בגין העובדים שהצטרפו לתוכנית )ברבעון השני של ,2144 רשמה החברה הוצאה בסך של כ39- מיליון ש"ח בגין תוכנית אחרת לפרישה מרצון לעובדים(.

ביאור 02 - הכנסות והוצאות מימון

ההרכב:

		ימה ביום 13לשנה שנסתי	בדצמבר
	0235	0234	0231
	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
ונותבית מפיקדהכנסות רימיםרה בתשלוסקאות מכיבית בגין עהכנסות רי	042	664	4583
מדדופיננסים שנשל נכסיםשווי ההוגןשינוי נטו ב
או הפסדגן דרך רווחלפי שווי הורמיההפחתת פהכנסות מ	5-	4548	2124
ר ואחרותהפרשי שע	3	-	47
מוןהכנסות מי	55	411	456
ת בגיןצאות ריביה למדד והורשי הצמדהוצאות הפלזמן ארוךהתחייבויותשל נגזריםשווי ההוגןשינוי נטו ב	)322()10(	)254()33(	)385()44(
ןפחתת ניכיוהוצאות מה	)00(	-	-
ר ואחרותהפרשי שע	)2(	)44(	)3(
מוןהוצאות מי	)010(	)298(	)412(
והפסדוכרו ברווחמון נטו שההוצאות מי	)322(	)498(	)246(

ביאור 02 - מיסים על ההכנסה

א. פרטים בדבר סביבת המס בה פועלת הקבוצה

שיעור מס חברות

)3( להלן שיעורי המס הרלוונטיים לחברה בשנים :2143-2145 25% - 2143 26.5% - 2144 26.5% - 2145 המיסים השוטפים לתקופות המדווחות מחושבים בהתאם לשיעורי המס המוצגים לעיל.

ביום 4 בינואר ,2146 לאחר סוף תקופת הדיווח, אישרה מליאת הכנסת את החוק לתיקון פקודת מס הכנסה )מס' 246(, התשע"ו - ,2146 אשר קבע, בין היתר, הורדת שיעור מס חברות, החל משנת 2146 ואילך בשיעור של 4.5% כך שיעמוד על .25%

אילו החקיקה היתה מושלמת למעשה עד ליום 34 בדצמבר ,2145 השפעת השינוי על הדוחות הכספיים ליום 34 בדצמבר 2145 היתה מתבטאת בקיטון ביתרות התחייבויות המיסים הנדחים בסך 14 מיליון ש"ח ובקיטון ביתרות נכסי המיסים הנדחים בסך 7 מיליון ש"ח. עדכון יתרות המיסים הנדחים היה מוכר כנגד הכנסות מיסים נדחים בסך 7 מיליון ש"ח.

)0( ביום 42 בינואר, ,2142 פורסם תיקון 488 לפקודה, אשר במסגרתו תוקנה הוראת השעה, כך שתקן 29 לא יחול בקביעת ההכנסה החייבת בשנת המס 2141 ו- .2144 ביום 34 ביולי, ,2144 פורסם תיקון מספר 212 לפקודה במסגרתו הוארך תוקף הוראת השעה לגבי שנות המס 2142 ו- 2143 וזאת רטרואקטיבית מיום 4 בינואר, .2142

ב. מרכיבי הוצאות )הכנסות( מיסים על הכנסה

	לשנה שהסת	יימה ביום 13	בדצמבר
	2015	2014	2013
	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
סיםכנסות( מיהוצאות )השוטפים
השוטפתבגין השנה	45	96	128
דמות, נטוגין שנים קוהתאמות ב	-	(5)	(1)
	45	94	427
סים נדחיםכנסות( מיהוצאות )ה
שים זמנייך של הפריצירה והיפו	ם )2(	49	)47(
ור המסשינוי בשיע	-	-	7
	)2(	49	(10)
הכנסהמיסים עלסך הוצאות	36	110	117

ביאור 02 - מיסים על ההכנסה )המשך(

ג. מיסים על הכנסה בגין מרכיבי רווח כולל אחר

מבר 0235	ום 13 בדצסתיימה בי	לשנה שה
נטו ממסחמיליוני ש"	הטבת מסיליוני ש"חח מ	לפני מסמיליוני ש"
(1)	1	(2)	רד כולל אחפריטי הפס
מבר 0234	ום 13 בדצסתיימה בי	לשנה שה
טו ממסחמיליוני ש"	ס נהוצאות מליוני ש"חח מי	לפני מסמיליוני ש"
9	(3)	42	כולל אחרפריטי רווח
מבר 0231	ום 13 בדצסתיימה בי	לשנה שה
נטו ממס	הטבת מס	לפני מס
חמיליוני ש"	ליוני ש"חח מי	מיליוני ש"

פריטי הפסד כולל אחר )3( 1 (2)

ד. התאמה בין המס התיאורטי על הרווח לפני מיסים על הכנסה לבין הוצאות המיסים

	לשנה שה	ום 13 בדצסתיימה בי	מבר
	2015	2014	2011
	ח מימיליוני ש"	ליוני ש"ח	חמיליוני ש"
ההכנסהמיסים עלרווח לפני	133	464	415
השל הקבוצס העיקרישיעור המ	26.5%	26.5%	25%
בוצהקרי של הקהמס העילפי שיעורמס מחושב	35	423	414
ן:ת המס בגיסכון( בחבותוספת )חי
מוכרותהוצאות לא	5	3	6
מותשנים קודמיסים בגין	-	(5)	(1)
מסנוי בשיעורהשפעת שי	-	-	7
טורותהכנסות פ	(1)	(6)	(2)
חריםהפרשים א	(3)	(5)	6
הכנסהסים על ההוצאות מי	36	441	447

ביאור 02 - מיסים על ההכנסה )המשך(

ה. נכסי והתחייבויות מיסים נדחים

)3( נכסי והתחייבויות מיסים נדחים שהוכרו

המיסים הנדחים מחושבים לפי שיעור מס הצפוי לחול במועד ההיפוך כמפורט לעיל.

התנועה בנכסי והתחייבויות המיסים הנדחים מיוחסת לפריטים הבאים:

	הפרשהלחובותמסופקיםמיליוני ש"ח	רכוש קבועונכסים בלתימוחשייםמיליוני ש"ח	עסקאותהגנהמיליוני ש"ח	ניכוייםוהפסדיםלהעברהלצרכי מסמיליוני ש"ח	אחריםמיליוני ש"ח	סך הכלמיליוני ש"ח
נדחהתחייבות( מסיתרת נכס )הר 2015ליום 3 בינוא	23	(011)	1	11	15	(123)
הפסדנזקפו לרווח ושינויים אשר	(2)	10	-	(3)	10	9
ולל אחרנזקפו לרווח כשינויים אשר	-	-	-	-	-	-
נדחהתחייבות( מסיתרת נכס )המבר 0235ליום 13 בדצ	51	(201)	1	8	25	(114)
הנכס מס נדח	51	39	1	8	26	127
ת לקיזוזיתרות הניתנו						(118)
מאוחדיםה בדוחות הנכס מס נדחבדצמברספי ליום 13על המצב הכ2015						9
ס נדחההתחייבות מ	-	(240)	-	-	(1)	(241)
ת לקיזוזיתרות הניתנו						118
חותס נדחה בדוהתחייבות מפי ליוםל המצב הכסהמאוחדים ע023513 בדצמבר						(123)

ביאור 02 - מיסים על ההכנסה )המשך(

ה. נכסי והתחייבויות מיסים נדחים )המשך(

)3( נכסי והתחייבויות מיסים נדחים שהוכרו )המשך(

הפרשהלחובותמסופקים	רכוש קבועונכסים בלתימוחשיים	עסקאותהגנה	ניכוייםוהפסדיםלהעברהלצרכי מס	אחרים	סך הכל
מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
73	(205)	5	15	12	(100)
(12)	(6)	-	(4)	3	(19)
-	-	(4)	-	-	(4)
61	(211)	1	11	15	(123)
61	36	1	11	18	127
					(110)
					17
-	(247)	-	-	(3)	(250)
					110
					(140)

)0( התחייבויות מיסים נדחים שלא הוכרו

ליום 34 בדצמבר 2145 ו- ,2144 התחייבות מיסים נדחים המתייחסים להשקעה בחברה בת, לא הוכרה מאחר וההחלטה האם למכור השקעה זו נתונה בידי הקבוצה, ובכוונתה שלא לממשה בעתיד הנראה לעין.

ו. שומות מס

שומות מס סופיות נתקבלו ע"י החברה ונטוויז'ן עד וכולל השנה שהסתיימה ב- 34 לדצמבר 2144 )שנת המס 2144(.

ביאור 02 - חכירות תפעוליות

דמי השכירות השנתיים החזויים, שאינם ניתנים לביטול, הינם כדלקמן:

13 בדצמבר
0235
מיליוני ש"ח
205	עד שנה
646	חמש שניםמשנה ועד
240	שניםמעל חמש
1,091

במהלך השנה שהסתיימה ביום 34 בדצמבר ,2145 הוכר סך של 285 מיליון ש"ח כהוצאות בגין חכירות תפעוליות בדוח רווח והפסד )שנת 2144 ו2143- סך של 258 מיליון ש"ח ו276- מיליון ש"ח, בהתאמה(.

הסכמי שכירות ושירותים עיקריים:

• א. בנייני משרדים ומחסנים- הסכמי שכירות לתקופות של עד כ- 44 שנים.
• ב. תחנות מיתוג- הסכמים לשכירת תחנות מיתוג לתקופות של עד כ- 48 שנים.
  • ג. אתרי תא- הסכמים לשכירת אתרי תא לתקופות של עד כ- 24 שנים.
• ד. מרכזי שירות, חנויות קמעונאיות ודוכנים- הסכמים לשכירות של מרכזי שירות והתקנות, ודוכנים לתקופות של עד כ- 43 שנים.
  • ה. שכירת רכבים באמצעות ליסינג תפעולי לתקופה של 3 שנים.

ביאור 12 - התקשרויות

• .1 לקבוצה התחייבויות בקשר לרישיון שהוענק לה בשנת 4994 שהעיקריות שבהן:
• א. לא למשכן נכס מהנכסים המשמשים לביצוע הרישיון ללא הסכמה מראש של משרד התקשורת.
• ב. ההון העצמי המשותף של כלל בעלי מניות החברה, יחד עם ההון העצמי של החברה, לא יפחת מ211- מיליון דולר ארה"ב. לעניין זה לא יובא בחשבון בעל מניות המחזיק פחות מ41%- מהזכויות בהון החברה.

הקבוצה עומדת בהתחייבויותיה הנ"ל. ראה גם ביאור 32)5( ביחס לשינוי השליטה באידיבי ובעקבות זאת בעקיפין בחברה.

• .0 נכון ליום 34 בדצמבר ,2145 לקבוצה התחייבויות לרכישת ציוד לרשתות התקשורת, ציוד קצה, תחזוקת מערכות ותוכנות, ותוכן ושירותים נלווים, בסך של כ444- מיליון ש"ח.
• .1 בחודש ספטמבר ,2144 החברה ופלאפון תקשורת בע"מ, או פלאפון, התקשרו בהסכם שיתוף פעולה ביחס לשירותי תחזוקה עבור רכיבים פאסיביים באתרים סלולריים, לרבות איחוד רכיבים פאסיביים והפחתת עלויות, באמצעות קבלן משותף. בחודש יולי ,2145 אישר הממונה על ההגבלים העסקיים את הסכם שיתוף הפעולה לתקופה של עשר שנים תחת תנאים מסוימים. אולם, הצדדים לא הצליחו לקדם את הוצאתו לפועל ואין כל וודאות ששיתוף הפעולה כאמור יצא לפועל בעתיד.
• .4 בין השנים 2113 ו- ,2145 נטוויז'ן התקשרה במספר הסכמים עם מדיטרניאן נאוטילוס בע"מ ומדיטרניאן נאוטילוס )ישראל( בע"מ )להלן ביחד - "מד נאוטילוס"(. לפי ההסכמים עם מד נאוטילוס, נטוויז'ן רכשה זכויות שימוש )IRU )בקיבולות תקשורת מסוימות בקווי התקשורת של מד נאוטילוס וכן שירותי תחזוקה ותפעול בקשר עם קווי התקשורת האמורים. במהלך השנים האחרונות נטוויז'ן הגדילה את הקיבולת הנרכשת עבור מחירים נמוכים משמעותית, וכן הפחיתה עלויות תחזוקה. תקופת ההסכם בנוגע לקיבולת שנרכשה ממד נאוטילוס היא עד מאי .2132 לנטוויז'ן קיימת האופציה לסיים את ההסכמים בנוגע לחלקים מהקיבולת ב2122- ו.2127- יתרת ההתחייבות מכלל ההסכמים הקיימים נכון ליום 34 בדצמבר ,2145 הינה 214 מיליון ש"ח.

ביאור 12 - התקשרויות )המשך(

• .5 בחודש פברואר ,2145 התקשרה החברה בהסכם עבודה קיבוצי עם נציגות העובדים ועם הסתדרות העובדים הכללית החדשה לתקופה של שלוש שנים )מ2145- עד 2147(. ההסכם חל על עובדי סלקום ו143- נטוויז'ן בע"מ )חברת בת בבעלות מלאה עקיפה של החברה(, למעט משרות ניהול ואחרות מסוימות. ההסכם מגדיר מדיניות ותנאי העסקה בהיבטים שונים, לרבות: שכר מינימום, העלאת שכר שנתית, תמריצים, הטבות ותשלומים חד פעמיים או שנתיים אחרים לעובדים, כמו גם תקציב רווחה ונהלים לאיוש משרות, ניוד ופיטורין, והסמכות של הנהלת סלקום ושל נציגות העובדים ביחס לאלו. ההסכם כולל תנאים, לפיהם לעובדים זכות להשתתף ברווח התפעולי של החברה מעל לסף מסוים ולהנות מתשלומים נוספים בתנאים מסוימים. העלות המוערכת של ההסכם למשך תקופתו צפויה להיות כ211- מיליון ש"ח, לפני מס, על בסיס תחזיות הקבוצה. במהלך הרבעון הראשון של ,2145 רשמה החברה בדוחות רווח והפסד הוצאה חד פעמית בגין ההסכם בסך כ31- מיליון ש"ח.
• .2 בחודש מאי ,2145 החברה התקשרה בהסכם הלוואה עם שני משקיעים מוסדיים, או המלווים, שלפיו המלווים הסכימו, בכפוף לתנאים מסוימים מקובלים, להעמיד לחברה שתי הלוואות נדחות בסך כולל של 411 מיליון ש"ח, לא צמודות, כדלקמן:
• א. קרן הלוואה בסך 211 מיליון ש"ח תועמד לחברה בחודש יוני ,2146 ותישא ריבית שנתית קבועה של .4.6% קרן ההלוואה תעמוד לפרעון בארבעה תשלומים שווים ב- 31 ביוני של כל אחת מהשנים 2148 עד 2124 )כולל(. הריבית תשולם ב41- תשלומים חצי שנתיים ב31- ביוני וב34- בדצמבר של כל שנה קלנדרית החל מיום 34 בדצמבר ,2146 ועד ליום 31 ביוני 2124 )כולל(.
• ב. קרן הלוואה בסך 211 מיליון ש"ח תועמד לחברה בחודש יוני ,2147 ותישא ריבית שנתית קבועה של .5.4% קרן ההלוואה תעמוד לפרעון בארבעה תשלומים שווים ב- 31 ביוני של כל אחת מהשנים 2149 עד 2122 )כולל(. הריבית תשולם ב41- תשלומים חצי שנתיים ב31- ביוני וב34- בדצמבר של כל שנה קלנדרית החל מיום 34 בדצמבר ,2147 ועד ליום 31 ביוני 2122 )כולל(.

לפי ההסכם, שיעור הריבית כפוף להתאמות מסוימות. עד להעמדת ההלוואות, החברה נדרשת לשלם למלווים עמלת התחייבות. החברה רשאית לבטל או לפרוע בפרעון מוקדם כל אחת או את שתי ההלוואות, בכפוף לעמלת ביטול או עמלת פרעון מוקדם מסוימות, לפי העניין. ההסכם כולל תנאים והתחייבויות מקובלים וכן כולל, ככלל, את השעבוד השלילי, הגבלות על חלוקה, ארועי פרעון מיידי והתניות פיננסיות החלים על אגרות חוב סדרות ו'-ט' של החברה )אשר כלולות בביאור 47 לדוחות הכספיים השנתיים(.

.2 בחודש אוגוסט ,2145 התקשרה החברה בהסכם הלוואה עם בנק ישראלי, או המלווה, שלפיו הסכים המלווה, בכפוף לתנאים מסוימים מקובלים, להעמיד לחברה הלוואה נדחית בסכום של 441 מיליון ש"ח, לא צמודה, שתועמד לחברה בחודש דצמבר ,2146 ותישא ריבית שנתית קבועה של .4.9% קרן ההלוואה תעמוד לפירעון בחמישה תשלומים שווים ב31- ביוני של כל אחת מהשנים 2148 עד 2122 )כולל(.

לפי ההסכם, שיעור הריבית כפוף להתאמות מסוימות. עד להעמדת ההלוואה, החברה נדרשת לשלם למלווה עמלת התחייבות ובמידה ולא תילווה, תשלום נוסף מסוים. החברה רשאית להקדים את מועד העמדת ההלוואה, ובמקרה כאמור מועדי הפירעון יוקדמו וכן רשאית החברה לפרוע את ההלוואה בפירעון מוקדם, בכפוף לתשלום עמלת פירעון מוקדם. ההסכם כולל גם ארועים מסוימים שבמידה ולא יאושרו על ידי המלווה מאפשרים למלווה להודיע לחברה על האצת מועד הפירעון של ההלוואה.

ההסכם כולל תנאים והתחייבויות מקובלים וכן כולל, ככלל, את השעבוד השלילי, הגבלות על חלוקה, התניות פיננסיות ואירועי פירעון מיידי החלים על אגרות החוב סדרות ו'-ט' של החברה, בהתאמות מסוימות, לרבות עיקול, מימוש שעבוד, פעולות הוצאה לפועל, כינוס ו)בכפוף למספר חריגים(- מכירת נכסים, בסכום מסוים נמוך יותר שנקבע, הפסקת פעילות בתחום שהינו מהותי לפעילות החברה ומיזוג ושינויי מבנה )עם חריגים מצומצמים יותר( שיהוו עילה לפירעון מיידי. במידה והחברה תתחייב בהתניות פיננסיות מחמירות יותר כלפי גוף פיננסי או מחזיק אגרות חוב אחר, הן יחולו גם על הסכם זה.

ביאור 12 - התקשרויות )המשך(

.2 בחודש נובמבר ,2145 התקשרה החברה בהסכם )"ההסכם"( עם גולן טלקום בע"מ )"גולן"( ובעלי המניות של גולן, לרכישת 411% מהמניות של גולן בתמורה לסכום של 4.47 מיליארד ש"ח )"מחיר הרכישה"(.

ההוראות המרכזיות של ההסכם הינן:

• בתמורה ל411%- מהמניות של גולן, החברה תשלם לבעלי המניות של גולן את מחיר הרכישה, בכפוף להתאמות מסוימות בגין חייבים וזכאים ולהתאמות עקב שינויים מהותיים לרעה מסוימים ביחס לגולן המפורטים בהסכם.
• עד 411 מיליון ש"ח ממחיר הרכישה ישולמו בצורת שטר הון המיר ל5- שנים שיונפק למוכרים על ידי החברה. השטר ייפרע באמצעות הנפקת מניות רגילות של החברה, בערך השווה לסכום הקרן של השטר )מספר המניות יחושב על בסיס המחיר הממוצע של מניית החברה בבורסה לניירות ערך בתל אביב בע"מ בסמוך לאחר מועד השלמת העסקה, פחות הנחה מסוימת(. המוכרים רשאים לבקש המרה או להמחות את השטר בכל עת לאחר חלוף שנתיים ממועד ההשלמה. עד להמרה, השטר יזכה את המחזיק בו בתשלום נדחה קבוע השווה ל3.5%- מהקרן לשנה, שישולם אחת לחצי שנה, ולהתאמות מקובלות אחרות. עם ההמרה או סיום תקופת השטר, החברה רשאית לבחור, על פי שיקול דעתה הבלעדי, האם לפרוע את השטר למוכרים באמצעות תשלום מזומן בסך השווה לשווי השוק של המניות, במקום באמצעות הנפקת מניות. בעלי המניות של גולן יקבלו זכויות רישום )rights registration )מקובלות מוגבלות ביחס למניות אלה.
• הסכמי שיתוף רשתות קודמים בין החברה ובין גולן, שהיו כפופים לאישורים של משרד התקשורת והממונה על ההגבלים העסקיים, שלא נתקבלו, בטלים. בהתאם להסכמה קודמת של הצדדים, במידה והאישורים האמורים לא היו מתקבלים עד ליום 34 בדצמבר ,2145 גולן היתה נדרשת לשלם לחברה את הפער בין התשלום המופחת ששילמה בפועל לבין התשלום המלא שהיתה מחויבת לשלם בהתאם להסכם הנדידה הפנים ארצית, עבור שירותי הנדידה הפנים ארצית שסופקו ויסופקו על ידי החברה לגולן מחודש יולי 2144 ועד יום 34 בדצמבר .2145 במסגרת ההסכם, הסכימו גם הצדדים לדחות את תאריך התשלום של פער זה, שנקבע על 611 מיליון ש"ח, עד למוקדם מבין מועד ביטול ההסכם כדין או לאחר חלוף 42 חודשים מחתימת ההסכם, ללא שהעסקה הושלמה.
• גולן תמשיך לרכוש שירותי נדידה פנים ארציים מהחברה עד למוקדם מבין מועד השלמת העסקה או מועד מסוים שנקבע בהסכם לאחר מועד ביטולו והחל מינואר ,2146 תגדיל גולן את התשלום החודשי שהיא משלמת לחברה לכ- 24 מיליון ש"ח. לאחר השלמת העסקה החברה לא תקבל מגולן הכנסות משירותי נדידה פנים ארציים.
• ההסכם כולל ככלל הצהרות, התחייבויות, הסדרי שיפוי, תנאים להשלמת העסקה ותנאי ביטול מקובלים. תנאים ספציפיים להשלמת העסקה כוללים קבלת אישורי משרד התקשורת והממונה על ההגבלים העסקיים, והיעדרו של שינוי מהותי לרעה במצב גולן, כמוגדר בהסכם. ההסכם ניתן לביטול על ידי כל אחד מהצדדים אם העסקה לא הושלמה עד חלוף 42 חודשים מתאריך ההסכם.

החברה מתכוונת לממן את מחיר הרכישה באמצעות שילוב של הון וחוב. החברה צופה שבנוסף לשטר ההון ההמיר בסכום של 411 מיליון ש"ח האמור, היא תנפיק הון בהיקף של כ211- מיליון ש"ח )העשוי לכלול הנפקת זכויות - לפירוט נוסף ראה ביאור ,49 בדבר הון וקרנות( ותממן את היתרה ממקורות פנימיים ובאמצעות גיוס חוב.

אין כל ודאות כי ההסכם יאושר על ידי הרגולטורים הישראליים, וכן אין כל ודאות לגבי ביצוע העסקה.

ביאור 13 - התחייבויות תלויות

במהלך העסקים הרגיל הקבוצה מעורבת בתביעות משפטיות שונות נגדה. העלויות שעשויות לנבוע מתביעות אלו, מופרשות רק כאשר יותר סביר מאשר לא שתיווצר חבות הנובעת מאירועי העבר, ושסכום החבות ניתן לכימות או הערכה בטווח סביר. סכום ההפרשות שבוצעו מבוסס על הערכת מידת הסיכון בכל אחת מהתביעות, כאשר אירועים המתרחשים במהלך ההתדיינות המשפטית עשויים לחייב ביצוע מחדש של הערכת סיכון זה. הערכת הקבוצה בדבר הסיכון מתבססת הן על חוות דעת יועציה המשפטיים והן על אומדן הקבוצה בדבר סכומי הסדרי הפשרה הסבירים שהחברה צפויה לשאת, במידה והסדרי פשרה כאמור יוסכמו על ידי הצדדים לתביעות. ההפרשה הנכללת בדוחות הכספיים המאוחדים בגין כלל התביעות נגד הקבוצה הינה בסך של 54 מיליון ש"ח )ראה גם ביאור ,44 בדבר הפרשות(.

להלן פירוט התביעות העומדות ותלויות כנגד הקבוצה, מסווגות בהתאם לקבוצות בעלות מאפיינים דומים. הסכומים המוצגים להלן מחושבים על פי סכומי התביעות נכון למועדי הגשתן לקבוצה.

.1 תביעות צרכניות

במהלך העסקים הרגיל הוגשו לבתי משפט תביעות משפטיות כנגד הקבוצה על ידי לקוחות שלה. מדובר בעיקר בתביעות ובקשות לאשרן כתביעות ייצוגיות, שעניינן בעיקר טענות לגביית כספים שלא כדין, התנהלות שלא על פי דין או רישיון, או הפרת ההסכמים עם הלקוחות, תוך גרימת נזקים ממוניים ושאינם ממוניים ללקוחות. נכון ליום 31 בדצמבר ,2145 הסכומים הנתבעים מהקבוצה בתביעות לקוחות מסתכמים לסך כולל של כ23.84- מיליארד ש"ח )סכום זה כולל תביעה שאושרה כייצוגית, כמפורט להלן(. כמו כן, קיימות תביעות נוספות כנגד הקבוצה, שבגינן לא צוין סכום התביעה, ככל שתאושרנה כתביעות ייצוגיות, אשר בגינן קיימת לקבוצה חשיפה נוספת מעבר לאמור לעיל. בנוסף, ישנן תביעות נוספות כנגד הקבוצה ונתבעים נוספים יחדיו, בלי שצוין סכום התביעה מהקבוצה בנפרד, בסכום כולל של כ2.35- מיליארד ש"ח, וכן תביעות נוספות כנגד הקבוצה ונתבעים נוספים, שבגינן לא צוין סכום התביעה, ככל שתאושרנה כתביעות ייצוגיות, אשר בגינן קיימת לקבוצה חשיפה נוספת מעבר לאמור לעיל.

בנובמבר ,2143 בית המשפט המחוזי מחוז מרכז אישר בקשה לאישור תביעה ייצוגית שהוגשה נגד הקבוצה בספטמבר 2144 כתביעה ייצוגית, בטענה שהקבוצה הפרה את הסכמיה עם מנוייה בכך שלא סיפקה להם את מלוא הזיכויים המגיעים להם לפי ההסכמים. הסכום הכולל שנתבע הוערך על ידי התובע בכ45- מיליון ש"ח.

מתוך כלל התביעות הצרכניות והבקשות לאישורן כייצוגיות, בחמש תביעות ובקשות לאשרן כתביעות ייצוגיות בסכום שהוערך על ידי התובעים בסך מצטבר של כ81- מיליון ש"ח, בשתי תביעות ובקשות לאשרן כתביעות ייצוגיות נוספות כנגד הקבוצה ונתבעות נוספות בסכום של כ484- מיליון ש"ח בלי שצוין סכום התביעה מהקבוצה בנפרד וכן בשלוש תביעות ובקשות לאשרן כתביעות ייצוגיות נוספות כנגד הקבוצה שבגינן לא צוין סכום התביעה מהקבוצה, הוגשו הסכמי פשרה או הסדרי הסתלקות, אך ההליכים טרם הסתיימו.

מתוך כלל התביעות הצרכניות והבקשות לאישורן כייצוגיות, קיימות חמש תביעות בסך של כ- 353 מיליון ש"ח וכן, תביעה נוספת כנגד הקבוצה שבגינה לא צויין סכום התביעה, אשר בשלב מקדמי זה טרם ניתן להעריך את סיכויי הצלחתן.

לאחר סוף תקופת הדיווח, הסתיימו שבע תביעות ובקשות לאשרן כתביעות ייצוגיות כנגד הקבוצה, בסכום שהוערך על ידי התובעים בסך כולל של כ361- מיליון ש"ח, תביעה כנגד הקבוצה ונתבעים נוספים יחדיו, בלי שצוין סכום התביעה מהקבוצה בנפרד, בסכום של כ439- מיליון ש"ח וכן, תביעה נוספת כנגד הקבוצה שבגינה לא צויין סכום התביעה מהקבוצה.

לאחר סוף תקופת הדיווח, הוגשה לבית המשפט תביעה ובקשה לאשרה כתביעה ייצוגית כנגד הקבוצה בסכום שהוערך על ידי התובעים בסך של כ44- מיליון ש"ח וכן, שתי תביעות ובקשות לאשרן כתביעות ייצוגיות כנגד הקבוצה, שבגינן לא צויין סכום התביעה. בשלב מקדמי זה טרם ניתן להעריך את סיכויי הצלחתן.

חלוקה לפי	הקבוצה ב	לויות כנגד	עומדות ות	צרכניות ה	ת ייצוגיות	שור תביעו	קשות לאי	וגיות וכן ב	תביעות ייצ	ט מספר		להלן פירו
							:2145	מבר	ם 34 בדצ	עה, נכון ליו	סכום התבי

ית )במיליונם התביעוסה"כ סכו	מספר	יעהסכום התב
ש"ח(	התביעות
547	22	ליון ש"חעד 411 מי
4,646	8	ש"ח511 מיליוןש"ח ועד411 מיליון
24,675	2	יארד ש"חמעל 4 מיל
-	43	ביעהין סכום התבגינן לא צותביעות ש
		םצה ונתבעיכנגד הקבוארד ש"חעד 4 מילי
845	5	יונוספים יחד
		םצה ונתבעיכנגד הקבויארד ש"חמעל 4 מיל
4,511	4	יונוספים יחד
		ביעה כנגדין סכום התבגינן לא צותביעות ש
-	2	פיםתבעים נוסהקבוצה ונ

ביאור 13 - התחייבויות תלויות )המשך(

להלן פרטים בדבר תביעות ובקשות לאשרן כתביעות ייצוגיות נגד הקבוצה, שהסכום הנתבע בהן היה 4 מיליארד ש"ח ומעלה:

• .4 במהלך תקופת הדיווח, הוגשה לבית המשפט תביעה ובקשה לאשרה כתביעה ייצוגית כנגד הקבוצה, שהוערכה על ידי התובעים בסך כולל של 45 מיליארד ש"ח, אם תאושר כתביעה ייצוגית, על ידי שני תובעים שלטענתם הינם לקוחות של החברה, בקשר עם טענות שהחברה פגעה שלא כדין בפרטיות לקוחותיה.
• .2 במהלך תקופת הדיווח, הוגשה תביעה ובקשה לאשרה כתביעה ייצוגית נגד נטוויז'ן 143 בע"מ, חברה בת בבעלות מלאה של החברה, או נטוויז'ן, וכנגד שלוש נתבעות נוספות, בטענה שאחת הנתבעות מכרה לנתבעות האחרות, וביניהן לנטוויז'ן, פרטים אישיים של לקוחותיה ששימשו את הנתבעות האחרות כדי לפנות לאותם לקוחות בהצעות עסקיות. אם תאושר התביעה כתביעה ייצוגית, הסכום הנתבע מכל אחת מהנתבעות שרכשו את המידע לכאורה, לרבות נטוויז'ן, מוערך על ידי התובע ב4,111- ש"ח בגין כל לקוח שפרטיו האישיים נרכשו על ידה ו/או בגין כל פניה ללקוח כאמור, כאשר להערכת התובע הנ"ל מסתכם בכ4.5- מיליון לקוחות.
• .3 במהלך תקופת הדיווח, הוגשה תביעה ובקשה לאשרה כתביעה ייצוגית נגד החברה, וכנגד שתי נתבעות נוספות, בטענה כי הנתבעות מציעות שלא כדין כרטיסי חיוג מסוג paid-pre בתעריפים גבוהים במיוחד, על ידי תיאום מחירים ביניהן. אם תאושר התביעה כתביעה ייצוגית, הסכום הכולל הנתבע משלוש הנתבעות מוערך על ידי התובעים בכ43- מיליארד ש"ח, כאשר מתוך סכום זה, בהתבסס על הנתונים המפורטים בכתבי הטענות של התובעים, מוערך הסכום הנתבע מהחברה בכ- 6.7 מיליארד ש"ח.

.2 תביעות איכות סביבה

במהלך העסקים הרגיל הוגשו לבתי משפט תביעות משפטיות כנגד הקבוצה בנושאים הקשורים לאיכות סביבה, ובכללן תביעות בקשר לקרינה בלתי מייננת ממכשירים סלולאריים ותביעות בקשר לאתרים של החברה. מדובר בעיקר בתביעות ובבקשות לאישורן כתביעות ייצוגיות, שעניינן טענות להתנהלות שלא על פי דין או רישיון, תוך גרימת נזקים ממוניים ושאינם ממוניים )לרבות טענות לנזקים עתידיים(.

ליום 34 בדצמבר ,2145 עומדות כנגד הקבוצה שתי תביעות אשר הוגשו במקור על סך כולל של כ4.7- מיליארד ש"ח. בחודש יולי ,2144 בית המשפט דחה את הבקשות לאישור התביעות כתובענות ייצוגיות, למעט ביחס לשלושה נושאים שפורטו בהסכמי פשרה בתביעות ייצוגיות דומות נגד פלאפון ופרטנר, אשר אושרו על ידי בית המשפט ושהחברה היתה מוכנה לאמץ גם היא. שלושת הנושאים הנ"ל נוגעים להתחייבות מפעילי הסלולר לספק מידע מסוים ביחס לקרינה בלתי מייננת, למכור אביזרים מסוימים בהנחה ולבצע בדיקות מסוימות למכשירים בנסיבות מסוימות, כאשר עלות ביצוע התחייבויות אלו מוערך על ידי הקבוצה בסכומים שאינם מהותיים לקבוצה. בחודש אוקטובר ,2144 הגישו התובעים ערעור על פסק הדין המאשר את הסכמי הפשרה עם פלאפון ופרטנר, בין היתר, בהתייחס לסוג הבדיקות שיבוצעו כאמור.

.3 תביעות עובדים, קבלני משנה, ספקים, רשויות ואחרים

במהלך העסקים הרגיל הוגשו תביעות משפטיות שונות כנגד הקבוצה על ידי עובדים, קבלני משנה, ספקים, רשויות ואחרים שעניינן בעיקר טענות להפרת הוראות הדין ביחס לסיום העסקת עובדים ותשלומי חובה לעובדים, טענות להפרת הסכמים, הפרת זכויות יוצרים, הפרת פטנט ותשלומי חובה לרשויות.

ליום 31 בדצמבר ,2145 הסכומים הנתבעים מהקבוצה בתביעות אלה מסתכם לסך כולל של כ94- מיליון ש"ח. כמו כן, הוגשה תביעה משפטית כנגד החברה ושתי מפעילות סלולר נוספות, לסעדים לא כספיים בגין טענה להפרת פטנט במכשירי iPhone.

שעבודים וערבויות

במסגרת הנפקת סדרות ב', ו', ז', ח' ו- ט' של אגרות החוב והסכמי הלוואות נדחות שבהם התקשרה החברה, התחייבה החברה לא ליצור שעבודים על נכסיה למעט חריגים מסוימים.

ערבויות בנקאיות שניתנו על ידי הקבוצה:

• א. לממשלת ישראל )להבטחת ביצוע תנאי רישיון רט"ן(- 81 מיליון ש"ח.
• ב. לממשלת ישראל )להבטחת ביצוע תנאי הרישיונות של הקבוצה(- 44 מיליון ש"ח.
  • ג. לספקים ומוסדות ממשלתיים ואחר- 227 מיליון ש"ח .

ביאור 10 - רגולציה וחקיקה

• .3 בהתאם לצו ביניים שניתן על ידי בית המשפט העליון בחודש ספטמבר ,2141 החברה אינה רשאית להסתמך על הפטור מקבלת היתרי בניה לצורך הקמת מתקני גישה ברשתות סלולריות, למעט לצורך החלפת מתקני גישה בתנאים מסוימים, עד להתקנת תקנות המגבילות את ההסתמכות כאמור או החלטה אחרת של בית המשפט בשנת ,2145 היועץ המשפטי לממשלה הודיע לבית המשפט העליון שנשקלת ההמלצה להתקין תקנות שיקבעו תנאים לשימוש בפטור. החברה ביקשה הקלה מסוימת בצו והיא מחכה להחלטת בית המשפט.
• .0 בחודש מאי ,2142 פרסם שר התקשורת מסמך מדיניות ביחס לשירותי תקשורת נייחת סיטונאיים שקבע בעיקר כדלקמן: )4( הקמת שוק שירותי גישה לשירותי טלקומוניקציה סיטונאי אפקטיבי בישראל, כך שבזק והוט יאפשרו למפעילות אחרות שאינן בעלות תשתית, לעשות שימוש בתשתית שלהן לצורך מתן שירותים ללקוחות קצה; )2( ביטול מדורג של ההפרדה המבנית בקבוצות בזק והוט והחלפתה בהפרדה חשבונאית ושינוי הפיקוח על התעריפים הקמעונאיים של בזק לתעריפים מירביים במקום קביעת תעריפים קבועים הנוכחית, התלויה, ככלל, בהתפתחות השוק הסיטונאי ומצב התחרות בשוק, וביחס לשירותי שידור טלוויזיה , אם תהיה אפשרות סבירה לאספקת חבילת שירותי טלוויזיה בסיסית באמצעות האינטרנט על ידי ספקים שאין להם תשתית תקשורת נייחת ארצית.

בחודש פברואר ,2145 השוק הסיטונאי הקווי הושק פורמלית בישראל )באמצעות הפעלה לא אוטומטית( ביחס לשירותי תשתית אינטרנט ובחודש מאי 2145 יושם השלב האוטומטי של השוק הסיטונאי הקווי ביחס לשירותי תשתית אינטרנט. שירות טלפוניה קווית שהיה אמור להיות מסופק החל מחודש מאי ,2145 לא סופק עד כה ובחודש דצמבר 2145 , פרסם משרד התקשורת שימוע לחלופה זמנית של שירותי מכירה חוזרת לטלפוניה הקווית של בזק לתקופה בת שנה, בתעריפים גבוהים משמעותית מאלו שנקבעו לשירותי טלפוניה קווית סיטונאיים. בנוסף, למרות שהשוק הסיטונאי כלל פורמלית גם את תשתית הוט, היא לא נכללה למעשה בשוק הסיטונאי ובחודש ינואר ,2146 לאחר סוף תקופת הדיווח, פרסם משרד התקשורת שימוע לעניין תעריפי מקסימום לשירותי תשתית אינטרנט סיטונאיים של הוט וציין שלא יתערב בתעריפים שהוט קבעה עבור שירותי הטלפוניה הקווית הסיטונאיים שלה.

בחודש ינואר ,2146 לאחר סוף תקופת הדיווח, הכריז משרד התקשורת על כוונתו לבטל את ההפרדה המבנית החלה על הוט ובזק כחלק מתוכניתו להבטיח השקעות נכבדות בתשתית סיבים אופטיים בישראל וקביעת מסגרת לשירותים סיטונאיים תוך שימוש בתשתית האמורה.

.1 בחודש מאי ויולי ,2144 קבע משרד התקשורת דרישות מסוימות לאישור שיתוף רשתות על ידי משרד התקשורת, לרבות העקרונות הבאים: )4( עידוד שיתוף ברכיבים פאסיביים של אתרים ושיתוף אקטיבי של אנטנות בין מפעילים סלולריים; )2( שיתוף אקטיבי של רשתות רדיו תוך שימוש בציוד ותדרים משותפים יותר רק בין מפעיל עם פריסת רשת דור שלישי חלקית ומפעיל עם פריסה מלאה של רשת דור שלישי, בעוד ששיתוף כאמור לא יותר בין שני מפעילים עם פריסת רשת דור שלישי מלאה; )3( שיתוף בתמסורת מהאתרים בין מפעילים שחולקים בתדרים מותרת ככלל; )4( השקעה ברשת דור רביעי תיחשב כמקיימת התחייבות מפעיל לפריסת רשת דור שלישי בתנאים מסוימים; )5( אישור של שיתוף אקטיבי ברשתות רדיו שעושות שימוש בציוד ותדרים משותפים יהיה לתקופה מוגבלת, רק אם יהיו לפחות שלוש רשתות רדיו סלולריות עצמאיות בישראל, והינו מותנה בתנאים מסוימים, לרבות: )א( החובה לאפשר למפעילים אחרים להצטרף בתנאים זהים לאלו שהוענקו למפעיל המשתף עם נתח השוק הקטן ביותר; )ב( החובה לארח מפעיל וירטואלי ללא הסכמת המפעילים המשתפים האחרים; )ג( רשת הרדיו המשותפת חייבת להיות מופעלת באמצעות גוף משותף שיוחזק בשיעור שווה בין המפעילים המשתפים, שיידרש לקבל רישיון ממשרד התקשורת וישתמש בתדרים שיוקצו למפעילים משתפים; ו-)ד( רכיבי הרדיו של הרשת המשותפת יוחזקו בשיעור שווה על ידי המפעילים המשתפים ולאחר סיום ההסכם לכל אחד מהמפעילים המשתפים תהיה זכות שימוש בתשתית הפאסיבית של המפעילים המשתפים האחרים.

ביאור 10 - רגולציה וחקיקה )המשך(

• .4 בחודש ינואר ,2145 השלים משרד התקשורת מכרז לתדרי 4811 מגה"צ, עבור טכנולוגית דור רביעי )כגון LTE, LTE Advanced). השתתפות במכרז היתה פתוחה בפני כל מפעילי הסלולר, מפעילים וירטואליים קיימים וגופים אחרים שעמדו בתנאי מסוים, ורצועות הוענקו למרבה במחיר. כל מפעילי הסלולר הקיימים ומרתון 148 בע"מ, או מרתון, זכו ברצועות במכרז )החברה זכתה ב- MHz,3 לתקופה של 41 שנים, עבור סך של 6.5 מיליון ש"ח עבור 4 MHz )ומרתון צפויה לקבל רישיון מפעיל סלולרי. תחת תנאי המכרז מרתון, גולן והוט מובייל בע"מ זכאיות להנחה של עד ,51% 41% הנחה בגין כל תוספת של 4% לנתח השוק שלהן, שיושג במהלך 5 השנים הבאות.
• .5 כתוצאה מהצעת זכויות על ידי אי.די.בי בחודש פברואר 2145 ולאחר מכן הרכישה של מניות אי.די.בי. שהוחזקו קודם לכן, בעקיפין, על ידי מר בן משה, אחד מבעלי השליטה באי.די.בי. באותו מועד, על ידי חברות הנשלטות על ידי מר אלשטיין, בעל השליטה האחר, בחודש אוקטובר ,2145 השליטה באידיבי, וכתוצאה מכך בעקיפין בחברה, השתנתה ודורשת את אישור משרד התקשורת, לרבות ביחס לדרישות ההחזקה הישראלית הכלולות ברישיונות החברה, מאחר ומר אלשטיין אינו אזרח ותושב ישראל. החברה הגישה בקשה פורמלית למשרד התקשורת לאישור השינויים האמורים, הכוללת בקשה לתקן את רישיונות התקשורת של החברה, לרבות ביחס להחזקה הישראלית בחברה הקבועים ברישיונות האמורים וכן בקשה לתקופת הארכה לצורך קיום הדרישות המעודכנות על ידי החברה )שטרם נענתה(. אם הבקשה לא תענה בחיוב ולא יוצע הסדר אחר על ידי משרד התקשורת, החברה עלולה לעמוד בפני סנקציות, שבהתאם לתנאי הרשיונות של החברה, עלולות לכלול השעיה או ביטול רישיונות החברה.

ביאור 11 - צדדים קשורים ובעלי עניין

א. יתרות מאזניות

	13 בדצמבר
0235	0234
מיליוני ש"ח	מיליוני ש"ח
	5
-	4
2	436
	1

*יתרת האג"ח המוחזקת על ידי צדדים קשורים, הכוללת אג"ח המוחזקות לטובת הציבור באמצעות, בין היתר, קופות גמל, קרנות נאמנות וקופות פנסיה, ליום 34 בדצמבר 2145 ו,2144- הינה 53 מיליון ש"ח ע.נ. צמוד למדד המחירים לצרכן ו479- מיליון ש"ח ע.נ. צמוד למדד המחירים לצרכן, בהתאמה.

ב. עסקאות עם צדדים קשורים ובעלי עניין מתבצעות במהלך העסקים הרגיל בתנאים מסחריים רגילים:

		יימה ביום 13לשנה שהסת	בדצמבר
	0235	0234	0231
	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
הכנסות:
טפותהכנסות שו	32	42	8
הוצאות:
אחרותהשירותים ועלות מתן	05	24	26

הקבוצה נוהגת במהלך העסקים הרגיל, מעת לעת, לרכוש, לשכור, למכור ולשתף פעולה במכירת מוצרים ושירותים או להתקשר בעסקאות עם ישויות אשר הינן חברות בקבוצת אי.די.בי. או בעלי עניין או צדדים קשורים אחרים.

הקבוצה בחנה עסקאות אלה ומאמינה כי הן בוצעו בתנאים מסחריים הדומים לאלה שהקבוצה יכלה לקבל מ/לספק לצדדים לא קשורים.

ביאור 11 - צדדים קשורים ובעלי עניין )המשך(

ג. הטבות לאנשי מפתח ניהוליים

המנהלים הבכירים בקבוצה זכאים, בנוסף לשכר, להטבות שלא במזומן )כגון: רכב, ביטוח רפואי וכדומה( והקבוצה מפקידה עבורם כספים במסגרת תכנית הטבה מוגדרת לאחר סיום העסקה.

הקבוצה התחייבה לשפות נושאי משרה וכן עובדים ספציפיים נוספים של הקבוצה, בגין אירועים מסוימים המפורטים בכתבי השיפוי שהוענקו להם. סכום השיפוי המצטבר שישולם לכל נושאי המשרה והעובדים האחרים שלהם ניתנו או שיינתנו להם כתבי שיפוי כאמור, מוגבל לסכום של תגמולי הביטוח שתקבל הקבוצה מחברת ביטוח בתוספת סכום השווה ל- 31% מההון העצמי של הקבוצה לפי דוחותיה הכספיים ליום 34 בדצמבר, ,2114 או סכום של 486 מיליון ש"ח, כשהוא מותאם לעלייה במדד המחירים לצרכן.

מנהלים בכירים משתתפים גם בתכנית כתבי אופציות למניות של הקבוצה )ראה ביאור ,21 בדבר תשלומים מבוססי מניות(.

הטבות בגין העסקת אנשי מפתח ניהוליים כוללות:

		יימה ביום 13לשנה שהסת	בדצמבר
	0235	0234	0231
	מיליוני ש"ח	מיליוני ש"ח	מיליוני ש"ח
קצרבדים לטווחהטבות לעו	4	3	4
ותמבוססי מניתשלומים	1	-	4
	5	3	5

ד. הסכמים עם דסק"ש

באוקטובר ,2116 התקשרה החברה בהסכם עם דסק"ש, אשר במסגרתו נקבע שדסק"ש תספק לקבוצה שירותי ייעוץ בתחומי הניהול, פיננסים, עסקים וחשבונאות. בחודש אוקטובר ,2145 ההסכם תוקן כך שהתמורה השנתית עבור שירותי הניהול של דסק"ש תהיה שווה לשכר דירקטור )הן שכר שנתי והן שכר השתתפות בישיבה( המשולם לדירקטורים החיצוניים ועצמאיים של החברה )שהינו בסכום של 445,411 ש"ח לשנה וסך של 3,471 ש"ח לישיבה, בתוספת הצמדה למדד בגין חודש דצמבר .2117 בשנת ,2145 לאחר התאמות למדד, סכומים אלו עמדו על כ435,111- ש"ח וכ4,111- ש"ח, בהתאמה(, עבור כל דירקטור שדסק"ש תמנה או תציע לדירקטוריון, אך לא יותר מחמישה דירקטורים )שהחליפה את הסכום הקבוע בסך של 2 מיליון ש"ח )צמוד למדד בגין חודש יוני 2116( בתוספת מע"מ לשנה, ששולם לדסק"ש עד 34 בדצמבר 2144(. במועד זה, דירקטוריון החברה כולל שני דירקטורים שמונו על ידי דסק"ש. התקשרות הצדדים בהסכם זה הינה לתקופה קצובה של שנה וההסכם יתחדש מאליו לתקופות נוספות בנות שנה כל אחת )אולם הארכתו מעבר לאוקטובר 2148 מחייבת קבלת אישור מוסדות הצדדים לפי חוק החברות(, אלא אם מי מהצדדים יודיע בכתב למשנהו, לפחות 61 ימים מראש, על אי חידוש ההסכם כאמור.

State of Israel Ministry of Communications

General License to Cellcom Israel Ltd. for the Provision of mobile radio telephone services by the cellular method (cellular)

Combined Version, as at March 1, 2015

General License for

Cellcom Israel Ltd.

Award of license

By the authority vested in me under the Telecommunications Law, 5742 – 1982 (hereinafter – the Law), the Wireless Telegraph Ordinance [New Version], 5732 – 1972 (hereinafter – the Ordinance), and my other powers pursuant to any law, I, the Minister of Communications, hereby grant a license to Cellcom Israel Ltd. (hereinafter – the Licensee) to establish, maintain and operate a mobile radio telephone system by the cellular method, and to provide thereby mobile radio telephone services to the Israeli public, as set forth in this License.

This License is granted for the period set forth in the license and is subject to its conditions as follows:

CHAPTER A: GENERAL

PART A: DEFINITIONS AND INTERPRETATION:

1. Definitions

1.1 In this License, the words and expressions below will have the meaning listed next to them, unless another meaning is evident from the written language or its context.

" Type Approval"	-	Approval given by the Minister pursuant to the Law and the Ordinance to a cellular end-equipment model.
"Means of Control"	-	In a corporation – any one of the following:
		(1) the right to vote at a general meeting of a company or in an entity corresponding thereto in another corporation;
		(2) the right to appoint a director or CEO;
		(3) the right to participate in the profits of the corporation;
		(4) the right to a share in the balance of the assets of the corporation after payment of its debts on liquidation.
"Telecommunications"	-	Broadcast, transfer or reception of marks, signals, written material, visual forms, sound or information, via wire,wireless, optical system or other electromagnetic systems;
"Franchisee"A16	-	As defined in Section 6(12)(1) of the Law;
"Cellular RadioInfrastructure LicenseHolder"	-	whoever receives the license for establishment, existence and operation of a radio infrastructure for mobile telephonycommunication;
"Generation 2"	-	A network which allows mostly the provision of call and message services, using basic mobile telephonycommunications of GSM or CDMA and all of their updates, such as GPRS, EDGE, etc.;
"Generation 3"	-	A network, which in addition to Generation 2 services, allows for the provision of data services at an medium pace (afew dozen megabits per second) using basic mobile telephony communications of UMTS and CDMA2000 and all oftheir updates, such as HSPA, HSPA+, etc.;
		A network, which in addition to Generation 3 services, allows for the transfer of date at a high pace (approximately 100megabits per seconds) using basic mobile telephony communications in accordance with the 3GPP TS 36.104 lastrelease standard, for supplying all of the License Owner's services under his license, such as LTE technology;
"Interested Party"	-	Anyone holding, directly or indirectly, 5% of a certain type of the Means of Control;
"Licensee"	-	Anyone to whom the Minster granted, pursuant to the Law, a general or special license; A16
"General Licensee" A16	-	Anyone who has received a general license for implementing the Telecommunications operations and providingTelecommunications services;
"Roaming Licensee" A60	-	The person who one Tender 12/2010 – Combined License for the Provision of Mobile Radio Telephone Services bythe Cellular Method (Cellular) in Israel – Extension of Existing License and Grant of a New License.
"Broadcasting Licensee"A16	-	As defined in the Law;

"Accessibility Fees"	-	Payment for the use of another Telecommunications system, including for connection, transmission and collection;
"Technical Requirementsand Service Quality"	-	Standards of availability and service quality, standards for Telecommunications facilities and instructions forinstallation, operation and maintenance, all according to the engineering plan as the Director will order from time totime relating to the services of the Licensee
"Contract"A43	-	Contract between the Licensee and a Subscriber, for the provision of all or any of the services of the Licensee;
the "Proposal"	-	The Licensee's Proposal in the Tender;
the "Bezeq Corp."	-	Bezeq Israel Telecommunication Corp. Ltd.;
the "Law"	-	The Communications Law (Telecommunications and Broadcasts), 5742 – 1982; A16
A16 Amendment No. 16A16 Amendment No. 16A16 Amendment No. 16A16 Amendment No. 16		A60 Amendment No. 60A16 Amendment No. 16A43 Amendment No. 43 [Inception: This amendment shall come into force not later thanMarch 15, 2007]

"Holding" A16	-	For the purpose of Means of Control – directly or indirectly, whether alone or in concert with others, including throughanother, including a trustee or agent, or through a right granted under an agreement, including an option for a Holdingthat does not derive from convertible securities, or in any other way;
"Transfer" A16	-	For the purpose of the Means of Control, whether directly or indirectly, whether for consideration or withoutconsideration, whether in perpetuity or for a period, all at once or in parts;
"In Concert With Others"A16	-	Permanent collaboration and, with regard to an individual, permanent collaborators will be deemed – the individual, hisRelative, and a corporation that one of them controls and, with regard to a corporation – the corporation, anyonecontrolling it and anyone who is controlled by one of them;
"Security Forces"	-	The Israel Defence Forces, the Israel Police, the General Security Service and the Mossad Institute for Intelligence andSpecial Operations;
"Index"	-	The Consumer Price Index published by the Central Bureau of Statistics from time to time, or any other index that mayreplace it;
"Cellular Radio Center"	-	A wireless facility functioning on the operating frequencies and used for creating a radio connection between cellularend-equipment units in the possession of the subscribers in its coverage area and the cellular switchboard;
"Interface"	-	The physical meeting between various functional Telecommunications units, including by optical or wirelessmeans;A16
"TelecommunicationsFacility"	-	A facility or device intended mainly for telecommunication purposes, including end-equipment;A16
"Generation 4 Tender"	-	Tender No. 2014/021 – a combined license for the provision of mobile telephony communications by way of thecellular method in Israel: expansion of an existing license or granting a new license;
"Tender No. 1/01" A16	-	A tender published by the Ministry on 4 Nissan 5761 (March 28, 2001), including the clarifications given by theMinistry in the course of the Tender, as a result of which this License was amended;
the "Tender"	-	Tender No. 10/93 published by the Ministry on November 11, 1993, including clarifications given by the Ministry inthe course of the Tender, as a result of which this License is granted;
the "Director"	-	The Director General of the Ministry of Communications or anyone authorized by him for the purposes of this License,in whole or in part;
"Subscriber" A43	-	Anyone who enters into an agreement with the Licensee for the purpose of receiving cellular services as an end user;
"Dormant subscriber"T48)		A subscriber in respect of which all of the conditions set out below are fulfilled:
		(a) He did not receive or use cellular services during a minimum of one year, starting from January 1, 2008;
		(b) He does not pay the Licensee any fixed payment;
		(c) He is not bound with the Licensee by any plan that includes a commitment period.
"Business subscriber"T47)		- A subscriber who is any of the following:
		(a) A corporation, as defined in the Interpretation Law, 5741-1981;
		(b) Government offices and auxiliary government bodies;
		(c) A licensed dealer excluding an exempt dealer;
		(d) An entity established by or pursuant to a law.

T48 Amendment No. 48 (Inception: This amendment will come into force on October 2, 2008). T47 Amendment No. 47.

_______________________

"Private Subscriber" T52 Non-Business Subscriber

"International Telecommunications System"

• A system of Telecommunications facilities, connected or designated for connection to the Public Telecommunications Network through an International NEP, which is used or designated for use in the transfer of Telecommunications messages between an international switch situated in Israel and a Telecommunications Facility located abroad, including a satellite ground station and other Telecommunications facilities (hereinafter – the System Components) and including transmission facilities among the System Components; A16

A16 Amendment No. 16 A16 Amendment No. 16 A16 Amendment No. 16 A16 Amendment No. 16

A16 Amendment No. 16

A16 Amendment No. 16

A16 Amendment No. 16

________________________ T52 Amendment No. 52.

"Mobile Radio TelephoneSystem" (Cellular System)	-	A system of wireless facilities built by the cellular method and other installations, through which mobile radiotelephone services are provided to the public, including a cellular coordinator, cellular radio centers and wireless orcable transmission arteries between cellular radio centers, a cellular radio center and a cellular coordinator, betweenCellular coordinators, or between a cellular switchboard and a Public Telecommunications Network.
"NDO (National DomesticOperator)" A16	-	A General Licensee for the provision of landline domestic Telecommunications services
"Cellular Operator"	-	A General Licensee for the provision of mobile radio telephone services A16
"Another CellularOperator"	-	A Cellular Operator that is not the Licensee.
"Switchboard"	-	A Telecommunications Facility in which are situated and operated switching and transmission means, enablingcontact between various end-equipment units that are connected or linked thereto, and the transfer ofTelecommunications messages between them, including control and monitoring facilities and other facilities thatenable the provision of various services to Subscribers of the Licensee or to subscribers of another Licensee;
"The Ministry"	-	The Ministry of Communications
"Transit Switch"A16	-	A Telecommunications Facility in which are situated and operated the means of switching, routing and transmissionenabling contact between various switchboards that are connected or linked thereto and the transfer ofTelecommunications messages between them, including control and monitoring facilities;
"Domestic Roaming" A60	-	Expansion of the services of another cellular licensee (hereinafter – "cellular licensee") to the coverage areas of theLicensee by means of the Licensee's cellular system, as set forth in section 67E.
"Officer"A16	-	Anyone acting as a director, CEO, chief business officer, deputy CEO, someone who fills such a position in acompany even if the title is different, as well as any other manager who is directly subordinate to the CEO of thecompany;
"Appendices" A16	-	The first addendum and the Appendices set forth in the second addendum to the License A16
"NEP (Network End-Point)"	-	An Interface to which is connected on one side a Public Telecommunications Network and on the other side, enduser equipment, a private network, a mobile telephone network or other public network, as applicable;
"International NEP"	-	A connections device to which are linked a Public Telecommunications Network on one side and an InternationalTelecommunications System on the other;
"Telecommunicationsoperation"	-	The operation, installation, construction or maintenance of a Telecommunications Facility, all for the purpose ofTelecommunications;
the "Ordinance"	-	The Wireless Telegraph Ordinance [New Version]. 5732 – 1972;
"End-User Equipment"	-	Telecommunications equipment, which is connected or is designated for connection to a publicTelecommunications network through an NEP or through a private network, including a telephone, modem,facsimile or private switchboard;

A16 Amendment No. 16 A16 Amendment No. 16 A60 Amendment No. 60 A16 Amendment No. 16 A16 Amendment No. 16

"Cellular End-UserEquipment"	-	Portable or movable Telecommunications equipment, connected or designated for connection to a Cellular Systemby means of a cellular radio center.
"Interconnection" A16	-	Connection between a Public Telecommunications Network of one Licensee to a Public TelecommunicationsNetwork of another Licensee, physically or logically, that facilitates the transfer of Telecommunications messagesbetween Subscribers of the Licensees or the provision of services by one Licensee to the subscribers of the otherLicensee;
"Relative"	-	Spouse, parent, son, daughter, brother, sister or their spouses;
the "License"	-	This License, with all its Appendices and any other document or condition stipulated in the License that willconstitute an integral part of the License or its conditions;
the "Network" A16	-	The Cellular System of the Licensee;
the "Minister"	-	The Minister of Communications, including anyone to whom he has delegated his authority with regard to thisLicense, in whole or in part;
"PublicTelecommunications Network"	-	A system of Telecommunications facilities, used or designated for the provision of Telecommunications servicesto the general public throughout Israel or at least in the area of service, including Coordinators or Transit Switches,transmission equipment and an access Network, including a Cellular System and an internationalTelecommunications system, except for a private network, End-Equipment and Cellular End-Equipment;
"Public TelecommunicationsLandline Network"	-	A domestic Public Telecommunications Network, except for a Cellular System and an internationalTelecommunications network;
"Access Network" A16	-	Components of a Public Telecommunications Network, which are used for connection between Coordinators andan NEP by means of a landline infrastructure, wireless infrastructure or a combination of the two;
"Bezeq Network"	-	The Public Telecommunications Network used by Bezeq for provision of its services under the general licensegranted to it and the other Telecommunications services provided under the Law, whether by Bezeq or by anyother person;
"Use" A16	-	Access to a Telecommunications Facility of the Licensee, including to the public Telecommunications network orits Access Network, in whole or in part, and the possibility of using them for the purpose of conductingTelecommunications operations and providing Telecommunications services by means thereof, including theinstallation of a Telecommunications Facility of another Licensee in a Telecommunications Facility or courtyardsof the Licensee
"Telecommunications Service"	-	The performance of Telecommunications operations for others;
"Basic Telephone Service"	-	Two-way switched or routed transfer, including via modem, of speech or of speech-like Telecommunicationsmessages, for example, facsimile signals;
"Telephony Service" A16	-	Basic telephone service and services related to this service;

• A16 Amendment No. 16
• A16 Amendment No. 16 A16 Amendment No. 16 A16 Amendment No. 16 A16 Amendment No. 16 A16 Amendment No. 16 A16 Amendment No. 16 A16 Amendment No. 16

"International TelephoneService (ITMS)"	-A telephone service by means of the international system of a Licensee for the provision of international services;
"International RoamingService" A16 A66	-A cellular service provided abroad and in the areas of civilian control of the Palestinian Council via the CellularSystem of a foreign Cellular operator (hereinafter – Foreign Operator), whereby the Subscriber pays the Licenseefor the service; and, similarly, a cellular service provided in Israel via the Cellular System of the Licensee, wherebythe Licensee provides service to a Foreign Operator for the subscribers of that operator; in this regard, the"Palestinian Council" – as defined in the Law for Implementation of the Interim Agreement Regarding the WestBank and Gaza Strip (Jurisdictional Powers and Other Provisions) (Legislative Amendments), 5756 – 1998 [sic];
"Related Service"	-A service set forth in the first addendum to the License, provided on the basis of the Basic Telephone Service andwhich, by its nature, can only be provided by the supplier of the basic service;
"Value Added Service" A16	-A service provided on the basis of the Basic Telephone Service, which, by its nature, can be provided by another,including another Licensee that is not the supplier of the basic service; with regard to the services of the Licensee, aservice as stated, which is set forth in the first addendum to the License;
"infrastructure Service"	-An Interconnection, or possibility of Use given to another Licensee, to a Franchisee or to a broadcast Licensee;A16
"DomesticTelecommunications LandlineService" A16	-Infrastructure, transmissions, communication of data and landline telephony;
"Licensee Services"	-Cellular services, Telecommunications Services and other services which the Licensee is entitled to providepursuant to this License, to its Subscribers, to other Licensees, to broadcast licensees, to Franchisees and to theSecurity Forces;A16
"Cellular Services"	-Telecommunications services provided by means of the Cellular System;
"Control"	-The ability to direct a corporation's activity, directly or indirectly, including ability deriving from the articles ofincorporation, by virtue of an agreement, either written or oral, by virtue of a Holding in the Means of Control inanother corporation - or from any other source, except for ability deriving solely from fulfilling the position ofdirector or other position in the corporation;
"the Minister"	-The Minister of Communications, including anyone to whom he has delegated his authority with regard to thisLicense, in whole or in part;
"Engineering Plan"	-An engineering plan submitted by the Licensee in the Tender, including any change introduced therein with theapproval of the Director and attached to the license as Appendix B;
"Numbering Plan" A16	-As defined in Section 5A(B) of the Law;
"Radio Infrastructure"	-Radio centers by way of the cellular method, monitoring units thereof, if any, and transmission connecting them tothe core of the public Bezeq network of the License Owner

A16 Amendment No. 16 A66 Amendment No. 66 A16 Amendment No. 16 A16 Amendment No. 16 A16 Amendment No. 16 A16 Amendment No. 16 A16 Amendment No. 16

1.2 Other words and expressions in the License, insofar as they are not defined in Clause 1.1, will have the meaning they have in the Law, in the Ordinance, in the regulations enacted thereunder, in the Interpretation Law, 5741 – 1981, or as set forth in the relevant places in the License, unless another meaning is implied by the written language or its context.

2. Clause headings

The headings of the clauses in this License are provided solely for the convenience of the reader, and should not be used for interpretation or explanation of the content of any of the conditions of the License.

3. Blue pencil principle

A cancellation or determination regarding the non-validity of a condition of this License or part of a condition will apply only with regard to that condition or part, as applicable, and will not serve, per se, to derogate from the binding validity of the License or any other condition therein.

PART B – LEGAL PROVISIONS AND ADMINISTRATIVE PROVISIONS

4. Upholding laws and provisions

• 4.1 In everything pertaining to the setup, existence, operation, and maintenance of the Cellular System and the provision of Cellular Services thereby, the Licensee will act in accordance with the provisions of any law and, without derogating from the aforesaid generality, will ensure compliance with the following:
  • (1) the provisions of the Telecommunication Law and the regulations promulgated thereunder;
  • (2) the provisions of the Wireless Telegraph Ordinance and the regulations promulgated thereunder;
  • (3) administrative provisions;
  • (4) international Telecommunications and radio treaties to which Israel is a party;
  • (5) any other law or treaty that will apply to Telecommunications and radio, even if they go into effect after the License is granted.
• 4.2 The Licensee will act pursuant to laws and provisions as stated in Clause 4.1 as these will be in force from time to time during the license period, including the remedies for the breach thereof, and they will be deemed an integral part of the License conditions.

5. Permit obligation pursuant to any other law

5.1 The granting of this License will not exempt the Licensee from the obligation to obtain, with regard to execution of the License, any license, permit, approval, or consent pursuant to any other law.

6. Contradiction in the License provisions

In the event of an apparent contradiction in the License provisions, the Minister will determine the interpretation of the provisions or how to settle the contradiction between them and after the Licensee has been given a fair opportunity to voice its claims A2.

A2 Amendment No. 2

CHAPTER B: THE LICENSE – SCOPE, VALIDITY AND CANCELLATION

PART A – SCOPE AND PERIOD OF THE LICENSE

7. Scope of the License

• 7.1 Pursuant to this License and subject to all the provisions and conditions hereof, the Licensee is entitled to set up, implement, maintain and operate a Cellular System and, through it, to provide cellular Services to the Israeli public; without derogating from the aforementioned generality, the Licensee is entitled to do the following:
  • (1) to set up, implement, maintain and operate cellular radio centers and to connect them to cellular switchboards, and to connect between cellular switchboards, by means of cable and wireless transmission channels;
  • (2) To connect the mobile phone system to another public communication network in Israel;
  • (3) To engage with the subscribers for the purpose of provision of mobile phone services;
  • (4) To supply mobile phone terminal equipment to subscribers;
  • (5) To provide its subscribers with mobile phone services as specified in the first addendum to the license;
  • (6) To provide its subscribers with services for which it has received approval in accordance with Section 67C of the license. A66
• 7.2 The Licensee will not be entitled to provide any cellular service or other Telecommunications Service that is not explicitly permitted within the context of this License.

8. Absence of exclusivity A16

• 8.1 The Licensee will not have any exclusivity in the provision of its services.
• 8.2 The Minister is entitled, at any time, to grant a license to additional operators for the provision of cellular Services..
• 8.3 Should the Minister publish a tender for the provision of cellular services, the Licensee will be entitled to submit its bid in the tender, however, the Minister will be entitled to determine as part of the conditions of such a tender that if the Licensee wins the tender, the receipt of a license will be contingent on the fact that the Licensee transfer its cellular System to another as instructed by the Minister and under conditions determined thereby, and it will cease to provide cellular Services by means thereof.

A66 Amendment No. 66

A16 Amendment No. 16

9. The License period

• 9.1 This License is valid for a period of 10 years, commencing on the date of the granting of the License (hereinafter the License Period).
• 9.2 The License Period may be extended by additional six years in accordance with that stated in Clause 10 (hereinafter the Additional Period).
• 9.3 This License may be renewed for one or more Additional Periods of six years, in accordance with that stated in Clause 11.
• 9.4 During the License Period and the Additional Period or on renewal of the License, the License will be subject to the authority of the Minister pursuant to Clauses 13 to 15 with regard to change, restriction, suspension or cancellation of the License.
• 9.5A15 Notwithstanding the aforesaid A16, in the context of expansion of the License, as a result of the Licensee winning Tender No. 1/01, this License will be valid for a period of twenty (20) years, commencing on 19 Shevat 5762 (February 1, 2002).

10. Extension of the License Period

• 10.1 The Minister is entitled, at the request of the Licensee, to extend the License Period for additional six years, if, after he has examined the following:
  • (A) The Licensee has complied with the provisions of the Law, the Ordinance, the regulations thereunder and the provisions of the License; (B) The Licensee has continually acted to improve the scope, availability and quality of the cellular Services and to update the technology of the
  • cellular System and its activities did not include an act or omission that would impair or restrict competition in the cellular sector; (C) The Licensee is capable of continuing to provide cellular Services at a high level and that it is able to make the investments required for the
  • technological updating of the cellular System and for improving the scope, availability and quality of the cellular Services.
• 10.2 The Licensee must submit its request for an extension of the License Period during the forty-five days prior to the period of eighteen months preceding the end of the License Period.
• 10.3 The Licensee must attach the following to its request:
  • (A) A report summarizing the annual statements that the Licensee has submitted pursuant to this License between the date of commencement of the License and the date of submission of its request;
  • (B) Comparison of the data in the report for each year with the data for the preceding year and explanations of unusual changes in the data; (C) Review of the means, actions and investments taken or made by the Licensee to improve the quality, scope and availability of the Cellular Services and to develop and update the Cellular System technology.
• 10.4 The summary report pursuant to Clause 10.3 must contain up-to-date and precise details and be prepared in the form of an affidavit.

A15 Amendment No. 15 A16 Amendment No. 16

• 10.5 For the purpose of examining the Licensee's request to extend the License Period, the Minister is entitled to require the Licensee to furnish, during the period and in the manner that he will determine, any information or document and, without derogating from the generality of that stated, the Minister is entitled -
  • (A) To require the Licensee to attach any document to the summary report for the purpose of verifying the details therein, to complete the report or to furnish any additional detail that is not included therein;
  • (B) To summon the Licensee to appear before him to respond to questions or to present documents that are in its possession or under its control, relating to the data in the report;
  • (C) To require the Licensee to submit to him an Engineering Plan outlining its plans for the technological update of the Cellular System during the Additional Period;
• 10.6 The Licensee must fulfil every requirement or summons as stated in Clause 10.5; if the Licensee is required to appear before the Minister, the chairman of the board of directors of the company holding the License or the CEO of the company or anyone authorized to do so in writing, will appear;
• 10.7 If the Licensee fails at least twice to respond to the request or summons as stated in Clause 10.5, the Minister is entitled to reject its request to extend the validity of the License.
• 10.8 The Minister will inform the Licensee of his decision regarding the request for extending the validity of the License no later than a year before the end of the License Period.
• 10.9 The Additional Period will be subject to the terms of this License, including any change therein.
• 10.10 The provisions of Clause 100 regarding confidentiality will apply, mutatis mutandis, to data furnished by the Licensee to the Minister or anyone acting on his behalf, pursuant to the provisions of Clause 10.

11. Renewal of the License

• 11.1 At the end of the License Period or the Additional Period, the Minister is entitled, at the request of the Licensee, to renew the License for one or more Additional Periods of six years, as will be determined.
• 11.2 The Licensee will submit its request for the renewal of the License during the forty-five days prior to the eighteen months preceding of the end of the License Period or the Additional Period.
• 11.3 The Minister will inform the Licensee in writing, within 30 days of the date of receiving its request for renewal of the License, whether he intends to take the measures and institute the proceedings required to renew the License, or a tender will be conducted for the services under this License.

12. Termination of the License Period

• 12.1 If the License Period pursuant to Clause 9.5A16 or the Additional Period pursuant to Clause 10.1 or the License Period after its renewal pursuant to Clause 11.1 ends and the License is not extended or not renewed, the Minister is entitled to instruct the Licensee to continue to operate the Cellular System for a period to be determined (hereinafter - the Period for Terminating the Service) until a license is duly granted to another for the provision of services pursuant to this License (hereinafter – Alternate Licensee), and the procedures for transferring the system thereunder are completed, or until a license is duly granted to another for alternate services. In any case, the Period for Terminating the Service will not exceed two years from the date on which the License expires.
• 12.2 During the Period for Terminating the Service and no later than ten months from the date on which a license is granted to an Alternate Licensee, the Licensee and the Alternate Licensee will negotiate for the purpose of purchasing the Cellular system at its economic value and assigning the rights and obligations of Subscribers to the Alternate Licensee; if said Licensees do not reach an agreement within said ten months, the price will be determined by an arbitrator, whose decision will be final, to be appointed by the Chairman of the Institute of Certified Public Accountants.

A2 Amendment No. 16

PART B – CHANGE IN CONDITIONS AND CANCELLATION OF THE LICENSE

13. Change in the License conditions

• 13.1 The Minister is entitled to change, add to or subtract from the License conditions if he is convinced that one of the following exists:
  • (A) A change has occurred in the extent of the License applicant's suitability to perform the actions and services that are the subject of the License;
  • (B) Subject to that stated in Clause 8, a change is required in the License to ensure competition in the telecommunications area;
  • (C) A change is required in the License to ensure the level of services provided thereunder;
  • (D) Changes that have occurred in telecommunications technology require a change in the license;
• 13.2 The Minister is entitled to change, increase or reduce the rates for services, if he is convinced that a change has occurred in one or more of the components of the costs, which represent a basis for calculating the rates.
• 13.3 The Minister will act pursuant to his authority as stated in Clauses 13.1 and 13.2 after the Licensee has been given a reasonable opportunity to voice its claims.

14. Cancellation of the License

• 14.1 The Minister is entitled to cancel the License before the end of its period, if one or more of the causes set forth in Section 6 to the Law exist, or in one of the following cases:
  • (A) The Licensee did not disclose to the tenders committee information that must be disclosed or it furnished inaccurate information;
  • (B)A2 If the Licensee refuses to furnish the Minister or anyone acting on his behalf with information in its possession that must be disclosed and which it was obligated to disclose by virtue of the provisions of this license or pursuant to law, or the Licensee furnished the Minister or someone acting on his behalf with false information;
  • (C) The Licensee did not comply with the provision of the Law, the Ordinance or the regulations thereunder;
  • (D) The Licensee committed a material breach of the License conditions and, without derogating from the generality of that stated, including the following:
    • (1) The Licensee is demanding for its services payments that are higher than the maximum rates prescribed in this License or pursuant thereto, or pursuant to any law;
    • (2) The Licensee is not complying with the coverage or quality requirements prescribed in this license;
    • (3) The Licensee did not comply with the provisions of this license with regard to the operation of digital technology in the cellular System;
  • (E) The Licensee did not commence provision of the services pursuant to that set forth in the License or unlawfully discontinued, restricted or delayed one of the services;

• (F) One or more of the qualities that rendered the Licensee suitable to participate in the tender for cellular services, or to be a Licensee, has ceased to exist, including:
  • (1) The Licensee has ceased to be a company registered in Israel;
  • (2) Residents and citizens of Israel no longer hold, directly or indirectly, at least 20% of all of the Means of Control in the Franchisee; in this clause – "Citizen of Israel" – as defined in the Citizenship Law, 5712 – 1952; "Resident" – as defined in the Population Registry Law, 5735 – 1965;
  • (3) A majority of the directors in the Licensee company are not citizens and residents of Israel;
  • (4) The manager or a director of the Licensee company was convicted of an infamous crime and continues to serve in his position;
  • (5) The joint equity, including surpluses, of all of the shareholders in the Licensee company, together with the equity of the Licensee, has declined to under US $200 million; in this matter, a shareholder holding less than 10% of the right to the company's earnings will not be taken into account.
  • (6) Before 5 years have elapsed from the date of granting the License, the share of the cellular operator has fallen to less than 25% of the voting rights in the general meeting or of the right to appoint a director or CEO in the Licensee company;
  • (7) Subject to that stated in paragraph (8), the Licensee, or an officer in the Licensee company or anyone who holds more than 5% of the Means of Control in the Licensee company, holds, directly or indirectly, more than one per cent (5%) of the Means of Control in BezeqA2, Another cellular Operator, or one of them acts as an Officer in a competing corporation.
  • (8) If one of the following occurs in an Interested Party in the Licensee company, which is a mutual fund, insurance company, investment company or pension fund;
    • it holds, directly or indirectly, more than 5% of any Means of Control in a competing corporation, without receiving a permit therefor from the Minister;
    • it holds, directly or indirectly, more than 5% of any Means of Control in a competing company pursuant to a permit from the Minister and, additionally, it is a controlling shareholder and exercises actual Control in a competing corporation or it has a representative or appointee on its behalf among the Officers in the competing corporation, unless it is required to do so under law;
    • it holds, directly or indirectly, more than 10% of any Means of Control in a competing corporation, even though it has received permission to hold up to 10% of said Means of Control;
• (G) Void A2
• (H) If an act or omission in the Licensee's operations impaired or restricted competition in the cellular sector;

A16 Amendment No. 16

A2 Amendment No. 2

• (I) A receiver or temporary liquidator was appointed to the Licensee company and an order was given for its liquidation or it decided on voluntary liquidation;
• (J) Void A2)
• (K) The Licensee requested cancellation of the License;
• 14.1.1A2 For the purposes of sub-clause 14.1(E A2), the restriction of service for technological reasons, effected after the Director was provided with prior written notification of the reasons and approved by the Director, will not be considered deemed an improper unlawful cessation, restriction or delay of service.
• 14.2 If the Minister is convinced that, in the circumstances, the cause of invalidity does not necessitate cancellation of the License, the Minister will grant the Licensee a fair opportunity to rectify the act or omission constituting a cause for cancellation.
• 14.3 The Minister will notify the Licensee in advance of his intention to cancel the license, will state in the notice the cause in question, and will allow the Licensee to voice its claims relating to the cause for cancellation, either in writing or orally, according to the circumstances, within the period set forth in the notice.
• 14.4 The Minister is entitled to summon the Licensee to appear before him and may demand that it respond to questions, present documents or furnish him with whatever information and documents are required for the purposes of clarifying the cause for cancellation.
• 14.5 If the Licensee is required or summoned as stated, it must respond to the requirement or summons on the date set forth therein.
• 14.6 If the Licensee fails to respond, at least twice, to the Minister's demand or summons within the period stipulated by the Minister in his demand or summons, the Minister is entitled to cancel the License in a notice that will be sent to the Licensee (hereinafter - Cancellation Notice).
• 14.7 In the Cancellation Notice, the Minister will determine the date on which the cancellation of the License will take effect and he is entitled to instruct the Licensee to continue the provision of services pursuant to this License until a license is granted to another or until the appointment of a trustee or until a receiver is duly appointed for the purpose of managing and operating the cellular System – as applicable.
• 14.8 The Licensee will continue to provide services until the end of the period stipulated by the Minister in his notice and will comply with the provisions of this License and any instruction given by the Minister in this matter.

15. Other remedies

In addition to his authority to cancel the License as stated in Clause 14, the Minister is entitled, if the causes outlined in Clause 14.1 occur, to restrict or suspend the License or to change its conditions or to foreclose on the guarantee given by the Licensee to secure fulfilment of the conditions of the License, in whole or in part; the procedures set forth for cancellation of the License will apply, mutatis mutandis, to the restriction or suspension of the License or forfeiture of the guarantee.

A2 Amendment No. 2 A2 Section 3 in the original version of Amendment No. 2 contained a typographical error, in which 14.1(D) was written instead of 14.1(E).

A2 Amendment No. 2

CHAPTER C: OWNERSHIP, ASSETS AND MEANS OF CONTROL

PART A – RESTRICTIONS ON TRANSFER OF THE LICENSE AND ITS ASSETS

16. **Void.**A66

17. Ownership of the Cellular System

• 17.1 The Licensee will be the owner of the Cellular System.
• 17.2 Notwithstanding Clause 17.1, the License Holder may make use of:

(a) physical or wireless transmission lines of another license owner;

(b) the radio infrastructure, that is functioning and operating by way of a cellular radio infrastructure License Holder, in the framework of a usage agreement, as defined in Clause 19.3C, and after receiving the manager's agreement in advance and in writing, and in accordance with the terms determined by the Director.

18. Restrictions on transfer of the License assets

• 18.1 The Licensee may not sell, lease or pledge any of the assets used in performance of the License (hereinafter the License Assets) with the Minister's prior consent and in accordance with the conditions determined by him.
• 18.2 Without derogating from the generality of that stated in Clauses 18.1, the Minister will give his consent for the granting of rights in the License Assets to a third party, if he is convinced to his satisfaction that the Licensee has promised that, in any event, the exercise of the rights by a third party will not cause any impairment in the provision of the services pursuant to this License, as long as the Licensee is obligated to provide these services pursuant to the provisions of this License.
• 18.3A2 Notwithstanding that stated in Clause 18.1, the Licensee is entitled to encumber one of the License Assets in favour of a bank duly operating in Israel, for the purpose of receiving bank credit, provided that it has furnished notice of the encumbrance that it intends to create, whereby the encumbrance agreement includes a clause ensuring that that, in any event, the exercise of the rights by the banking corporation will not cause any impairment in the provision of the services pursuant to this license. For the purposes of this clause – "Banking Corporation" is as defined in the Banking Law (Licensing), 5741 – 1981, except for a "Foreign Corporation," as defined in the same law.
• 18.4A2 The provisions of Clause 18.1 will not apply to the sale of equipment items during an upgrade, including the sale of equipment, as stated, on a "trade-in" basis.
• 18.4A For purposes of sale, lease, mortgage or transfer of the license assets to the cellular radio infrastructure license holder, whom the License Holder is his client, the provisions of this Clause shall not apply.
• A66 Amendment No. 66
• A16 Amendment No. 16 A2 Amendment No. 2
• A2 Amendment No. 2

19. Engagement with another

• 19.1 If the Licensee wishes to provide one of the services pursuant to this license, in whole or in part, through another on its behalf, it must apply to the Director for his approval therefor; the Licensee must attach the ContractA43) to its application. The provisions of this clause will not apply for the purposes of the engagement between the Licensee and a marketer of Cellular End-Equipment or anyone acting on behalf of the Licensee for the purpose of marketing its services. A2
• 19.2 The Director is entitled to approve or reject the application, or to condition his approval on terms that must be fulfilled, including amendment of the agreement; the Director will consider, inter alia, to what extent the terms of the engagement with the other guarantee compliance with the conditions of this License and the obligations of the Licensee hereunder. The Director will not approve an engagement with another that contradicts the obligations of the Licensee pursuant to this License.
• 19.3 Nothing in the engagement with another will derogate from the obligations and of the Licensee and its responsibility for performing any of the services pursuant to this License, in whole or in part, pursuant to the provisions of this License, nor will it serve to derogate from the powers of the Minister, the Director or anyone acting on their behalf.

Part A1 – Mutual relations with a cellular radio infrastructure License Holder

19A Definitions

19.1A In this Section –

• "Confidential Commercial Information" data regarding the License Holder that is not public, and that relates to one of the following:
• (1) Amount and volume of Bezeq messages transferred through the network, the kinds thereof and their destinations;
• (2) Number of subscribers, their classification and characteristics;
• (3) Network structure, its layout and the technology according to which it operates;
• (4) Plans for the expansion of the network, changes therein and operation of new services therewith;
• (5) Marketing or other technological plans or activities, the information regarding them was transferred to the License Holder by the mobile telephony communications license owner, or other business activity, the information regarding which was classified by the mobile telephony communications license owner as confidential commercial information;
• (6) Any other information which cannot be legally easily discovered by others, whose confidentiality grants its owners a business advantage over its competitors.

"Passive Component" – the passive elements in the cellular radio center's website, including pole, structure, electricity and air conditioning;

"Active cooperation of an antenna" – passive cooperation and in addition, cooperation of the antenna or cable feed to the antenna;

"Active cooperation of a frequency" (MOCN[a]) – active cooperation of an antenna, including sharing of radio equipment and frequency that were allotted for use of the mobile telephony communications license owner;

[a] Multi Operator Core Network

"Passive cooperation" – Whole or partial cooperation of a Passive Component in a significant number of cellular radio center's websites between two or more of the mobile telephony communications license owners;

19B. Cooperation with another mobile telephony communications license owner

• 19.1B The License Owner may contract with another mobile telephony communications license owner (hereinafter in this section: "Other License Owner") for the purpose of cooperation ("Cooperation Agreement") in any one of the following options only:
  • (a) Passive Cooperation Agreement;
  • (b) Active Cooperation of an Antenna Agreement;
  • (c) Active Cooperation of a Frequency Agreement (MOCN);
• 19.2B Without derogation from the aforementioned in Clause 19.3B:
  • (a) The License Owner may contract with other telephony communications license owners in various cooperation agreements in each of the Generation 2, Generation 3 or Generation 4 networks. Despite the aforementioned:
    • (1) Active Cooperation of a Frequency (MOCN) shall not be approved between two operators.
      • (2) Active Cooperation of a Frequency (MOCN) in Generation 2 or 3 shall be approved only if both cooperating license owners were allotted Generation 4 frequencies and if the cooperating license owner who is not an operator has an Active Cooperation of a Frequency (MOCN) in Generation 4.
    • For the purpose of this sub-clause, "Operator" a license owner who has completely laid out access network in Generation 3: Pelephone Communications Ltd., Cellcom Israel Ltd., Partner Communications Ltd.;
  • (b) Cancelled.
• 19.3B If the License Owner and the Other Owner reach a cooperation agreement of the types specified in Clause 19.1B, the License Owner shall submit a written request to the Manager no later than thirty days from the date of signature of the Cooperation Agreement (hereinafter in this clause – the "Request"), and shall request his approval of the Cooperation Agreement, and the Request shall include, at least, all of the following:
  • (a) Details of the License Owner and the Other License Owner;
  • (b) Type of Cooperation Agreement as stated in Clause 19.1B;
  • (c) Executive summary of the main points of the Cooperation Agreement;
  • (d) A copy of the Agreement with all of its attachments and appendices, together with an affidavit of an officer of the License Owner that except for these documents, no agreement exists, in writing or orally, in connection with the Agreement;
  • (e) An opinion according to which the Agreement meets the most recent "Broadband Access Cooperation of the License Owner for the Provision of Mobile Telephony Communications" policy and the terms of Section A1. The opinion shall include an analysis of the influence of the Cooperation Agreement on the competition in the Bezeq and broadcasting area.
  • (f) The date scheduled for the commencement of the implementation of the Agreement and its expiration;

19.4B The manager may approve the Request, deny it or condition its approval, including amending the Agreement.

19.5B The License Owner may commence the implementation of the Cooperation Agreement only after the manager approved the Request of the License Owner and the Other License Owner in writing.

19C Cooperation Agreement and Use Agreement

• 19.1C If the License Owner files a request for an active cooperation of a frequency agreement (MOCN), the manager shall consider the request, taking into account, inter alia, the existing competition level of mobile telephony communication services and the potential to the harm in competition, the existing and expected frequency inventories and the efficiency of use of the frequencies, the survivability and the redundancy of the networks from a national standpoint and ensuring the Bezeq service level over time.
• 19.2C The active cooperation of a frequency agreement (MOCN) shall include the following terms:
  • (a) Cooperating license owners shall establish a joint corporation, and shall have equal control thereof. The joint corporation shall be required to obtain a cellular radio infrastructure license;
  • (b) The following provisions in regards to the Passive Component and the radio centers included in the joint access network shall apply to each one of the cooperating license owners during the entire term of the Cooperation Agreement:
    • (1) in the cellular radio centers all cooperating license owners shall hold equally;

(2) in the passive component – each of the cooperating license holders shall have the right to make effective use of all passive components in the access network.

In this regard – "Right to make effective use" – indefeasible right to use, during the relevant license period, the Passive Component, resulting from ownership or other source, which shall allow its owners to perform all actions connected to the establishment, existence and operation of cellular radio centers by way of or on the Passive Components.

• (c) The cooperation agreement expiration mechanism, which ensures the ability of each of the cooperating license owners to continue providing mobile telephony communication services to its subscribers after said expiration, in accordance with the provisions of its license. The framework of said expiration mechanism shall include provisions which shall arrange for the continued existence of the right to make effective use of the Passive Components in case of termination of the Cooperation Agreement in accordance with the provisions of subclause (2) and the mutual duty to allow for passive cooperation even after the termination.
• 19.3C Without derogating from the aforementioned in Clause 19.2C, the License Owner, the Other License Owner and the cellular radio infrastructure license owner shall contract in an agreement between them, which grants the cellular radio infrastructure license owner an indefeasible right of use (IRU) in the joint access network components, which are not owned by the cellular radio infrastructure license owner, which specifies the method of use that shall be made with the joint network (hereinafter: the "Usage Agreement").

In this regard, the indefeasible right of use shall be provided for a period not to exceed 10 years, and shall refer to the relevant access network components for a generation which was agreed upon in the Cooperation Agreement.

19.4C any change in the Usage Agreement or in the Cooperation Agreement shall be presented to the manager for approval no later than ten days from the date of signing the change; the License Owner shall forward to the manager, upon request, a copy of the Usage Agreement or any change therein.

• 19.5C The Cooperation Agreement or Usage Agreement (hereinafter in this Clause the "Agreement") shall not limit, directly or indirectly, the License Owner and the Other License Owner from reaching an agreement with an additional license owner or a mobile telephony communications license owner on another network or from signing another agreement with them, or from causing discrimination in regards to the terms of use of the cellular radio infrastructure.
• 19.6C if the License Owner or the Other License Owner requested to make use of the radio infrastructure of the cellular radio infrastructure license owner, it shall contact the license owners who are parties to the agreement in order to formulate a cooperation agreement, and shall act as stated in Clause 19B.
• 19.7C Nothing in the contracting with the cellular radio infrastructure license owner may derogate from its duties as a license order and from its responsibilities to supply to its customers any service of the services under this license, in whole or in part, under the provisions of this license.
• 19.8C If the parties do not reach an agreement, each party may contact the Ministry in order to resolve the disputes between them in accordance with Section 5 of the Law.

19D. Obligation for Structural Separation

• 19.1D The License Owner shall maintain structural separation between it and the cellular radio infrastructure license owner, as specified below:
  • (a) Complete separation between its management and the management of the cellular radio infrastructure license owner; in this regard "Management", with the exception of an officer who is not a Board member of the License Owner, who is also a Board member of the cellular radio infrastructure license owner.
  • (b) Complete separation between its assets and the assets of the cellular radio infrastructure license owner, with the exception of the radio infrastructure of the License Owner;
  • (c) The License Owner shall not employ the employees of the cellular radio infrastructure license owner, and the cellular radio infrastructure license owner shall not employ employees of the License Owner;
  • (d) The License Owner shall not employ anyone who was a Management employee of the cellular radio infrastructure license owner for one year after the termination of his employment, without the approval of the manager;
  • (e) The License Owner shall neither receive nor transfer to the cellular radio infrastructure license owner Confidential Commercial Information that is not required for the provision of the cellular radio infrastructure license owner's services to the License Owner.
• 19.2D Regarding confidentiality of commercial information, the License Owner shall do as follows:
  • (a) The License Owner shall refrain from transferring Confidential Commercial Information to the cellular radio infrastructure license owner, except for information required for the provision of the services of the cellular radio infrastructure license owner to the License Owner;
  • (b) The License Owner shall refrain from transferring Confidential Commercial Information to the Other License Owner, holding the same cellular radio infrastructure license owner or receives services therefrom;
  • (c) The License Owner shall determine procedures and rules for maintaining Confidentiality of Commercial Information, and for the prevention of its transfer as stated in sub-clauses (a) and (b). The procedures shall determine, inter alia, limitations regarding the distribution of the Confidential Commercial Information to the License Owner and the cellular radio infrastructure license owner,

and the access to Confidential Commercial Information by employees who are not supposed to handle it in the framework of their positions.

• 19.3D If the Minister notices that there is a real concern to damage to competition in the Bezeq area or to the public's interest, he may instruct that the provisions of this chapter, in whole or in part, shall apply to an affiliated company to the License Owner that has a license under the Communications Law.
• 19.4D If the Minister notices that in a certain incident, circumstances existed which permitted it, and after he was convinced that there would be no damage to competition in the Bezeq area or to the broadcasts or to the public's benefit he may, according to a written request from the License Owner, permit by way of a written approval, reservations to the obligation for structural separation set forth in this section or according thereto, and he may determine conditions for it.

A2 Amendment No. 2

Part B: Means of Control – Changes and Limitations

20. Particulars of Licensee

• 20.1A43) Details regarding the Licensee's legal entity, incorporation, holders of the controlling interest, holders of a material influence, interested parties and officers, are attached as Addendum A to the license. The Licensee must submit to the Director, every year at the beginning of January, an updated Addendum A.
• 20.2 The Licensee will report to the Director in writing regarding any change in the information contained in Addendum A, including any transfer and acquisition of control or of 5% of the means of control in the Licensee company or change in the appointment of a director or general manager, within 14 days of the date of change.

21. Transfer of Means of Control

• 21.1 There will be no transfer, directly or indirectly, of ten percent or more of any means of control in the Licensee, whether all at once or in parts, unless this received the Minister's prior consent.
• 21.2 There will be no kind of transfer of any means of control in the Licensee, or a part of said means of control, so that as a result of the transfer, control in the Licensee is transferred from one person to another, unless this was given the Minister's prior consent.
• 21.3 There will be no acquisition of control, directly or indirectly, in the Licensee, and there will be no acquisition, directly or indirectly, by a person himself or together with his relative or with another person, who operate with him regularly of 10% or more of any means of control in the Licensee, whether all at once or in parts, without the prior consent of the Minister.
• 21.4 Subject to the foregoing in this section, there will be no transfer, directly or indirectly, of means of control, so that the share of a cellular system operator in the Licensee drops below 25% of the voting rights in the general meeting and of the right to appoint a director or general manager, except after 5 years have elapsed since the date of the granting of the license. If 5 years have elapsed since the date of the granting of the license, the cellular system operator's share can go below 25% to the point of selling all the means of control in its possession to another, all subject to the Minister's approval for the very reduction of the cellular system operator's share in the means of control in the Licensee and also regarding the purchaser.
• 21.5 Notwithstanding that stated in sections 21.1 and 21.3, if traded means of control in the Licensee, not entailing the transfer of control in the Licensee, have been transferred or acquired at a rate requiring approval under sections 21.1 or 21.3, without the Minister's approval having been requested, the Licensee shall report this to the Minister, in writing, and shall submit to the Minister an application for approval of the transfer or the acquisition, all within 21 days from when the Licensee learned of this fact, provided the Minister gave his prior written approval to the holding per se of the issue or the sale of the securities to the public. In this regard, "traded means of control" – means of control, including deposit certificates, Global or American Depository Shares (GDRs or ADRs), or similar certificates, in respect of securities listed on the stock exchange in Israel and/or abroad, in a non-hostile country, or means of control offered to the public pursuant to a prospectus and held by the public, in Israel and/or abroad, in a non-hostile country.
• 21.6 Entry into an underwriting agreement in connection with an issue or sale of securities to the public, and listing on a stock exchange in Israel or abroad, in a non-hostile country, or the deposit of securities, including deposit certificates, Global or American Depository Shares (GDRs or ADRs), or similar certificates, in respect of securities, or the registration thereof with a nominee company and/or agent, shall not in themselves be deemed as the transfer of means of control in the Licensee.
• 21.7 (A) Irregular holdings shall be registered in the members register (shareholders register) at the Licensee, noting the fact of their irregularity, immediately when the Licensee learns of this fact, and a notice concerning the

registration shall be delivered by the Licensee to the owner of the irregular holdings and to the Minister. In this regard, "irregular holdings" – the holding of traded means of control without the Minister's agreement as required under section 21 or in contravention of the provisions of section 23, and the entire holdings of a holder of traded means of control who acted contrary to the provisions of section 24; the aforesaid for as long as the Minister's agreement is required and was not given under section 21 of the license or circumstances exist involving the contravention of the provisions of sections 23 or 24 of the license.

• (B) Irregular holdings registered as stated in section 21.7(A), shall not confer any rights on the holder, and shall be "dormant shares" as defined in section 308 of the Companies Law, 1999, except for purposes of receiving a dividend or other distribution to the shareholders (including the right to participate in an issue of rights which are calculated on the basis of holdings in means of control in the Licensee, except that holdings added as stated shall also be deemed as irregular holdings), therefore no act or contention of exercise of a right by virtue of irregular holdings shall be valid, except for purposes of receiving a dividend or other distribution as stated.
• (C) Irregular holdings shall not confer voting rights in the general meeting. A shareholder participating in a vote in the shareholders meeting shall notify the Licensee prior to the vote, or where the vote is by means of a voting instrument – on the voting instrument, whether or not its holdings in the Licensee or its vote require approval under sections 21 or 23 of the License. If the shareholders did not give a notice as stated, it shall not vote and its vote shall not be counted.
• (D) A director may not be appointed to the Licensee, elected or dismissed by virtue of irregular holdings. If a director was appointed, elected or dismissed as stated, such appointment, election or dismissal, as the case may be, shall not be valid.
• (E) The provisions of sections 21.7 and 21.9 shall be included in the articles of the Licensee, mutatis mutandis.
• 21.8 For as long as the Licensee's articles prescribe as stated in section 21.7 and the Licensee acts in accordance with that stated in sections 21.5 and 21.7, for as long as the holdings of founding shareholders or their substitutes are not reduced to less than 50% of each of the means of control in the Licensee, and for as long as the Licensee's articles prescribe that a majority of the voting power in the shareholders general meeting may appoint all the directors in the Licensee, excluding outside directors in accordance with any relevant statutory requirement or stock exchange directive, irregular holdings shall not in themselves be cause for the cancellation of the license.

For purposes of this section, "founding shareholders or their substitutes" – Discount Investment Corporation Ltd., DEC Communications and Technology Ltd. and PEC Israel Economic Corporation, or any other body to which any of those enumerated above transferred, with the Minister's approval, means of control, provided the Minister confirmed in writing that the transferee body shall be deemed in this regard as the substitute of the founding shareholder beginning from the date to be determined by the Minister, and including anyone who is an "Israeli entity" as defined in clause 22.2A, who acquired a means of control from the Licensee and received the Minister's approval for being deemed a founding shareholder of its substitute starting from the date that was determined by the Minister. The grant of approval under this section shall not exempt the Licensee from the duty of receiving the Minister's approval for every transfer of means of control in the Licensee that requires approval under any other section of the license.

21.9 The provisions of sections 21.5 and 21.8 shall not apply to founding shareholders or their substitutes.

22. Encumbrance of Means of Control

A shareholder of the Licensee company or a shareholder of an interested party therein may not encumber his shares in such manner so that exercise of the encumbrance results in a change in ownership of 10% or more of any means of control in the Licensee, unless the encumbrance agreement contains a limitation by which the encumbrance may not be exercised without the prior consent of the Minister.

22A. Israeli Nationality and Holdings of Founding Shareholders or Their Substitutes

26

• 22A.1 The total holdings of "founding shareholders or their substitutes" as defined in section 21.8 (including anyone being an "Israeli entity" as defined in section 22.2A below, who acquired means of control from the Licensee and received the Minister's approval for being deemed a founding shareholder or a substitute thereof as from the date determined by the Minister), who are mutually bound by an agreement for the fulfillment of the provisions of section 22A of the license (in this section, all of the above will be deemed: "founding shareholders or their substitutes"), cumulatively, may not be less than 26% of each of the means of control in the Licensee.
• 22A.2 The cumulative holdings of "Israeli entities," one or more, included among founding shareholders or their substitutes, out of the total holdings of founding shareholders or their substitutes as stated in section 22A.1 above, may not be at any time less than 20% of the total issued capital and of the means of control in the Licensee. For this purpose, the Licensee's issued share capital will be calculated less the number of "dormant shares" held by the Licensee.

In this section –

"Israeli entity" – With respect to an individual – anyone who is a citizen and resident of Israel; with respect to a corporation – the corporation was incorporated in Israel, and an individual who is a citizen and resident of Israel controls it, directly or indirectly, provided indirect control is solely through a corporation incorporated in Israel, one or more. However, for purposes of indirect holding, the Prime Minister and the Minister of Communications may approve holding through a corporation that was not incorporated in Israel, provided such corporation does not hold shares in the Licensee directly, where they are satisfied that this will not be detrimental to the purposes of this section. In this regard, "Israeli citizen" – as defined in the Citizenship Law 1952; "resident" – as defined in the Population Registry Law 1965; "dormant share" – as defined in section 308 of the Companies Law 1999.

• 22A.3 At least twenty percent (20%) of the Licensee's directors will be appointed by Israeli entities as stated in clause 22A.2. Notwithstanding the above, in this regard, if the Licensee's board of directors numbers up to 14 members – at least two directors will be appointed by Israeli entities as stated in clause 22A.2 above, if the Licensee's board of directors numbers from 15 to 24 directors – at least three directors will be appointed by Israeli entities as stated in clause 22A.2 above, and so forth.
• 22A.4 The Licensee's board of directors will appoint from among its members having a security classification and security clearance as will be determined by the General Security Service (hereinafter – "classified directors"), a committee called the "Committee for Security Matters."

At least four directors will serve on the Committee for Security Matters, among them at least one outside director. Matters pertaining to security will be considered, subject to that stated in clause 22A.5 below, solely in the framework of the Committee for Security Matters.

A resolution that was adopted or an action that was performed by the Committee for Security Matters, will be deemed the same as a resolution adopted or action performed by the Company's board of directors, and it will be considered by the board of directly only if this is required under section 22A.5 below and subject to that stated in section 22A.5 below. In this clause, "security matters" – as defined in the Telecommunications Order (Designation of an Essential Service Provided by Bezeq Israeli Telecommunications Company Ltd.) 1997.

22A.5 Security matters which the Licensee's board of directors or Audit Committee are required to consider according to the cogent provisions in the Companies Law 1999 or according to cogent provisions of any other law applying to the Licensee, will be considered, insofar as necessary, by the board of directors or by the Audit Committee, with the participation of classified directors only. Non-classified directors may not participate in such meetings of the board of directors or the Audit Committee and may not receive information or inspect documents pertaining to the security matters considered in the meeting. The quorum in every such meeting will consist of classified directors only.

The Licensee will specify in its articles that an officer who by virtue of his position and by virtue of the provisions of the law or the articles should have received information or participated in meetings on security matters, and is prevented from doing so by reason of the provision of clause 22A.5, will be exempt from liability for breach of the duty of care towards the Licensee, if the duty of care was breached due to non-participation in a meeting or non-receipt of information.

• 22A.6 The general meeting may not assume, delegate, transfer or exercise powers that are vested in another organ of the Company, in security matters.
• 22A.7 (A) The Minister will appoint an observer at meetings of the Company's board of directors and committees, having a security classification and security clearance as will be determined by the General Security Service.
  • (B) The observer will be a government employee qualifying as a director under Chapter C of the Government Companies Law 1975.
  • (C) In addition, and without derogating from any duty imposed on him by law, the observer will owe the Licensee a duty of confidentiality, except as required for the fulfillment of his function as an observer. The observer may not serve as an observer or in any other position on behalf of any other entity engaging in the provision of communication services and competing directly with the Licensee, and he will avoid any conflict of interest between his function as an observer and the Licensee, except a conflict of interest stemming from his being a government employee filling the function of an observer at the Licensee. The observer will commit towards the Licensee not to serve as an observer or officer and not to hold any position or be employed, directly or indirectly, at any entity competing directly with the Licensee or being in a conflict of interest with it, except for a conflict of interest stemming, as stated, from his being a government employee filling the function of an observer at the Licensee, throughout his tenure as observer at the Licensee and during eighteen (18) after the end of such tenure.

In any case of differences of opinion as to the observer being in a conflict of interest, the Attorney General or someone on his behalf will decide in the matter.

• (D) An invitation to meetings of the board of directors and its committees, including the Committee for Security Matters, will be delivered to the observer as well, who may participate as an observer at any meeting as stated.
• (E) The observer's right to receive information from the Licensee will be the same as a director's right. If the Licensee is of the opinion that certain information in the nature of sensitive business information is not required by the observer for the fulfillment of his function, the Licensee may withhold delivery of such information to the observer, notifying him in this regard. If the observer is of the opinion that he should receive that information, the matter will be referred to the decision of the head of the General Security Services.
• (F) If the observer saw that the Licensee adopted or is about to adopt a resolution on security matters contrary to any provision of the license, contract to section 13 of the Law or contrary to section 11 of the General Security Services Law 2002, it will notify the Licensee without any delay, in writing, such notice to be delivered to the chairman of the board of directors and to the chairman of the Committee for Security Matters, and to set a proper time in the circumstances of the case for remedying the breach or modifying the resolution, should this be possible.

Part C: Cross-Ownership and Conflict of Interest

23. Prohibition on Cross-Ownership

• 23.1 The Licensee, an officer therein or whoever holds more than 5% of any means of control in the Licensee, will not hold, directly or indirectly, more than one percent (5%) of the means of control in Bezeq, A16) another cellular system operator. Regarding this matter, "holding" – includes the holding as an agent.
• 23.2 Notwithstanding that stated in Section 23.1, an interested party in the Licensee that is a mutual fund, insurance company, investment company or a pension fund, may hold up to 5% of the means of control in Bezeq, another cellular system operator A16), provided all the following are fulfilled:
  • (A) It is not a controlling shareholder and does not exert, directly or indirectly, any control in Bezeq or A16) another cellular system operator;
  • (B) It has no representative or person in charge on its behalf among Bezeq's or the other cellular system operator's officers, unless required to do so by law.
• 23.3 Pursuant to a written request, the Minister may allow an interested party in the Licensee, as stated in Section 23.2, to hold up to 10% of the means of control in Bezeq, A16) another cellular system operator, when the terms stated in Section 23.2(A) and (B) are fulfilled, if he saw, to his satisfaction, that such a holding will not harm competition.

24. Prohibition on a Conflict of Interest

• 24.1 The Licensee, an officer therein or an interested party in the Licensee company will not be a party to any agreement, arrangement or understanding with Bezeq, A16) another cellular system operator, meant or liable to reduce competition or harm it in all pertaining to cellular system services, cellphone network end-equipment and other services provided via the cellular system.
• 24.2 Without derogating from the aforementioned in Clause 24.1, the License Owner shall reach a cooperation agreement as stated in Clause 19.1B

Chapter D: Setup and Operation of Cellular system

Part A: Setting Up the System

25. Definition In this part –

"Milestones" – Stages in the setup of the cellular system, according to the timetable detailed in the engineering plan – Addendum B to the license.

26. Setup according to Plans and Specifications

• 26.1 In all pertaining to the setup and operation of the cellular system (in this section network), including the technical quality of its various components, as well as the network's structure and manner of setup, the Licensee will comply with the terms and provisions in the engineering plan.
• 26.2 The Licensee will follow all the specifications of the Ministry of Communications and the network-related standards prescribed by standardization organizations in Israel and around the world, as well as other international organizations, in the telecommunications and wireless field as well as in any other field pertaining to the setup and operation of the network.
• 26.3 The Licensee may discontinue the operation of a cellular system that has become technologically obsolete, after received the Director's approval in that regard and subject to conditions to be set in the LicenseA63.

26.A Approval of Operation

26.1A The License Owner shall contact the director in writing for the receipt of his approval to commence the provision of Generation 4 services (hereinafter – "Approval of Operation")

The License Owner may commence the provision of Generation 4 services only after receiving Approval of Operation from the director.

26B Obligation to Provide Generation 4 Service

26.1B If the License Owner has not begun providing Generation 4 Services within 12 months from the determining date, as stated in Clause 2.1(b)(2)(a) to Appendix E, the frequencies allotment that it provided for the provision of this service shall expire, and the license fees paid due to the award of the Generation 4 Tender shall not be returned.

The expiration of the frequencies allotment as stated shall be considered a change of the Cooperation Agreement or change of the Usage Agreement, as applicable.

27. Execution Stages and Timetable

• 27.1 The setup rate of the cellular system, the setup milestones, the commencement date for providing the service in the various regions in Israel, will be in accordance with the timetable set in the engineering plan – Addendum B to the license.
• 27.2 The Licensee may not deviate from the timetable unless authorized to do so by the Director, provided the Licensee applies in writing to the Director to receive his permission immediately after realizing that difficulties have arisen that prevent it from meeting the original timetable.
  • 27.2.1 A delay in signing agreements with a third party or obtaining approval from the planning and construction authorities will be deemed a reasonable reason for obtaining the Director's permission for deviating from the timetable, only if the Director realizes to his satisfaction that the Licensee has done its reasonable

utmost in the circumstances of the matter, to come to an agreement with a third party or to receive approval from the planning and construction authorities.

27.3 The Director may approve the Licensee's request to deviate from the timetable, in whole or in part, and to stipulate conditions for its approval. The Director may also approve deviation regarding a specific milestone, provided the Licensee undertakes to catch up with the planned setup rate in the succeeding milestones.

28. Modification of Plans during Setup

• 28.1 The Licensee may not deviate from the engineering plan unless it has been authorized to do so by the Director under the provisions of this section. However, the placement of a Cellular Radio Center in a different site from that set in the engineering plan will not be deemed a deviation, if done within the search region. As regards this section, a "search region" denotes a territory defined in the engineering plan in which a Cellular Radio center is planned to be set up, at a specific site within the territory, and regarding which it has been stated in the engineering plan that it might be necessary to place the center in another site found in the territory.
• 28.2 If in the course of setting up the cellular system, the Licensee realizes that it has become necessary to deviate or depart from the engineering plan, the Licensee must apply in writing to the Director to obtain his approval for the plan. In its application, the Licensee must describe the essence and nature of the requested modification and the reasons therefor. The Licensee must attach the amended plan it proposes, to the application.
• 28.3 The Director may reject or approve the request, in whole or in part, and may also stipulate conditions for its approval, insofar as these are needed for the rigorous assurance of the network's quality and performance level. The Director will make a decision in the matter of the request and notify the Licensee of his decision, all within a reasonable amount of time.

29. Utilization and Construction of Infrastructures

• 29.1 For the purpose of setting up and operating the cellular network, the Licensee may, subject to any law, set up, maintain and operate cable or wireless transmission arteries, provided such transmission arteries will be used solely for the following:
  • (A) Connection between the Cellular Radio Centers forming part of the Licensee's cellular system;
  • (B) Connection between the Licensee's Cellular Radio Centers and its cellular exchanges;
  • (C) Connection between all the cellular exchanges;
  • (D) Connection between the Licensee's cellular exchanges and a public telecommunications system, or another cellular operator's cellular networkA16), or other systems operating lawfully.
  • (E) Connection between the mobile telephony communications system component exclusively owned by the License Owner and the joint mobile telephony communications system component.
• 29.2 For the purpose of the connection described in Section 29.1, the Licensee may use also the cable or wireless transmission arteries of Bezeq or of another licensee or concessionaire lawfully authorized to provide aforesaid infrastructure services.
• 29.3 To remove any doubt, it is hereby clarified that use of the transmission arteries to be set up by the Licensee is solely for operating the cellular system as stated in Section 29.1, unless the Minister permitted the Licensee in the license to make other use thereof, in accordance with the terms he laid down.

30.A16) Obligation of Interconnection

30.1 The Licensee will act to effect interconnection of the network with every other public telecommunications network, operating in the territory subject to the law, jurisdiction and governance of the State of Israel (including settlements, military sites and military installations in Judah, Samaria and Gaza Strip), including with every public landline

telecommunications network, international telecommunications network and cellular network of another cellular operator.

• 30.2 The interconnection between the network and another licensee's public telecommunications network will be effected in such manner as to enable the following:
  • (A) Relay of telecommunication messages between end-equipment connected to the network and end-equipment connected to the other public telecommunications network;
    • (B) Proper, regular provision of services by the Licensee to the other licensee's subscribers, and the provision of services by the other licensee to the Licensee's subscribers.
• 30.3 Interconnection may be effected either directly or indirectly, via a public telecommunications network of another general license holder, provided it enables that stated in Section 30.2.
• 30.4 As regards the interconnection between the network and public landline telecommunications network, the Licensee will act to set up interface points between the two networks, for each type of service (infrastructure, data transmission and communication, telephony), with at least three transition switches, unless the Director has decided otherwise at the written request of the Licensee. Setup of the interface points will be done under an agreement between the Licensee and the domestic operator licensee. Such an agreement will include, inter alia, the technical, operational and business details of the connection, the number of connections and their location.
• 30.5 As regards the interconnection between the network and an international telecommunications network, the Licensee will act in compliance with the provisions of Addendum J to the license.

30A.A16) Rules Concerning the Implementation of Interconnection

The Licensee will act to implement interconnection in accordance with all the following:

• (A) The Licensee will verify that the network's technical and operational standards comply wit the requirements for linkup with the public telecommunications network of the domestic operators, the other cellphone operators, and the international operators (hereinafter – other operator), that the network's activities will mesh properly with the activities of the other operator's public telecommunications network, and that the interconnection will not adversely affect the proper functioning of these networks and the normal service to their subscribers;
• (B) The Licensee will provide the interconnection service under equal conditions for every other operator and avoid any discrimination in actuating the interconnection, including with regard to the following:
  • (1) Supply of infrastructure facilities and network linkup services;
  • (2) Availability of linkup facilities;
  • (3) Linkup method, quality and survival;
  • (4) Alterations and adaptations in the switching in the facilities, in the protocols and at the network interface points;
  • (5) Payments for interconnection;
  • (6) Debiting and collection arrangements, and the transfer of information regarding subscribers;
  • (7) Commercial terms for effecting interconnection;
  • (8) Submission of information regarding the network and alteration therein relating to interconnection;
• (C) The Licensee will place at the disposal of the other operator any essential information the other operator needs for providing its services via the Licensee's facilities. Said information will be given subject to any law concerning the protection of privacy or commercial confidentiality. In the event the parties fail to reach an agreement regarding the nature and scope of the essential information, the Minister will decide in the matter;
• (D) The Licensee will give the other operator information regarding alterations planned in its network, which may affect the interconnection with the other operator's public telecommunications' network, or the interconnection

between the public telecommunications networks of the other operators. The Licensee will provide the aforesaid information in such manner as to enable the other operator to prepare reasonably for the implementation of said alterations;

• (E) As regards Subsections (C) and (D), the Licensee may stipulate the provision of information to the other operator on signing a reasonable privacy protection agreement, intended to safeguard the Licensee's rights under any law, including trade secrets, intellectual property rights and the like, pertaining to information regarding modification of the network meant to be given to the other operator;
• (F) The terms in respect of interconnection between the network and the other operator's public telecommunications network will be formalized in an agreement between the Licensee and the other operator. If the parties fail to reach an agreement, the Minister will decide in the matter.
• (G) (1) The Licensee will allow its subscribers to receive all the services offered to them by another operator, The Licensee may also allow another operator's subscribers to receive services from the Licensee, provided that said receipt of services is possible under any law.
  • (2) The Director may order the Licensee to allow the other operator's subscribers to receive services provided by the Licensee, provided that such receipt of services is possible technically and under any law.
  • (3) Notwithstanding that stated in Subsection (1), the Director may, at the written request of the Licensee, exempt the Licensee from the obligation of allowing its subscribers the possibility of receiving services from another operator, for technical, economic reasons or for other justified reasons.
• (H) The Licensee will forward to the Director a signed copy of every agreement between it and the other operator concerning interconnection;
• (I) The Licensee will forward to the Director on demand, any information given to the other operator under Subsections (C) and (D), as well as a copy of every confidentiality agreement under Subsection (E);
• (J) The Licensee will act in compliance with additional provisions the Minister will prescribe.

**30B.**A16)Payment for Traffic Completion and Interconnection

In the event the Minister did not determine payment for interconnection or payment deriving from interconnection, the Licensee may demand in respect thereof reasonable and non-discriminatory payment.

**30C.**A16)Prohibition on Delaying Interconnection

The Minister will give the Licensee a reasonable opportunity to voice his position in all pertaining to the Minister's intention to order it regarding the manner of effecting interconnection and its scope, regarding the actions, services and arrangements incidental to effecting interconnection, and regarding payments in respect of interconnection. Once the Minister has instructed the Licensee on said matters, the Licensee will not delay in any way interconnection with the network, and will fulfill its obligations in accordance with the Minister's provisions, properly and in good faith, on the date set therefor and with full cooperation.

**30D.**A16)Providing the Possibility of Utilization

30.1D The Minister may order the Licensee to provide the possibility of utilizing its telecommunications facility, by virtue of his authority under Section 5 of the Law.

• 30.2D The Licensee will enable another licensee, by the Minister's order, to provide value added services via the Licensee's network. The Licensee will ensure reasonable and equal terms for any other licensee, in all pertaining to the provision of value added services by the latter to the Licensee's subscribers.
• 30.3D As regards providing the possibility of utilization, the provisions of Sections 30A to 30C will apply, mutatis mutandis.

**30E.**A16)Infrastructure Services for an Interested Company

• 30.1E The Licensee will not give preference, in providing infrastructure services, to a licensee that is an interested company over another licensee, whether in payment for the service, in service conditions, in service availability or in any other way.
• 30.2E (A) Pursuant to a written request from the Licensee, the Director may permit the Licensee limitations on the provisions of Section 30.1E, in all pertaining to another licensee or a broadcasting licensee that is an interested company, provided the following conditions are fulfilled:
  • (1) The other licensee or the concessionaire is not a material operator:
  • (2) The Director is of the opinion that giving such permission does not materially harm competition in the field of telecommunications.
  • (B) As regards the limitations stated in Subsection (A), these may allow the Licensee to offer an interested company the use of its telecommunications facilities under preferred conditions, and these may be limited in time or by another condition.
  • (C) When considering a permit under this section, the Director will take into account the existence of a valid agreement, which was signed prior to Amendment No. 16 to this license, between the Licensee and the interested company, concerning, inter alia, the restriction of the permit in time or by other conditions.
• 30.3E In this section "interested company," "subsidiary," and "material operator" as these terms are defined in the Telecommunications Regulations (Procedures and Conditions for Obtaining a General License for Providing Domestic Landline Telecommunications Services), 2000.

**30F.**A16)Numbering Program

• 30.1F The Licensee will act in accordance with the numbering program, and in compliance with the Director's provisions regarding the activation and implementation of the numbering program.
• 30.2F The Director ordered the activation of number portability, so that every subscriber of another cellular system licensee will be able to switch over to and be a subscriber of the Licensee or receive services from the Licensee without any change in his telephone number, and vice versa – the Licensee will incorporate into its public telecommunications network devices enabling the application of this property, on the date and using the method laid down in the Director's provision.

31. Reports on the Setup Works

• 31.1 The Licensee will submit to the Director, throughout the cellular system setup period, quarterly reports describing the setup works carried out during the period of each report, according to the milestones and timetables in the engineering plan. As regards this section, "the setup period" denotes 15 months from the date the license was granted or until the date of the completion of the network's setup in full deployment, according to the engineering plan, whichever the earlier. A72In the setup period, this report shall be integrated into the engineering system report, as stated in Section 104.1(e)
• 31.2 The reports will include a comparison of the plans' execution versus the plan for each report's period, as well as explanations for any deviation or alteration that occurred in the execution compared with the plan.
• 31.3 Each report will be submitted in triplicate in a format to be instructed by the Director, and will bear a date and be signed by the Licensee or whoever it empowered especially for this purpose.
• 31.4 The Director may demand that the Licensee prepare special reports, and also that it draw up a new or supplement a report submitted to him.

32. Handover of Information and Documents

The Licensee will furnish to the Director, on demand, any information or document regarding the execution of cellular system setup works, at the time, in the format, and in the manner instructed by the Director.

33. Supervision of Setup Works

• 33.1 The Director may supervise, by himself or through a designee, the Licensee's actions connected with the execution of the setup works. To this end, the Director may enter at any reasonable time, the Licensee's work sites, cellular system facilities and offices, for the purpose of making measurements, performing inspections and perusing any plan or document pertaining to the execution of the setup works.
• 33.2 The Licensee will cooperate with the Director in all pertaining to the supervision of the setup works, and without derogating from the generality of the foregoing, will enable him to enter the work site and its facilities, enable the perusal of any document, plan and specification, and provide him with any information he requests.

34. Correction of Deficiencies and Defects

34.1 The Director may notify the Licensee in writing about deficiencies, defects and deviations he found in the cellular system setup operations, based on reports submitted by the Licensee, documents and information it furnished him, or based on measurements and inspections he made.

A72 Amendment No. 72 (Inception: This amendment will come into force on the day of signing the Amendment)

34.2 In the event the Licensee receives a notice as stated in Section 34.1, it will notify the Director, within fourteen days of the date of receiving the notice, regarding its response to that stated therein and the measures it took or plans to take, in order to correct the deficiencies, defects or deviations.

35. Safety Precautions and Prevention of Hazards

35.1 The Licensee will execute the setup works, taking adequate safety precautions to prevent personal accidents and property damage, will prevent the causation of nuisances and hazards to the public in the work areas, and if required to do excavations at the spot, will do everything to prevent damages to underground systems, including

telecommunications networks, and to this end will make sure to obtain every permit required by any law, including an excavation works permit under Section 53B of the Law.

35.2 Upon completion of the setup works, the Licensee will make sure to clean up the work sites and restore them to their previous condition.

36. Void.( A2)

37. Intersections with Electricity and Telecommunications Lines

In a place where there are electricity lines or electricity facilities prior to the installation of the cellular system, the Licensee is subject to the obligations imposed under the Telecommunications and Electricity Regulations (Convergence and Intersection between Telecommunications Lines and Electricity Lines), 1986.

38. Discovery of Antiquities and Site Preservation

• 38.1 Antiquities, as defined in the Antiquities Law, 1978, which are discovered at a setup work site, are state assets, and the Licensee will take the appropriate precautions to prevent damage thereto.
• 38.2 The Licensee will notify the director of the antiquities authority regarding the discovery of an antiquity within 15 days of the date of the antiquity's discovery and will follow the instructions of the authority's director in all pertaining to the manner of handling the antiquity.
• 38.3 In the course of the setup works, the Licensee will avoid, inasmuch as possible, damaging sites of historical or national value, tourist sites and landscape.
• 38.4 The Licensee will avoid, insofar as possible, damaging buildings and trees found in the places where setup works are being carried out.

39. Land-Related Powers

• 39.1 The Minister may, at the Licensee's request, grant it all or some of the powers prescribed in Chapter F of the Law, subject to that stated in Section 39.2.
• 39.2 The Licensee will specify in its request the sites at which it requires the aforesaid powers, the scope of the required powers and the reasons therefor, including the steps it took to find alternative sites, without having to use the power under Chapter F of the Law.
• 39.3 In the event the Minister is convinced of the need to grant the Licensee powers under Chapter F of the Law, the Minister will publish his decision in the Reshumot (Official Announcements and Advertisements Gazette).

Part B: Equipment Checks and Installation Certifications

40. Compliance Check

The Director may determine which items of equipment should not be installed in the Cellular System before undergoing a compliance check. "Compliance" as regards this section – as emerges from that stated in Section 41. If the Director has decided as aforesaid, the items will not be installed before undergoing a compliance check.

41. Responsibility for Compliance

It is the responsibility of the Licensee to see to it that the equipment installed in the Cellular System is, at least, technically compliant with the properties detailed in the manufacturer's specifications relating to the specific item of equipment, and attached to the engineering plan.

42. Performance Testing Program and Its Approval

• 42.1 The Licensee will furnish the Director, no later than 30 days before giving notice of the completion of installation under Section 43, with an up-todate, detailed testing program for carrying out the performance check, relating to that part of the Cellular System it wishes to operate (hereinafter – detailed testing program).
• 42.2 The Licensee will present the detailed testing program to the Director. The Director may demand within 15 days of the aforesaid presentation that the Licensee make changes in the detailed testing program or complete it, if he deems it necessary for the full and accurate execution of the performance check, and the Licensee will carry out the checks according to the Director's request.

43. Notice of Setup Completion

Once the Licensee has completed setting up a Switchboard or Cellular Radio Center in some region, so that it is possible to start providing cellular services through it, the Licensee will notify the Director in writing thereof, in the format it was instructed by the Director, along with the results of the detailed check indicating successful installation and operation.

44. Terms of Fitness and Operation

44.1 Prior to operating the network, the Licensee must meet the requirements and conditions detailed below:

(A) Entering into an Agreement with an Equipment Manufacturer

The Licensee must have agreements in force for the entire operation period planned, with a Cellular System manufacturer, comprising the following:

• (1) Know-how agreement;
• (2) An agreement guaranteeing the supply of parts for the network's equipment for a period of at least 7 years;
• (3) An agreement guaranteeing the supply of technical literature and full documentation of the network's equipment, including updates.

(B) Lab and Testing Equipment

The Licensee must operate a lab, or have a valid agreement with a competent lab. The lab should include professional testing equipment for performing the checks and making the repairs on the Cellular System equipment, including mobile testing equipment.

(C) Parts

The Licensee must maintain and run a spare parts warehouse for Cellular System equipment according to the recommendations of the equipment manufacturers.

(D) Maintenance System

The Licensee must maintain, on its own or through another, an efficient maintenance system, consisting of maintenance personnel, service vans and communication means, ensuring the proper, ongoing operation of the network and enabling the handling of any malfunction within the response time required under this license, and also enabling, in any case of a serious problem with the Cellular System causing radio interferences, large-scale disconnection of subscribers or posing a safety risk, repair of the malfunction within 4 hours.

(E) Communication Means

Means of communication, such as a walkie-talkie, telephone or cellphone, should be installed in the operation exchanges and centers, as well as in the service and maintenance centers.

44.2 The Licensee must present to the Director, seven days before setting the network in operation for the first time, certifications and documents regarding compliance with the requirements and conditions specified in Section 44.1. In the event the Director fails to respond within five days of the date of delivery of said documents, the Licensee may operate the Cellular System and connect subscribers thereto. If the Director orders the Licensee, based on the documents' findings, to alter or fix the network, the Licensee must make the required alteration or correction and present a certification of execution to the Director, and if the Director fails to respond within 3 days, the Licensee may operate the system.

Part C: Use of Frequencies

A2A26)

45. Allocation of FrequenciesA16)

• 45.1 The Licensee may operate the Cellular Radio centers of the Cellular System, using the frequency bands allocated for its exclusive use, as detailed below:
  • (A)A35) 835 to 845 MHz and corresponding range 880 to 890 MHz;
  • (A1)A35) 1710 to 1712 MHz and corresponding range 1805 to 1807 MHz; That stated in this subsection in no way derogates from the Director's authority to allocate an alternative frequency band with identical bandwidth for the Licensee's use, instead of the frequency band specified in this subsection.
  • (B) Starting from February 1, 2002 to January 1, 2004 the following bands will be allocated: 1710 to 1715.4 MHz and corresponding range 1805 to 1810.4 MHz; 1716.6 to 1721.2 MHz and corresponding range 1811.6 to 1816 MHz; 1962 to 1967 MHz and corresponding range 2152 to 2157 MHz;
  • (C) Starting from January 1, 2004 the following bands will be allocated: 1720 to 1730 MHz and corresponding range 1815 to 1825 MHz; 1960 to 1970 MHz and corresponding range 2150 to 2160 MHz; as well as the frequency range 1905 to 1910 MHz.
  • (C1) Starting from April 4, 2004 the following frequency bands will be allocated:

1715 to 1720 MHz and corresponding range 1810 to 1815 MHz.

• (D) Notwithstanding the foregoing, in the event the Licensee asks to postpone the usage commencement date for the frequencies specified in subsections (B) and (C), or a part thereof, to a later date, the Director may suspend the allocation of frequencies to a date he decides on.
• 45.2 The Licensee may select a narrower frequency band than that stated above in the framework of the frequency bands specified in Section 45.1.

45.3 In the event of detection of electromagnetic interferences from other radiants that can harm the proper functioning of the Cellular System, the Director must, at the Licensee's request, take any reasonable action to find an appropriate solution or stop the aforesaid interferences.

46. Restriction on Use of Frequencies

• 46.1 The Licensee will make use of the frequencies allocated to it as stated in Section 45 only for providing the services under this license.
• 46.2 Without derogating from the aforementioned in Clauses 45 and 46.1, and in accordance with the terms of the allotment provided to the other mobile telephony communications license owner, the License Owner may make use of the frequencies allotted to the other mobile telephony communications license owner in addition to the aforementioned in Clause 45, provided that the frequencies serve as cellular radio centers of the License Owner through the cellular radio infrastructure license owner that provides it with its services.

47. Prevention of Interferences

• 47.1 The Licensee will set up the Cellular System and operate it in such manner so that no part of its parts will emit radiation prohibited under the provisions of the Pharmacists' Regulations (Radioactive Elements and Their Products), 1980, and do everything required, if required, to obtain a permit in accordance with the aforesaid regulations.
• 47.2 The Licensee will coordinate the use of the frequencies with the Director, who will base his directives, inter alia, on the program derived from the preparation for a national emergency crisis.
• 47.3 The Licensee will submit to the Director, or anyone appointed for this purpose on its behalf, a detailed, up-to-date plan for the operation of Cellular Radio Centersand for the expected use of the frequencies at least 60 days before the operation, and will report to the Director regarding the actual execution, within 7 days of the operation date.
• 47.4 The Licensee will set up and operate the Cellular System in such a manner as to prevent interferences with other Bezeq and wireless systems operating lawfully. Prior to the activation of any Cellular System, the Licensee will perform tests and measurements for the purpose of preventing electromagnetic interferences. If found that electromagnetic interferences can be expected or interferences have been detected during operation, the Licensee will act to find a solution that will prevent these interferences and also prevent their recurrence, and in the absence of a solution it will turn in writing to the Director or to anyone appointed for this purpose on its behalf, in order to find a reasonable solution in this regard. The Director may demand that each of the parties make changes in the operation of the equipment or in the use of the frequencies or that they stop broadcasting over certain frequencies, throughout the country or in a certain region.
• 47.5 The granting of this license, including the approval of the engineering plan, in no way provides protection against harmonies from other radiants operating lawfully, or other radiants operating outside state territory; however, the Director must make every reasonable effort to find an appropriate solution providing the necessary protection.

48. Preparing to ensure continuity of operations in emergencies

• 48.1 The License Holder will appoint a functionary (including a first deputy and a second deputy) who will be responsible in emergencies for maintaining contact with the Ministry; the License Holder will provide to the Director, once a year, on January 1st, the details of the functionary and his deputies, as well as their contact details.
• 48.2 The License Holder will be prepared to ensure continuity of operations in emergencies, as specified in Annex D "Preparing to Ensure Continuity of Operations in Emergencies".

Part D: Inspections and MaintenanceA43)

49. Definitions

"Periodical inspection" – An inspection of the network or any part thereof performed according to the license's provisions, at fixed time intervals and at least once every half year;

"Special inspection" – An inspection of the network or any part thereof performed due to a maintenance action or repair, following electromagnetic interferences, a malfunction, clarification of a complaint, a technological modification, an alteration in the engineering plan or the like;

"Regular inspection" – An inspection of the network or any part thereof, done on a regular, ongoing basis.

50. Performance of Inspections

• 50.1 The Licensee will carry out periodical inspections on the Cellular System and will submit the results of the inspection, at the Director's request, within 30 days of the day of the request.
• 50.2 The Licensee will set up and operate a control system for continual monitoring of the performance and functionality of the network, and will perform, on an ongoing basis, regular inspections of the network or any part thereof, as necessary.
• 50.3 The Licensee will perform a regular inspection for quality of the service as detailed in Addendum E, including compliance with relevant ITU-T standards, and will submit the results of the inspection, at the Director's request, within 30 days of the day of the request.
• 50.4 The Director may instruct the Licensee to perform a special inspection; The Licensee will perform such inspection in the format and at the time specified by the Director and will submit its results to him.
• 50.5 The Director or anyone so authorized by him will be allowed to carry out inspections himself, where he deems this to be necessary; The Licensee will permit the Director or anyone so authorized by him access to the installations and the equipment, subject to prior coordination, and will place at his disposal testing equipment used by it or professional manpower employed by it.

51. Inspections, Malfunctions and Maintenance Log

• 51.1 The Licensee will manage an inspections, malfunctions and maintenance log (hereinafter maintenance log), in which details of the malfunctions in and inspections of the network are recorded.
• 51.2 The Licensee will keep the maintenance log and enable the Director or a representative authorized by him to peruse it at any time, to examine it or copy it in any manner, and will submit it for inspection by the Director at his request.

52. Repair of Deficiencies and Defects

• 52.1 The Director may, after giving the Licensee sufficient opportunity in the circumstances of the case to present its case to him, notify the Licensee in writing of deficiencies and defects he found that are affecting the level of the service to Subscribers, the level of survivability and backup of the network or the safety level or interfering with other lawfully operating systems, based on a follow-up of the network's performance, including by means of Subscribers' complaints or inspections carried out by him or on the basis of inspection reports, documents and information provided to him by the Licensee.
• 52.2 The Director may instruct the Licensee regarding the times by which it must correct the deficiencies and defects.
• 52.3 In the event the Licensee received such a notice, it will notify the Director, within the time set for this purpose in the Director's notice, of the correction of the deficiencies and defects, at the level of detail requested by the Director.
• 1. Void.
• 1. Void.

Chapter E: Providing Cellular Services to Subscribers

Part A: Entering into an Agreement with Subscribers

55.A43) The Contract

• 55.1 The Licensee will prepare a wording for the contract that it intends to offer its subscribers, and will submit it for the Director's perusal at his request.
• 55.2 The terms of the contract shall not contradict, explicitly or implicitly, the provisions of any law or the provisions of the license: The aforesaid shall not prevent the stipulation of various provisions in the contract that benefit the subscriber compared to the provisions of the law or the license.
• 55.3 The contract will be in writing and laid out in a clear manner conducive to reading and comprehension and specifying prominently any term or limitation on the subscriber's right to cancel the contract or on the Licensee's liability toward the subscriber; Any stipulation in the contract shall be stated explicitly and not by way of reference.

For purposes of this section, "writing" – including an electronic document that can be saved and retrieved by the subscriber.

• 55.4 The contract will include, inter alia, in a clear manner, the following:
  • (a)A58 A first, separate, printed page, setting out the following details, in a clear and precise manner, without any handwritten additions or alterations (hereinafter – the Plan Summary Page):
    • (1) Licensee's name or logo, details of the Licensee's representative who executed the contract, date of conclusion of the transaction, subscriber's details including name, identity number, address, telephone number to which the contract relates, additional telephone number of the subscriber for sending notices concerning the rate of utilization of a surfing package as stated in section 75D and a cellular end-equipment model, if included in the contract. Notwithstanding that stated at the beginning of section (a), the details mentioned in this subsection, other than the Licensee's name or logo, can be written in handwriting.

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

___________________________

• (2) The duration of the commitment period, if any, and its expiry date. For purposes of this subsection, "commitment" as this term is defined in section 56.1A.
• (3) All the rates according to which the Licensee will charge the subscriber for the services the subscriber requested to receive when executing the contract, and the amount of every fixed payment, if such are included in the contract.

The service rates will be presented in a table with two columns – "Name of Service" and "Price of Service."

With respect to a surfing package, as this term is defined in section 75D – the service unit rate outside the package will be presented in the same values as in the package.

• (4) The inclusive price of the end-equipment and any accessory to the end-equipment purchased at the time of executing the contract (hereinafter – the equipment), and if the subscriber and the Licensee agreed on payment in installments for the equipment – the amount of each installment.
• (5) Any benefit, as this term is defined in section 64A.1, noting the value of the benefit and the exact period of time during which it will be granted.
• (6) The method of calculation of the amount the subscriber will be required to pay for a breach of the commitment, as this term is defined in section 56A.1.
• (7) With respect to a business subscriber information on rate increases during the commitment period, if this possibility exists under the terms of the contract, including the date and amount of such increase.
• (8) Information on the balance of any payment and/or cancellation of any benefit for end-equipment that was purchased from the Licensee in a previous contract.
• (9) The Licensee's undertaking to pay to a subscriber of another cellular licensee who has become a subscriber of the Licensee, the payment such subscriber will be required to make to the other cellular licensee for the breach of his commitment to that cellular licensee, and the manner of spreading such payment.

In this regard, "commitment" – as this term is defined in section 56A.1.

• (10) The subscriber's declaration that he read the page and that it was provided to him at the time of executing the contract. The subscriber's original signature, as well as the details and original signature of the Licensee's representative who executed the contract, must be appended to the declaration, which will appear at the bottom of the Plan Summary Page.
• (11) Respecting subsection (a)(1) to (10) "Subscriber" is any person who entered into an agreement with the Licensee for receipt of cellular mobile radio telephone services for up to twenty five telephone numbers, excluding a Pre-Paid Subscriber.A59
• (a1) A58 (1) A separate, printed page, on which the subscriber will be required to mark his choice as to the accessibility of any telephone number to which the contract relates, to services as set out in Appendix E2 (hereinafter – the Access to Services Form or the form) and to sign by original signature alongside the mark and at the bottom of the formA59; The form will come after the Plan Summary Page.
• (2) A new Subscriber who did not mark his selection, blocked or open, on the form in the designated spot (hereinafter, the "Selection") and signed against the service appearing on the form as stated in item (1), or did not sign against the service, even if he marked the Selection, or did not mark the Selection and did not sign against the service, shall be blocked from receiving such service.

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A59 Amendment No. 59 A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). A59 Amendment No. 59

In this section, "new Subscriber" means a Subscriber who entered into an agreement with the Licensee after September 13, 2011 (14 Ellul, 5771).A59

(3) A subscriber may request the Licensee at any time, orally or in writing, to change his choice regarding accessibility to services specified in the form (hereinafter in this section – the subscriber's request). A first change will be made free of charge. The Licensee will implement the subscriber's request only after it has identified the subscriber. The request must be kept available by the Licensee for playing or presenting (as the case may be) to the Director within five (5) work days from the day of request's receipt.

The subscriber's request must be implemented within one working dayA59 from the date of the request.

• (4) The Licensee will include in the next telephone bill after the date of the subscriber's request a notice concerning the implementation of the request and the date of implementation. Said telephone bill must be kept available by the Licensee for presenting to the Director within five (5) work days from the day of preparation of the account.
• (5) The Licensee shall attach to the form two (2) immediate telephone statements sent after September 13, 2011 (14 Ellul, 5771) to a Subscriber who is not a new SubscriberA59.
• (6) A Subscriber who is not a new Subscriber who failed to transfer to the Licensee his comments on the form by December 13, 2011 (17 Kislev, 5772) will be blocked from receiving the services set forth in section 3 of the form within seven (7) working days of the aforesaid date; Notwithstanding that stated, where a non-new subscriber has not used the services set out in Section 3 of the form starting November 1, 2011 (4 Heshvan 5772) and has not submitted to the Licensee a response to the form by December 1, 2011 (5 Kislev 5772), the Licensee may block his access to said services as of December 1, 2011 (5 Kislev 5772)A64; A non-new subscriber who has submitted to the Licensee a response to the form, will have his access to services blocked or opened in accordance with his request in the form, within one workday of the request's receiptA62; a Subscriber who transferred to the Licensee his comments on the form and failed to mark his Selection and signed alongside the service appearing on the form as stated in subsection (1) shall be blocked from receiving such serviceA59.

The Licensee will notify the subscriber about the block in the next telephone bill after the block. Said telephone bill must be kept available by the Licensee for presenting to the Director within five (5) work days from when it was sent to the subscriber.

• (7) The Licensee will publish the form on its website, within seven (7) work days from September 13, 2011 (14 Ellul, 5771)A59.
• (8) Respecting subsection (a1)(1) to (6) "Subscriber" excluding a Pre-Paid Subscriber. Notwithstanding the above, the Licensee shall block services at the request of a Pre-Paid Subscriber, to the extent that it comes from a telephone number to which the request refers, or such Subscriber presented before it the end-equipment serving the telephone number forming the subject matter of the request, or in any other manner to the Licensee's satisfaction A59.
• (a2) Terms of the service to the subscriber, including quality measures for customer and subscriber service as detailed in section 2 in Addendum E;

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A59 Amendment No. 59 A59 Amendment No. 59 A59 Amendment No. 59 A64 Amendment No. 64 A62 Amendment No. 62 A59 Amendment No. 59 A59 Amendment No. 59 A59 Amendment No. 59

• (b) Terms for disconnecting from the Licensee's services or discontinuation of all service A58 terms;
• (c) Licensee's rates for the services for which the subscriber registered, as of the day of the agreement, including the date and terms for termination of the rates program;
• (d) Limitation on the rate of arrears interest, linkage differences and collection expenses, as stated in section 80.3;
• (e) Condition for changing the rate for the service for which the subscriber registered, as stated in section 78.1;
• (f) The details set out in sections 61 and 61A regarding the public ombudsman and umpire.
• (g) Condition specifying that in case of a contradiction between the provisions relating to the rates and to the basket of services detailed in the contract, and the provisions of the license in this regard, the provisions of the license shall prevail;
• (h) Notice concerning the Director's authority to instruct the Licensee to modify the contract, and a clarification that the subscriber's engagement with the Licensee under the contract constitutes agreement to such modification.
• 55.5 A58 Where a contract is executed in the presence of the Licensee's representative and the subscriber, the Licensee will act as follows:
  • (a) Prior to executing the contract, the Licensee's representative will present to the person requesting to be a subscriber of the Licensee (hereinafter in this section – the applicant) a printed copy of the contract, and will allow him to peruse the contract.
  • (b) When executing the contract, the applicant and the Licensee's representative must affix their original signature to the contract that was given to the applicant for perusal. Following such signature, the Licensee's representative will give the subscriber a copy of the contract bearing the original signatures of the Licensee's representative and the subscriber.
  • (c) After that stated in subsections (a) and (b) has been done, the Licensee's representative may require the subscriber to sign an identical contract to the one signed with original signatures, by electronic means.
  • (d) The Licensee must keep in its possession a signed copy of the contract. Said copy must be kept available by the Licensee for presenting to the Director within five (5) work days from the date of executing the contract.
  • (e) Should the subscriber request to make a change in the terms of the contract, including a request to receive an additional service, to cancel a service or to join a service package – he will be given, at the time of the request for the change, a printed notice bearing the Licensee's name or logo, noting the details of the change that was made, its effective date and the full name of the Licensee's representative and the subscriber together with their original signatures. The signed notice must be kept available by the Licensee for presenting to the Director within five (5) work days from when the subscriber's request was implemented.
• 55.6 If the Licensee publishes on its website a tariff plan, including for purchases of cellular end-equipment, such publication will also contain the contract terms pertaining to that tariff plan, including the details appearing on the Plan Summary Page.

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

55.7 A70 Notwithstanding the provisions of Section 55.5, the Licensee may have a subscriber sign an engagement agreement also through an Electronic Graphic Signature, in lieu of an original signature, and the provisions of appendix E shall apply in this regard in lieu of the provisions of Section 55.5.

For this purpose, "Electronic Graphic Signature" – A signature which is saved electronically as a graphic file."

55A.A58 Remote Sales Transaction

55A.1 In a remote sales transaction, as this term is defined in section 14C of the Consumer Protection Law, 5741-1981 (hereinafter – remote sales transaction), the Licensee will act as follows:

(a) A document will be sent to the subscriber which includes all of the details specified in Subsection 55.4(a2) to 55.4(h), the "plan highlights sheet" and the "access to services form", checked in accordance with the subscriber's choices, as orally expressed to a representative of the license holder, or as entered upon performance of the engagement via the internet (the "Terms and Conditions of Engagement Document"). In a remote sale transaction made on the internet, the Terms and Conditions of Engagement Document may omit the full names and signatures of the subscriber and of the license holder's representative who performed the engagement. A69

The Contract Terms Document will be sent to the subscriber by regular post, or via email or fax if the subscriber gave his consent thereto. A copy of the Contract Terms Document must be kept available by the Licensee for presenting to the Director within five (5) work days from the day of executing the contract. If the Licensee sent the Contract Terms Document via email or fax, the sending confirmation must also be available for presenting to the Director within five (5) work days from when the document was sent as stated.

(b) Should the subscriber request to make a change in any detail of the Contract Terms Document, including a request to receive a service or a service package (in this section – "change")A59 – the Licensee will send to the subscriber a printed notice bearing the Licensee's name or logo, noting the details of the change that was made, its effective date, service or service package tariffA59 and the full name of the Licensee's representative and the subscriber. In a remote sale transaction made via the internet, the notice will not include the name of the license holder's representativeA69. The notice must be dept available by the Licensee for presenting to the Director within five (5) work days from when the subscriber's request was implemented.

The notice will be sent to the subscriber by regular post, or via email or fax if the subscriber gave his consent thereto. If the Licensee sent the notice via email or fax, the sending confirmation must also be available for presenting to the Director within five (5) work days from when the notice was sent as stated.

(c) Notwithstanding the above, where a Subscriber requested to make a change which does not involve an extension of the term of undertaking of the Subscriber or the creation of such a term, the Licensee shall include in the immediate telephone statement to the date of the request a notice in which the particulars specified in subsection (b) shall be noted, except for the name of the Licensee's representative. For the purpose of this subsection, "undertaking" is within the meaning in section 56.1A of the License.

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A69 Amendment No. 69 A59 Amendment No. 59

A59 Amendment No. 59 A69 Amendment No. 69

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

• 55A.2 A69 The license holder may perform a remote sale transaction via the internet, provided that all of the following conditions are fulfilled: (a) The license holder's website shall clearly include all of the details specified in Subsection 55.4(a2) to 55.4(h), as well as the "plan highlights
  • sheet" and the "access to services form". (b) The subscriber has declared, by checking the appropriate box on thewebsite, that he has read the information included in the "plan highlights sheet.

56.A43) Modification of Contract

• 56.1 The Director may instruct the Licensee to modify the contract, after giving the Licensee sufficient opportunity to present its case.
• 56.2 If the contract was amended pursuant to the Director's instructions or pursuant to a decision of the Standard Contracts Court, in the event that the contract was submitted for its approval, the engagement between the Licensee and the subscriber will be in accordance with the amended contract, as from the date of the amendment.
• 56.3 The provisions of section 55 shall apply, mutatis mutandis, to an amendment of the wording of the contract by the Licensee.

56A.T47) Period of Commitment under a Contract

56A.1 Where the Licensee entered with a subscriber who is not a business subscriber into a contract that includes a commitment, the period of the commitment may not exceed eighteen (18) months.

In this regard, "commitment," – the subscriber's commitment to comply with conditions relating to the scope of consumption of services, the amount of the payment or the payment terms, during a defined period, where noncompliance with such conditions during such period entails a payment, including the return of a benefit or an exit fee.

• 56A.2 Where the Licensee proposed to a subscriber who is not a business subscriber to enter into a contract that includes a commitment, the Licensee will present to such subscriber a proposal to enter into a contract that does not include a commitment, as a reasonable alternative to contracts that include a commitment. In this regard, a contract containing a "prepaid" plan will not be deemed a reasonable alternative to a plan that includes a commitment. The Licensee will publish on its website the contract that does not include a commitment, including the Plan Summary Page of such contract A58.
• 56A.3 If the Director finds that the Licensee has violated Section 56A.2, he may direct the Licensee to modify conditions in a contract that does not include a commitment, without thereby derogating from any other power established in the License or in any law. In this regard, the Director will consider, inter alia, the number of subscribers of the Licensee who are signed on contracts that do not include a commitment.
• 57. A43) Void.
• 58. A43) Void.
• 59. Obligation of Connecting Applicants and Prohibition on Stipulation

A69 Amendment No. 69 T47 Amendment No. 47. A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011

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• 59.1 If the Licensee has met the terms for operating a Cellular System as stated in Section 44.2, the Licensee will connect any applicant to the cellular network no later than the date set in the contract with the subscriber, unless the Director has authorized the Licensee not to connect the applicant, under circumstances he deems justified. A2)
• 59.2 The Licensee may not stipulate the connection of an applicant on unreasonable, discriminatory or unfair terms, and without derogating from the generality of the foregoing:

The Licensee may not require a subscriber to purchase end-user equipment from it or from its designee;

The Licensee may not require the subscriber to receive maintenance services from it for the end-user equipment in the subscriber's possession;

The Licensee may not stipulate or condition cellular services, service conditions or a rate on the purchase of cellular end-user equipment from it or from any other.

59.3 Void. A1)

Part B: Service Level for Subscribers

60.A16) Obligation of Maintaining the Service

• 60.1 The Licensee will put at the disposal of its subscribers all the services detailed in the First Schedule, in accordance with the terms detailed in the schedule, and will maintain all its services all year round, around the clock, both in times of calm and in times of an emergency, subject to Section 48, in accordance with the technical requirements and service quality requirements, in a proper and regular fashion, and of a quality no lower than that indicated by the service quality indexes specified in the first schedule to the license and in Addendum E to the Second Schedule to the license. In the event of a contradiction between the First Schedule and Addendum E to the license's Second Schedule, the provisions of Addendum E to the Second Schedule will prevail.
• 60.2 Without derogating from that stated in Section 75.3, the Licensee will provide cellular services and a service package, as this term is defined in Section 73A, to every applicant, under equal and non-discriminatory terms and at a non-discriminatory rate.
• 60.3 If the Director has found that the service package is liable to harm competition or the consumers, he will notify the Licensee thereof, indicating the date by which the Licensee must stop offering its subscribers the service package.
• 60.4 If the Licensee provides any cellular service to any person or organization, for payment, the service must be available to any subscriber throughout the network coverage area, complying with the minimal requirements as regards service quality, without discrimination, within 24 months of the date of commencing provision of the service for payment.
• 60.5 The Director may, at the written request of the Licensee, allow the Licensee limitations on the provision of Section 60.4, after being convinced that there is a real difficulty in providing the service to anyone that requests it, and that the specific features of the service possess a unique and exceptional flavor justifying this.

60.6A43)

(a)A58 The Licensee may not provide, with or without consideration, any of its services not explicitly requested by the subscriber, except for a service given free of charge to all the subscribers, and it may not allow the provision of a service of a service provider not explicitly requested by the subscriber. For purposes of this section, "service provider" – anyone providing a service through the network, for which payment is made by means of the telephone bill.

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

• (b) A58 An explicit request may be made in one of the following ways:
  • (1) By a document signed by the subscriber and sent to the Licensee;
  • (2) By an email message sent by the subscriber to the Licensee;
  • (3) In a phone call between the subscriber and the Licensee's representative;
  • (4) By an SMS message sent from the subscriber to the Licensee;
  • (5) By ordering a service on the website of the Licensee or a service provider. Ordering of the service shall be done in accordance with the provisions of Appendix F to the License.A61
• (c) The Licensee will keep documentation on the subscriber's explicit request throughout the subscriber's commitment period, and where the subscriber is not in a commitment period, during the last eighteen (18) months at least, and also during a year after the date of sending the final bill to the subscriber, as stated in section 2.3(c)(2) in Appendix E.A61 The documentation must be kept available by the Licensee for presenting to the Director within five (5) work days from the day of the subscriber's explicit request.

In this regard – "documentation":

For purposes of subsection (b)(1) – a copy of the document;

For purposes of subsection (b)(2) – a printout of the email message;

For purposes of subsection (b)(3) – a recording of the phone call;

For purposes of subjection (b)(4) – a copy of the subscriber's telephone bill in which the details of the SMS sent by the subscriber appear in the "itemized list of calls."

For purposes of subsection (b)(5) – for purposes of subsection (b)(5) – a log printout from the Licensee's short message service center (SMSC[b]), detailing the fact of the sending of the two SMS messages from the Licensee to the subscriber during the service ordering process. If the service was ordered on the Licensee's website or on its cellular portal by means of a user code and password as stated in section 1.3 in Appendix F to the License – a log printout from the SMSC testifying to the execution of the service ordering process, and a log printout of the log-in of the user code and password by the subscriberA61.

A memorandum entered by the Licensee's representative in the Licensee's information systems does not constitute documentation.

• 60.7 A63 Without derogating from that stated in section 26.3, the Licensee may not discontinue the provision of cellular services through a system that has become technologically obsolete, until after that stated in Appendix K-1 is fulfilled.
• 60.7 A58 The Licensee may not collect payment from a subscriber for a service, unless it has documentation on the subscriber's explicit request to receive the service.
• 60.8 A58 A subscriber who was debited for a service and notifies the Licensee that he did not request to receive the service, will be refunded the full amount collected from him as payment for the service, where the Licensee has no documentation on the subscriber's explicit request to receive the service. The subscriber's contestations and the refund will be handled in accordance with the provisions on "excess charges" in section 83A of the License.

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61.A43) Public Ombudsman

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

A61 Amendment No. 61

• A61 Amendment No. 61

• [a] Short Message Service Center.

• A61 Amendment No. 61

• A63 Amendment No. 63 Mistake in the original language

• A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

• A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

• 61.1 The Licensee will appoint a person to handle complaints of the public ("the Ombudsman"), having the following responsibilities:

  • (a) Clarifying subscribers' complaints in connection with the Licensee's services, including the complaint of someone applying to receive a service.
  • (b) Clarifying subscribers' complaints in connection with bills that were submitted by the Licensee, and deciding in regard thereto.

The Public Ombudsman will respond in writing to complaints as stated that were submitted in writing.

The Licensee will keep a copy of the complaint and of the written response that was sent to the subscriber. Said copies must be kept available by the Licensee for presenting to the Director within five (5) work days from the day of sending the response A58.

• 61.2 The Public Ombudsman will act according to a policy to be set by the Licensee's management.
• 61.3 The Licensee will render the Public Ombudsman all the assistance required by him for filling his function.
• 61.4 The Licensee will notify every subscriber regarding the possibility of submitting a complaint to the Public Ombudsman, the powers of the Public Ombudsman and the ways of applying to him. The contents of this sub-section shall be included in the contract, in the bill sent to the subscriber and on the Licensee's website.

61A.A43) Umpiring of Disputes

• 61A.1 The contract will stipulate that any disagreements arising between the Licensee and a subscriber in connection with the interpretation or performance of the contract, shall be submitted for clarification to the Licensee's Public Ombudsman.
• 61A.2 The contract will specify that an application to the Public Ombudsman under section 61A.1 shall not:
  • (a) Prevent the subscriber a priori from bringing his case before a competent court;
  • (b) Derogate from the Licensee's authority to act in accordance with the provisions of section 72 regarding the discontinuation of all service A58 or disconnection of a service owing to a breach of the contract.

62. Obligation of Maintenance

• 62.1 The Licensee is responsible for the maintenance of the Cellular System.
• 62.2 If a subscriber purchased cellular end-user equipment from the Licensee or from its designee, and the purchase agreement included maintenance services, the LicenseeA43) will be responsible for the maintenance of said purchased end-user equipment, however the LicenseeA43) will not be responsible for the maintenance of said purchased end-user equipment beyond the maintenance period undertaken by the manufacturer, unless agreed otherwise between it and the subscriber.A2)

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

If, in order to receive cellular services, the subscriber used cellular end-user equipment not purchased from the Licensee or from its designee, the Licensee is not obligated to look out for the maintenance of this end-user equipment, but may enter into an agreement with the subscriber for providing maintenance services also for said equipment.

63.A56 Call Center

• 63.1 The Licensee will operate a manned call center for receiving calls of its subscribers. The Licensee will also operate additional means that allow its subscribers to turn to it for information and inquiries, all as set forth in Appendix E to the License.
• 63.2 The call center will be manned by skilled and professional personnel, having the appropriate competence for handling calls, and if a complaint has been received regarding a malfunction that led to termination of all cellular services to a subscriber, said personnel will act immediately to localize the malfunction and start taking steps to immediately correct it.
• 63.3 The Licensee will specify in the maintenance log the details of the malfunction, as stated in section 63.2, and the steps taken to correct it, all as stated in section 51

64. End-user equipment – Selling and Renting

The Licensee may sell or rent out to its subscribers cellular end-user equipment for the purpose of linkup to the Cellular System, provided it complies with the following:

The Licensee has notified the subscriber that he may purchase cellular end-user equipment from any licensed marketer and that he does not have to buy the equipment from the Licensee in order to receive cellular services;

The Licensee will not stipulate the provision of maintenance services for cellular end-user equipment on the very receipt of cellular services from the Licensee, and will notify the subscriber that he may receive maintenance service for end-user equipment, from any person, including the enduser equipment purchased or rented from the Licensee.

64A.T53 Grant of Benefit to Subscriber

64A.1T53 The licensee shall not create any link between any benefit whatsoever for mobile radio-telephone services it granted to a subscriber, including any credit, discount, special tariff program, basket of services etc. (hereinafter referred to in this section as "Benefit") and the fact that the mobile radio-telephone terminal equipment in the subscriber's possession was purchased, hired or received from the licensee or any other marketer on its behalf. As part of this, the licensee shall offer an identical Benefit to that offered by it at the time the subscriber receives, purchases or hires from it a specific model of mobile radio-telephone terminal equipment for each subscriber using mobile radio-telephone terminal equipment with similar characteristics to the aforesaid model and which shall be granted to the

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A56 Amendment No. 56 T53 Amendment No. 53. T53 Amendment No. 53.

subscriber in the course of a period of not less than the period in which a monetary credit was granted to the subscriber purchasing terminal equipment from the licensee, pursuant to the following rules:

• (a) To the extent that the model of the terminal equipment in the subscriber's possession is identical to the model marketed by the licensee at the time the subscriber approaches the licensee, the licensee shall offer the subscriber an identical Benefit to that granted by it to any person purchasing from it the aforesaid model, in reliance on the confirmation of purchase presented to it by the subscriber;
• (b) To the extent that the model of the terminal equipment in the subscriber's possession is not marketed by the licensee at the time the subscriber approaches the licensee, the licensee shall grant the subscriber a Benefit according to the terminal equipment classification determined in advance by the licensee and in reliance on the confirmation of purchase presented to it by the subscriber;

In this subsection -

"Terminal equipment classification" means the division of terminal equipment models not marketed by the licensee into no more than six categories, and determination of the amount and the terms and conditions of the Benefit to be granted in relation to each of the categories; this is according to the amount and terms and conditions of the Benefit granted by the licensee in relation to terminal equipment models marketed by it which are models of devices having similar characteristics;

(c) At the time of calculating the period in which the Benefit will be granted under subsections (a) or (b), the licensee may take into account the date on which the terminal equipment was purchased by the subscriber, as appears in the confirmation of purchase.

In this section, "confirmation of purchase" means any certificate attesting to purchase of the terminal equipment, including, inter alia, the date of purchase and the amount paid.

64A.2T53 The licensee shall present updated information on its website about the terminal equipment classification made by it."

65. Public Emergency Services

• 65.1A21) The Licensee will enable, anytime and at no charge, for all its subscribers, free and rapid access to public emergency services such as: Magen David Adom, the Israel Police and the Fire Station.
• 65.2A42) Starting from April 5, 2007 ("the inception day") the Licensee will enable the call centers of the public emergency systems[c] to identify the telephone number of a subscriber calling them[d], anytime and at no charge, including a subscriber with a confidential telephone number, a subscriber who blocked his number before the call and a subscriber calling from a private exchange.

The Licensee may do the aforesaid through a licensee that routes the call to the public emergency system.

T53 Amendment No. 53.

[a] Excluding a subscriber that his end user equipment permits dialing only to the call centers of the public emergency systems, such as a non SIM card cellphone in a GSM network

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[a] Israel Police – 100, Magen David Adom – 101, Fire Station - 102

Not later than two days before the inception dayA44) the Licensee will notify all its subscribers, clearly, in writing, that starting from the inception day it will be possible for the call centers of the public emergency systems to identify the subscriber's telephone number, and it will notify in writing any subscriber requesting a "confidential number" – that the number is not confidential with respect to calls to the call centers of the public emergency systems.

65AA21) Blocking Service to a Nuisance Subscriber

• 65.1A Notwithstanding that stated in Section 65.1, the Licensee will block a nuisance subscriber's access to the public emergency service. If blockage of public emergency service alone is not technically possible, then the Licensee will block the nuisance subscriber's access to all the cellular services. As regards this section, a "nuisance subscriber" denotes a subscriber who has contacted a certain emergency center, for no justifiable reason, more than 10 times during one whole day, using the end-user equipment in his possession.
• 65.2A A notice regarding a nuisance subscriber will be submitted in writing to the Licensee by a senior employee in the public emergency service (hereinafter – the employee) and will be corroborated by an affidavit signed by the employee (hereinafter – the complaint). The complaint will include, inter alia, the name of the nuisance subscriber, his telephone number, insofar as these are known to the complainant, as well as a specification of the contact times of the nuisance subscriber, and the content of the call showing that the contact was made without any justifiable reason. If the complaint does not include the telephone number of the nuisance subscriber, the Licensee will act in a reasonable fashion, to identify the nuisance subscriber based on the data provided in the complaint.
• 65.3A The Licensee will block the nuisance subscriber's access to the emergency service as stated in Section 65.1A, after giving the nuisance subscriber advance warning. The notice will be given 3 workdays before the date of service blockage, in one of the following ways:
  • A. A phone call from a service center of the Licensee to the cellphone end-equipment of the subscriber;
  • B. An SMS message sent to the cellphone end-equipment of the subscriber;
  • C. Delivery of a registered letter to the subscriber, except for one who is a prepaid subscriber and his address is unknown.
• 65.4A Blockage of service to a nuisance subscriber who is a prepaid subscriber whose address is unknown will be done no later than one full day from the time of receiving a complaint or identification as stated in Section 65.2A.
• 65.5A Notwithstanding that stated in Section 65.1A, the Licensee will not block the public emergency service to a subscriber, if the circumstances of contacting, as these emerge from the explanation given by the subscriber to the Licensee, show that the contacting was justified and that he should not be deemed a nuisance subscriber. The Licensee will forward to the Director, within 10 workdays from the date of receiving the complaint or the identification as stated in Section 65.2A, the arguments for not blocking the nuisance subscriber.
• 65.6A In the event it blocked the nuisance subscriber's access to emergency calls, the Licensee may collect from the subscriber all his debts, and may also collect payment from him for removing the block.
• 65.7A The Licensee may remove the block once the nuisance subscriber has given it a written undertaking not to repeat his nuisance calls in the future.
• 65.8A The Licensee will keep records of how the nuisance subscriber was identified, how the notice was given to the nuisance subscriber, or, alternatively, in a case where a notice was not given the nuisance subscriber, the reasoning for not giving the notice. Likewise, a record will be kept concerning the removal of the block.

65.9A The Licensee will specify, in the framework of the nuisance subscribers report as stated in Section 104(B)A43), the number of nuisance subscribers whose access to the public emergency service or to all the cellular services was blocked under this section, and the subscribers for whom said block was removed, as well as the number of subscribers that were not blocked under this section and the reasons for this.

65.B "Personal Message" Service A75

65.1B The license holder will provide a personal message service (in this section: the "Service"), at any time and free of charge, to all of its subscribers, including to subscribers of another license holder, owners of end equipment which supports the Service (in this section: "Subscribers"), and in accordance with the "personal message" service file.

For purposes of this section:

"Another License Holder" – another Cellular license holder who receives service through national roaming or a cellular license holder on another network which receives service through a hosting agreement on the license holder's network;

"Personal Message" – A short instruction, notification and warning of the Defense Agencies, sent immediately, selectively and in a focused manner to subscribers with CMR end equipment which supports use of cell broadcast ("CB") technology.

"Defense Agencies" – Representatives of the Ministry of Defense and the Home Front Command which are responsible for the personal message system;

""Personal Message" Service File" – A service file approved by the Director, including amendments that shall be made to the service file.

• 65.2B For the purpose of performance of the provisions of Section 65.1B, the license holder shall act as stated in the First Schedule and in the service file regarding this Service and as follows:
• (a) Adaptation of the network and its components so as to support the provision of a personal message service, with the exception of the network components operating with iDEN or CDMA technology;
• (b) Assistance and allocation of resources for the performance of work to connect the Defense Agencies' personal message system to the network;
• (c) Operation and maintenance of the components of the Service on the network, according to written instructions that shall be presented to the Defense Agencies; without derogating from the aforesaid, the Defense Agencies may instruct the license holder to modify such instructions, but the same does not derogate from the license holder's responsibility for the repair and connection of the network;
• (d) Performance of technical trials to examine the integration between the system and the network and carrying out drills of the operation of the network and the system, in accordance with the instructions of the Ministry and the Defense Agencies.
• 65.3B The license holder shall report to the Defense Agencies on any gap in the capability to provide the Service, and will act to restore capability as soon as possible, in accordance with written operation procedures that shall be formulated thereby and presented to the Defense Agencies. Without derogating from the aforesaid, the Defense Agencies may instruct the license holders to modify the operation procedures, should it find
• them lacking, although such an instruction does not derogate from the license holder's responsibility as stated above.
• 65.4B The license holder shall notify the Defense Agencies in advance of any change in the network which may affect availability to provide the Service. 65.5B The license holder shall not make commercial use of the CB function without the Defense Agencies' knowledge, at least 30 days in advance before operation of the Service, and the Defense Agencies may notify it, in writing, within 15 days, of its objection to provision of the Service or conditions to provision

of the Service as aforesaid, in which case, the license holder will not operate the Service, or may operate the same only according to the conditions determined by the Defense Agencies, as the case may be.

• The aforesaid does not obviate the license holder's obligation to receive the Director's approval for the Service as aforesaid.
• 65.6B The license holder will assist in launching the Service to its subscribers in all of the following ways:
• (a) By written information on the company's website;
• (b) By direct marketing to subscribers through the monthly invoice upon the launch of the Service;
• (c) By responding to subscribers' requests to select the definitions required in his cellular end equipment. With respect to cellular end equipment models which were not marketed by the license holder, the license holder will make a reasonable effort to provide a solution for such subscribers; (d) The license holder will allow the Defense Agencies to make reasonable use of its existing distribution channels for the purpose of informing the

66.A16) Protecting Subscriber Privacy

subscribers of the Service.

• 66.1 Without derogating from the provisions of the Law, The Wiretapping Law, 1979, The Privacy Protection Law, 1981, or any other law concerning the safeguarding of an individual's privacy, the Licensee may not wiretap the telephone or any other communication of the subscriber without the written permission of the subscriber, except for the purpose of controlling the quality and standard of the service or for preventing frauds.
• 66.2 Subject to that stated in Section 66A, the Licensee, its workers, agents and designees may not disclose lists or documents containing the name and address of a subscriber or any other information pertaining to him, including account details, phone call traffic, call durations and destinations, to any person whatsoever except to the subscriber or to anyone empowered by the subscriber for this purpose.
• 66.3 Notwithstanding that stated in Section 66.2, the Licensee may do the following:
  • (A) To give the subscriber's details to another licensee for the purpose of collecting monies owed him by the subscriber in respect of services it provided him through the network, provided that the information relayed is necessary fro collecting monies and preparing bills, and the other licensee has undertaken to safeguard the subscribers' privacy;
  • (B) To transfer a subscribers' details to another, insofar as the particulars are in its possession, by lawful authority.

66A.T3) Special Services for the Security Forces

• (A) The Licensee will provide special services to the security forces as detailed in the classified security addendum attached to the license as Addendum I and in the classified security addendum attached to the license as Addendum LA12).
• (A1)A12) The Licensee will enable the security forces, regarding which the Director informed in writing, to realize, subject to any law, their powers with respect to any telecommunications activity in the framework of the license, and will be responsible for the maintenance, proper functioning, and technological adaptation of the equipment and infrastructure required for realizing said execution capability, all in coordination with the security forces, as detailed in Addenda I and L. The security forces will bear the payment under the provisions of Section 13 of the Law.

________________________

T3 Amendment No. 3

• (B) The Licensee will see to it that Addenda I and L are guarded A12) in accordance with the provisions of the procedure for safeguarding records to be laid down by the Licensee in conjunction with the security officer of the "General Security Service."
• (C) The Licensee will be exempt from the duty of indemnification toward the State, by virtue of the provisions of Section 91.2 of the general license and/or by virtue of any law, in respect of the very execution of the special services for the security forces.

66B.A12) Security Provisions

• (A) The Licensee will appoint a security supervisor in accordance with the provisions of the Security Arrangement in Public Bodies Law, 1998, and rigorously follow the security provisions detailed in the Addendum M to the license.
• (B) The Licensee will establish appropriate provisions in the incorporation documents and in its regulations, and will act in such manner so that only a person who meets the conditions set out below will be appointed and serve in a position or function enumerated in Addendum M to the license:
  • (1) An Israeli citizen, as this term is defined in the Citizenship Law, 1952, and a resident of Israel;
  • (2) Was given security clearance by the General Security Service, by which there is no prevention to his serving as stated.
• (C) The Licensee will act to safeguard the secrecy of the security forces' operations, and act according to the security directives of those same security forces, including in the matter of the appropriate security classification for officers and holders of important functions working for the Licensee, and compartmentalization of knowledge pertaining to activities involving the security forces.
• (D) The Licensee will take the measures necessary to protect the network, its components and the databases used for providing services, and for operating and controlling the network in the face of activities carried out by unauthorized entities, according to the provisions detailed in Addendum M to the license.

67. Bills to Subscribers

• 67.1A16) A bill that the Licensee submits to the subscriber should be clear, succinct, readable and understandable. The bill should contain an accurate breakdown of the components of the payment required according to the types of payments and the rules specified in Chapter F.
• 67.2 Void A58.
• 67.3 The Licensee may collect payments for his services from the subscriber through another, including through Bezeq.
• 67.4A34) (A) Without derogating from the rest of the license provisions pertaining to the manner of preparing the bill for the subscriber and to the manner of debiting, the Licensee will act in compliance with Israel Standard 5262, concerning debiting credibility and due disclosure in telephone bills (hereinafter – "the Standard").
  • (B) Subsection (A) constitutes a "service condition," as concerns Section 37B(a)(1) of the Law.
  • (C) Notwithstanding that stated in subsection (A) –

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

• (1) Regarding the provision in Section 2.2.2 of the Standard, the rounding off method will apply as follows:
  • (a) An amount in the bill will be rounded off to the nearest amount ending in two digits after the decimal point of the shekel, with an amount ending in five tenths of an agora (three digits after the decimal point) to be rounded up.
  • (b) An amount to be paid for a single call will be rounded off to the nearest amount ending in three digits after the decimal point of the shekel, with an amount ending in five hundredths of an agora (four digits after the decimal point) to be rounded up.
• (2) The Licensee may present any amount included in the bill with a breakdown exceeding that required by the provision in Section 2.2.2 of the Standard, provided the rounding off method stated in Subsection (C)(1) above will apply thereto.
• (3) The price of a phone call (voice) that includes a changing rate, will be presented in the bill submitted to the subscriber as an average price per minute, computed by dividing the payment amount for that same call by the its total number of minutes.

In this paragraph, "changing rate" denotes a rate that varies in the course of the call according to various criteria, such as a rate that diminishes with increasing consumption, or a rate that varies due to a transition from a "peak period" to a "slack period" in the course of the call or vice versa.

(4) In addition to that stated in the provision of the last part of Section 2.2.4 of the Standard regarding service packages, the bill will contain a breakdown of the services included in the package, along with the overall rate paid for the package as a whole.

In this paragraph, "service package" denotes several services marketed to the subscriber as a single package, in return for an overall rate (and without a breakdown of the payment for each component separately).

• (D) (1) Chapter B in the Standard concerning due disclosure in telephone bills will come into effect no later than Friday, October 14, 2005.
  • (2) Chapter C in the Standard regarding debiting credibility will come into effect no later than Sunday, January 14, 2006.
• 67.5T52 A bill submitted to a private subscriber shall also be drawn up according to the provisions of Appendix E 1 (hereinafter referred to in this section as the "Private Subscriber Billing Format").
• 67A.5A58 A bill submitted to a business subscriber will include the same details as in subsections 9b(1) to 9b(4) in Appendix E1 to the License.

In this section, 'business subscriber' – excluding the subscribers specified in subsections (b) and (d) of the definition of 'business subscriber' in section 1 of the License.

67.6 T52

A business subscriber may request that the licensee furnish him with a telephone bill in Private Subscriber Billing Format (hereinafter referred to in this section as a "Request"). Where a subscriber has requested as aforesaid, the

____________________ T52 Amendment No. 52. A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). T52 Amendment No. 52.

licensee shall begin to send him the bill according to the aforesaid format by no later than the expiration of two billing periods after the date of the Request. The licensee shall publish once every six months a notice in the telephone bill submitted to the business subscriber according to which the business subscriber may demand that the licensee draw up the telephone bill submitted to him according to the Private Subscriber Billing Format. A business subscriber may also request from the Licensee a written explanation regarding the method of calculating a 'onetime debit.' The Licensee will submit to the business subscriber such written explanation regarding a 'onetime debit' within thirty (30) days from when the subscriber submitted a request in the matter to the customer service center or to the public ombudsman A58.

67.7 T52

The bill shall be sent to the address registered at the licensee or any other address delivered by the subscriber to the licensee or by any other means, if the subscriber has granted his express prior consent thereto; the licensee may demand any payment whatsoever for the issue and mailing of the bill to the subscriber. The licensee may demand reasonable payment for "Call Details" sent to the subscriber at his demand."

67.8 A58 If the payment specified in the telephone bill is made by standing order or credit card, the payment will not be executed before the expiry of eight (8)A59 days from the day on which the telephone bill was sent to the subscriber.

67A.A16) Information Service for Clarifying Telephone NumbersT39)

• 67.1A Without derogating from the provisions of Section 66, the Licensee will provide, by itself or through another on its behalf, an information service for clarifying the telephone number of anyone who is a subscriber of a NDO or of a Cellular System operator, excluding an ID-restricted subscriber (hereinafter – "information service"), as follows:
  • (A) For the general public and at no charge, via a website through which the service will be provided;
  • (B) For its subscribers, at a reasonable price, via a phone center, the access to which will be effected by means of a network access code set by the Director;
  • (C) The information service will be given through each of the aforesaid means based on the same information characteristics to be provided by the subscriber applying to receive the service.
• 67.2A Without derogating from that stated in Section 67.1A, the Licensee will provide to the general public and at no charge, by itself or through another, an information service for clarifying the telephone number of any subscriber, excluding an ID-restricted subscriber, via a phone center, the access to which will be effected by means of a national access code set by the Director.
• 67.3A In addition to that stated in Sections 67.1A and 67.2A, the Licensee may offer, at a reasonable price, by itself or through another on its behalf, an information service, by any other means, including by means of a national access code or by means of an SMS.
• 67.4A In order to execute that stated in Subsections 67.1A and 67.3A:
  • (A) The Licensee may send a query on its behalf to any database of a NDO or cellular system operator (hereinafter "another licensee"), or to receive information from the database of another licensee by any other method and with the consent of the other licensee, all subject to the duty of safeguarding the subscriber's privacy;
  • (B) In order for an information service to be provided by another licensee under its general license, the Licensee will enable any other licensee access to the Licensee's database;

__________________________

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). T52 Amendment No. 52. A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). A59 Amendment No. 59 A39 Amendment No. 39

(C) The Licensee will update the database on a regular basis, so that each name, address or telephone number of a subscriber that was added, altered or removed, will be updated in the database within one workday following execution of the update in the Licensee's system being used to provide telephony services.

As regards this section –

"Database" denotes a collection of data including the name, address and telephone number of any subscriber that is not ID-restricted, including a subscriber that is a business.

• 67.5A (A) The Licensee will request the consent of each new subscriber for including his details in the database. If the subscriber gives his consent, the Licensee will include his details in the database.
  • (B) The Licensee will grant the first request of any subscriber who wishes to remain ID-restricted, free of charge.

In this subsection, a "new subscriber" denotes a subscriber who has signed a contract with the Licensee after the commencement date as stated in Section 67.7A.

• 67.6A (A) The terms for providing an information service for clarifying telephone numbers, given under Section 67A, will be established by the Licensee, provided they are fair and non-discriminatory, including as regards the order of the data presented to the user of the service. The service will be given twenty four (24) hours a day, all year round, except for Yom Kippur. In this subsection, "order of the data presented" – Insofar as the answer to the service user's query comprises several different data, the requested data will be presented to the service user in random order.
  • (B) The response in respect of the information service for clarifying telephone numbers as stated in Section 67.2A will be given within a reasonable time. If the Director sees that the waiting times for the service are not reasonable, he may establish response time indexes.
  • (C) An information service for clarifying telephone numbers as stated in Section 67.1A(B) and an information service using a phone center, the access to which is effected by means of a national access code as stated in Section 67.3A, will comply with the service indexes specified below:
    • (1) At any time, in the event of a heavy service call load6 , the number of inquirers receiving service should not be less than 90%;
    • (2) The average waiting period of a caller until the start of receiving service7 should not exceed 30 seconds;
    • (3) The maximum waiting period for a caller until the start of receiving the service should not exceed 60 seconds.
• 67.7A Section 67A will go into effect on February 8, 2007, except for Subsection 67.1A(a), which will go into effect on March 15, 2007 ("the commencement date"), and except for Section 67.2AA45), which will go into effect at the time of signing this amendment.
• 67.8A The Licensee, by itself or through another, including together with another licensee, will advertise all the information services for clarifying telephone numbers given free of charge by the Licensee, as well as the national access codes allocated to the cellular service licensees for providing the service ("free information services"). The advertising should include at least the following:
  • (A) The Licensee's website;
  • (B) At least once every half year, the Licensee will attach, in the framework of the bill submitted to the subscriber, a separate information sheetA43) regarding the free information services, which will not include any other information, starting from the first bill submitted to the subscriber following the commencement date.

_________________________ 6 Busy Hour Call Attempts

7 Start of receiving service – the beginning of the response by a center operator or of an IVR system, which ask the inquirer for the information needed to find the requested phone number and the like.

(C) At least four (4) times during the first year following the commencement date, the Licensee will run large, prominent ads in at least the 3 largest Hebrew language newspapers, and in the largest newspaper in Arabic, in English and in Russian, as well as in the largest economic newspaper. These ads will include no other information. The first ad in all the aforesaid newspapers, except for the economic newspaper, will be on the first Friday after the commencement date or on the following one, and in the economic newspaper it will run on the first Tuesday after the commencement date or on the following one, regarding the free information services.

Without derogating from the foregoing, the Director may instruct the Licensee regarding the manner and format for advertising the information services.

67B.A43) Void.

67C.A16) Service Dossier

• 67C.1 If the Licensee wishes to operate a service included in the list of services in the First Schedule and marked "future", it must notify the Director of this in writing not later than thirty (30) days before the date on which it plans to begin providing the service.
• 67C.2 If the Licensee wishes to operate a service not included in the list of services in the First Schedule which it intends to provide to any recipient of its services, it must notify the Director of this in writing not later than thirty (30) days before the intended date for commencement of provision of the new service.
• 67C.3 The Director will notify the Licensee within thirty (30) days of the date of receipt of the Licensee's notice as stated in sections 67C.1 and 67C.2, whether it is allowed to commence provision of the service or whether it must submit a service dossier for the Director's approval, as a condition for commencement of the service.
• 67C.4 The Licensee will submit a service dossier for the Director's approval, at his request; If the Licensee fails to submit a service dossier as instructed by the Director, or if the Director does not approve the service dossier, the Licensee shall not commence provision of the service.
• 67C.5 The Director will give a decision regarding the service dossier that was submitted to him within sixty (60) days from when the Licensee has submitted to the Director all the documents and information requested by him for the purpose of approving the service dossier. In special cases, the Director may extend the times set in this section, by a written, explanatory notice to be given to the Licensee.
• 67C.6 The Director may require the Licensee to submit for his approval a service dossier for an existing service regarding which no service dossier was previously required, and he may require the Licensee to submit for his approval a new service dossier for a service regarding which a service dossier was approved in the past.
• 67C.7 The service dossier will be submitted to the Director in the format and at the time specified by the Director and will include, inter alia, the following: the name of the service; a detailed description of the service and the manner in which it is provided; the service rate, and an engineering description, all as set out in the First Schedule; The Director may give instructions on additional matters which are to be included in the service dossier.
• 67C.8 If the service dossier is approved, the Licensee will provide the service according to the terms of the approved dossier, and the approved service dossier will be deemed an integral part of the license.
• 67C.9 The Licensee will advertise an approved service dossier, with details and in the manner specified by the Director, and the Director may advertise it himself, provided he does not do so until after the Licensee has begun providing the service. The advertising will not include information comprising a trade secret, which was identified as such by the Licensee and attached to the service dossier as a separate addendum marked as a trade secret.

• 67C.10 Any new service which the Licensee begins to provide pursuant to this section will be deemed a part of the First Schedule; The Director will update the First Schedule from time to time.
• 67C.11 The provisions of this section will apply, mutatis mutandis, to a trial using the Licensee's network.

67D.A24) Erotic Service

An erotic service provided through the network, will be provided in accordance with the provisions of Addendum O in the Second Schedule. As regards this section – "Erotic service" – as defined in Section 1 of Addendum O in the Second Schedule.

67D1 Premium Service A81

67.1D1 The license holder may provide premium services in one of the following two ways:

• (1) A premium service, the payment for which is charged according to a premium tariff and is collected through the telephone bill, shall be provided according to the provisions of Annex P;
• (2) A premium service, the payment for which is charged according to a regular tariff (in this subsection: the "Service"), will be provided as follows:
  • (a) As an inter-network service through a network access code;
  • (b) By dialing a landline number, access to which will be enabled for every subscriber of a general license holder's subscriber.

For purposes of this section:

"Landline Number" – A numbering format of geographic numbers and landline national numbers or a numbering format of an asterisk and four digits (*XXXX), as defined in the numbering plan.

"Premium Service" and "Regular Tariff" as defined in Annex P."

67E.T60) Domestic Roaming

• 67E.1 The Licensee provide by means of its network to a roaming licensee a domestic roaming service for the subscribers of the roaming to the network of the host operator, as set forth below.
• 67E.2 Licensee's preparations

The Licensee shall prepare for the implementation of domestic roaming in accordance with all of the following:

A60 Amendment No. 60 A81 Amendment No. 81

• (a) The provisions of Appendix C, in the Second Schedule.
• (b) The provisions of the Law and the License concerning provision of the possibility of utilization of its network, and specifically sections 30 to 30C of the License, mutatis mutandis.
• 67E.3 Operating arrangement
• (a) If a roaming licensee notifies the Licensee, after notifying the Minister of its failure to reach agreement with any existing licensees on the conditions for the provision of roaming services as stated in section 5B(b)(1) of the Law, that it has chosen the Licensee for the receipt of domestic roaming services (in this subsection "notice"), the Licensee and the roaming operator shall forward to the Director the engineering and operating details agreed between them with respect to the implementation of domestic roaming ("operating arrangement"), within three months from the date of sending of the notice. In addition, said operators shall include engineering or operating details as required for maintaining domestic roaming, which were not included in the operating arrangement due to disagreements, should any arise.
• (b) Matters in disagreement as stated in paragraph (a) above, should there be any, shall be decided by the Director. The Director's instructions in this regard shall form an integral part of the operating arrangement.
• 67E.4 Starting date for implementation of domestic roaming

A host licensee shall begin providing domestic roaming services in accordance with the operating arrangement no later than three months after the date on which the roaming licensee presented to the host licensee the Minister's approval as stated in section 5B(b)(2) of the Law.

67F. A66 International roaming service through a network of a mobile phone operator in a neighboring country

67F.1 The license holder will act so as that in an area in which there is reception which allows an proper call to be made, both from the network and from a network of a mobile phone operator in a neighboring country, the subscriber will receive mobile phone service through the network. The license holder will perform the action itself, without the need for any action on the part of the subscriber.

67F.2 The license holder will block the possibility of a subscriber receiving international roaming service through a network of a mobile phone operator in a neighboring country (the "Service"), unless the subscriber shall have explicitly requested to receive the Service, and after it shall have been explained to him that in the framework of receipt of the Service, the terminal equipment in his possession may unintentionally roam near the border with a neighboring country, to a mobile phone network in a neighboring country, and he shall have been given information regarding the Service tariffs; if a subscriber requests to receive the Service as aforesaid:

• (a) The license holder will explain to him how he is able to choose, manually, through the terminal equipment in his possession, the mobile phone network from which he shall receive the Service;
• (b) The license holder will allow the subscriber to choose whether to block access to receipt of a data communications service through a mobile phone network of a neighboring country.

67F.3 In this section, "Neighboring Country" - Jordan and Egypt;

A66 Amendment No. 66

"Proper Call" - A call made according to the minimum reception definitions set forth in international standards according to which the network operates.

67G.A67 Offensive content and sites

• 67G.1 The license holder will notify its subscribers of offensive sites and offensive content, as defined in Section 4.i of the law, as stated in Section 4.i(b)(1) of the law; such notice shall be given in the manner set forth in Section 4.i(c) of the law.
• 67G.2 The license holder will notify its subscribers of the existence of content on the internet which is inappropriate for children and youth (for example pornographic sites), and will include a specification of the ways in which the access of children and youth to such content may be blocked; such notice shall be given in all of the ways listed in Section 4.i(c) of the law.
• 67G.3 The license holder will offer its subscribers, in all of the ways listed in Section 4.i(c) of the law, an effective service to filter offensive sites and offensive content, for no charge additional to the payment it collects from him for the internet access service, all as stated in Section 4.i(d) of the law, provided that such service shall be based on an analysis of the information and not according to a "black list" of sites only.

Part C: Termination, Delay or Restriction of Service

68. Definitions

In this part –

'Disconnection of service' – Temporary discontinuation of cellular system service to a subscriber;

'Termination of all service' – Full termination of all the Licensee's services to the subscriber A58;

'Termination of a service' – Full termination of one of the Licensee's services to the subscriber A58.

69. Prohibition on the Termination or Disconnection of Service

The Licensee may not terminate or disconnect cellular system services and other services, which the Licensee must provide under this license, unless that stated in this part is fulfilled, or that stated in Section 48.

70. Disconnection of Service at Subscriber's Request

• 70.1 A subscriber may ask the Licensee for a temporary disconnection of service for a period no less than thirty days and no longer than ninety days (hereinafter – disconnection period). The subscriber's request will be made in writing, and may be done through the cellular system end-user equipment in his possession, provided that the Licensee has verified the request's credibility by a return call to the subscriber's cellular system end-user equipment or by any other reliable way.
• 70.2 The Licensee will effect the disconnection of service no later than the workday following the day of the request's submittal.
• 70.3 The Licensee will resume the cellular system services to the cellular system end-user equipment in the subscriber's possession at the end of the disconnection period. If the subscriber requests, in a written notice, to resume the cellular system services to the cellular system end-user equipment in his possession before the end of the disconnection period, the Licensee will resume the services no later than the workday following the day on which the subscriber's notice was submitted.

________________________

71. Discontinuation of Service at a Subscriber's Request

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

A67 Amendment No. 67 A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

• 71.1 A subscriber may request the Licensee to discontinue service or discontinue all service A58 to the cellular end-user equipment in his possession. For this purpose, a subscriber may communicate with the Licensee in writing, including by fax or by email T48).
• 71.2 The Licensee will discontinue a service or discontinue all service not later than the work day after the date specified by the subscriber in his notice. If the subscriber did not specify a date, the service or all service will be discontinued not later than the work day after the date of delivery of the notice to the Licensee A58.
• 71.3T48) The Licensee will publish on its website, and in the bill sent by it to the subscriber, the fax number and the email address through which the subscriber may request the Licensee to discontinue a service.
• 71.4A58 The Licensee will send the subscriber a written notice concerning the discontinuation of a service or the discontinuation of all service, within one work day after the discontinuation was effected. The notice will contain, inter alia, the date of effecting of the discontinuation, and in a notice of discontinuation of all service also the last date for sending the final bill, as stated in subsection 2.3(c)(2) in Appendix E to the License (hereinafter – the final bill). Such notice will be sent by regular post, or via email or fax if the subscriber gave his consent thereto. Where the subscriber submitted a request to discontinue a service or to discontinue all service at a service station of the Licensee, the Licensee's representative will give him the aforesaid written notice at the time of the submission of the request.

A copy of said notice must be kept available by the Licensee for presenting to the Director within five (5) work days from when it was sent. If the Licensee sent the notice via email or fax, the sending confirmation must also be available for presenting to the Director within five (5) work days from when the notice was sent.

71.5A58 Following the collection of the amount for payment as specified in the final bill, the Licensee will not be entitled to collect any payment via the payment means provided to it by the subscriber, without the subscriber's express prior written consent, except for the collection of payment for end-equipment that was purchased by the subscriber from the Licensee on installments, as stated in section 2.3(c)(2) in Appendix E to the License. A copy of the subscriber's said consent must be kept available by the Licensee for presenting to the Director within five (5) work days from when it was delivered to the Licensee.

71A.T48) Blocking of Cellular End-User Equipment

• 71A.1 The Licensee will register the identification number of a subscriber's cellular end-user equipment, excluding cellular end-user equipment operating by the IDEN technology (hereinafter in this section "cellular end-user equipment"):
  • (a) On the date of delivery of the cellular end-user equipment to the subscriber, on the date of contracting with the subscriber or on the date of renewal of the contract, including on the date of replacement, upgrading or repair of the cellular end-user equipment.

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). T48 Amendment No. 48 (inception: this amendment will come into force on October 2, 2008). A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). T48 Amendment No. 48 (inception: this amendment will come into force on October 2, 2008). A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). T48 Amendment No. 48 (inception: this amendment will come into force on October 2, 2008).

• (b) In the case of cellular end-user equipment that was not provided to the subscriber by the Licensee, the Licensee will make reasonable efforts to bring to the subscriber's attention the possibility available to him of registering with the Licensee the identification number of such aforesaid cellular end-user equipment.
• (c) At the subscriber's request from the Licensee; the subscriber's request may be via the telephone, after the Licensee has verified the reliability of the request.
• 71A.2 If a subscriber notifies the Licensee that his end-user equipment has been stolen or lost, the Licensee will block the end-user equipment of a subscriber who was registered as stated in Section 71A.1, free of charge, not later than thirty (30) days after it has verified the reliability of the subscriber's request. For purposes of this section, "blocking" – elimination of the possibility that the cellular end-user equipment will receive cellular services.
• 71A.3 The Licensee will provide details of end-user equipment that was blocked by it to any other cellular licensee, not later than the workday after implementing that stated in Section 71A.2.
• 71A.4 (a)T50) The Licensee may not provide cellular services to end-user equipment that was blocked by it or by another cellular licensee.
• (b)T50) Notwithstanding that stated in Section 71A.2 and Subsection (a), if it is found that blocking the identification number will cause the discontinuation of service to other end-user equipment having the same identification number, the Licensee may abstain from implementing the block as stated.
• 71A.5 The Licensee will remove the block on end-user equipment that was blocked by it, after receiving a request T50) from the subscriber. Removal of the block will be done not later than one workday after the Licensee has verified the reliability of the request, unless the subscriber has specified a later date in his request T50).
• 71A.6 The Licensee will publish to all its subscribers its obligations with respect to the possibility of blocking cellular end-user equipment, the procedure for registration of the identification number of cellular end-user equipment with the Licensee and the ways of communicating with it for the purpose of implementing the block. The publication will be made in at least the following ways:
  • (a) In the contract;
  • (b) On the Licensee's website;
  • (c) In a separate information sheet to be enclosed with the bill submitted to the subscriber, by January 30, 2009T50).
• 71A.7T50) The Licensee will detail, in a half yearly report, the number of identification numbers that were blocked and the number of identification numbers in respect of which such block was removed, as

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T50 Amendment No. 50. T50 Amendment No. 50 T50 Amendment No. 50 T50 Amendment No. 50 T50 Amendment No. 50 T50 Amendment No. 50

well as the number of identification numbers that were not blocked pursuant to this section and the reasons therefor.

72. Termination or Disconnection of Service Due to Breach of Agreement

• 72.1 The LicenseeA16) may terminate or disconnect the service to a subscriber if one of the following is fulfilled:
  • (A) The subscriber did not pay a payment he owes in respect of service he received, on the date set for its defrayal in his contract with the Licensee;
  • (B) The subscriber breached a condition in the contract between him and the Licensee, which was established as a material condition;
  • (C) The subscriber used unlawfully or allowed another to use as aforesaid the end-user equipment in his possession.
• 72.2 Service to a subscriber will not be terminated or disconnected in the cases detailed in Section 72.1(A) and (B), except after the Licensee gives the subscriber a notice in writing at least 10 days prior to the expected termination or disconnection date. The notice will state that the subscriber is being given an opportunity, within the time set in the notice, to rectify the act or default, in respect of which the service will be terminated or disconnected.
• 72.3T2) Notwithstanding that stated in Section 72.2, the Licensee may disconnect service to a subscriber without prior notice, if one of the following is fulfilled:
  • (a) The subscriber did not pay, for the third time during the same year, the bill in respect of the payments he was charged for cellular services, on the date set therefor in the payment notice. In this paragraph, "year" – the period from January 1 to December 31;
  • (b) There is a reasonable suspicion of a fraudulent act being committed through the subscriber's end-user equipment or using the features of the end-user equipment;
  • (c) The Licensee found that the subscriber used the cellular services in an unusual amount for that type of subscriber, and after the Licensee's service center contacted the subscriber in a phone call placed to the end-user equipment
• 72A.4T2) The Licensee may disconnect service to a subscriber if it has found that the end-user equipment in the subscriber's possession, through which the subscriber receives cellular services, causes interference with the provision of cellular services to other subscribers or interference with the cellular system activity, provided that the Licensee gave the subscriber notice in writing at least 21 days prior to the expected disconnection date. The notice will specify the reason for the expected disconnection and state that the subscriber is being given an opportunity, within an amount of time to be set in the notice, to repair the end-user equipment in such manner as to prevent said interference.

**72A.**T48) Discontinuation of Service to a Dormant Subscriber

________________

72A.1 If the Licensee wishes to discontinue service to a dormant subscriber, it must give the dormant subscriber prior notice of such intention, in the manner set out below (hereinafter in this section "the

T2 Amendment No. 2 (due to a clerical error in the amendment, appeared as Section 71.4 instead of 72.4).

T48 Amendment No. 48 (inception: this amendment will come into force on October 2, 2008).

T2 Amendment No. 2 (due to a clerical error in the amendment, appeared as Section 71.3 instead of 72.3).

notice"). The time of discontinuation of the service may not be less than thirty (30) days after the date of sending of the notice.

• 72A.2 The Licensee will specify in the notice the telephone number in respect of which it intends to discontinue the service.
• 72A.3 The sending of a notice to a dormant subscriber will be done:
  • (a) With respect to a subscriber whose name and address are known to the Licensee, in each of the following ways:
    • (1) By a letter via regular post;
    • (2) By two SMS messages to be sent to the dormant subscriber at a difference of at least two weeks between the messages.
  • (b) With respect to a subscriber whose name and address are not known to the Licensee by four SMS messages to be sent at a difference of at least one week between the messages.
  • (c) Notwithstanding that stated in Subsections (a)(2) and (b), if the subscriber's end-user equipment does not support the receipt of SMS messages, the Licensee will send the subscriber voice messages instead of SMS messages, insofar as the subscriber's end-user equipment supports the receipt of voice messages.
• 72A.4 The Licensee may not discontinue service to a dormant subscriber to whom a notice was sent, where the dormant subscriber has notified the Licensee that he does not wish the service to be discontinued. The subscriber may deliver such a message via the telephone or in writing, including by fax or by email.

Notwithstanding the aforesaid, the Licensee may discontinue service to a dormant subscriber who has notified it that he does not wish the service to be discontinued, after the subscriber was sent at least two notices, as stated in Section 72A.3 and 72A.5, and where in the second notice the Licensee has notified the subscriber that if within one year from the date of the second notice the subscriber does not make use of the cellular service, the subscription to the service will be discontinued, without delivery of further notice to the subscriber.

• 72A.5 The Licensee may not send the subscriber further notice concerning its wish to discontinue the service after one year has passed from the date on which the subscriber was sent the previous notice in that regard.
• 72A.6 The Licensee will keep the telephone number of a dormant subscriber to whom service was discontinued, during at least three months from the date of discontinuation of the service, before the number is returned to the pool of telephone numbers of the Licensee itself or to another cellular licensee who originally allocated the number to the dormant subscriber. If during this period a written request is received from the subscriber to renew the service, the Licensee will renew the service upon the same terms as those that applied prior to the discontinuation of the service, free of charge.
• 72A.7 Where service was discontinued to a dormant prepaid subscriber who has a balance of the payment remaining to his credit, the Licensee will refund the appropriate balance within 30 days after receiving a written request from the subscriber who has proven that he is the owner of the line to which the service

was discontinued, provided such request is received by the Licensee not later than six months after the date of discontinuation of the service.

72B.A68 Disconnection of service due to recovery of the network in a fault event

72B.1 The license holder may temporarily disconnect or limit services that it is obligated to provide due to the need to allow speedy recovery of the networkin a material fault event.

For this purpose, "Material Fault" – a fault which causes disconnection of service for 10% of the subscribers, or for 100,000 subscribers at least, whichever is lower.

In this section, "Subscriber" – including a subscriber of a mobile phone license holder on another network and a subscriber of a roaming license holder using the network.

• 72B.2 The license holder will submit a detailed engineering procedure and process for recovery of the network in the event of a Material Fault (the "Procedure"), for the Director's approval, within 15 days from the date of signing of this Amendment.
• 72B.3 During a Material Fault, the license holder will act according to the Procedure that was submitted to the Director or which was approved by the Director, whichever is later.
• 72B.4 The Procedure will include, inter alia, initiated disconnection of service for subscribers who were not directly affected by the Material Fault, which shall begin two hours at most after the identification of a Material Fault, for the purpose of reduction of the load and controlled restoration of proper and regular service.
• 72B.5 Insofar as possible, the Procedure will allow preference to be given to the provision of proper and regular services to the armed forces, public emergency services and hospitals, as the Director shall determine."

73. Disconnection of Service Due to Maintenance Operations

• 73.1 The Licensee may temporarily disconnect or restrict services that it is obligated to provide (hereinafter disconnection due to maintenance), if the need to carry out vital cellular system maintenance or setup operations necessitates this, provided the following are fulfilled:
  • (A) The duration of the disconnection due to maintenance does not exceed twelve (12) consecutive hours;
  • (B) The number of disconnections due to maintenance does not exceed two (2) during a single year;
  • (C) Void.A2)
• 73.2 The Director may ask the Licensee for a detailed explanation regarding the circumstances necessitating disconnection due to maintenance, and may ask the Licensee to postpone said disconnection if he came to the realization, after considering the Licensee's contentions, that a vital public interest necessitates such a postponement.
• 73.3 If due to the need to carry out vital maintenance or setup operations in the cellular system requires disconnection of service exceeding 12 hours, the Licensee will ask in advance for the Director's approval. The request will specify

A68 Amendment No. 68

the maintenance operations required and the actions taken by the Licensee to speed up these operations and reduce, inasmuch as possible, the duration of the service disconnection.

73.4 Void. A2)

• 73.5 If disconnection or restriction of service is required urgently for the purpose of carrying out immediate, vital operations, the Licensee will notify the Director forthwith, including by phone, cable or fax, regarding the urgent disconnection or restriction. The Licensee will notify its subscribers about the aforesaid urgent disconnection or restriction, as early as possible, including via the public address system operating through the cellular system, insofar as this is possible, as well as through the public media.
• 73.6 Notwithstanding that stated in Sections 73.1 and 73.4, the Licensee does not have to notify the Director or the subscribers about disconnection due to maintenance, when the following are fulfilled:
  • (A) The duration of the disconnection due to maintenance does not exceed half an hour;
  • (B) Disconnection due to maintenance is being done between 24:00 Saturday night and 05:00 Sunday morning the following day.

Such a disconnection will not be counted in the number of disconnections as required under Section 73.1(B).

CHAPTER F – PAYMENT FOR SERVICESA8)

Part A – General

73A.	Definitions
	In this chapter –
	"Licensee"		-	Anyone to whom the Minister has granted, in accordance with the Law, a general or speciallicense;
	"Airtime"		-	Duration of the time in which a subscriber receives cellular services, whether the connectionis initiated by the subscriber or by someone else;
	"Airtime unit"A31A31)		-	Time unit of 12 seconds at the most, but starting from Thursday, 1 January 2009, a time unitof 1 second.
	"Package of services"		-	Several services sold to a subscriber as a package, for which a rate has been set as specified insection 75.2.
	"Publicnetwork"	telecommunications	-	Including an international telecommunications system.
		"Payment for completion of a call"	-	Payment made by the initiator of a call which began on end-user equipment connected to onepublic telecommunications network and ended on another public telecommunicationsnetwork, or on end-user equipment connected to such a public telecommunications network,for completing the call on the other public telecommunications network.

74. Payment Categories

74.1A57 The Licensee may collect from its subscribers payments for Cellular services, as follows:

A57 Amendment No. 57 (Inception: This amendment will come into force on the day of signing the Amendment)

• (a) A onetime installation fee for connecting mobile or portable end-user equipment held by the subscriber to the Cellular system, including issuance of a smart (SIM) card to the subscriber, or a onetime registration fee (hereinafter – connection fee);
• (b) A fixed monthly A57 payment;
• (c) Payment for airtime as specified in section 75A;
• (d) Payment for completion of a call as specified in section 75A;
• (e) Payment for basic telephone services, related services and value added services, detailed in the First Schedule to the License;
• 74.2A57 The Licensee may not collect from a subscriber:
  • (a) Payment for establishing a call;
  • (b) A minimum price for a call.
  • (c) A58 Any payment prior to the actual supply of the service, excluding a 'prepaid service.'

A57 Amendment No. 57 (Inception: This amendment will come into force on the day of signing the Amendment)

A57 Amendment No. 57 (Inception: This amendment will come into force on the day of signing the Amendment) A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

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Part B – Setting and Publication of Rates

75. Setting the Rates and Their Amount

• 75.1 The Licensee shall fix a rate for every service and package of services provided by it to its subscribers, and it may determine the manner of linkage of the rate to the index. The Licensee shall notify the Director of the amount of each rate, before the rate comes into effect.
• 75.2 The Licensee may designate packages of services according to types of services included in the package or time periods or by any other method. The Licensee may set a separate rate for each of the services included in the package or set a general rate for the package.
• 75.3 The Licensee shall offer each package of services at equal terms and at a uniform rate according to categories of subscribers; For purposes of this section, "category of subscribers" – A16)a group of subscribers whose attributes provide reasonable justification for distinguishing it from another group.
• 75.4 The Licensee shall allow any subscriber, without discrimination, to switch from one package of services to another that is being offered by it at the time. The Licensee shall include such a provision in the contract with its subscribers. In the framework of this provision it may set times when it is permissible to make such a switch and it may set conditions, including payment terms, for implementing the switch.
• 75.5T49) If the Licensee contracts with the subscriber in regard to a certain service or package of services, and the contract includes a commitment as defined in Section 56A.1 ("commitment period"), the following provisions will apply, with the exception of a business subscriber:
  • (a) The terms of the contract, excluding the contract rates, will be final, known and fixed in advance for the entire commitment period.
  • (b) The rate for each service will be fixed on the date of the contract and will be uniform and specified in shekels for the entire commitment period.

For purposes of this section, "uniform" – any rate before VAT which the subscriber is required to pay, as determined on the date of the contract, may not be increased during the commitment period.

Notwithstanding the aforesaid, the Licensee may provide its subscriber services at lower rates than those fixed in advance in the contract, during a limited time period, to all the subscribers or to a certain type of subscriber.

• (c) The Licensee will include provisions as stated above in the contract with the subscriber.
• 75.6 The Licensee may not condition a contract with a subscriber or a subscriber's switch from one package of service to another on the purchase of value added services or end-user equipment from the Licensee.
• 75.7 A package of services in which a payment in installments is set for end-user equipment or for one of the services, shall include also a payment arrangement in the event that the subscriber wishes to be released from that package or to switch from that package to another package of services, according to the outstanding balance of the payments due from the subscriber or according to the remainder of the commitment period.

T49 Amendment No. 49 (Inception: This amendment will come into force on December 31, 2008).

• 75.8 (a) The Licensee may not collect from a subscriber payment for a call when the call was not initiated by the subscriber (hereinafter uninitiated call).
  • (b) Notwithstanding that stated in subsection (a), the Licensee may collect from a subscriber payment for an uninitiated call in the following cases:
    • (1) Call transferred to the subscriber by means of a roaming service;
    • (2) Collect call to which the subscriber has given his agreement;
    • (3) A call created by dialing a special prefix for a toll-free service that was allocated to the subscriber under an agreement with himA55;
    • (4) VoidA51
  • (c) The licensee may collect from a subscriber initiating a call by dialing the following services or access codes, payment not exceeding the tariff collected by the licensee from a subscriber for a call whose destination is on a domestic operator network: A51
    • (1) Split charge call service1 ;
    • (2) Short number service for businesses2 ;
  • (d) For a call to an international destination, the Licensee may receive only the payment imposed on the international operator, as determined in the Interconnection Regulations." A54

75.9A18) Inception

Void A55

• 75.10 The payment for airtime will be determined in the manner set out below:
  • (a) The payment for airtime will be determined according to an airtime unitA31); For the purpose of calculating the payment, a part of an airtime unit shall be deemed the same as a whole airtime unit.
  • (b) The payment for each airtime unit, at least during the first minute of contact, will be fixed.A57
• A55 Amendment No. 55 (Inception: This amendment will come into force on the day the relevant amendments to the Payment Regulations and to the Interconnection Regulations come into force, or on March 28, 2010 – whichever the later)
• A51 Amendment No. 51 (Inception: This amendment will come into force on March 31, 2009)
• A51 Amendment No. 51 (Inception: This amendment will come into force on March 31, 2009)
• 1 Pursuant to the "split charge call" service file (1-700 service).
• 2 Pursuant to the Administration Direction on "Short Form Dial for Businesses - Star (*) Plus Four Digits" dated May 4, 2008
• A54 Amendment No. 54 (Inception: This amendment will come into force on the day the amendment to the Interconnection Regulations concerning a call from a cellular network to an international telecommunications network comes into force)
• Inception The inception of section 75.9 is on December 15, 2002.
• A55 Amendment No. 55 (Inception: This amendment will come into force on the day the relevant amendments to the Payment Regulations and to the Interconnection Regulations come into force, or on March 28, 2010 – whichever the later)

A57 Amendment No. 57 (Inception: This amendment will come into force on the day of signing the Amendment)

(c) The duration of the call for payment purposes is from the moment the connection is established between the subscriber who initiated the connection (hereinafter – the calling subscriber) and the subscriber receiving the call, until the moment when the call is terminated, which is the moment when an instruction to terminate the connection is received from the calling subscriber or from the subscriber receiving the call; The duration of the connection setup time, until the moment the connection is established, and the duration of the disconnection time, from the moment the instruction to terminate the connection is received until it is actually implemented, is not included in the count of the duration of the call.

In this regard, subscriber receiving the call – including a voice mailbox.

"Voice mailbox" – an installation or device forming part of the cellular system, designed to enable the calling subscriber to leave a voice message for the called subscriberA40).

(d)A40) Regarding a call that is transferred to a voice mailbox, the Licensee shall play to the calling subscriber an introductory voice message, lasting at least 2 seconds (in this subsection – "message"), and will enable the calling subscriber, at his option, to disconnect the call without any debit, in the course of the message, or within a reasonable time being not less than one second after the end of the message ("reasonable time"). In such case, the moment of establishing the connection with the subscriber receiving the call, within the meaning of subsection (c) above, will be deemed to occur at the end of the reasonable time.

The wording of the message will be: "The call is being transferred to a voice mailbox," and it will be articulated clearly and at a reasonable speed. In this subsection, "call transferred to a voice mailbox" – excluding a call originating in an international telecommunications system.

75.11(a) **(A71)**In this section –

"Limited Plan" – A minute plan which is limited to a number of minutes according to the subscriber engagement plan.

"Unlimited Plan" – An unlimited minute plan, for which the subscriber pays.

"Toll-Free Number" – A telephone number, a call to which from any network has been determined to be free of charge for the caller;

"Special Telephone Number at a Composite Rate" – A national or network telephone number in an Irregular Number Pattern, the rate of a call to which is a Composite Rate;

"Special Telephone Number at a Regular Rate" – A national[5] or network[6] telephone number in an Irregular Number Pattern, the rate of a call to which does not exceed the Regular Rate;

"Irregular Number Pattern" – A number pattern which is not a regular number pattern;

"Regular Number Pattern" – A number pattern of geographical numbers and national numbers, as defined in the number plan[7];

"Composite Rate" – A rate comprising a Regular Rate plus a rate for a service that is

A54 Amendment No. 71 (Inception: Sections 75.11(a)-(c) will take effect no later than September 3, 2013; Sections 75.11(d) will take effect no later than December 3, 2013). [1] A telephone number, access to which is possible from any network.

[1] A telephone number, access to which is possible only from the license holder's network.

[1] For example, numbers in the pattern 03-XXXXXXX, 05Y-XXXXXXX and 07Z-XXXXXXX.

provided by a Licensee or anyone on its behalf or a service provider;

"Regular Rate" – A rate per call minute to telephone numbers in a Regular Number Pattern, in accordance with the subscriber's tariff plan.

• (b) The Licensee shall not charge a subscriber calling destinations with Toll-Free Numbers and will not count the calling minutes to such destinations in a Limited Plan.
• (c) The Licensee may charge a subscriber calling destinations with Special Telephone Numbers at a Regular Rate, and shall count the calling minutes to the said destinations in a Limited Plan or in an Unlimited Plan. For the avoidance of doubt, the Licensee may not charge a subscriber calling destinations with Special Telephone Numbers at a Regular Rate any extra fee over the fixed payment that he pays for the minute plan, insofar as the subscriber shall not have exceeded the minute quota in the plan. If the subscriber exceeds the minute quota in the plan, the Licensee may charge him for calling the said destinations according to a rate no higher than the Regular Rate. In addition to the aforesaid, the Licensee may not make any distinction in the rate, according to which it charges the subscriber, between calling telephone numbers with a Regular Number Pattern and calling Special Telephone Numbers at a Regular Rate, including by determining separate call minute plans.
• (d) If the charge for calls to destinations with Special Telephone Numbers is made according to a Composite Rate, the Licensee shall count the calling minutes to the said destinations in the framework of the Limited Plan or the Unlimited Plan for which the subscriber pays.

The Licensee may charge the subscriber for the services provided in the framework of calling telephone numbers which are charged according to a Composite Rate, whether the charge is made according to a call minute or the charge is fixed per call, in addition to the fixed payment for the minute plan.

2. Sections 75.11(a)-(c) will take effect no later than Elul 28, 5773 (September 3, 2013).

Section 75.11(d) will take effect no later than Kislev 30, 5774 (December 3, 2013).

75A.A25) Completion of a Call in Another Public Telecommunications Network

The payment for completion of a call to be collected by the Licensee shall not exceed the interconnection rate specified in the Telecommunications Regulations (Payments for Interconnection), 2000.

75B.A2A25) of an SMS on Another Public Telecommunications Network

Completion

The Licensee may collect from a subscriber for the transfer of an SMS which is being transferred from end-user equipment that is connected to the network to end-user equipment that is connected to a cellular system of another cellular licensee, a payment not exceeding the payment which the Licensee collects from the subscriber for the transfer of an SMS which is transferred from end-user equipment that is connected to the network to end-user equipment that is connected to the network, plus a payment not exceeding the rate for the transfer of an SMS specified in the Communications Regulations (Telecommunications and Transmissions) (Payments for Interconnection), 2000.

For purposes of this section –

"SMS" – telecommunications messages comprised of writing, including signs or symbols, transferred from end-user equipment that is connected to the network, to end-user equipment that is connected to the network or to a cellular system of another cellular licensee.

75C.A27) Temporary Order

Notwithstanding that stated in section 75B, for the period beginning May 9, 2004 and ending February 9, 2005A29), the following provisions shall apply:

• (a) The Licensee may collect from a subscriber for the transfer of an SMS which is destined for end-user equipment that is connected to a cellular system of another cellular licensee (hereinafter – "inter-network SMS") a payment not exceeding the payment which the Licensee collects from the subscriber for the transfer of an SMS which is transferred from end-user equipment that is connected to the network to end-user equipment that is connected to the network, plus a payment not exceeding the rate for the transfer of an SMS specified in the Communications Regulations (Telecommunications and Transmissions) (Payments for Interconnection), 2000, less a rate of 0.7%8 ;
• (b) The Licensee may collect from a subscriber payment for an inter-network SMS as stated in subsection (a), even if its transfer to the called subscriber was not completed.

75D.A58 Notice Concerning Utilization of Surfing Package A73in Israel

75D.1 The Licensee will send an SMS message to a subscriber who has utilized 75% and 95% of a surfing package. The SMS message will be sent to the subscriber's telephone number and to the additional telephone number indicated by the subscriber when executing the contract, as soon as possible after the time of such utilization, and will contain at least the following: percentage of utilization of the package, time of calculation of the utilization (date and hour), and the telephone number to which the SMS message relates. In this regard, "surfing package" means the number of units of a cell phone Internet surfing service in Israel (hereinafter – surfing service) that are supplied to the subscriber at a fixed rate regardless of the actual scope of use.

This section will apply only when the rate of a surfing service unit, after full utilization of all the surfing service units included in the surfing package, is more than 1.25 times the rate of a surfing service unit in the framework of the surfing package.

75E.A73 Billing for International Roaming Service

8 The 0.7% reduction is based on a report received from some cellular operators concerning the rate of inter-network SMS messages that did not reach their destination. Section 75C was enacted as an temporary order, with the cellular operators to make the necessary adjustments in the cellular systems and in the interconnection arrangements between them to enable full implementation of section 75B of their license. To remove doubt, it is clarified that this temporary order was enacted only for a limited time, owing to difficulties that were pointed out by the cellular operators concerning the possibility of receiving information about non-completion of an SMS on another cellular network; However, beyond this, nothing may be inferred from this temporary arrangement concerning permission to collect payment for an SMS that was not transferred to its destination, and said arrangement does not detract from the Ministry's basic position according to which, in general, no payment may be collected for a telecommunications service that was not realized.

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A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

75E.1 In this section –

"Arrangement" – A package or plan which includes internet;

"Package Offer" – An offer of three different packages or plans, insofar as exist at the Licensee, which include Surfing Service, which were offered to the Licensee's subscribers in the month prior to the date on which the package offer was sent to the subscriber.

"Package" – A limited number of service units which may be used in a limited period of time, through an international roaming service Abroad, which is sold at a fixed and predetermined price, and is valid for certain Destinations;

"Abroad" or "Destination" – A country, including a ship at sea and an aircraft;

"MB" – One million bytes (MByte);

"Surfing Service" or "Surfing" – Cellular surfing service Abroad;

"Plan" – A tariff plan for a limited period of time or for a specific trip overseasa74 for the consumption of services through an international roaming service Abroad (such as: call service, sending and receiving text messages and internet) for the Destinations included therein, with the payment for the services being made according to consumption; the rates of the services included in the plan are different to the rate for the same services for a subscriber who did not sign up for the plan; the plan may determine a fixed fee that does not depend on consumption.

• 75E.2 (a) The Licensee shall send a text message to a subscriber who purchases an international roaming service package (in this section: "Package"); the text message shall be sent any time the subscriber uses 75%, 90% and 100% of the Package; in addition, the Licensee shall send the subscriber a text message upon expiration of the Arrangement, stating that the Arrangement has expired. The text messages shall be sent to the subscriber free of charge, as close as possible to the said usage level, and shall include at least the following: the percentage of usage of the services included in the Arrangement as specified in items (1)-(5) below, and the time (date and hour) of the usage calculation;
  • (1) Call minutes;
  • (2) Text messages;
  • (3) Internet (in MB);
  • (4) Combined call minutes and text messages;
  • (5) Combined call minutes, text messages and internet (in MB).
  • (b) a74Notwithstanding the provisions of Section 75.2E(a) -
  • (3) The license holder will be exempt from sending SMSs to a subscriber in respect of use of the package to which he subscribed, as stated in Section 75.2E(a), provided that all of the following are fulfilled:

(c) The subscriber purchased the package before Adar B 29, 5774 (March 31, 2014);

A73 Amendment No. 73 (Inception: This amendment will come into force no later than February 17,2014) A74 Amendment No. 74

• (d) The subscriber explicitly agreed in writing to waive receipt of SMSs as stated in Section 75.2E(a);

• (e) The license holder proves, to the Director's satisfaction, that a technological restriction beyond its control is preventing it from receiving an indication in real time or close to real time with respect to the making of direct dial calls.

• (4) With respect to a subscriber who makes use of Cellular end equipment which does not support an SMS service, including a tablet with a SIM card and a cellular modem, the license holder will demand of the subscriber, at the time of subscribing to the package, a means of communication as an alternative to SMS (such as Skype, Viber, Whatsapp applications, e-mail or voicemail) ("Alternative Means"); if the subscriber provides Alternative Means, the license holder will send to the subscriber the messages regarding use of the package as stated in Section 75.2E(a) via the Alternative Means.

• 75E.3 If a subscriber buys an Arrangement, the Licensee shall block access to Surfing Service after the Package has been used up in full or the Arrangement has expired, as the case may be, free of charge, and the subscriber will not be required to make any payment for Surfing Service, over and above the predetermined payment for the Package that he purchased or the Plan that he joined. The Licensee shall send the subscriber a text message, free of charge, regarding such blocking, in proximity to the date of the blocking. The text message shall include a Package Offer.

• 75E.4 (c) The Licensee shall block, free of charge, access to Surfing Service for every subscriber, immediately upon his arriving Abroad, unless the subscriber fulfills one of the following conditions:

  • (1) The subscriber has an Arrangement.
  • (2) The subscriber actively requested to allow him permanent access to Surfing Service through the "Access to Services Form".
  • (d) If the subscriber does not fulfill one of the conditions stated in Subsection (a), and the Licensee does not block the subscriber's access to Surfing Service, the licensee will not charge the subscriber for Surfing Service.
  • (e) The Licensee shall block, free of charge, access to Surfing Service as stated in Subsection (a), and will not charge for Surfing Service as stated in Subsection (b), any time that a subscriber who purchased an Arrangement reaches a Destination which is not included in the Arrangement. The Licensee shall immediately and automatically unblock such subscriber's access to Surfing Service, without the need for the performance of any manual action by the subscriber, any time that the subscriber is in a Destination included in the Arrangement.
  • (f) The Licensee shall send a subscriber a text message, free of charge, regarding the blocking as stated in Subsections (a) and (c), in proximity to the date of the blocking, stating the reason for the blocking and the ways to contact the Licensee for the purpose of discontinuing the blocking. The text message shall include a Package Offer.
  • (g) For the ordering of Surfing Service by a subscriber, during his stay Abroad, after his access to Surfinf Service shall have been blocked, to allow him access to Surfing Service without purchasing an Arrangement, and after he confirms that he is aware of the internet price per MB without an Arrangement, Section 60.6 shall apply and the documentation shall also include the details of the subscriber's reliable identification and his confirmation as aforesaid.

• 75E.5 Upon the arrival Abroad of a subscriber who requested, through the "Access to Services Form", to have permanent access to Surfing Service, and who has no Arrangement or whose arrangement does not include the country in which the subscriber is located a74, the Licensee shall send him a text message with a warning regarding possible consumption of Surfing Service for a fee, without any active surfing action being taken, and information regarding the possibility of blocking Surfing Service by changing the end equipment's settings. The text message shall state, as relevant, that such blocking also blocks the possibility of surfing in Israel and therefore, internet blocking must be discontinued upon arriving in Israel, or by contacting the licenseer's call center. The text message shall further include a Package Offer.

• 75E.6 The Licensee shall inform its subscribers, in the telephone bill following the date of signing of the license amendment, of their possibility to block Surfing Service by filling out the "Access to Services Form" which is posted on the licensee's website. The subscriber may send the said form to the licensee by regular mail, e-mail, facsimile or via an online form on the Licensee's website, insofar as the Licensee's website supports such possibility.

• 75E.7 The Licensee shall post on its website information regarding the possibility available to the subscriber of blocking access to Surfing Service also through the end equipment, insofar as such blocking does not also block the possibility of surfing in Israel.

• 75E.8 The Licensee shall post on its website information whereby there are services which consume data for a fee, also without any active action being taken by the subscriber, such as: automatic synchronization of e-mail and the update of various applications.

• 75E.9 Billing for international roaming services according to a rate per unit, shall be made in the telephone bill retroactively, after consumption of the services, and not in advance. Insofar as a subscriber purchases an Arrangement which includes a predetermined payment, the billing for such payment shall be made in the billing period during which the transaction took effect.

• 75E.10 Without derogating from the provisions of Section 55A, Section 60.6 shall apply to a transaction for the "remote sale" of services via an international roaming service.

• 75E.11 The Licensee shall send, free of charge, a text message to any subscriber who performed a "remote sale" transaction for the purchase of services via an international roaming service, which includes a summary of the transaction, as early as possible, and no later than the end of the day on which the "remote sale" transaction was performed.

In addition, the Licensee shall state information regarding the said "remote sale" transaction in the telephone bill following the date of performance of the transaction, in accordance with the subscriber's billing period, including the telephone number in respect of which the transaction was performed, the date of performance of the transaction, the quantity and types of the services purchased via an international roaming service, the number of days allocated for use of the services, the date and time of commencement of provision of the services, the price of the services purchased, the price according to which consumption of services over and above the Package shall be charged, insofar as a Package is purchased, and the manner of rounding off of any quantity that shall be consumed (the "Details of the Transaction").

A copy of the telephone bill stating the Details of the Transaction will be available at the Licensee for presentation or delivery to the Director upon request, within five (5) working days from the date of sending the telephone bill a74.

• 75E.12 In an engagement for the purchase of services via an international roaming service performed in the presence of a representative of the Licensee and the subscriber, printed confirmation shall be delivered to the subscriber upon performance of the transaction, including the Details of the Transaction. A copy of the confirmation will be available at the Licensee for presentation or delivery to the Director upon request, within five (5) working days from the date of performance of the transaction.
• 75E.13 The Licensee shall post on its website all of the Packages and Plans marketed to private subscribers, as well as the rates of all of the international roaming services for a subscriber without an Arrangement, for all of the Destinations in respect of which the licensee has an international roaming agreement. The Licensee will not charge a subscriber for an international roaming service provided at a Destination that was not published thereby as aforesaid before the charge.
• 75E.14 The rate for Surfing Service shall be stated by the Licensee, wherever it is stated, in units of NIS per 1 MB.
• 75E.15 The internet rate per 1 MB for a subscriber who is not in an Arrangement will be lower than the price of the cheapest Package offered by the Licensee.
• 75E.16 The purchase of an Arrangement, in Israel or Abroad, does not change the default option stated in the updated services order form other than for the period of such Arrangement.

76. Publication of Rates

• 76.1 The Licensee shall provide to anyone so requesting, at the service offices and at the call centers, free of charge, full and detailed information concerning the up-to-date rates for all its services, including the payment for completion of a call; The Director may instruct the Licensee concerning the manner and format of publication of the rates.
• 76.2 The Licensee shall indicate in every account sent to a subscriber the package of services according to which the subscriber is being debited.
• 76.3 The Director may request to receive from the Licensee at any time details of the rates charged by it.
• 77. VoidA43)

77A. Fraud Prevention

• 77A.1 The Licensee shall take suitable and reasonable steps to prevent fraud and shall maintain a control and follow-up system for verifying, to the extent possible, that the calls for which the subscriber is being debited were actually made from end-user equipment connected to the Licensee's cellular system in the subscriber's name.
• 77A.2 The Licensee shall disconnect the service to the subscriber's end-user equipment after receiving at the service offices the subscriber's notification that the end-user equipment was lost or stolen, or that there is a possibility that someone else is making calls through the end-user equipment without having received permission to do so; The subscriber may give such a notification by telephone or in writing, including by fax or email; Upon receipt of a telephone notification or immediately after receipt of a written notification, the Licensee shall verify its reliability and disconnect the service.
• 77A.3 The Licensee shall cooperate with other licensees in locating and preventing fraud.

Part C – Changes in the Rates

78.A43) Change in the Rates

Subject to that stated in section 75, the Licensee may change the rate that was set by it for any service or basket of services (in this section – "service"), provided:

• (a) It sent the Director prior written notice at least fourteen (14) days before the effective date of the rate, stating the new rate and the rate before the change. Notwithstanding the foregoing, regarding a reduction in a rate, the Licensee may send the notice to the Director up to a month after the reduction A58;
• (b) It sent every subscriber who joined the service prior written notice at least fourteen (14) days before the effective date, noting the new rate and the rate before the change. Notwithstanding the foregoing, regarding a reduction in a rate, the Licensee may send the notice to the subscriber up to a month after the reduction.

Said notice will be sent to the subscriber by regular post or via the telephone bill sent to the subscriber A58.

For purposes of this section, "change" – any change in a rate resulting in an increase or reduction in the payment before VAT which a subscriber is required to pay for the Licensee's services.

79. Start of an Increase or Reduction in a Rate

In case of an increase or reduction in any rate for cellular services according to the provisions of the license, such increase or reduction shall not apply to payments made for such a service prior to the starting date of the increase or the reduction; An increase or reduction shall apply only to cellular services provided to a subscriber after the date of the increase or reduction; This section shall not apply to a rate adjustment ordered by the Minister under section 83(A).

80. Arrears in Payment

• 80.1 The Licensee may debit a subscriber arrears interest, linkage differences and collection costs on payments for cellular services which were not paid by a subscriber on their stipulated payment date, in a payment notice sent to the subscriber, according to the contract between themA33) (hereinafter – the payment date).
• 80.2 VoidA43)
• 80.3 The amount of the arrears interest shall not exceed the rate specified in the definition of "linkage differences and interest" in section 1 of the Adjudication of Interest and Linkage Law, 1961, plus linkage differences for the period between the stipulated payment date and the actual payment date of the specified amount.
• 80.4 A33)The Licensee may debit a subscriber collection costs on a payment for a service which it provided to the subscriber, which was not paid on the payment date (hereinafter – the amount of the debt), provided at least fourteen (14) days have elapsed from the payment date, excluding a case of nonpayment due to the bank's or the credit-card company's refusal to pay a debit for the collection of which the Licensee received an authorization; The amount of the collection costs to be collected by the Licensee shall be reasonable and in proportion to the amount of the debt and the actions which the Licensee must take in order to collect it.: In this regard, "collection costs" – including legal handling by the Licensee or someone acting on its behalf, of the collection of the amount of the debt before application is made to the courts.

____________________

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

Part D – Miscellaneous

81. Onetime Debit for Connection Fee

If the Licensee decides to collect a connection fee as defined in section 74(A), it may debit a subscriber a connection fee only for the connection of the subscriber for the first time to the cellular network and the provision of the cellular services, or for a connection after the termination of all A58 service under section 71 or the termination or disconnection of a service under section 72.

82. Collection of Subscription Fee in Installments

The Licensee may collect the connection fee as stated in section 81 for connection to the cellular system in a number of installments, at the times agreed upon with the subscriber and in the amount specified in the contract.

83. Harm to Competition or to Consumers

• (a) If the Minister finds that any of the Licensee's rates or any payment required to be made to or through the Licensee is contrary to the provisions of the License, the Minister shall notify the Licensee in that regard, indicating the correction that needs to be made and that if the Licensee fails to do so, the Minister will act pursuant to his power under sections 5 and 15 of the Law; The Licensee shall send the Minister a written notification setting out the corrected rate and shall act to refund the excess amount, if any, which a subscriber was debited according to the rate prior to its correction.
• (b) If the Minister finds that any of the Licensee's rates or any payment required to be made to or through the Licensee is unreasonable or is liable to harm competition or the consumers, the Minister shall notify the Licensee in that regard, indicating the correction that needs to be made and that if the Licensee fails to do so, the Minister will act pursuant to his power under sections 5 and 15 of the Law; The Licensee shall send the Minister a written notification setting out the corrected rate

83A.A58 Excess Charges

• (a) The Licensee will document in its information systems any written or verbal contestation by a subscriber concerning an excess charge that appears in the telephone bill.
• (b) The Licensee will give a subscriber a written, explanatory response to his contestation, setting out the manner of calculation of the refund or the reasons for rejecting the contestation, as the case may be, within twenty one (21) days from the day of receipt of the contestation. In this regard, "day of receipt of the contestation" – With respect to a notice sent in writing – the day on which the notice was received by the Licensee;

With respect to a notice delivered orally – the day on which the notice was delivered to the Licensee.

A copy of such response must be kept available by the Licensee for presenting to the Director within five (5) work days from when it was sent. If the Licensee sent the response via email or fax, the sending confirmation must also be available for presenting to the Director within five (5) work days from when the notice was sent.

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

Notwithstanding the above, where a Subscriber has submitted a verbal objection and the Licensee found that the Subscriber has been overcharged by an amount not exceeding NIS 100, the Licensee has authority not to respond in writing to the objection, to the extent that the Subscriber granted his express consent theretoA59.

• (c) If the Licensee finds that the subscriber was overcharged, it will refund the excess charge in a single payment, without setting any conditions for the refund, with the addition of "linkage differences and interest" as this term is defined in section 1 of the Adjudication of Interest and Linkage Law, 5721-1961, for the period from the date of collection of the excess charge to the date of actual making of the refund, as set forth below:
  • (1) If the excess charge is more than NIS 100 (including VAT and linkage differences and interest) the amount refunded will be transferred directly to the subscriber's to the means of payment (bank account or credit card) A59 within three (3) work days from the date on which the Licensee sent the response, as stated in subsection (b). Notwithstanding the above, the Licensee may return the reimbursement to a business Subscriber by means of crediting the telephone statement, if the business Subscriber expressly agreed to this A59.
  • (2) If the excess charge is equal to or less than NIS 100 (including VAT and linkage differences and interest) the amount refunded will be credited in the next telephone bill after the date of sending of the written response, as stated in subsection (b). If the refund is for a higher amount than the amount for payment in the next telephone bill, the balance will be transferred directly to the subscriber's bank account within three (3) work days from the date on which the notice was sent to the subscriber, and a note to that effect will be included in the aforesaid telephone bill.
  • (3) Notwithstanding the provisions of subsection (c)(1) and c(2), a reimbursement to a Pre-Paid Subscriber shall be performed by means of crediting the available balance A59.

CHAPTER G: PAYMENTS FROM THE LICENSEE, LIABILITY, INSURANCE AND GUARANTEE

Part A – Royalties and PaymentsA16)

84. Royalties

• 84.1 The Licensee shall pay royalties as prescribed in the Telecommunications Regulations (Royalties), 2001, or in any other regulations replacing them (hereinafter – "the Royalties Regulations").
• 84.2 To every payment of royalties under this section the Licensee shall attach two copies of an unaudited quarterly income report, signed by the Licensee and certified by an accountant; The report shall contain a detailed calculation of the liable income according to the Royalties Regulations, and any other particular on which the Licensee based the amount of the royalties.
• 84.3 Upon the submission of an annual income report audited and signed by the Licensee's accountant (hereinafter: "the audited report"), the Licensee shall submit a report, prepared by quarters, setting out the adjustment between the income on which it paid royalties, and the income appearing in the audited report (hereinafter – "the adjustment report").

A59 Amendment No. 59 A59 Amendment No. 59

A59 Amendment No. 59 A59 Amendment No. 59

• 84.4 If it becomes apparent that the amount of the royalties to be paid by the Licensee, according to the adjustment report, is greater than the amount paid by it for the quarter to which the audited report relates, the Licensee shall pay royalties differences, in addition to interest and linkage differences, as prescribed in the Royalties Regulations.
• 84.5 If it becomes apparent that the amount of the royalties paid by the Licensee is greater than the amount it was required to pay for the quarter to which the audited report relates, the Licensee shall be credited with the amount of the excess payment; The excess payments to which the Licensee is entitled shall be offset, pursuant to a written approval of the Director, from the next payment of royalties, and linkage differences and interest shall be calculated according to the last index published before the date of the offset; In this regard – interest and linkage differences, as prescribed in the Royalties Regulations.

85. Arrears in the Payment of Royalties

The Licensee shall pay linkage differences, arrears interest and collection costs, as set forth in the Royalties Regulations, on royalties that were not paid at the time stipulated therefor in the regulations.

86. Payment Method

Royalties as well as linkage differences, arrears interest and collection costs in respect thereof shall be paid to the Ministry of Communication's accountant by a bank transfer to the ministry's account.

87. Other Mandatory Payments

The royalties under this Part shall be in addition to any other fee, tax or mandatory payment which the Licensee is required to pay under any law.

Part B – Liability and Insurance

88. Definition of Scope of Insurance

In this Part, "use of the license" – setup, installation, maintenance, upkeep or operation of the cellular system, whether by the Licensee itself or through anyone acting on its behalf, including its employees, contractors, agents or representatives.

89. Licensee's Liability

• 89.1 The Licensee shall be liable at law for death, damage or loss to the body or property of any person, directly or indirectly resulting from or consequent on the use of the license.
• 89.2 When using the license, the Licensee shall take all reasonable precautions to prevent damage or loss to the body or property of any person, and where such damage or loss was caused due to the use of the license, the Licensee shall repair the damage at its expense and compensate the aggrieved party, all subject to any law, excluding a case in respect of which the Minister granted the Licensee immunity as specified in section 90.

To avoid doubt, this section shall not impose on the Licensee liability beyond the liability in torts established in the regular law of torts.

90. Immunity from Liability

90.1 The Minister may, at the Licensee's request, grant it all or any of the immunities enumerated in Chapter I of the Law, subject to that stated in section 90.3.

• 90.2 The Licensee shall set out in its request the immunities which it is requesting and the reasons therefor.
• 90.3 If the Minister is persuaded of the necessity of granting the Licensee the immunities under Chapter I of the Law, he shall publish his decision in a notice in Reshumot.

91. Making an Insurance Contract

• 91.1 The Licensee shall make, at its expense, an insurance contract with a licensed insurer according to the terms contained in section 92; The insurance contract shall be presented to the Director at the time of the grant of the license.
• 91.2 The Licensee shall indemnify the State in respect of any financial liability as stated in section 89.1, for which it may be held liable towards a third party due to the use of the license; Any indemnity under this section shall be insured by the Licensee for liability insurance.
• 91.3 The Licensee shall insure itself, including its employees and contractors, against any financial liability as stated in section 89.1, for which it may be held liable at law owing to damage caused to the body or property of a person from the use of the license, and against any loss or damage caused to all or a part of the cellular system from the use of the license, including against third party risks.
• 91.4 The Licensee shall submit to the Director an opinion of a lawyer specializing in insurance, confirming that the insurance policy covers everything required in sections 91.2 and 91.3; The Licensee shall attach to the opinion a copy of the insurance contract and its attachments; Said documents shall be submitted to the Director within 7 days of the signing of the insurance contract and shall be attached to this license as Addendum G.

92. Conditions in the Insurance Contract

• 92.1 The insurance contract shall specify the period of insurance and shall stipulate that at the end of the period of insurance the insurance shall be extended automatically.
• 92.2 The Licensee shall present to the Director, once a year, the insurer's confirmation that the insurance contract is valid, there are no arrears in the Licensee's payments of the premiums and there are no pending notices concerning the cancellation, suspension, limitation, amendment or termination of the insurance contract.
• 92.3 The insurance contract shall stipulate that in the event the insurer wishes to cancel the insurance contract, owing to nonpayment of the premium, it must give the Director prior notice in that regard not less than 90 days before the contract is actually due to be cancelled (hereinafter in this section – cancellation notice).
• 92.4 If a cancellation notice has been sent as stated in section 92.3, the Licensee shall act immediately to eliminate the cause of the cancellation, or shall act immediately to obtain an alternative insurance contract as stated in section 92.6, and it shall notify the Director of the actions it took for this purpose; Where the cause of cancellation was nonpayment of the premium by the Licensee, the Director may pay the premium in the Licensee's stead, and he may exercise the bank guarantee or any part thereof to cover amounts which he expended on payment of the premium or collect them in any other manner.
• 92.5 If the Licensee wishes to cancel the insurance contract, it must notify the Director in that regard at least 45 days before the contract is actually due to be cancelled.
• 92.6 If the Licensee has agreed to the cancellation of the insurance contract by the insurer or itself wishes to cancel the insurance contract, it shall make an insurance contract with another licensed insurer, in such manner that the new insurance contract will come into effect simultaneously with the lapse of the previous contract; The new insurance contract shall be submitted for approval to the Director, together with an opinion as stated in

section 91.4, 45 days before its effective date, and it shall be subject to the provisions of the sections in this Part.

93. Remedy for Breach of Conditions with Respect to Insurance

If the Licensee did not make an insurance contract, or if it becomes apparent that the insurance contract which it made was cancelled or expired, the Director may effect insurance and pay the premium in the Licensee's stead, and it may exercise the bank guarantee to cover amounts expended by it on the insurance or collect them in any other manner; All the foregoing without derogating from the authority to cancel, restrict or suspend the license owing to the Licensee's failure to effect insurance according to the terms of this license.

Part C – Guarantee to Secure Fulfillment of the Terms of the License

94. The Guarantee and Its Purpose

• 94.1 The License Owner shall forward to the director an unconditional bank guarantee from an Israeli bank / autonomic insurance from an Israeli company (hereinafter – the "Guarantee") in favor of the State of Israel in NIS to ensure the fulfillment of the conditions of the License; the Guarantee amount, its phrasing and undertaking to extend the Guarantee shall be as stated in Appendix H to the Second Addition;
• 94.2 The guarantee shall serve as security for fulfillment of the terms of the license and for compensation and indemnification of the State for any damage, payment, loss, detriment or expense caused or liable to be caused to the State – whether directly or indirectly – due to nonfulfillment of all or any of the terms of the license, fully and on time, or due to the cancellation, restriction or suspension of the license.

95. Exercise of the Guarantee

• 95.1 Without derogating from the general purport of section 94.2, the Director may exercise the guarantee, in whole or in part, if damage is caused due to nonfulfillment of the terms of the license, including in each of the cases set out below:

  • (a) The State incurred a loss of income from royalties owing to a lack of revenues from subscribers' payments, including by reason of:
    • (1) Failure to operate the cellular services at a time stipulated therefore in the timetable determined by the Director, or as approved by the Director;
    • (2) Discontinuation, suspension or restriction of services;
    • (3) Restriction or suspension of the license;
  • (b) No insurance contract was made according to sections 91-92, the premium was not paid, or the insurance contract was cancelled or expired;
  • (c) The Licensee is debiting its subscribers for payments contrary to that stated in section 75;
  • (d) The Licensee is not complying with the coverage and service quality requirements as stated in Appendix B and Appendix E does not meet the requirements regarding the Passive Components and the cellular radio centers as stated in Clause 19.2C.;

• (e) The Licensee does not convert the cellular system to a digital technology by the date specified in Appendix B.

• (f) The Licensee consistently or willfully violates any of the provisions, terms or requirements of the license;

• (g) A claim or demand was submitted against the State for payment of compensation and damages due to a violation of a condition in the license or faulty implementation of the license or due to the cancellation of the license, and where the State incurred expenses due to such claim or demand; The exercise of the guarantee for the purpose of covering the amount of a claim as stated, shall be done only after the judgment in that claim has become absolute;

• (h) Royalties according to section 74 were not paid fully and on time;

• (i) The State incurred costs or damage due to the cancellation of the license;

• (j) The Licensee did not complete the guarantee fees as specified in sections 96.2 and 79.2.

• (k) A16)The Licensee did not present the license fee on the required date, as stipulated in section 40.1 of the conditions of Tender No. 1/01.

• (l) A16)A monetary sanction was imposed on the Licensee in accordance with the law, and the required amount was not paid on time, provided no amount above the amount of the sanction is collected.

• 95.2 The Director may exercise the guarantee as stated in this Part also by reason of an expected violation of the terms of the license or frustration of the terms of the license that justify, at his discretion, early exercise of the guarantee.

96. Manner of Exercise of the Guarantee

• 96.1 The Director may exercise the guarantee, in whole or in part, up to the amount specified therein, provided it warned the Licensee that if it does not correct the act or omission the subject of the warning within the period specified in the warning – the guarantee will be exercised, in whole or in part.
• 96.2 If the entire amount of the guarantee or a part thereof was exercised, the Licensee shall provide a new guarantee or complete the balance up to the original amount of the guarantee immediately upon the Director's demand; Failure to complete the amount of the guarantee as stated shall constitute a material breach of the terms of the license, and the Director may – without derogating from his authority to cancel, restrict or suspend the license – exercise any remaining balance of the guarantee.
• 96.3 The Licensee may appeal a decision of the Director to exercise the guarantee, in whole or in part, before the Minister within 15 days of being notified of the Director's decision.

97. Term of Validity of the Guarantee

• 97.1 The guarantee shall be valid throughout the term of validity of the license and for A16)two years after the end of the term of the license, or until the Licensee satisfies all its obligations under the license to the Director's satisfaction – according to the later of these two dates.
• 97.2 If the Director determines that the Licensee did not satisfy all its obligations under the license, within 60 days before the expiry of the term of the guarantee, he may require the Licensee to extend the term of the guarantee or to present a new guarantee, within the period specified by the Director; The new guarantee shall be valid up

to the date specified by the Director or until the Licensee satisfies, to the Director's satisfaction, all its obligations under the licenses – according to the later of these two dates; If the Licensee fails to present a new guarantee as stated, the Director may exercise the guarantee.

97.3 Where the Director confirmed receipt of a guarantee the validity of which may be extended from time to time upon his demand, the Licensee shall extend the validity of the guarantee before the expected end of its term, for a year, unless the Director exempted it from this obligation; If the Director did not grant an exemption from the obligation to extend the validity of the guarantee, and the validity of the guarantee was not extended at the specified time, the Director may exercise the guarantee in its entirety without advance warning.

98. Preservation of Remedies

• 98.1 Exercise of the guarantee, in whole or in part, does not derogate from the authority to cancel, restrict or suspend the license.
• 98.2 The amount of the guarantee shall not serve to limit the scope of the Licensee's liability towards the State for payment of the full damages caused to it, where the Licensee is obligated to make such payment under the license or by law.
• 98.3 The exercise of the guarantee, in whole or in part, shall not derogate from the Director's right to demand from the Licensee in any other manner payment for damages which it is obligated to cover under this license or to exercise other reliefs that are available to him by law.

CHAPTER EIGHT – SUPERVISION AND REPORTING

Part A: Supervision of Licensee's Activities

99. Supervisory Power

The Director or anyone authorized by him for this purpose may supervise the Licensee's activities with respect to the implementation of the license and compliance with the provisions of the Law, the Ordinance and the Regulations pursuant thereto.

100. Preservation of Confidentiality

The Director and anyone engaging on his behalf in supervising the Licensee shall not disclose any information or document coming into their possession by virtue of their function, to a person who is not authorized to receive such information or document, unless it was already published in public or disclosure is necessary for the performance of their function under this license or by law.

101. Entry to Premises and Inspection of Documents

For the purpose of exercising the supervision as stated in this Part, the Director may:

• (a) Enter at any reasonable time any facility or office used by the Licensee to provide its services under this license.
• (b) Carry out measurements and tests on the cellular system, and he may inspect any record, document, plan, account book, ledger or data base, whether regular or computerized, of the Licensee or of anyone employed by the Licensee in subjects over which the Director has supervisory power as stated; The Director may inspect them and copy them in any manner he deems fit.

102. Cooperation

The Licensee shall cooperate with the Director or with anyone authorized by him with respect to the exercise of supervision over its activities as stated, and without derogating from the general purport of the aforesaid, it shall allow them to carry out that stated in sections 100 and 101 and shall furnish to them, upon their demand, any information in its possession or control that is required by them for the exercise of the supervision.

Part B: Reporting and Correction of Defects

103.A43) Duty of Submission of Reports

• 103.1 The Licensee shall submit to the Director the reports specified in this license, in the format and at the times stipulated in this part.
• 103.2 Every report shall reflect the correct facts relating to the subject thereof, updated for the period of the report.
• 103.3 A report shall be submitted in two (2) copies, printed and prepared in an easily readable form, bearing the date of its preparation and signed by the Licensee or whoever it authorized for this purpose; The report shall be submitted in a format as directed by the Director, including with respect to its contents, structure and manner of submission.
• 103.4 The Director may require the Licensee to prepare anew or to complete a report which it submitted, if he found it lacking in necessary details or details which, in the Director's opinion, should have been included by the Licensee in the report.

104.1A43) Types of Reports

The Licensee shall submit to the Director, at his request and at least once a year, at the end of the calendar year and not later than ninety (90) days thereafter, annual reports describing its activity in the period from January to December of the past year:

• (a) Financial statement audited and signed by an accountant;

• (b) Subscribers report, including the following data:

  • (1) Number of subscribers broken down according to business and private subscribers and according to post-paid and pre-paid;
  • (2) Amount of income broken down according to subsection (1), with each type of income from interconnection appearing separately, and broken down as well according to airtime and added-value services.

• (c) Report on the use of frequencies according to Chapter D Part C;

• (d) Addendum A "Particulars of Licensee" updated as of the beginning of January, as detailed in section 20.1.

• (e) A43The engineering system report an engineering plan for the setup, development and upgrade of the network in the format set forth in Appendix B.

• 104.2 The Licensee shall submit to the Director once a quarter, not later than a month after the end of the quarter, the following reports:

  • (a) Unaudited quarterly financial statement signed by an accountant;
  • (b) Unaudited quarterly income report signed by an accountant, giving details of income on which royalties are payable;
  • (c) Traffic report in a format as directed by the Director.

• 104.3 The Licensee shall submit a report on any special occurrence, as set out in regulation 8 of the Control Regulations.

• 104.4 The Licensee shall submit to the Director the following report, at his request:

  • (a) VoidA72);
  • (b) Malfunctions report containing a brief description and discussion of the malfunctions that occurred in the network, the number of malfunctions and the cumulative duration of malfunctions of each type, an analysis of the malfunctions and the steps taken to repair them;
  • (c) Service quality report Analysis of the Licensee's compliance with the requirements of sections 49 to 51 and Addendum E Level of Services for Subscribers, during the period of the report;
  • (d) Complaints report detailing the written service complaints that were submitted by subscribers, including the subject of the complaints, the dates on which they were received, the written response given, the manner in which they were dealt with and details of the activity of the Public Ombudsman;
  • (e) List of the Licensee's rates;
  • (f) VoidA72);
  • (g) Encumbrances report The Licensee must report to the Director immediately any case of imposition of an attachment or encumbrance on any of the Licensee's assets or any case of an encumbrance on means of control in the Licensee, any realization of such encumbrances or voidance of any right of the Licensee in an asset; The Licensee must also submit to the Director, at his request, a report detailing all such encumbrances.
  • (h) Report on number of subscribers, income and minutes broken down according to private and business subscribers, and within each category – broken down according to subscribers for programs priced according to an "inclusive standard rate" and subscribers for programs priced separately for payment in respect of "airtime" and interconnection, in a format as directed by the Director;
  • (i) Nuisance subscribers report as detailed in section 65A.9;
  • (j) Any other data required for performance of control on the Licensee's activities, and any information required by the Ministry for regulating the telecommunications sector.

• 104.5 The Director may add or remove periodical, annual or quarterly reports, and he may request the Licensee to submit special reports as directed by him.

105.A43) Notice Concerning a Defect

• 105.1 Where the Director finds defects or deficiencies in the Licensee's activities, he shall notify the Licensee thereof in writing.
• 105.2 If the Licensee received a notification as stated, it shall submit to the Director, within thirty (30) days from receipt of the notification, its written response detailing the measures taken by it to correct the defects indicated therein.

106.A43) Void.

CHAPTER I – MISCELLANEOUS

107. The License as an Exhaustive Document

• 107.1 The Licensee's rights, obligations and powers with respect to the setup, maintenance and operation of the cellular system and the provision of services by means thereof, originate in and derive exclusively from and according to this license.
• 107.2 Void.A2)

108. Keeping the License Document and Returning the License

• 108.1 The Licensee shall keep the license documents in its office and shall allow the public to inspect their true and up-to-date copies; In case the terms of the license are modified, the Licensee shall attach the modification wording to said license documents.
• 108.2 A16)If the license and its documents are made available for public inspection, the public shall not be allowed to inspect the following documents, which are included in the Second Schedule to the License:
  • (a) Appendix A Details of the Licensee;
  • (b) Appendix B A72the engineering plan attached to Appendix B;
  • (c) Appendix D Preparing to Ensure Continuity of Operations in Emergencies
  • (d) Appendix G Insurance contract;
  • (e) Appendix H Bank guarantee;
  • (f) Appendix I Special services for the security forces;
  • (g) Appendix L Special services for the security forces security addendum (confidential);
  • (h) Appendix M Security directives;
  • (i) Appendix N Letters of undertaking.
• 108.3 The license documents are the property of the State and are entrusted to the Licensee for the term of validity of the license; Upon the cancellation or expiry of the license, the Licensee shall return the license with all its documents to the Director.
• 108.4 A16)The Licensee shall allow the public to inspect the license documents via the Internet; The Licensee may do this also by way of referral to the website of the Ministry of Communications, as long as the Ministry publishes the license on its website.
• 108.5 A16)The Ministry may publish the license, excluding the appendices indicated in section 108.2, at the time and in the manner deemed fit by it.

109. Postponement of Deadline

• 109.1 A duty imposed on the Licensee in this license, for which a performance deadline has been set, must be performed by the Licensee within the deadline.
• 109.2 A2)The Director, at the Licensee's request, may postpone a deadline set as stated, if it deems it impossible to perform the duty within such deadline for reasons of force majeure.

110. Reserving of Liability

Any approval or supervisory authority granted under this license to the Minister or to the Director, including the exercise of such authority, shall not impose on them any liability which is imposed by this license on the Licensee, and shall not derogate or detract from or void or diminish the Licensee's liability as stated.

111. Notices

• 111.1 A notice concerning this license or its implementation shall be in writing and shall be delivered by hand or dispatched by registered post with confirmation of delivery; A notice sent by registered post as stated shall be presumed to have reached its destination by the end of 48 hours from the time of its delivery for dispatch.
• 111.2 Any notice of the Licensee to the Minister shall be delivered or sent through the Director.
• 111.3 The Licensee's address for receipt of notices under this section is: 10 Hagavish St., Poleg Industrial Area, Netanya 42140; The Licensee shall notify the Director immediately of any changes in this address.

112. Operations in the Judea and Samaria Civil Administration Area

• 112.1 The License Owner shall contact the communications staff officer in the Judea and Samaria Civil Administration Area for the allotment of frequencies, the expansion of its license in the Judea and Samaria areas, for the expansion of the mobile telephony system and for the provision of Generation 4 services in the area in which the authorities in the Bezeq area are of the Civil Administration.
• 112.2 The License Owner shall operation in the Judea and Samaria areas in accordance with the license and frequencies allotment from the communications staff officer of the Civil Administration; the frequencies allotment and the license in the Judea and Samaria area, including the layout, minimum requirements and service level to the subscriber shall be mostly based on the allotment terms in Israel and the provisions of this license, mutatis mutandis, as shall be determined by the Civil Administration manager and in accordance with the law and the Security Legislation applicable to the Judea and Samaria areas, including the need to receive an individual approval for the establishment of each communication facility.

113.A58 Documents and Recordings

113.1 The Licensee will present and/or play to the Director, at his request, any recording and/or document relevant to the subscriber, throughout the subscriber's last commitment period, and if the subscriber is not within a commitment period – during at least the last eighteen (18) months, and for a year after the date on which the final invoice is sent to the subscriber, as stated in section 2.3(c)(2) in Appendix E.

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

First Schedule List of Services and Measures for Quality of ServiceA16)

1. General

• 1.1. This Schedule includes the list of services the Licensee will provide, under the conditions set out in Section B of Chapter E "Level of Services for Subscribers".
• 1.2. The services will be provided in each of the technologies operated by the Licensee, unless otherwise noted in the License or in the Schedule to the License.
• 1.3. Wherever the term: "Support in Various Languages" is used, this denotes support in at least these four languages: Hebrew, Arabic, English and Russian.
• 1.4. A43) The Licensee must include in the service dossier at least the following details:
  • a. Name of the service: Name of the service, including its trade name and a general description of the service.
  • b. Detailed description of the service: Among other things –

Is it a new service / expansion of an existing service / combination of services / is there any need for a pretrial; Manner of operating the service; Date on which provision of the service is to commence; Availability and measures for quality of service; Support centers; Price of the service; Target audience of the service; How to order the service; Process of connecting to the service; Implications or effects of this service on other services.

c. Engineering description:

Description and block diagram of the system; End-user equipment – dedicated equipment for receiving the service.

d. Miscellaneous:

The need for numbering; Required coordination with other licensees or entities.

2. List of ServicesA65

2.1. Basic Telephone Services

No.	Name of Service	Description of Service	Date ofProvision	Service QualityMeasures	Comments
1.	Cellular calls	Telephone calls to and from subscribers ofthelicense holder to any telephone or otherappropriate terminal equipment on anotherpublic communication network, in Israel orglobally.	In place	Availability of theservice 98%
2.	Emergency calls	Free calls to the emergency services, to bedetermined by the Director (for example:Police, MDA, Fire Dept., others). The callerwill be routed to the emergency centeraccording to the service provider's definitionin reference to the subscriber's location.	In place	Availability of theservice 98%	According to theDirector's instructions.The caller's telephonenumber may be identifiedby the public emergencyservices call center.

2.2. Related Services

No.	Name of Service	Description of Service	Date ofProvision	Service QualityMeasures	Comments
3.	Callwaiting withoption for temporarysuspension	Subscriber may receive an incoming callwhile on another call. The subscriber maysuspend this service at will.	In place	Availability of theservice 99.9%
4.	Call forwarding	Forwarding incoming calls to anothertelephone number, at the subscriber's choice:Regularly, when the line is busy, when thecall is	In place	Availability of theservice 99.9%

A65 Amendment No. 65

		notanswered or in cases of unavailability.
5.	Call transfer	The subscriber may transfer a call to anothertelephone number or between 2terminaldevices having the same number.	* 3/2007	Availability of theservice 99.9%	In accordance with noticedated March 14, 2007
6.	Hunting group	Determination of a hunt number for the groupof the subscriber's telephone numbers; dialingthe hunt number will route the call to anavailable number in the group.	In the future	Availability of theservice 99.9%
7.	Caller ID	Caller's number is displayed on thesubscriber's telephonedisplay.	In place		Dependent on the caller'sterminal equipment
8.	Calling ID restriction	Allows the subscriber's telephone number tobe blocked from display on the call recipient'sdisplay. The blocking may be permanent orone-time.	In place	Availability of theservice 99.9%
9.	Caller nameannounce-ment	Provides the possibility of identifying thecaller by anaudiosignature.	In place	Availability of theservice 99.9%
10.	Conference call	Supports a call for several subscriberssimultaneously.	In place	Availability of theservice 98%
11.	Closed user group	A group of telephone numbers only betweenwhich a call may be made.	In place	Availability of theservice 98%	On GSM network only.
12.	Voice mail	Storage and the possibility of retrieval ofvoice messages of persons calling thesubscriber in a personal box.	In place	Availability of theservice 99%
13.	Advanced voice mail	A voicemail system as specified in Paragraph12 above, plus additional "smart" featuresincludinga visual or voice announcement ofincoming messages, the transfer of messagesto other platforms	In place	Availability of theservice 98%

		and receipt of messages from such platforms.
14.	Voice activated service	Voice activation of telephone and basicservices, related services and value-addedservices.	Partially in place,will be expandedin the future	70% probabilityof good identification in areas withasignal level higherthan 85dbm
15.	Call tracking	Allows the subscriber, during a call, to sendthe applicant an announcement for thepurpose ofsubsequent identification of thesource of the call.	In the future	Availability of theservice 99.9%	Subject to any law
16.	Virtual privatenetwork (VPN)	Allows speed dialing according to a privatenumbering program.	In place	Availability of theservice 99.9%	For types of subscribersaccording to relevantdistinctions. Currentlyprovided to the businesssector.
17.	Centrex	Allows the maintenance of a private networkwhile using the network's resources.	In the future
18.	Facsimile services	Receipt, storage and retrieval of facsimilemessages through the telephone.	In place	Availability of theservice 99.9%
19.	Roaming	Provision of mobile phone services whenvisiting Israel (for "roamers" from overseas).Forwarding calls to a subscriber who isoverseas through a holder of a license toprovide international communication servicesand allowing subscribers who are overseas toreceive mobile phone services from operatorsoverseas, including callscreening and callback, and providing mobile phone servicesand	2002	Availability of theservice 99.9%	The service wasexpanded in 2003 to alsoinclude data communications services.

		related services to anyone visiting Israel (forroamers from overseas), all through roamingagreements with operators in other countries.
20.	Toll free service	The maker of the call is not charged.The subscriber called is charged in accordancewith appropriate charge arrangements.	3/2010		According to service file(1800).
21.	Talk Two	One number for several SIM/terminalequipment units.	In place	Availability of theservice 99%
22.	Two telephonenumbers for one SIMcard	Definition of two telephone numbers for thesame SIM card.	*7/2005	Availability of theservice 99%	* According to noticedated June 7, 2005
23.	Change of numberannounce-ment	A person calling the subscriber will receive anannouncement of the subscriber's new numberand be given the possibility of routing to thenew number at the applicant.	In place	Availability of theservice 99.9%	On GSM network only.
24.	Camp on busy line	Automatic announcement and/or making of acall to a busy line once it becomes free.	*3/2004	Availability of theservice 99.9%	* According to noticedated Feb. 5, 2004
25.	Personal numberservice	Allows the subscriber to determine that callsto one telephone number be routed to variousdestinations according to parameters to bedetermined by the subscriber.	In the future	Availability of theservice 99.9%
26.	Collect call	A call whose cost will be paid by thesubscriber receiving the call, afterauthorization thereof.	In place	Availability of theservice 99.9%
27.	Message distribution	Distribution of messages to a list of recipientsthrough various platforms.	In the future	Availability of theservice 99.9%
28.	Over the air services(OTA)	Remote update of data and applications on theSIM	11/2011	Availability of theservice

(1800) In accordance with service file "toll free service" ("1-800 service").

		card/terminal equipment by the license holder.The applications will be run from the SIMcard / terminal equipment by the subscriber,on the terminal equipment.		99%
29.	Account code billing	Code billing for one telephone number inseparate bills. The subscriber's instructionregarding the account to be charged will begiven by entering a code at the beginning of orduring the call.	In the future	Availability of theservice 99%
30.	Star services	Allows a call to be made by dialing a speedaccess code according to an internalnumbering program of the applicant.	In place	Availability of theservice 99.9%
31.	SMS – short messagesservices	Transmission and receipt of text, graphics,voice and image messages to and from mobilephone terminal equipmentover the licenseholder's network, or from terminal equipmenton other networks in Israel or overseas whichhave reached an agreement with the licenseholder.Transmission of such messagesfrom apersonal computer.Forwarding of incoming messages to afacsimile machine.The license holder will support variouslanguages.	In place	Availability of theservice 99%	Dependent on theterminal equipment
32.	Packet switching datacom-munication	Connection of the subscriber through thetelephone or an independent modem toTCP/UDP/IP communications for packetswitching.	In place	Availability of theservice 98%on a best effort basis	Dependent on terminalequipment

33.	Discon-nection ofservice	Disconnection of service at the subscriber'srequest.	In place	To be performed nolater than thebusiness day afterthe date of thesubscriber's request
34.	POC (push to talkover cellular)	Making a call by pushing a button on themobile terminal device.The call may be private (subscriber-tosubscriber) or for a group on a datacommunication network.	In place(commencement)	According to servicefile	Pursuant to temporaryprovision

Temporary Provision The Licensee will allow operation of Push to Talk Over Cellular services (hereinafter: the Service) to any subscriber who is a legal entity (individual or corporation), provided the number of users (number of cellular end user equipment units permitted use of this service, hereinafter – end user equipments) in the possession of such subscriber does not exceed 20 during the first year starting on the date service begins. Notwithstanding the aforesaid, should there be any considerable changes in the cellular sector influencing provision of such service, the Ministry will consider a shorter period.

Application This service will not begin before Sunday, the 29th day of Tamuz, 5764 (July 18, 2004)

* availability of service is the percentage of time the service is available, not including availability of basic services.

2.3. Value Added Services

No.	Name of Service	Description of Service	Date ofProvision	Service QualityMeasures	Comments
35.	Directory assistance	Allows receipt of information on telephonenumbers and the automatic making of a call tothe number in respect of which theinformation was received.	In place	Availability of theservice 99.9%	Pursuant to the provisionsof Section 67A of thelicense
36.	Connectivity toinformation & entertainment	Allows the subscriber connectivity to push orpull information services,	In place	Availability of theservice 99.9%	Dependent on theterminal equipment.

	services	entertainment, applications and content, bothinteractive and non-interactive, through variousmeans of access.			Subject to the Director'sinstructions.
37.	Access to internetprovider services	Allows the subscriber access to an internetaccess provider.	In place
38.	Location basedinformation &tracking	Receiving and sending information dependenton the location of the telephone, subject to anylaw.	* 3/2007		* In accordance withnotice dated March 14,2007
39.	M-commerce	Connectivity through terminal equipment forthe performance of transactions.	In place		Dependent on theterminal equipment.Subject to the Director'sinstructions.
40.	Unified messaging	Allows the subscriber to receive and send voicemessages, speech, fax, SMS, e-mail,applications and multimedia files to and from aunified box, with the possibility of convertingthe information received from one format toanother, and access to information from variousmeans of access.	In the future	Availability of theservice 99.9%	Dependent on theterminal equipment
41.	Telemetry commandand control	Use of a telephone or cellular modem to receiveannouncements and to send commandspertaining to the operation of various devices(such as: alarm systems, inventory systems,traffic lights, controls etc.)	In place	Availability of theservice 99%
42.	Sponsored call	A call during which the subscriber is exposed tocommercial advertising and information.	In the future		Subject to any law
43.	Video conference	Allows visual and audio communicationbetween several users.	* 4/2004		Dependent on theterminal equipment.* In accordance

					with notice dated April4, 2004
44.	Instant messaging	A messaging service between members of a"community", organization, group of friends,group of persons with a common interest. Thesubscriber announces his being online and hisreadiness to receive messages. The servicenotifies the subscriber of the group memberwho is located in geographic proximity to him.	In the future
45.	Surf & talk	Allows the subscriber to receive notice of andanswer a call waitingwhile surfing the internet.	In place	Availability of theservice 99%	Dependent on theterminal equipment. OnGSM network only
46.	Personal informationmanagement	Accessto and synchronization of a personalinformation database through the terminalequipment.	In place		Dependent on theterminal equipment.
47.	Memo	Sending of a voice message as a memo from thesubscriber to any telephone on a publicnetwork.	* 1/2004		* In accordance withnotice dated Jan. 8,2004
48.A67	Filtering of offensivecontent and sites onthe internet	Filtering of offensive content and sites whilethe subscriber is surfing the internet through histerminal equipment, in accordance with theprovisions of Section 67G of the license.	4/12		The service is providedto subscribers who usetheinternetaccessservice for no chargeadditionaltothepayment it collects fromhimfortheinternetaccess service.
49. A75	"Personal	A short instruction, notification and warning ofthe Defense	10/2014		Pursuanttotheprovisions of

A67 Amendment no. 67

A67 Amendment no. 67

	Message"	Agencies, sent immediately, selectively and ina focused manner to subscribers with cellularend equipment which supports use of cellbroadcast ("CB") technology;		Section65.Bandthe"personalmessage"service file
50. A81	PremiumServiceatPremium Tariff	A premium service provided through adesignated code allocated for such purpose(1-900, 1-901, 1-902).	2/2015	Theservicewillbeprovided according to theprovisions of Annex P.
51 A81.	PremiumServiceatRegular Tariff	1) A premium service provided through:2) A network access code – as an internetwork service;3) Dialing a landline number – as anationwide service.	2/2015	Landlinenumberandregular tariff within themeaningthereofinSection67D1ofthelicense.

x The availability of the service is a percentage of the timeduring which the service is available, excluding the availability of the basic service.

A67 Amendment no.67 A67 Amendment no.67

Second Schedule – List of Appendices

Second Schedule – List of Appendices

Appendix A	Particulars of Licensee – not available to public;
Appendix BA16	Engineering Plan - not available to public;
Appendix CA60	Domestic Roaming;
Appendix DA43
Appendix EA16	Level of Subscriber Services;
Appendix FA8	Ordering Of A Service On The Website Of The Licensee Or A Service Provider;
Appendix G	Insurance Contract - not available to public;
Appendix HA16	Bank Guarantee - not available to public;
Appendix It3t5	Special Services for security forces - not available to public;
Appendix JA6	Access to International Communications Services;
Appendix KA7	Discontinuation of Services for cellular end user equipments of IS-54 type;
Appendix LA12	Special Services for security forces - not available to public;
Appendix MA12	Security Instructions - not available to public;
Appendix NA16	Letters of Undertaking - not available to public;
Appendix OA24	Erotic Services

A16 Amendment no.16 A60 Amendment no.60 A43 Amendment no.43 A16 Amendment no.16 A8 Amendment no.8

A16 Amendment no.16 A3 Amendment no.3

A5 Amendment no. 5

A6 Amendment no.6 replaced Amendment no.4 A7 Amendment no.7

A12 Amendment no.12 A12 Amendment no.12 A16 Amendment no.16 A24 Amendment no.24

Second Schedule – 2

Appendix C – DOMESTIC ROAMING

1. In this Appendix

"Handover8"	Continuity of a call during its transfer by means of cellular end equipment from the coverage area of a cellular radiocenter of one licensee to the coverage area of a cellular radio center of another licensee, in a continuous manner, withoutbeing disconnected or disrupted.
"Call"	Including SMS messages, data communication, cellular Internet surfing, use of applications and the like.
"Roaming Licensee'sSubscriber"	Including a subscriber of a cellular licensee on another network, where such licensee utilizes a roaming licensee'snetwork.
"Lockdown"	A state in which the end equipment of a roaming licensee's subscriber, who roamed to a host network, continues toreceive service on the Licensee's network after the termination of the call, even if the roaming licensee has coverage inthat area.
"Specifications"	The current 3GPP9 recommendations regarding domestic roaming as in effect from time to time.

1. The Licensee shall provide by means of its network to a roaming licensee a domestic roaming service, as stated in section 67E, in accordance with the conditions set out below.

2. The Licensee shall provide a domestic roaming service, as stated, by one of the following two methods:

• (a)Call transfer The Licensee shall enable the transfer of a call which is being conducted by means of a subscriber's end equipment from a roaming licensee's network to the Licensee's network, when the roaming operator's network has no coverage in that area. After the transfer, the call shall be conducted on the Licensee's network up to its termination.
• (b)Call setup The Licensee shall enable the setup of a call on its network, by means of the end equipment of a roaming subscriber's licensee, if the roaming operator's network has no coverage in that area, or due to locking down of the end equipment of the roaming subscriber on the Licensee's network. Following its setup, the call shall be conducted on the Licensee's network up to its termination.
• 1. The Licensee shall determine the duration of the lockdown time in accordance with the requirement of the roaming licensee.

1. The Licensee shall guarantee reasonable and equal conditions for every roaming licensee, as regards the

8 Handover.

9 3rd Generation Project Partnership.

Second Schedule –Appendix C – 1

________________________

provisions of cellular services by it, including the following:

• (1) Prohibition on discrimination The scope, nature and quality of the services received by a roaming licensee's subscribers may not be inferior to those provided to the Licensee's subscribers. Insofar as the Licensee creates a distinction between categories of its subscribers, regarding the scope, quality or nature of its services, it shall allow the roaming licensee to maintain the same distinction for its subscribers.
• (2) Transfer The Licensee shall allow a roaming licensee's subscribers a one-way transfer, i.e. from the roaming licensee's coverage area to the Licensee's coverage area, in a continuous manner, without disconnection or interruption of the call.
• (3) Advanced network The Licensee shall provide domestic roaming services to a roaming licensee by means of its most advanced network10 and within the lowest frequency utilized by it11; only if it does not have such coverage shall it provide the roaming licensee with domestic roaming services by means of a higher frequency range or by means of an earlier generation network12, all according to the same priority as its own subscribers.
• (4) Range of services The Licensee shall enable a roaming licensee to provide the entire range of services the roaming licensee wishes to provide to its subscribers, subject to the host licensee's technical possibilities and provided this does not burden it unreasonably.
• 1. The Licensee shall cooperate with the roaming licensee, including by
  • (1) Blocking sites The Licensee, at the roaming licensee's request from time to time, shall block the use by the roaming licensee's subscribers in specific coverage areas of sites of the Licensee in which the roaming licensee has coverage.
  • (2) Dynamic update The Licensee shall update the roaming licensee on a regular basis regarding the data required for domestic roaming support, according to the roaming licensee's needs and in line with the expansion of its network, and regarding changes in the Licensee's network, including traffic data by sites, records of calls13, billing data of the roaming licensee's subscribers, malfunctions, changes in systems, etc., and the Licensee shall also update its systems, as necessary, according to the network data of the roaming licensee.
  • (3) Location data The Licensee shall provide to a roaming licensee, on a regular basis, real-time location data of the roaming licensee's subscribers who are within the Licensee's coverage area. Such location data shall not be less than those received for the Licensee's subscribers.
  • (4) Visibility The Licensee shall operate, to the extent possible, in such a manner that a roaming licensee's subscribers do not notice that they are receiving service through the Licensee.

10 UMTS / HSPA / HSPA+ and in the future LTE.

11 For example, a licensee operating UMTS networks within frequency ranges of 850/900 MHz and 2100 MHz, shall provide to the roaming licensee's subscribers services by means of the network within the 850/900 range according to the same priority as its own subscribers.

________________________

12 GSM / GPRS / EDGE.

11 Call Details Record (CDR).

• (5) Switching The Licensee shall transfer all the outgoing and incoming calls through the roaming licensee's network, to enable the roaming licensee to provide to its subscribers all the services it wishes to provide to them, including signaling of failed calls.
• (6) Intelligent network The Licensee shall support, to the extent possible, intelligent network services provided by a roaming licensee.
• (7) Calls to emergency centers The call of a roaming licensee's subscriber to an emergency center set up on the Licensee's network shall be routed directly to the emergency center by the Licensee, unless the roaming licensee is able to route it to the appropriate emergency center according to the subscriber's geographical location.
• (8) Compliance with statutory provisions The Licensee shall cooperate with the roaming licensee for the purpose of complying with any statutory provision issued to any of them, where such cooperation is required by the existence per se of domestic roaming.
• (9) Handling malfunctions The Licensee shall repair malfunctions in its systems which impair or could impair the domestic roaming service level agreed upon between the Licensee and the roaming licensee14 or determined by the Ministry.
• (10) Prevention of information transfer The Licensee shall keep fully confidential any information relating to a roaming licensee, and shall prevent the transfer of any information relating to the roaming licensee from its employees and representatives who handle the operation of the domestic roaming to any other personnel of the Licensee, and particularly the Licensee's marketing and sales personnel.

1. The Licensee shall operate, with respect to domestic roaming, in accordance with the Specifications. Where any matter is not regulating in the Specifications, the licensees concerned shall act according to the best engineering practice15.

14 Service Level Agreement (SLA).

15 Best Engineering Practice.

Annex D – Preparing to Ensure Continuity of Operations in Emergencies

1. Introduction

• 1.1. The Israeli communications sector constitutes a vital national infrastructure both on a routine basis and in emergencies, and hence requires the License Holder to prepare to ensure continuity of operations in order to continue to provide its services also in emergencies.
• 1.2. The License Holder will implement a comprehensive work plan and will ensure its durability for functioning in emergencies, while ensuring continuity of operations to provide its services.
• 1.3. This annex constitutes a minimal action framework for the License Holder in order to maintain continuity of operations in emergencies, which includes a business continuity program (BCP) and a disaster recovery plan (DRP).

2. Definitions

"Interim Site"	-	A site containing sub-systems of the network for performance of connection and control of end sites;
"Alternative Site"	-	A site held in a state of preparedness and intended for use in an emergency, at which the activity to ensurecontinuity of operations will continue;
"Core Site"	-	A main site which contains central systems of the network including switch, databases, computer systems,storage and a control and management center;
"End Site"	-	A cellular radio center on a license holder's network;
"Sharing Agreement"	-	An active frequency sharing agreement, as defined in Section 19A of the license;
"Recovery Target"	-	A target determined by the License Holder for reinstating technological activity and support systems to adefined service level and within a defined time period;
"Portable Site"	-	A portable end site;
"Continuity of Operations"	-	Ensuring continuity of operations of the License Holder's services, which includes a disaster recovery plan anda business continuity program;
"Plan"	-	Plan to ensure continuity of operations;
"Business Continuity Program"	-	Plan of action carried out by the License Holder in emergencies to ensure continuity of operations of processesthat are defined as critical and of the communication, computer and storage systems (BCP).

3. Formulation of a plan to ensure Continuity of Operations

• 3.1. The License Holder will formulate a plan to ensure Continuity of Operations which will assist it in emergencies to ensure its ability to operate continuously, to mitigate the harm to provision of its services and to recover its operations; the plan will include at least the following issues:
  • (a) Analysis of risks to which it is exposed in emergencies, including an analysis of results, repercussions and implications for the ongoing and proper work of the infrastructures and of its services;
  • (b) Determination of service targets and Recovery Targets for emergencies, in accordance with the analysis of the risks and their implications for Continuity of Operations and continued provision of its services;
  • (c) The guidelines specified below in this annex, including the various plans specified below in this annex, while addressing the roles and responsibilities of various functionaries in the management of the emergency situation and actual implementation of the plan;
  • (d) Assimilation of the plan among the managers, employees, suppliers and subcontractors.

4. Liability of the board of directors and the management

• 4.1. The License Holder's board will approve the plan, while addressing the risks to Continuity of Operations and control thereof, as part of the comprehensive work framework for risk management, and shall instruct the License Holder's management to carry out the same.
• 4.2. The board of directors will discuss the Continuity of Operations issues upon significant technological changes and after a communication failure event, a significant failure in critical IT systems such as the billing system or the customer relationship management (CRM) system, provided that the Continuity of Operations issues are discussed at least once a year.
• 4.3. The License Holder shall appoint a Continuity of Operations manager and shall define his responsibilities and powers, which shall include ensuring implementation of the plan and adjustment thereof to technological changes, the existence of an assimilation plan, practice drills and lesson drawing as well as mapping and monitoring existing deficiencies and reporting thereon to the management.
• 4.4. The plan will be periodically audited by the internal auditor or a senior officer of the License Holder.

4.5. The board of directors and the management will define periodic monitoring discussions, documentation and reporting format, within the company.

5. Management of an emergency situation

• 5.1. The License Holder shall appoint a senior executive to declare the transition from routine work to emergency work in a transition from routine to emergency procedure.
• 5.2. The License Holder shall operate a situation room in emergencies, which includes all of the resources required to manage the situation, including alternative means of communication which do not rely on the License Holder's network (the "Main Situation Room").
• 5.3. The License Holder will set up an alternative situation room at another site, at a distance of at least thirty (30) km from the Main Situation Room; the aforesaid notwithstanding, at the License Holder's written request, the Director may approve having an alternative situation room at a shorter distance.
• 5.4. The situation room will be used by the officers of the License Holder to manage the situation and to operate the plan of action for Continuity of Operations.
• 5.5. The License Holder will appoint a team to manage the emergency situation, to comprise, inter alia, the officers, key decision makers and technology professionals (communications and IT).

6. Manpower, economic immobilization and emergency economy

• 6.1. The License Holder will act vis-à-vis the Ministry of Economy for its recognition as an essential enterprise pursuant to the Emergency Work Service Law, 5727-1967.
• 6.2. The License Holder will prepare manpower for every operating sector thereof which will allow it Continuity of Operations; the License Holder will validate the manning lists once a year.
• 6.3. The License Holder will ensure regular working conditions and inter alia, on the following matters:
  • (a) Food, water, sleeping equipment for all of the manned sites;
  • (b) Equipment, protection, food and water for the field teams (field technician/field maintenance);
  • (c) Protected spaces/rooms (floor shelters/apartment shelters) and safe work areas.
• 6.4. The License Holder will maintain one armored vehicle which will allow the activity of a field team. A license holder which operates more than 1,000 sites will maintain an additional armored vehicle; such vehicles shall be owned by the License Holder or supplied through a supplier.

6.5. The License Holder will arrange for a transportation system for its employees to travel to and from its sites according to the manpower standard it has determined for each of its operating sectors as stated in Section 6.2.

7. Continuity, backup and survivability of the network and the infrastructure

• 7.1. The License Holder's network will comprise at least two Core Sites at a geographic distance of at least thirty (30) km; the aforesaid notwithstanding, at the License Holder's written request, the Director may approve having Core Sites at a shorter distance.
• 7.2. The core systems on the network will operate on BCP architecture, insofar as the technology is available from the equipment manufacturer.
• 7.3. The core of the network will be planned to have no single point of failure, a malfunction in which causes the malfunction of the entire network.
• 7.4. The License Holder will operate a manned management and control center 24/7, 365 days a year, for the monitoring, control and operation of all of the network's components.
• 7.5. The License Holder will set up an alternative management and control center at another geographic site at a distance of at least thirty (30) km; the aforesaid notwithstanding, at the License Holder's written request, the Director may approve having an alternative management and control center at a shorter distance.
• 7.6. The alternative management and control center shall include all of the management and control systems required for Continuity of Operations of the License Holder's services independently, and will be available for immediate action.
• 7.7. The License Holder will formulate a technological and engineering backup plan for the Core Sites which will enable Continuity of Operations in the event of a Core Site failure.
• 7.8. The License Holder will formulate a technological and engineering backup plan for the Interim Sites which will enable Continuity of Operations in the event of an Interim Site failure.
• 7.9. The License Holder will formulate a contingency plan (without actual rollout of additional infrastructures) which will be operated at failure events to link End Sites in accordance with criteria to be determined by the License Holder.
• 7.10. In the event of a failure at the Core Site or an Interim Site, the backup plans will allow additional reception of at least fifty percent (50%) of the disconnected End Sites.
• 7.11. The License Holder will formulate a plan for regular backup of data and information systems on a routine basis and in emergencies at another geographic site, at a distance

of at least thirty (30) km; the aforesaid notwithstanding, at the License Holder's written request, the Director may approve an Alternative Site at a shorter distance.

• 7.12. The License Holder will maintain backed up transmission infrastructures to link the Core and Interim Sites.
• 7.13. The License Holder will maintain four (4) Portable Sites which will substitute damaged End Sites, to expand coverage or increase capacity; such resources shall be owned by the License Holder. The aforesaid notwithstanding, in the event that the License Holder entered into a Sharing Agreement with another license holder, the License Holder may maintain the aforesaid together with the other license holder.
• 7.14. The License Holder will have the independent capacity to roll out and operate the Portable Sites, supply energy and transmission and connect them to the network within twelve (12) hours.
• 7.15. The License Holder will maintain reserve technical equipment for the entire technological system which will allow current continuous maintenance for at least three weeks, without the need to bring alternative equipment from overseas; such equipment shall be owned by the License Holder.

8. Transmission infrastructures

• 8.1. The License Holder will formulate a technological and engineering backup plan for the infrastructure and the transmission routes for Continuity of Operations of the transmission services, through landline or wireless transmission.
• 8.2. The License Holder will formulate a technological and engineering backup plan for the transmission infrastructure connecting the network to the core facilities of another general license holder and any license holder through which it provides the internet access service.

9. Energy and electricity infrastructures

• 9.1. The License Holder will prepare for energy and electricity backup, as specified below, for which purpose it may use a supplier:

  • (a) Core Sites alternative supply of electricity through batteries, generators, diesel oil containers and supply of diesel oil for continuous operation of at least forty-eight (48) hours;
  • (b) Interim Sites alternative supply of electricity through batteries, generators, diesel oil containers and supply of diesel oil for continuous operation as specified below:
    • (1) An Interim Site which connects more than thirty-two (32) End Sites for twenty-four (24) hours;

• (2) An Interim Site which connects up to thirty-two (32) End Sites for twelve (12) hours.

• 9.2. The License Holder will prepare for energy and electricity backup at the End Sites for an alternative supply of electricity through batteries for two hours for each End Site whose activity is required to meet the coverage level set forth in the provisions of the license; such batteries shall be owned by the License Holder.

• 9.3. The License Holder will maintain at least six (6) generators for continuous operation of End Sites in the event of a power outage; such generators shall be owned by the License Holder. The aforesaid notwithstanding, in the event that the License Holder entered into a Sharing Agreement with another license holder, the License Holder may maintain the aforesaid together with the other license holder.

• 9.4. The License Holder shall enter into an agreement with a subcontractor for the repair and transportation of generators in emergencies.

• 9.5. The License Holder shall enter into an agreement with a supplier for the supply of diesel oil for fuelling in emergencies.

10. Data and system protection

• 10.1. The License Holder shall formulate a data and system protection plan which shall include protection procedures and responses to data protection events.
• 10.2. The data and system protection plan will be determined in accordance with the instructions of the Ministry and the security forces.
• 10.3. The License Holder will determine the work procedures and rules for remote access upon a data systems event as part of the plan to ensure Continuity of Operations.

11. Suppliers and subcontractors

• 11.1. The License Holder shall ensure that the engagement agreements with the suppliers and the subcontractors regulate the duty of the supplier and the subcontractor to provide the services required by the License Holder to ensure Continuity of Operations in emergencies.
• 11.2. The agreements shall include a plan to ensure Continuity of Operations at the supplier and the subcontractor, including manpower and the resources required to provide the service.
• 11.3. The agreements shall include the participation of the supplier and the subcontractor in drills.

12. Reinstatement of service in emergencies

• 12.1. In the event of a significant service interruption in an emergency, the License Holder will reinstate the service according to the reinstatement of service procedure; insofar as possible, the procedure will give priority to the reinstatement of service to vital bodies, including security forces and emergency services, hospitals, emergency centers and government ministries.
• 12.2. The procedure will be formulated such that reinstatement of the communication services will be according to the order specified below:
  • (a) Dialing and maintaining a voice call between subscribers of the License Holder and between its subscribers and the subscribers of another license holder;
  • (b) National and personal messaging (cell broadcast);
  • (c) Surfing services;
  • (d) Sending SMSs between subscribers of the License Holder and between its subscribers and the subscribers of another license holder;
  • (e) The other services.

13. Restoration of the service

• 13.1. The License Holder will formulate a plan for restoration of its services which includes the following stages:
  • (a) Immediate restoration preplanned restoration; such restoration will be carried out within a very short time and almost automatically;
  • (b) Interim restoration utilization of existing surplus capacity, including available alternative machines; such restoration will be carried out within several days;
  • (c) Long-term restoration installation of new systems; such restoration will be carried out within weeks or months and is contingent on available equipment at the supplier and installation and construction capabilities.
• 13.2. According to the restoration plan, the service level of the various services provided by the License Holder will be determined.

14. Assimilation and practice

• 14.1. The License Holder will implement the plan to ensure Continuity of Operations among its employees by instructing and training them.

• 14.2. The License Holder will formulate a periodic practice drill plan which includes all of the scenarios and the critical processes included in the plan to ensure Continuity of Operations.

• 14.3. The License Holder will carry out, within the company, a practical and comprehensive drill, once a year, with the participation of an internal control team which shall examine the License Holder's emergency preparedness; the License Holder will notify the Ministry of the date of holding of the drill at least thirty (30) days in advance thereof and will allow the Ministry's representatives to attend the same.

• 14.4. The conclusions of the drill will be provided to the License Holder's management to study and examine required updates to the plan to ensure Continuity of Operations; the conclusions of the drill will be provided in writing to the Director within thirty (30) days after the holding of the drill.

15. Procedures

• 15.1. The License Holder will formulate designated procedures for various emergency scenarios in the framework of the plan, as specified below:
  • (a) Procedure for handling malfunctions and irregular events in emergencies and recovery therefrom;
  • (b) Procedure for skipping and transition to an alternative management and control center;
  • (c) Procedures for backup and survivability of Core and Interim Sites;
  • (d) Operation of portable resources procedure;
  • (e) Procedure for reporting to the Ministry in emergencies;
  • (f) Procedure for operation of the customer service system in emergencies;
  • (g) Procedure for protection and response against data protection events;
  • (h) Reinstatement of service in emergencies procedure;
  • (i) Transition from routine to emergency procedure.
• 15.2. The procedures will be approved by relevant officers at the company and will be updated once a year.

16. Miscellaneous

16.1. This annex will take effect no later than Tuesday, Elul 17, 5775 (September 1, 2015), with the exception of Sections 7 and 9, which will take effect no later than Tuesday, Adar A 21, 5776 (March 1, 2016).

Appendix E – Minimum Requirements and Level of Subscriber ServicesA16)

1. System Performance

1.1 Definitions:

"Population" - the entire population in the area, according to the publications of the Central Bureau of Statistics

"Layout Ratio"- the ratio between the household rates in the peripheral settlements and the household rate in central settlements;

"Central Settlement" – A settlement defined by the Central Bureau of Statistics as a settlement of a "intermediate" level (clusters 5,6), at a "central" level (cluster 7) and at a "very central" level (clusters 8, 9, 10);

"Peripheral Settlement" – A settlement defined by the Central Bureau of Statistics as a settlement at a "very peripheral" level (clusters 1, 2, 3) and a "peripheral" level (cluster 4);

"Street" - the area (length x width) of any street whose number is up to 4 digits inclusive, and the national and local railroad route in the area of the State of Israel, during the license period; when the width of the street or the national and local railroad route shall include the actual width of the street/route + 5 meters from each side of the street/route;

"Coverage Level"- Broadcast and reception of electromagnetic signals which allow for the proper existence of any service to the mobile telephony communications end equipment, rising to a height of one and a half meters (1.5) above the surface;

In this regard, proper existence of the service shall be considered the service provided in the Coverage Area, while meeting the minimum requirements in regards to the service level, as specified in this Clause;

"Area"- the overall area regarding which the Law, jurisdiction and Administration of the State of Israel apply.

"Blocked Calls"- calls and data communication or links that cannot be established or messages that cannot be transferred immediately upon an order to establish contact due to unavailability of the network resources or resources for linkage between the network and other networks;

"Dropped Calls"- calls and data communications or links that were terminated not by the initiation of the subscriber who initiated the call / link or the call recipient.

1.2 Milestones for the establishment of the network:

(a) The network and its services shall meet the performances, features and indicators defined in the engineering plan – Appendix B, including an engineering plan attached to the Generation 4 Tender;

(b) The milestones for the establishment of the network and provision of service:

(1) canceled;

(2) network using Generation 4 technology:

1. ((a)) Stages and dates

Stage A at the end of 18 months from the determining date;

Stage B at the end of 36 months from the determining date;

Stage C at the end of 48 months from the determining date;

Stage D at the end of 24 months from the date of the manager's announcement;

"Determining Date" - date of amendment of the license

"Date of Manager's Announcement"- the date on which the manager shall provide the License Owner notice in writing regarding the performance of Stage D. The notice shall be provided after the end of 60 months from the determining date.

((b)) The License Owner shall operate to establish the Generation 4 network as follows:

((1)) shall submit a layout plan in a format set forth in the provisions of this Appendix no later than sixty (60) days after the Determining Date; the layout plan shall constitute part of the engineering plan.

((2)) the layout plan shall include the following data:

(((a))) all of the settlements in Israel shall be detailed therein, in accordance with the Central Bureau of Statistics, divided into two groups – Central Settlements and Peripheral Settlements; the number of households in each settlement shall be stated next to the name of each settlement, and the total number households in central settlements and in peripheral settlements shall be stated; the planned date for the completion of the layout plan for each settlement shall be stated next to each settlement;

(((b))) all of the Streets shall be detailed therein; next to each Street the number of the Street shall be stated and across from each Street, the planned date for the completion of the layout plan for that Street shall be stated.

((3)) The License Owner may update the layout plan and change the order of the settlements or Streets in which the network layout is planned by providing notice to the manager up to 60 days before the date the layout is planned, provided that the updated layout plan meets the provisions set forth in this Appendix.

((4)) The network layout pace shall be as follows:

(((a))) at the end of one year from the Determining Date, the License Owner shall layout the network so that at the end of said period, there will be access to the network at a certain rate of households, according to the determination of the License Owner, provided that no later than 12 months from the Determining Date, the License Owner shall commence providing the service;

(((b))) As of the beginning of the second year from the Determining Date, the License Owner shall layout the network at the Layout Ratio that is no less than one (1), and according to the following:

At the end of Stage A – coverage of 30% minimum requirements of the network coverage obligation, as stated in Clause 1.3(b)(1); At the end of Stage A – coverage of 65% minimum requirements of the network coverage obligation, as stated in Clause 1.3(b)(1); At the end of Stage A – coverage of 100% minimum requirements of the network coverage obligation, as stated in Clause 1.3(b)(1); At the end of Stage A – coverage of 100% minimum requirements of the network coverage obligation, as stated in Clause 1.3(b)(1);

1.3 Minimum Requirements of the Obligation Network Coverage:

(a) canceled;

(b) In the Generation 4 technology:

Second Schedule –Appendix E – 2

Appendix E

Appendix E

(1) in stages A through C, the network performances and services shall be supplied while meeting the coverage level, and shall be no less than the following minimum requirements:

((a)) Service area: an area in which 97% of the Population resides, and not less than 75% of the area;

((b)) Settlement: each settlement separately, the coverage level shall be at least 90% of the settlement area.

((c)) Street / Route:

((1)) 90% of the area of a single digit, double digit and triple digit street, national and local railroad route, including stations, road structures and operational areas and tunnels in each street or national and local railroad route;

((2)) 75% of the area of a four digit street and national railroad route for cargo trains.

(2) in stage D, the network performance and services shall be supplied while meeting the coverage level, and shall be no less than the following minimum requirements:

((a)) Service area: an area in which 99% of the Population resides, and not less than 95% of the area; ((b)) Settlement: each settlement separately, the coverage level shall be at least 95% of the settlement area.

((c)) Street / Route:

((1)) 95% of the area of a single digit, double digit and triple digit street, national and local railroad route, including stations, road structures and operational areas and tunnels in each street or national and local railroad route;

((2)) 85% of the area of a four digit street and national railroad route for cargo trains.

1. (c) canceled.

1.4 Service Quality:

(a) Blocked Calls and Dropped Calls:

(1) a percentage of Blocked Calls at peak times shall not exceed two percent (2%) and the percentage of Dropped Calls at peak times shall not exceed two percent (2%).

(2) up to ten percent (10%) of all sectors shall allow for deviation beyond two percent (2%).

(3) Amount of Blocked and Dropped Calls shall be measured in the following manner:

((a)) the measurement shall refer to a one-hour time frame;

((b)) the peak time tow which the measurement shall refer shall be the busiest time of the system, during the week, which is not a Hol Hamoed or holiday eve;

((c)) the measurement and the calculation of the percentage of Blocked or Dropped Calls shall be performed by the License Owner of each sector and the system in general. The data shall be presented in a graphical manner and shall be forwarded to the Ministry in the framework of the engineering system report.

(b) The reception of a reference signal for Generation 4 services to networks on a broadband of 15/20 megahertz of signals received from descending/upward channel, according to the limiting of the two, under the ETSI[16] standard, according to a bandwidth of 5 megahertz, shall be:

Generation 4 network		Reception Range
	Descending Channel	Upward Channel
1800 frequencies		-101.5 (Site in open area)
Megahertz		-93.5 (site in constructed area)

16 http://www.etsi.org/deliver/etsi\_ts/136100\_136199/136104/10.01.00\_60/ts\_136104v100100p.pdf Tables 7.2.1-3, 7.2.1-2, 7.2.1-1 http://www.etsi.org/deliver/etsi\_ts/136500\_136599/13652101/11.02.00\_60/ts\_13652101v110200p.pdf Table 7.3.3-

For indoor coverage – relief of 20db.

The examination shall be performed once per year by the License Owner for each sector and each cell. The data shall be presented and delivered to the Ministry by way of a national coverage map in the framework defined in the engineering system report.

(c) Service provision pace:

(1) Canceled;

(2) In regards to the proper existence of data communications in Generation 4, the record data pace per sector in the descending channel / upward channel:

Table 1	Record data pace (Mbps) in a network of 20megahertz bandwidth
Data Upload	At least 100
Data Download	At least 50
Table 2	Record data pace (Mbps) in a network of 15megahertz bandwidth
Data Upload	At least 80
Data Download	At least 40

The License Owner shall measure once per quarter the provision of record service pace and shall present the data and the method of examination in the framework of the engineering system report.

2. Customer and Subscriber Services Quality Measures

2.1 Service to provide information to customers and subscribers: will be provided through a telephone call to a call center, on the license holder's website, by e-mail and by facsimile; such service may be provided also through a representative in a service station open to the public, through an IVR system, SMS, chat or by regular mail. A69

2.2 Standards for accessibility and provision of information:

(A) A56A call center will be manned twenty four (24) hours a day, for receiving calls regarding theft or loss of cellular end-equipment, a network malfunction leading to termination of all cellular services to the subscriber and the "international roaming service", all days of the week except on Yom Kippur.

A73For the purpose of inquiries regarding an international roaming service – the licensee is required to allow any subscriber who is Abroad to contact the said call center free of charge, provided that the inquiry is made via a telephone number which is on the licensee's network. The licensee shall publish the telephone number for calls from Abroad on its website.

A69 Amendment No. 69

A56 Amendment No. 56

A56 Amendment No. 56

Appendix E

• (B) A56The call center will be manned at least thirteen (13) hours a day Sundays through Fridays, and five (5) hours a day on Fridays and eves of holidays for receiving calls pertaining to a problem in receiving cellular services, which is not a malfunction as stated in subsection (a), and in connection with the Licensee's services.
• (C) The reply at the call center will be within a reasonable time. Should the Director observe that the waiting time at the call center is not reasonable, he may set measures for response time.
• (D) A caller to a call center during unmanned hours will be referred to a message box to leave a message, and will receive a reply on the following day.
• (E) The Licensee will operate additional channel allowing subscribers to contact it for provision of information and for queries, such as: - Computerized voice system IVR;
  • queries via post;
  • queries via fax;
  • queries via e mail.
• (F) The Licensee will publish its service office address and telephone number of the call center in the following ways, among others:
  • In the engagement agreement with the subscriber;
  • In the bills sent to the subscriber;
  • In any document sent on behalf of the Licensee to the subscriber in a matter relating to customer services;
  • In telephone directories and in telephone information centers.
• (G) A58 The Licensee may not use a telephone number with a cell phone area code for a fax service for the purpose of receiving complaints from the public.
• (H) A58Access to all call centers for reporting malfunctions, loss or theft (hereinafter problem reporting center") will be via a toll-free service (1-800 service). The Licensee will enable access to the problem reporting center from any national domestic network.
• (I) A58 Subject to that stated in subsection (h), access to all call centers for matters pertaining to the Licensee's services will be by means of each of the following:
  • (1) A network number to which access is free of charge;
  • (2) A split-charge call service (1-700 service) or a toll-free service (1-800 service).

2.3 Bills to Subscribers

(A) Bills to subscribers will set out the relevant details for such bill, out of the following:

A56 Amendment No. 56

• A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

• A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

• A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

• (1) monthly charge (fixed charge)

• (2) duration of calls or air time (minutes, seconds)

• (3) volume of data use (MB,kB) if the service provided is charge by volume of data transmitted.

• (4) Other charges (such as for receipt of data, SMS transmission, mobile electronic commerce).

• (5) Combination of the above charge methods.

(B) Structure of the Bill

Bills will be sent in a fixed form, as follows:

(1) Following payment; the bill will serve as a receipt, including:

the amount for payment not including VAT, rate of VAT and total for payment including VAT. In this section, the identifying particulars of the Licensee will be specified, and the identifying particulars of the subscriber.

(1) The Licensee may include information regarding deals and personal notices to the subscriber.

(C) Production and delivery of bills

• (1) The Licensee will produce monthly bills for its subscribers or at any other time with subscriber's consent.
• (2) A subscriber who wishes to disconnect from the Licensee shall receive a final bill on the nearest possible date, and no later than two months after the disconnection date. A61Where the subscriber and the Licensee agreed on payment in installments for end-equipment purchased by the subscriber from the Licensee, and the subscriber's contract with the Licensee is cancelled before the subscriber has paid all the installments on the end-equipment which he purchased from the Licensee, the Licensee will send the subscriber a final invoice for the Licensee's services, and thereafter the Licensee will be entitled to send the subscriber invoices only in respect of the debit for the endequipment. A58

A final invoice will be titled 'Final Invoice'.

(3) Void T52

2.4 A43)Measures for Handling Public's Applications

• (A) Level of handling a written complaint The response times for complaints will be up to 14 workdays; the response for 5% of complaints will be within a month.
• (B) Measures for quality of service of the service centers
  • 90% of applications will be handled directly by the service representatives, up to completion.

A61 Amendment No. 61 A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). T52) Amendment No. 52.

• Not more than 10% of applications, some due to escalation of complaints, will be referred to more senior levels.
• (C) Applications clarified by the senior level In any case where the Public Ombudsman's reply to a complaint does not satisfy the applicant, the application will be passed on to the managerial level, which will examine the it again and reply directly to the applicant. In any event, the applicant will receive a response within 30 days from the day of his application.

2.5 A70 Manner of Use of an Electronic Graphic Signature

• (a) Identification of subscriber the Licensee shall identify the subscriber before modifying an engagement agreement or having him sign a new engagement agreement, through a photo-bearing I.D. or a power of attorney together with an I.D. of the attorney.
• (b) Use of a digital screen the Licensee shall allocate for the subscriber's sole use, throughout performance of the transaction until completion thereof, a digital screen, and shall allow the subscriber reasonable time to inspect the entire agreement and to understand the content thereof before being required to sign the same.
• (c) Signature by the subscriber the "access to services form" and the documents relevant to the agreement shall be marked and signed only by the subscriber.
• (d) Fixed signature each signature will be separately locked and fixed in place, with the unique characteristics thereof, such that it will be possible to prove that this signature is not the result of the "copying and pasting" of another signature of the subscriber signed elsewhere in the engagement agreement or in other documents. Further to the aforesaid, each signature shall have an information layer in addition to the signature – which shall document the exact time of the signing thereof (precise date and time accurate to within a second).
• (e) "Locking" of an agreement Upon completion of the execution of the entire agreement, the agreement document shall be "locked", such that it will be possible to identify any modification of the agreement after the date of signing. The "locking" of the agreement by a secured electronic signature or an approved electronic signature ("Electronic Signature") of the Licensee, within the meaning thereof in the Electronic Signature Law, 5761-2001, immediately after the execution thereof by the subscriber, shall be deemed as reasonable means of locking the agreement and protecting it against changes.
• (f) Document Retention the Licensee will retain documentation of any and all of the agreement documents in accordance with the requirements of Section 113.1 of its license, and shall regularly take measures to prevent the undocumented addition or omission of documents to the electronic archive system. A Licensee will take the necessary measures and processes in order to ensure that the content of the agreement is retained without modification from the date of the drafting thereof and throughout the retention period, considering technological changes or changes in the encryption methods used to retain documents. A Licensee may prove to the Ministry at any time that it took such measures and processes.
• (g) Receipt of a copy of the engagement agreement –

Appendix E

• (1) The subscriber may choose between two options for the receipt of documents at the time of consummation of the transaction (by checking one of two boxes):
  • ((a)) Box one to receive only the "plan summary pages" (up to 2 pages);
  • ((b)) Box two to receive the full signed agreement.
• (2) The subscriber shall confirm his choice by his signature. The space for the signature shall be adjacent to the said two boxes.
• (3) A subscriber who requests to receive only the "plan summary pages" will need to state his e-mail address or his fax number, to one of which the full signed agreement shall be sent (including 2 "plan summary pages").
• (4) The e-mail address or the fax number to which the full agreement shall be sent will be typed in by the sales representative (on his own keyboard).
• (5) The address or fax number shall appear beneath and adjacent to the said boxes.
• (6) The subscriber shall confirm by an additional signature that this is the e-mail address or fax number, to one of which the agreement shall be sent.
• (7) As a consequence of the aforesaid: any subscriber who does not have an e-mail address or a fax shall receive the full agreement at the time of consummation of the transaction.
• (h) Identification of the representative any agreement shall include unequivocal identification of the representative who had the subscriber sign (full name and signature).
• (i) The Licensee shall retain in its possession a signed copy of the engagement agreement; such copy will be available at the Licensee for presentation to the Director within five (5) working days from the date of the engagement;
• (j) If the subscriber requests to make a change to the terms and conditions of the engagement agreement, including a request to receive an additional service, to cancel a service, or to join a service plan – printed notice bearing the name or logo of the Licensee shall be delivered to the subscriber upon the request for the change, stating the details of the change made, the date of its taking effect and the full name of the Licensee's representative and the subscriber and their original signatures. The signed notice shall be available at the Licensee for presentation to the Director within five (5) working days from the date of fulfillment of the subscriber's request.
• (k) Cold Calling the rules specified above shall also apply to cold calling.

Appendix E1 T52 - Fair Disclosure in Telephone Bills

General

For the purpose of this Appendix, "telephone bill" means a bill submitted by a licensee to a subscriber for services it provided to the subscriber itself or for services provided to the subscriber by any other licensee or service provider using the collection services of the licensee for the purpose of collection of payment from the subscriber.

• 1. The telephone bill (hereinafter referred to in this Appendix as the "Bill") to be presented by the licensee to a subscriber shall be clear, legible and comprehensible; the Bill shall include accurate details about the components of the charge demanded, as set forth in this Appendix.
• 1. The Bill shall include the following parts:
  • A. "Billing Summary";
  • B. "Billing Details" including:
  • 1. Details of fixed charges, variable charges, one-time charges, credits and reimbursements, within the meaning in section 8 E of this Appendix;
    • 1. Information on usage patterns;
  • C. "Call Details".
  • 1. The Bill shall be constructed using a bottom-up method, with its bottom level being Part C "Call Details", above it Part B "Billing Details" and at the top level Part A - "Billing Summary".
  • 1. The Company name and logo shall be displayed on each page of the Bill, including on the "Call Details".
  • 1. The licensee shall issue a "Billing Summary", "Billing Details" and "Call Details" for each telephone number separately. The licensee may issue to a subscriber holding several telephone lines one "Billing Summary" to refer to all the telephone numbers in the possession of the subscriber, provided that the "Billing Summary" sets forth each of the telephone numbers to which the Bill relates (see examples 1 and 2). "Call Details" and "Billing Details" shall be issued by the licensee for each telephone number separately. Notwithstanding the above, a subscriber in possession of several telephone numbers may demand from the licensee to receive a separate "Billing Summary" for each telephone number in his possession. In this regard, a PRI line shall be deemed one telephone number.

T53) Amendment No. 52.

Appendix E1

• 1. Amounts in the Bill shall be rounded off and shall be set forth according to the provisions of section 2.2.2 of Israeli Standard 5262 "Honesty in Billing and Fair Disclosure in Telephone Bills" (hereinafter referred to in this Appendix as the "Standard") and the provisions of the General License on this matter. It should be clarified that in respect of the manner of calculating the billing amount, in contrast to the manner of presenting the "Call Details", and the "Billing Details", as determined in the provisions, the licensee must calculate this pursuant to the tariff provided in the Regulations, with no rounding off.
• 1. The Ministry of Communications' website in the section on "General Licenses" has examples of telephone bills drawn up pursuant to the detailed provisions of this Appendix (hereinafter referred to in this Appendix as the "Examples"). The Examples are based on telecommunications agreements and tariff plans marketed in 2008 by the general licensees. The examples are for the sake of illustrating the mode of implementation of the provisions only. In the case of any inconsistency between the provisions and the Examples, the binding version is that in the provisions.

Part A - "Billing Summary"

1. The following details shall be presented in the "Billing Summary":

A. Subscriber Details -

• 1. First name;
• 1. Surname;
• 1. Address;
• 1. Customer number;
• 1. Telephone number and/or PRI line number by means of which the services on account of which the Bill is presented to the subscriber were provided;

B. Licensee Details -

• 1. Company name;
• 1. Company management address;
• 1. Customer service telephone and facsimile numbers;

1. Company website address.

C. Dates -

• 1. Billing date;
• 1. Billing period;
• 1. Last date for payment of Bill in respect of a Bill not paid by standing order or by credit card.

D. Notices to Subscriber

• 1. Notice on the option of filing a complaint to the licensee's public complaints commissioner, about his powers and the ways of contacting him. To the extent that the licensee is not obligated under the provisions of its license to notify every subscriber about the option of filing a complaint with the licensee's public complaints commissioner on the telephone bill, the licensee shall present a notice on the option of filing a complaint with the licensee's telephone call center and about the ways of contacting it.
• 1. The licensee's address, telephone number, facsimile number and email address by means of which the subscriber may request the licensee to stop the service or deliver the licensee a notice of cancellation, within the meaning in section 13D of the Consumer Protection Law, 5741-1981. To the extent that the licensee is not obligated under the provisions of its license to provide for the sending of a request to stop the service by email, it is not obligated to present such email address.
• 1. Information on offers and personal notices to the subscriber, at the decision of the licensee.

E. Billing charge exclusive of VAT, as set forth below:

• 1. Fixed charges charges applying to the subscriber not dependent on the scope of usage;
• 1. Variable charges charges applying to the subscriber dependent on the scope of usage;
• 1. One-time charges, such as charges for "Exit Fee", linkage and interest differentials charge for a monetary debt, charge for collection expenses, etc. (hereinafter referred to in this Appendix as "One-Time Charges");

Appendix E1

• 1. Credits, such as credit for return of old terminal equipment, credit for a subsidy on terminal equipment, etc. (hereinafter referred to in this Appendix as "Credits");
• 1. Financial reimbursements for surplus charges (hereinafter referred to in this Appendix as "Reimbursements").

F. Total payment amount will be presented as set forth below:

• 1. Total payment amount exclusive of VAT; the amount shall be calculated according to the charges summary presented in the "Subtotals Summary" and the "Billing Summary";
• 1. VAT amount;
• 1. Total payment amount, plus VAT.
• F. All charges appearing in the "Billing Summary" shall be presented as a decimal number in New Israeli Shekels to a degree of accuracy of two digits after the decimal point.

Part B - "Billing Details"

• 1. Part 1 of the "Billing Details" will include information on fixed charges, variable charges, One-Time Charges, Credits and Reimbursements, as set forth below:
• A. "Billing Details" will include general information on the tariffs plan according to the terms of which the subscriber is charged, including details of its main tariffs, inclusive of VAT. Details of the main tariffs will be presented exclusive of VAT for business subscribers.
• B. If the subscriber's agreement includes a commitment period the licensee must note on every bill in the "Billing Details" the following details:
  • 1. The duration of the commitment period and its date of expiration; the provisions of this subsection shall not apply in respect of a transaction where there is no obligation to give a collection notice as stated in section 13A(d)(2)(b) of the Consumer Protection Law, 5741-1981.
  • 1. The payment the subscriber will be asked to pay if he requests to terminate his agreement with the licensee prior to the expiration of the commitment period to the company or the tariff plan ("Exit Fee") in the course of the billing period following the present billing period (hereinafter referred to in this Appendix as the "Subsequent Billing Period"). In the event that the amount of the Exit Fee changes throughout the Subsequent Billing Period, the time point of reference

for determining the amount of the Exit Fee shall be the middle of the Subsequent Billing Period (see Example 1).

• 1. To the extent that payment of the Exit Fee also includes payment for subsidizing terminal equipment, the aforesaid payment shall be presented separately. In the event that such payment amount is variable throughout the Subsequent Billing Period, the time point of reference will be the middle of the Subsequent Billing Period (see Example 1).
• 1. The licensee will present to the subscriber written details in respect of the mode of calculation of the Exit Fee within 14 days of the date the subscriber submitted a request to the licensee's customer service center or the public complaints commissioner.
• C. "Billing Details shall be presented by means of a table composed of columns and rows, as set forth in the Examples.
• D. Each service provided to the subscriber in the course of the Billing Period shall be presented in the "Billing Details" in a separate row, with the following details:
  • 1. Name of service; the name of the service shall identify as clearly and as accurately as possible, the service provided to the subscriber; respecting a service provided to the subscriber not by means of the licensee, the licensee shall present the details of the service provider, including its name and a telephone number by means of which it can be contacted;
  • 1. Quantity; quantity measured in time will be presented in the form of mm:ss (minutes: seconds). Quantity measured by data volume will be presented as a decimal number in MB to a degree of accuracy of at least 3 digits after the decimal point. The quantity of internet pages viewed or text messages will be presented as a natural number.
  • 1. Tariff; the tariff will be presented as a decimal number in New Israeli Shekels, to a degree of accuracy of at least 3 digits after the decimal point. The tariff is composed of several payment components, such as one tariff for the licensee's services and a second tariff for reciprocal link or for international phone service, will also be presented as one inclusive tariff (see Examples 1 and 2). Calls in respect of which the tariff varies in the course of performance, such as a transition from off-peak to peak rates and from peak to off-peak rates, a change in tariff in the course of a conversation, including a conversation started within the scope of a "pay as you go" plan and exceeding the minutes in the course of performance, will be presented collectively within the "Calls at Variable Tariff in the Course of a Call" service; the tariff will be presented under the column "Average Tariff" and will be calculated by dividing the charge amount in the "Subtotal Row", within the meaning in section 11I of the Appendix by the quantity (see Example 5 - Version A). To the extent that a call in the "Calls at Variable Tariff in the Course of a Call" is presented as set forth in the concluding part of section 11L below, the "Average Tariff" will not be required to be presented and the tariff will be presented according to each segment separately (see Example 5 - Version B).

Appendix E1

• 1. The charge amount; the charge amount will be calculated by multiplying the quantity by the tariff and it will be identical to the charge amount appearing in the "Call Details" in the "Subtotal Row"; the charge in the "Subtotal Row" in the "Call Details" of each segment of a "Call at a Variable Tariff in the Course of a Call" will be included in the "Account Details" within the scope of the appropriate category of service (see Example 5 - Version B).
• 1. In the event that there is also a fixed charge for each individual call, the number of calls made and the fixed tariff per call shall also be presented in the same row and the charge amount shall be calculated by multiplying the number of calls by the fixed charge tariff per call plus the quantity multiplied by the tariff (see Example 4).
• E. The "Fixed Charges", "One-Time charges", "Credits", "Reimbursements" and "Linkage differences and interest" as specified in sections 60.8 and 83A A58, shall each be presented in the "Billing Details" in a separate group (see Examples 3 and 5).
• F. The licensee shall notify the subscriber in the Bill of his option to request written details in respect of the mode of calculation of A58 the "One-Time Charge"; the licensee will furnish the subscriber with such written details within 30 days of the date of submission of a request by the subscriber on the matter to the licensee's customer service center or the customer complaints commissioner (see Examples 3 and 5).
• G. Charges may also be noted in the "Billing Details" for sale of terminal equipment and charges for services which are not telecommunication services.
• H. The "Billing Details" shall include subtotals of charge amounts exclusive of VAT, for fixed charges, variable charges, One-Time Charges, Credits and Reimbursements ("Subtotal Row").
• I. The final charge amount will be presented exclusive of VAT, and alongside such amount will be presented the charge amount inclusive of VAT.
• J. The licensee must note in the "Billing Details" a comment whereby to the extent that there is a difference between the charge amount and the subtotal of charge amounts set forth in the Subtotal Rows of the "Billing Details", they originate in the fact that the charge amount was calculated according to tariffs to a higher degree of accuracy than that determined in the provisions of the license and the Standard.
• K. All charge amounts appearing in the "Billing Details" will be presented as a decimal number in New Israeli Shekels to a degree of accuracy of two digits after the decimal point, unless expressly determined otherwise.

A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011). A58 Amendment No. 58 (inception: this amendment will come into force on March 13, 2011).

Appendix E1

• 1. In Part 2 of the "Billing Details" the licensee shall present in graph form or in any other manner in respect of each telephone number to which the telephone bill relates information about usage patterns, as set forth below:
• A. The rate of utilization of each package of services included in the tariffs plan to which he is a subscriber, including packages of services granted to a subscriber within the scope of the fixed charge;
• B. Details of charges according to categories of services;
• C. Distribution of call minutes and text messages according to categories of licensees on whose network the call was completed (internal network, external network according to category of licensee - mobile radio-telephone, internal domestic fixed line telephony).

Part C - "Call Details"

• 1. The details set forth below shall be presented in the "Call Details":
• A. "Call Details" shall include information about all the services provided to the subscriber in the period to which the Bill relates.
• B. Each "category of service" shall be set forth in a separate group under the heading of the service name, with each item in the "category of service" being presented in a separate row, pursuant to the provisions of subsection 11E. Respecting PTT services, no details are required for each call separately.
• C. Presentation of data in relation to each "category of service" appearing in the "Call Details" will be carried out in ascending chronological order.
• D. "Call Details" will be presented in table format pursuant to the details in the Examples.
• E. In respect of each item appearing in the "Call Details", at least the following data shall be noted:
  • 1. Date of performance of call or text message or internet surfing;
  • 1. Time (hh:mm:ss);
  • 1. Call destination (if any);
  • 1. Quantity;

Appendix E1

• 1. Tariff exclusive of VAT, to a decimal number in New Israeli Shekels to a degree of accuracy of at least 3 digits after the decimal point.
• 1. Charge amount exclusive of VAT, to a decimal number in New Israeli Shekels to a degree of accuracy of at least 3 digits after the decimal point.
• F. The tariff presented shall be the tariff according to which the subscriber is charged, viz., for example, after a discount, if any, the cheaper tariff offered to the subscriber within the scope of any offer, etc.
• G. The quantity, tariff and charge amount will be presented in adjacent columns if possible, so that the quantity multiplied by the tariff will give the charge amount. If there is also a fixed charge per call the quantity of calls made and the fixed charge per call shall be presented and the charge amount will be calculated by the quantity of calls multiplied by the fixed charge tariff per call plus the quantity multiplied by the tariff (see Example 4).
• H. Quantity measured by time will be presented in the form of mm:ss (minutes: seconds); quantity measured by data volume will be presented as a digital number in MB to a degree of accuracy of at least 3 digits after the decimal point; the quantity of internet pages viewed or text messages will be presented as a natural number.
• I. Any "Category of Service" appearing in the "Call Details" will include a summary row in which will be set forth the total quantity for which the subscriber is charged and the total charge amount in respect of such "Category of Service" exclusive of VAT (hereinafter referred to in this Appendix as the "Subtotal Row").
• J. Any charge amount appearing in the "Subtotal Row" will be presented in the "Billing Details" as a decimal number to a degree of accuracy of two digits after the decimal point, with the quantity presented alongside.
• K. The presentation of each Subtotal Row shall be made in a prominent manner.
• L. A call whose tariff is variable in the course of performance thereof, such as a transition from off-peak to peak rate or from peak to off-peak rate, a change in tariff in the course of the conversation, including a conversation starting within the scope of a "pay as you go" program and exceeding the minutes in the course of performance thereof, will be presented within the scope of "Calls at Variable Tariff in the Course of a Call"; the tariff will be presented under the column "Average Tariff" and will be calculated by dividing the charge amount into the quantity (see Example 5 - Version A). A call whose tariff is variable in the course of performance thereof may also be presented in another form in which the charge tariff, the quantity and the charge amount, as well as the total charge of the call will be presented in respect of each segment of such call (see Example 5 - Version B).

Appendix E1

M. The licensee may provide a subscriber making an express request, with Call Details in chronological order in which the calls were provided with no separation between categories of services, provided that it notifies the subscriber within the scope of the "Call Details" that he may receive "Call Details" also pursuant to the format determined in section 11(b).

Appendix E2

A73Annex E2 – Access to Services Form

Form for Access to Services through the Cellular Device that are Billed in the Telephone Bill
	Name of the license holder
	Methods for submission of the form:
	Address
	E-mail address
	Facsimile no.
	Date: ___________________
I, whose details are stated below, request access to the services specified below, for the telephone number stated in this form, as follows:

The Subscriber's Details

		The subscriber's name / the company's name: ______________ I.D./P.C. ________________ Address: ________________ Telephone number:

Check according to your choice and sign. Please be advised that partial checking and signing means that the possibility of receiving the service will be blocked.

No.	Type of Service			Blocked	Open	Subscriber's Signature
1.			Cellular internet in Israel including surfing on the license holder's cellularportal (blocking does not prevent surfing in Israel via WiFi).	☐	☐
1A.	Cellular internet Abroad including surfing on the license holder's cellularportal (blocking does not prevent surfing Abroad via WiFi). open indicationin this section does not include availability for roaming services in Jordan andEgypt.(Note that if you choose "blocked" and purchase, at a certain stage thereafter,a plan/package which includes internet, the blocking will be discontinued by[company's name] and we shall thereafter block you again once you haveused up the package in full or the plan/package has expired, whichever isearlier)		☐	☐
2.	One-timecontent and/orinformationservice	a.	One-time receipt or downloading of content viathe internet, viewing and/or listening thereto(such as: one-time downloading or viewing of avideo, listening to a song, downloading a ringtone,downloading a video, downloading a game).	☐	☐
		b.	One-time sending of a special rate text messageto vote in a program broadcast on television(such as: one-time voting in a reality show).	☐	☐
		c.	One-time giving of a donation by

			sending a text message (such as: a one-timedonation to an association).
		d.	One-time receipt of information (such as: onetime information on transportation routes,professionals, financial information).	☐	☐
3.	Continuouscontent and/orinformationservice –subscription	a.	Receipt or downloading of content via theinternet, viewing and/or listening thereto otherthan on a one-time basis (such as: a subscriptionto download or view videos, a subscription to amusic service, a subscription to downloadringtones, a subscription to download videos and asubscription to download games).	☐	☐
		b.	Receipt of content and/or information otherthan on a one-time basis (such as: a subscriptionto receive news updates, a subscription to receivesports results, a subscription to receive triviaquestions and a subscription to receive dietrecipes).	☐	☐
In an engagement in the presence of a representative of the licensee – I represent that this form has been marked and signed by
Name of the licensee's representative: _________________ Signature of the licensee's representative: ___________________ The subscriber's signature:___________________
			Second Schedule –Appendix E2 – 2

APPENDIX F – ORDERING OF A SERVICE ON THE WEBSITE OF THE LICENSEE OR A SERVICE PROVIDERA61

1. Ordering a Service from the Licensee

1.1 Ordering a Service from the Licensee

The ordering of a service on the Licensee's website or on its cellular portal (both hereinafter – the "Site") shall be done according to one of the alternatives detailed in sections 1.2 or 1.3.

1.2 Random Code

• (a) The subscriber shall enter on the Site, in the place designated for that purpose, his subscriber number[17].
• (b) If the subscriber is blocked for the service, the Licensee shall send the subscriber an SMS notifying him that he is blocked for the type of service that was ordered, and that he can apply to the Licensee to remove the block for that type of service.
• (c) If the subscriber is not blocked for the service, the Licensee shall send the subscriber an SMS including the following:
  • (1) The name of the service including its classification as "one-time" or as "continuing."
  • (2) The price of the service. The price shall be displayed in a detailed manner, including details concerning a "one-time" payment, a "fixed" payment for a specific period, including specification of the period, and the unit price according to which the payment for the service is measured.
  • (3) A random code of five (5) digits (hereinafter the "Sent Code").
• (d) The subscriber shall enter on the Site, in the place designated for that purpose, the Sent Code.
• (e) The Licensee shall compare the Sent Code and the code entered by the subscriber as stated in subsection (d) (hereinafter the "Entered Code").
• (f) If the Entered Code is identical to the Sent Code, the Licensee shall send the subscriber an SMS notifying him that his registration for the service was approved, and in the case of a continuing service – information concerning the manner in which it is possible to cancel the registration for the service.
• (g) If the Entered Code is not identical to the Sent Code, the Licensee shall send the subscriber an SMS notifying him that his registration for the service failed due to such non-identity.

A61 Amendment No. 61 17 Mobile Subscriber Number (MSN).

1.3 User Code and Password

• (a) The Licensee shall display on the Site, next to the place designated for ordering the service, prominently and in a clear and legible manner, the following details:
  • (1) The name of the service including its classification as "one-time" or as "continuing." In the case of a continuing service information concerning the manner in which it is possible to cancel the registration for the service.
  • (2) The price of the service. The price shall be displayed in a detailed manner, including details concerning a "one-time" payment, a "fixed" payment for a specific period, including specification of the period, and the unit price according to which the payment for the service is measured.
• (b) The subscriber shall enter on the Site the user code and the password set or approved for him by the Licensee (hereinafter the "Identity Code").
• (c) If the subscriber is blocked for the service, the Licensee shall display to the subscriber a message addressed exclusively to him on the Site, notifying him that he is blocked for the type of service that was ordered, and that he can apply to the Licensee to remove the block for that type of service.
• (d) The Licensee shall compare the Identity Code and the user code and password set by it for the subscriber and saved in its system (hereinafter – the "Saved Code").
• (e) If the Identity Code is identical to the Saved Code, the Licensee shall provide the service to the Licensee.
• (g) If the Identity Code is not identical to the Saved Code, the Licensee shall send the subscriber a message addressed exclusively to him through the Site, notifying him that his registration for the service failed due to such non-identity.

2. Ordering a Service from a Service Provider

• 2.1 The ordering of a service on the website of a service provider shall be done in the following manner:
  • (a) The subscriber shall enter on the website of the service provider (hereinafter the "Service Provider's Site"), in the place designated for that purpose, his subscriber number1 .
  • (b) The service provider shall send the Licensee a message including the subscriber number, the type of service requested and the details of the service as set out in paragraph (d) below.
  • (c) If the subscriber is blocked for the service, the Licensee shall send the subscriber an SMS notifying him that he is blocked for the type of service that was requested, and that he can apply to the Licensee to remove the block for that type of service. In addition, the Licensee shall notify the service provider that the subscriber is blocked for the service.

1 Mobile Subscriber Number (MSN).

• (d) If the subscriber is not blocked for the service, the Licensee shall send the subscriber an SMS including the following:
  • (1) The name of the service including its classification as "one-time" or as "continuing."
  • (2) The price of the service. The price shall be displayed in a detailed manner, including details concerning a "one-time" payment, a "fixed" payment for a specific period, including specification of the period, and the unit price according to which the payment for the service is measured.
  • (3) A random code of five (5) digits (hereinafter the "Code").
• (e) The subscriber shall enter on the Service Provider's Site, in the place designated for that purpose, the Code.
• (f) The service provider shall send the Licensee the code that was entered by the subscriber as stated in paragraph (e) (hereinafter the "Entered Code").
• (g) The Licensee shall compare the Code and the Entered Code.
• (h) If the Entered Code is identical to the Code, the Licensee shall send the subscriber an SMS notifying him that his registration for the service was approved, and in the case of a continuing service – information concerning the manner in which it is possible to cancel the registration for the service. In addition, the Licensee shall notify the service provider that the registration for the service was approved by it.
• (i) If the Entered Code is not identical to the Code, the Licensee shall send the subscriber an SMS notifying him that his registration for the service failed due to such non-identity. In addition, the Licensee shall notify the service provider that the registration for the service failed.

Appendix H – Bank Guarantee and Letter of Undertaking

The License Owner shall provide the manager with an unconditional guarantee in favor of the State of Israel. The guarantee shall be in the amount of eighty million (80,000,000) NIS. This guarantee shall be in place of any previous guarantee which the License Owner provided to the manager under the provisions of its license. If the License Owner met the provisions of Appendix E, the guarantee amount shall be reduced to forty million (40,000,000) NIS.

Version of Bank Guarantee / autonomic insurance and version of undertaking to extend the guarantee

To:

The State of Israel – Ministry of Communications

23 Jaffa Street, Jerusalem

RE: Bank Guarantee / Autonomic Insurance No. ---------------

• 1. According to the request of [name of License Owner] (hereinafter the "License Owner"), we hereby guarantee towards you the payment of any amount, at your request, up to a total amount of [the guarantee amount] at the actual payment date (hereinafter – guarantee amount), in connection with the general license for the provision of mobile telephony communications, which was granted to the License Owner.
• 1. We undertake to pay you at your initial written request, any amount stated in the demand up to the guarantee amount within ten days from the date of receipt of your request.

(Optional paragraph: a payment demand must be delivered to the bank branch stated in this Bank Letter, during working hours in which the branch is opened. A demand by facsimile, telex, electronic mail or telegram shall not be considered as a sufficient demand for the purpose of this guarantee).

• 1. Our undertaking under this Guarantee is unconditional, and you do not have to specify, base or prove your demand or to initially request payment from the License Owner.
• 1. This guarantee shall be valid until [seven years from the date of receipt of the license]; the License Owner shall bear any expense entailed in the realization or extension of this guarantee.

Sincerely,

________________ Bank

To

The State of Israel – Ministry of Communications

23 Jaffa Street, Jerusalem

RE: Undertaking to Extend the Bank Guarantee / Autonomic Insurance No. ---------------

Further to the bank guarantee / autonomic insurance no. ____________________, which was provided to you in accordance with the provisions of the general license for the provision of mobile telephony communications (hereinafter: the "Guarantee"), we [name of License Owner] (hereinafter – the "License Owner") undertake that no later than sixty days before the end of the guarantee term, it shall be extended for a period of another five years, and each time for an additional period in a manner in which the guarantee shall be valid until [two years from the end of the validity of the license granted to us]; however, if at said period we did not pay off, to your satisfaction, all of our charges, the guarantee shall be extended, each time for a period of an additional year, according to your written request.

Sincerely,

[the License Owner]

24 of Av, 5775 /Signature August 9, 2015 Shlomo Filber The General Manager

To

The State of Israel – Ministry of Communications

23 Jaffa Street, Jerusalem

RE: Undertaking to Extend the Bank Guarantee / Autonomic Insurance No. ---------------

Further to the bank guarantee / autonomic insurance no. ____________________, which was provided to you in accordance with the provisions of the general license for the provision of mobile telephony communications (hereinafter: the "Guarantee"), we [name of License Owner] (hereinafter – the "License Owner") undertake that no later than sixty days before the end of the guarantee term, it shall be extended for a period of another five years, and each time for an additional period in a manner in which the guarantee shall be valid until [two years from the end of the validity of the license granted to us]; however, if at said period we did not pay off, to your satisfaction, all of our charges, the guarantee shall be extended, each time for a period of an additional year, according to your written request.

Sincerely,

[the License Owner]

24 of Av, 5775 /Signature August 9, 2015 Shlomo Filber The General Manager

Appendix J –Accessibility to International Telecommunications Services A6)

1. Definitions

1.1 In this document, the following words and terms will have the definitions noted at their sides, unless otherwise deriving from the language or context:

Bezeq International -	The Bezeq International Company Ltd. ;
Barak -	Barak I.T.C. (1995) Company for International Telecommunications Services;
Chance caller -	A Licensee subscriber, calling abroad using an international operator, using a three digit dialing code, as set out insection 2;
Subscribernumbertelephone number) -	(orA group of numbers in a certain order, including area code, the dialing of which should create a telecommunication'sconnection between the reading subscriber's end user equipment and the reader subscriber's end user equipment; areader subscriber number may be a subscriber number of a number to a call answering center of a subscriber or a numberto a call answering center of a licensee2
International operator -	Anyone providing international telecommunications services to the public in Israel under a general license from theDirector;
Chosen operator -	An international operator chosen by appointment, under the provisions of section 43
Access code -	A group of numbers in a certain order, the dialing of which allows access to a certain telecommunications service of acertain operator; dialing additional codes, as needed, and the subscriber number, should create a telecommunicationconnection to the subscriber's end user equipment4; if the access code is a manned call center, the service is given viathe operator.
Short dialing code -	"00" " and "188" access code, designated to receive international telecommunications services, by direct dialing, or viaan operator, as explained in section 2;
Golden Lines -	The Golden Lines International Communications Services Company;
Subscriber ascription	The technically defining action an internal operator performs in his switch so that his subscriber's calls, performedthrough a shortened dialing code, are channeled into the chosen operator's switch;
Outgoing ITMS calls -	Transferring a verbal message or facsimile message via an international telecommunications service, initiated by aLicensee subscriber;
Ingoing ITMS calls -	Transferring a verbal message or facsimile message via an international telecommunications service, initiated by aninternational caller;
InternationalTelecommunications	Telecommunications services given to the public in Israel, under license from

2 The phone number is determined by the licensee, according to rules and directives prescribed by the Director.

3 A chosen operator may be Bezeq International, Barak or Golden Lines.

4 for example: dialing an access code for international services, and after a country code, area code in that country and telephone number of the designated subscriber abroad

Services - the Director, via an international operator's international telecommunication services;

• ITMS service International telecommunications message service, that is, two-directional simultaneous transfer of talk and simultaneous transfer of facsimile messages, in an international telecommunications system.
• 1.2 Words and expressions in this document not defined above shall have the meaning as defined in the Law, regulations enacted by virtue thereof, in the Interpretation Law, 5741 – 1981, or as set out in the appropriate places in the Licensee's general license and in the International Operators' licenses, unless otherwise deriving from the language or context.

2. Allocation of Access Code

• 2.1 A Licensee will channel subscriber dialing, to the international operators' switches, for access to international telecommunications' services, using the following codes:

  • (A) double-digit access code the '00' access code, which will serve as short access code for international telecommunications services provided by a chosen operator; the Licensee will channel a subscriber dialing the prefix '00' to the chosen operator;
  • (B) triple-digit access code an access code of '01X' type, which will serve as an access code for international telecommunications services provided to a chance user; the Licensee will channel any subscriber dialing the prefix '01X' code to the international operator according to the X digit; the X digit is the international operator's code, according to the following:
    • 1. '2' code for Golden Lines' services;
    • 1. '3' code for Barak services;
    • 1. '4' code for Bezeq International services;
  • (C) '188' access code that will serve as a number for operator services ; any subscriber dialing '188' will be channeled by the Licensee to the chosen operator's operator services;
  • (D) four-digit access code numbers of the '18XY' type, that will serve as an access code for various international telecommunications services of any and all international operators; any subscriber dialing '18XY' will be channeled by the Licensee to the international operator according to the X digit; the X digit is the code of the international operator under section 2.1(B); the Y digit is any number from 1 to 9 and the 0 digit; the use of the Y digit will be determined by the Director, under advisement with the international operators, in order to ensure uniformity and fair competition; each international operator will be allocated ten (10) such four digit numbers/ these numbers will be accessible for both the chosen operator's subscribers and for chance callers.

• 2.2 If the Licensee allows its subscriber the use of another short dial code (such as +), instead of the "00" dial code (hereinafter: a special code), all the provisions and rules applicable to the short "00" dial code will apply to the special code as well.

• 2.3 Dial by pre-paid program for unidentified subscribers who are not blocked for outgoing ITMS calls will be possible only using three-digit access codes of the 01X type, and four-digit access codes of the 18XY type; upon dialing a short access code or a special access code, a voice announcement will be heard referring the customer to dial via said access codes available to him.

2A. A23 Subscriber Access to Outgoing ITMS Calls :

• 2A.1 The Licensee will allow subscribers to act as follows, with regard to outgoing ITMS calls:
  • (D) as an ascribed subscriber.
  • (E) As blocked (F) As a chance caller only.

3. Blocking Outgoing International Calls and Removal of the Blocking

• 3.1 The Licensee will block outgoing ITMS calls, and may also block collect incoming ITMS calls for any subscriber requesting to block access to international services or subscribers for whom the international service for outgoing ITMS calls has been stopped or cut off, in accordance with the conditions of the License; the licensee may not block incoming ITMS calls except collect calls.
• 3.2 If a block for outgoing ITMS calls has been implemented at a subscriber's request, the Licensee will remove the block as follows: A23
  • (A) If the subscriber has asked to join, he will indicate his choice international operator who shall serve as his "chosen operator", by his signature on the appropriate form; notice given by means of facsimile will be deemed notice in writing given to by the subscriber in this matter.
  • (B) If the subscriber has asked to be a chance caller, he will notify the Licensee of such; if the notice is verbal, the Licensee will verify the requesting party's identity.
• 3.3 The Licensee will perform the block for ITMS or removal thereof, performed in accordance with the subscriber's request, according to the following:
  • (A) 70% Within one working day of receipt of notice; requests received after 1500 hours will be deemed having been received on the following work day;
  • (B) 20% within two working days of receipt of notice;

(C) the rest – within 5 working days.

• 3.4 The Licensee will ensure that a subscriber who has blocked his outgoing ITMS calls cannot make outgoing calls using '00' dialing code, '01X' dialing code, '188' or '18XY' dialing codes, or using any other code that may come in place thereof A23 .
• 3.5 The Licensee may collect reasonable payment for performance of a block for outgoing ITMS calls or for removal of the block.
• 3.6 Notwithstanding that stated in section 3., the Licensee will allow all its subscribers to block outgoing ITMS calls before initiation of services for such subscriber, free of charge.
• 3.7 The Licensee will verify that all subscribers whose access to outgoing ITMS calls has been blocked receive appropriate voice message when dialing access codes or telephone numbers for international services.
• 3.8 If a subscriber who has chosen a chosen operator asks to block outgoing ITMS calls, the Licensee shall notify such to the chosen operator, within seven (7) working days of the date of performance of the block.

4. Choosing a Chosen Operator

• 4.1 A Licensee's subscriber may notify the international operator in writing, on a signed form approved by the Director, regarding his choice of a chosen operator through whom such wishes to receive international telecommunications services using '00' or '188' access codes; the form will including the particulars of the subscriber – first name, last name or name of corporation, ID number of ID number of the corporation, address and telephone numbers the subscriber asks to define the international operator as the chosen operator for, and the date and time when instruction regarding the appointment was given. The form will explain that any phone number may have one chosen operator only, and such will fulfill the requirements prescribed in this matter in the international operator's license7 (hereinafter: the ascription form).
• 4.2 Subscribers may change the chosen operator at any time by written notice on the ascription form; for initial ascription made at the subscriber's request, the subscriber will not be asked to pay anything, however the subscriber may be charged a reasonable fee for any change in the ascription.
• 4.3 The chosen operator will send the Licensee notice regarding the subscriber's having chosen him as the chosen operator (hereinafter: ascription notice); ascription notice will include the subscriber's particulars - first name and last name, address and telephone numbers the subscriber asked to define the international operator as the chosen operator for, and the date and time of the ascription form on which the subscriber signed; the chosen operator will give ascription notice to the Licensee in accordance with the ascription forms signed by him; ascription notice will be given via

magnetic media files, or in any other manner agreed upon between the Licensee and the international operators. If two or more ascription notices are given to the Licensee, relating to the same telephone number, the sc will act in accordance with the ascription notice with the later date and hour.

• 4.4 If a person has asked to become a new Licensee subscriber, he must make note, in the request to the international operator of his choice to engage with as a chosen operator; the Licensee will allow any new subscriber to choose a chosen operator for himself or to block the outgoing ITMS calls, or will allow the subscriber to receive ITMS services as a chance caller only; ascription services to a chosen operator or connection as a chance caller, and blocking outgoing ITMS calls will be given to new subscribers, at the time of initial registration, free of charge A23 .

• 4.5 In order to choose a chosen operator, and without derogating from the aforesaid, the Licensee will act as follows:

  • (A) the Licensee will allow all subscribers having a subscriber line number to choose one chosen operator will be for certain subscriber lines, and another for other subscriber lines;
  • (B) VoidA2A23 .
  • (C) the Licensee will perform ascription of a subscriber within one working day of receipt of ascription notice form the chosen operator A2A23.
  • (D) The Licensee will report to the international operator regarding completion of said subscriber ascription as stated in sub-clause (C) above, including change of ascription at the time and under such plan as agreed upon between the Licensee and the international operator; the report will include particulars of the subscriber – first name, last name or name of corporation, address and telephone numbers the subscriber asked to ascribe to the international operator.
  • (E) A20 The Licensee will send a daily modification file of subscriber ascription to all international operators (hereinafter: the modification file), containing the particulars of the subscribers who ascribed to the international operator or who unsubscribed on that day. The modification file will be handed over at the time and under such procedure as shall be agreed upon between the Licensee and the international operator. The file will include the particulars of the subscriber, including at least the first name, last name or name of corporation, ID number of ID number of the corporation, address and telephone numbers the subscriber asks to define the international operator as the chosen operator for. effect
  • (F) The Licensee may request that the Director allow in certain cases, all the prescription of rules and limitations on the matter of subscriber ascription, the Licensee will set out the technical or operational reasons on which such request is based; if the Director consents to the Licensee's said request, at his professional discretion, the Director will prescribe the time frame for the applicability of said rules and limitation;

• (G) The Licensee will submit a written quarterly report to the Director, by the 15th of the month following the end of the quarter; the information in the report will be correct as of the last day of the calendar quarter preceding the date of the report, and will include the following:

  • (1) The number of subscribers blocked form international telecommunications services;
  • (2) The number of subscriber engaged for international services using short dialing codes or using special codes, for each of the international operators;
  • (3) A23 The number of subscribers engaged for international services as chance dialers only.

• (H) If there should be any disputes between the international operator or between the Licensee and the international operator on the matter of a subscribers choosing a chosen operator, the matter will resolved by the Director, or resolved by an independent arbitrator appointed by the Director, at his exclusive discretion.

• 4.6 The Licensee will channel any subscriber dialing using the '00' prefix or any other special prefix for access to international telecommunications services, or channeling a call to a Licensee's subscriber located abroad using an international operator (follow-me subscriber service) to the chosen operator.

5. Void A23

6. Block for short dialing code

• 6.1 Subject to the provisions of this appendix, the Licensee will perform a block for short dialing code for any subscriber so requestingA23 .

• 6.2 The Licensee will perform the block for short dialing code as follows: the Licensee will channel the subscriber's calls using the double-digit '00' prefix and the '188' prefix to an announcer playing a recorded announcement stating the following in Hebrew, English, Arabic and Russian: "This service is blocked, for further details please dial ___ (a telephone number of the announcer under the provisions of section 6.7)A23 .

• 6.3 Void A23

• 6.4 Void A23

• 6.5 Void A23

• 6.6 Void A23

• 6.7 The Licensee will operate the voice announcement 24 hours a day, including Saturdays and holidays, using such method and wording allowing a subscriber to receive an explanation regarding the ascription and overseas dialing, in Hebrew, English, Arabic and Russian; the explanation will include the following matters:

• (A) Performance of ascription the ascription process and where to call in order to request the ascription form;

• (B) How one may make an international call when the subscription is blocked for short dialing codes;

• (C) The option of blocking overseas dialing and the option of removing such block;

• (D) Where one may call in order to find out about additional matters telephone numbers of international operators.

7. Interconnection

• 7.1 The Licensee will connect its system to all international telecommunications system, directly or indirectly, according to the terms of its license, in a manner allowing provision of international telecommunications services to all subscribers through the international telecommunications services of all international operators, including outgoing and incoming ITMS calls, direct dialing, dialing through an operator ('188' service, as stated in section 2.2 (A)), "Direct Israel" services, collect service (from abroad to Israel, from Israel abroad), international 1-800 service (incoming and outgoing), calling card services, from any destination abroad and to any destination abroad.
• 7.2 The technical, operational and commercial arrangements between the Licensee and any international operator will allow the provision of the following to all subscribers:
  • (A) Quality service, including service quality control and means for investigating and dealing with subscriber's complaints regarding quality of service;
  • (B) Accurate and precise billing of subscriber, including control over the billing and means for investigating and dealing with subscriber's complaints regarding incorrect billing and tools and means of identification and prevention of fraud and deception;
  • (C) Consumer response to subscriber's queries and questions, including tools and means of providing an itemized bill for subscribers, and for investigating subscriber's queries in all matters related to receipt of international services.

7.3 In order to implement the provisions of this appendix, the Licensee will act, inter alia, as follows:

• (A) Allow any subscriber who has not blocked outgoing international ITMS calls to make international calls at any time via his chosen international operator or as a chance caller, using dialing methods set out in section 2;
• (B) Allow all subscribers to change their chosen operators; this service will be given in return for a reasonable charge,

7 Attention is called to section 52.3 of the Bezeq license, and section 56.4 to the Golden Lines and Barak license.

• (C) Take reasonable measures to prevent subscriber ascription to a chosen operator without his knowledge or against the subscriber's wishes ("slamming"); these measures will include identification of the subscriber and verification of the subscriber's right to receive service;
• (D) Give all subscribers, free of charge, service allowing them to identify the name of their chosen operators;
• (E) The Licensee will offer non-discriminatory conditions to all international operators, including in all matters regarding the commercial conditions, billing and collections arrangements, availability of connection installations and quality of service; without derogating from the generality of the aforesaid, the Licensee will provide service for all international operators under equal conditions including in the matter of interconnection, provision of infrastructure installations and connection services to the network, performance of changes in switching, in installations, protocols and network interface;
• (F) The conditions for interconnection between the Licensee's system and the international operator's international telecommunications system will be reasonable and non-discriminatory; if the parties have not reached any agreement, the Minister will determine matters between them;
• (G) A copy of any agreement between the Licensee and international operator in the matter of interconnection will be delivered to the Director;
• (H) Any international operator requesting the particulars of a subscriber refusing to make payments to the Licensee designated for the international operator for services used via the international operator's international telecommunications system will be given over, whether such subscriber was an ascription subscriber or a chance caller; these particulars will include the first name, last name or name of corporation, ID number of ID number of the corporation, address and telephone number.
• (I) A22 Allow international operators to collect payment directly for services from subscribers ascribed to such international operator, and who have chosen to receive billing and collections services directly; the Licensee will have any vital information required by the international operator at his disposal allowing the international operator to provide billing and collection services for such aforesaid ascribed subscribers;
• (J) A22 Provide services under equal and non-discriminatory conditions and for such charge not discriminating against an ascribed subscriber who has chosen to receive billing and collection services from the international operator.
• 7.4 The international operators will bear the costs of implementation of the interconnection including the process of survey and blocking short dialing codes, and, if so required, for a subscriber's initial ascription to a chosen operator; the rate of payments, as stated, will be determined under negotiation between the Licensee and the international operator; the Licensee's shared expenses that cannot be ascribed to a particular international operator will be divided equally between all international operators; if the parties have not come to an arrangement, the Minister will prescribe

effect This amendment will go into effect by no later than Thursday, the 29th of Nissan, 5763 (May 1, 2003).

instructions in these matters, after giving the parties a fair opportunity to argue their claims before him.

First Schedule – Void A23

Second Schedule – Void A23

Appendix K – Discontinuation of Service to Cellular End-User Equipment of the IS-54 typet7

Definitions 1. In this appendix -

"Old technology phone" –		A cellular phone operating on IS-54 format;
"New technology phone" -		A cellular phone operating on IS-136 format;
"Upgradeable telephone" -		An old technology phone that may be upgraded to a new technology phone;
"Date of cessation of service" -		The date on which the Licensee ceases to provide cellular services to an old technology phone owner.
"Eligible customer" -		The Licensee's subscriber or customer who has lawfully purchased an old technology telephone and has notexchanged or upgraded it to a new technology phone;
"Telephone Number" -		The number of the cellular telephone given to a subscriber or customer who lawfully purchased an oldtechnology phone and connected to the Licensee's network;
"Upgrade" -		Exchanging the software version of the telephone upgrades the telephone, wherein it becomes a newtechnology phone.
Discontinuation of service	2.	Notwithstanding the aforesaid in section C of chapter E of the General License, the Licensee may discontinueprovision of cellular services to eligible customers, provided all the following provisions apply:
Publication	3.	(A)The Licensee will publish an appropriate notice under these provisions in three of the largestnewspapers in Israel, one of which is published in Arabic, on the closest Friday to the date 30 daysbefore the date of cessation of service.
		(B)The Licensee will publish an appropriate notice under these provisions in three of the largestnewspapers in Israel, one of which is published in Arabic, on the closest Friday to the date 30 daysearlier than the end of six months from the date of cessation of service.
Exchange of telephone	4.	The Licensee will exchange an old technology telephone including all accessories thereto, including a handsoff device, for a new technology telephone, including all accessories thereto, for any eligible customer, on________________________
		t7 Amendment 7

the basis of accessory for accessory, including the installation thereof, provided the new technology telephone

Appendix K

		is of no lesser features than the new technology telephone's features, free of any direct or indirect charge tothe customer.
Upgrade	5.	The Licensee will upgrade an eligible customer's upgradeable telephone, free of any direct or indirect chargeto the customer.
Telephone number	6.	The Licensee will keep the telephone number allocated to any eligible customer before the date of cessationof service for a period of six months from the date of cessation of service; after this period the Licensee mayexchange the telephone number of an eligible customer who did not exchange the old technology telephone toa new technology telephone or did not upgrade an upgradeable phone during that period.
Notice of Application	7.	The Licensee shall inform the Director in advance and in writing of the day of Discontinuation of Service andof the days of Publication as detailed in sub-sections 3(A) and (B) above and shall furnish the Director withcopies of the notices as published.
Period	8.	The Licensee will fulfill the provisions of sections 4 and 5 above starting on the date of publicationprescribed in sub-section 3(A) above for a period of 7 years from the date of cessation of service.
Conditions of service	9.	The provisions of sections 4, 5 and 6 will be deemed a condition of service, as defined in section 37B.(A)(1)of the Telecommunications Law.
		Second Schedule –Appendix K – 2

A63Appendix K-1 – Discontinuation of Service for Cellular End Equipment in a Cellular System Using the IS-136 (TDMA) technology.

1. Definitions

In this appendix –

"Day of ServiceDiscontinuation"	December 31, 2011 or an earlier date, if no initiated calls are made in the system operating by the IS-136 (TDMA)technology (hereinafter – the "old system") by entitled subscribers during at least 14 consecutive days.
"Entitled Subscriber"	A subscriber, excluding a dormant subscriber to which the service was discontinued, who prior to the day of servicediscontinuation held obsolete equipment and has still not replaced or upgraded it to new equipment.
"Phone Number"	The phone number given to an entitled subscriber holding obsolete equipment.
"New Equipment"	Cellular end equipment, including a battery and charger, reconditioned or new according to the Licensee's choice, operatingat a minimum on a system using the GSM technology, of Nokia 6070 model or another model with features not inferior tothose of the said model.
"Obsolete Equipment"	Cellular end equipment operating on the obsolete system and its accessories, including end equipment which is out of orderor missing.

1. The Licensee shall discontinue the provision of cellular service to a subscriber holding obsolete equipment, starting from the service discontinuation day.

3. Publication of Service Discontinuation

• 3.1 The Licensee shall publish, in at least three major dailies in Israel one of which is published in Arabic, on the closest Friday to the date 30 days before the service discontinuation, an appropriate notice notifying the public of the discontinuation of activity of the system using the IS-136 (TDMA) technology and the services provided to its subscribers through that system, in accordance with the provisions of this appendix (hereinafter – the "first notice"). In addition, it shall send a written notice similar to the first notice to each entitled subscriber whose address is registered with the Licensee. The Licensee shall submit the contents of the first notice to the Director for approval prior to its publication.
• 3.2 The Licensee shall publish, in three major newspapers in Israel, one of which is published in Arabic, on the closest Friday to the date 30 days earlier than the end of six months from the date of service discontinuation, an additional notice, in accordance with the provisions of this appendix (hereinafter: the "second notice"). Notwithstanding the foregoing, the Licensee is entitled not to publish a second notice as stated, if no entitled subscriber exists on that date.
• 3.3 The Licensee shall send an entitled subscriber a voice message and an SMS concerning the discontinuation of the service, by one week before the day of service discontinuation.

A63 Amendment no. 63

Appendix K-1

3.4 The Licensee shall publish a notice similar to the first notice also on its website, starting from the date of publication of the first notice until 30 days after the publication of the second notice.

4. End Equipment Replacement Process

• 4.1 The Licensee shall do the following, without any direct or indirect consideration:
  • a. It shall replace for each entitled subscriber the obsolete equipment with new equipment.
  • b. For an entitled subscriber with a speaker, it shall replace the speaker with a reconditioned or new speaker compatible with the new equipment. In this regard, replacement – including installation of the speaker.
  • c. It shall grant a warranty for the new equipment and for the speaker, as the case may be, for a period of no less than two years from the day of publication of the first notice.

(All that stated in section 4.1 above – "upgrade".)

• 4.2 The upgrade process shall be carried out at any of the Licensee's service and sales center, during two years from the day of publication of the first notice.
• 4.3 An entitled subscriber who is a "prepaid" subscriber with an unutilized payment balance, and who is not interested in upgrading the obsolete equipment held by him, shall receive from the Licensee the balance of the payment. Such a subscriber shall be entitled to a refund of the unutilized balance, after showing the obsolete equipment, from the day of service discontinuation until the end of the validity of such balance.

5. Phone Number

5.1 The Licensee shall keep the phone number of an entitled subscriber that was allocated to him before the day of service discontinuation, during one year from the day of service discontinuation, before it is returned to the pool of phone numbers of the Licensee, unless the entitled subscriber notifies the Licensee of his wish to keep the number that was allocated to him for an additional year.

6. Notice of Inception

6.1 Without derogating from that stated in section 3.1, the Licensee shall give the Director prior written notice regarding the day of service discontinuation and the publications days as stated, and shall furnish to the Director photocopies of all the notices, as stated in section 3.

Appendix O – Erotic Servicest36 effect

1. Definitions

		1 1 In this annendix –

1.1 In this appendix –
Licensee -	One who has been given a general license by the Minister for provision of NDO or cellular services;
Telephone bill -	A bill given to the subscriber by the Licensee for services provided;
Writing -	Including via facsimile or electronic mail;
Service number -	A number of digits allocated to an erotic services provider by the Licensee, given by dialing a telephone number, subjectto the provisions of the numbering program and administrative provisions in this matter, the dialing of which, followinga dialed prefix, allows the subscriber access to the service;
Services provider -	One who provides erotic services via the network, and payment for the service is made through the telephone bill; in thematter of erotic services provided through dialing a telephone number, access to the services is achieved through aservice number;
Erotic promo	Broadcast or presentation of an audio or visual message with sexual content, including a recorded message, given via atelecommunications facility, directly or indirectly, and such message is intended to provide information on a servicefollowing or to encourage the use thereof, provided the broadcast of the message or presentation are made withoutadditional charge beyond the charge for a telephone call collected via the telephone bill;
	In this matter, "indirectly" – including by way of creating a connection from the subscriber's end user equipment as acondition of providing the erotic promo.
Area code	A national area code in such model as prescribed by the Ministry for erotic services;
The network -	The Licensee's public telecommunications network.
Erotic services -	Audio broadcast or presentation of an audio or visual message with sexual content, including recorded messages, givenvia a telecommunications facility, directly or indirectly, including services for dating, chats, or sending messagesbetween chance callers, designated or serving, even in part, for sexual purposes, which are any of the following:
	(1) A service provided through the dialing of a telephone number

A36 Amendment no. 36 effect This amendment will go into effect on the 1st of Nissan, 5766(March 30, 2006) A76 Amendment No. 76

	TRANSLATION FROM HEBREWTHE BINDING VERSION IS THE HEBREW VERSION
	given by a service provider;
	(2)An access service to a closed data base of contents including multimedia files, held by the Licensee or byanother provider of the service with the Licensee's consent (hereinafter: the "cellular portal").
	In this matter, "indirectly" – including by way of creating a connection from the subscriber's end userequipment as a condition of providing the service or for charging for it;
Payment regulations -	The Communications Law (Telecommunications and Broadcasts) (Payment for Telecommunications' Services), 5765 –2005;
Special payment -	A price fixed as stated in section 6, which the subscriber is required to pay for erotic services in addition to the regularpayment;
Payment Per time -	A special payment, the rate of which is determined by the amount of time the subscriber used the erotic service;
Regular payment -	One of the following:
	(A) For a call within the network – a payment that does not exceed the fixed charge according to the rate agreementbetween the subscriber and the Licensee regarding a call to another subscriber in the same network;
	(B) For a call from one cellular network to another cellular network or to a NDONDO network – payment as set outin sub-section (A) plus a payment that does not exceed NIS 0.50 per minute (including VAT);
	(C) For a call from the Bezeq company network to a cellular network – a charge that does not exceed that prescribedby the letter D in table A in the First Schedule of the Payment Regulations, plus NIS 0.50 per minute (includingVAT);
	(D) For a call from a NDONDO network, except the Bezeq company network, to a cellular network – a charge thatdoes not exceed the fixed charge according to the rate agreement between NDO subscribers and NDO, withrespect to another subscriber number within the same network, plus NIS 0.50 per minute.

(E) For erotic services given via the cellular portal – a charge that does not exceed the fixed charge according to the rate agreement between the subscriber and the Licensee with regard to access service to the cellular portal.

2. Access through Dialing

2.1 Subject to the provisions of section 4, access to erotic services given through dial-up will be made available to subscribers via an area code and service number.

3 Allocation of Service Number

3.1 In the matter of erotic services provided by dial-up, the Licensee may allocate a service number to a service provider; in such case, the Licensee will allow the service provider to provide services to both the Licensee's subscribers as well as subscriber to other licensees.

A76 Amendment No. 76

4 Blocking Access

• 4.1 A A38 A Licensee will block access to erotic services from all end-user equipments connected to the network; without derogating from the aforesaid, for the purpose of blocking access to erotic services given though the cellular portal, the Licensee may make use of a means of blocking, including content filtering programs, provided they efficiently block access to said service.
  • B. A38 Should the Ministry of Communications notify the Licensee that an erotic promo is being given through the Licensee's telephone line or network, without access through a service number, the Licensee will cut off said line, or block the line from receiving incoming calls;
• 4.2 A subscriber 18 years of age or more may request the Licensee remove a block imposed as described in section 4.1AA38 from his end user equipment.
• 4.3 A request for such removal of a block will be made in writing, or verbally, provided the Licensee has prescribed a procedure allowing accurate identification of the requesting subscriber.
• 4.4 If a subscriber has so requested a block removed, the Licensee will remove the block within a reasonable time, in a manner allowing the subscriber access to erotic services via the end user equipment in his possession.
• 4.5 If a block has been removed for erotic services as stated, and the subscriber requests that his end user equipment again be blocked for such services, the Licensee shall perform the block at the soonest possible opportunity, and by no later than 2 work days from the date of receipt of the subscriber's request.
• 4.6 The first removal of a block against erotic services, made at the subscriber's request as stated in sections 4.2 and 4.3 will be made free of charge; the Licensee may charge the subscriber a reasonable fee for any additional blocking access to erotic services or for additional removal of such block, made at the subscriber's request.

5 Early Registration

5.1 Notwithstanding that stated in section 4 above, the Licensee may establish a duty of early subscriber registration for receipt of a password, a submission of which will be a precondition for receipt of erotic services. The provisions of this section do not derogate from the provisions of sections 4.2 and 4.3 above.

6 Special Payment

6.1 If special payment is prescribed for erotic services, the rate shall be fixed by the Licensee or in agreement between the Licensee and the services provider.

7 Charging the Subscriber

7.1 If special payment is prescribed for erotic services, the Licensee's phone bill will show the payment for the service separately from charges for the Licensee's other services, unless the subscriber has requested otherwise.

A76 Amendment No. 76

• 7.2 The Licensee shall provide the subscriber, upon demand and within ten (10) working days, details of the special payment for erotic services as follows:
  • (A) The service number the service allocated;
  • (B) The date and time service was provided;
  • (C) Billing time units when charging per time the number of time units charged or the total amount of the special payment; in the case of a charge according to traffic volume (such as MB, KB), the number of volume units transferred;
  • (D) The sum charged for the service.

The Licensee may collect a reasonable fee for specification of the special payment.

8 Mandatory Tender

• 8.1 If a special payment has been fixed for erotic services provided through the network, the Licensee, either himself or via the services provider, will play a recorded message at the beginning of the call, containing the following details:
  • A. The essence of the service;
  • B. Rate of special payment for the service, according to payment per time or per traffic volume, as the case may be;
  • C. The option to discontinue the service, without charge, before the signal is heard, as stated in section 8.4.
• 8.2 The recorded message will be played in the language in which the erotic service is provided, in comprehensible language, at a reasonable pace and without recording defects.
• 8.3 At the start of erotic services provided in a language not Hebrew, a message will be played announcing the language in which the service is provided, and after, the recorded message will be played, as stated in sections 8.1 and 8.2, in the language in which the service is provided.
• 8.4 Upon completion of the recorded message, as stated in section 8.1, the caller will have a 5 second interval, at the end of which a signal indicating the start of the erotic services; if the caller disconnected the call before the signal was heard, he will not be charged the special payment. Alternatively, the caller will be asked to press a certain key on his end user equipment in order to confirm that he desires to accept the service, and will be charged the special payment only from the moment he so acts.
• 8.5 If a special payment is fixed for erotic services provided by access to the cellular portal, the Licensee will notify subscribers regarding the price of the service in an obvious and clear manner, providing the subscriber the option to disconnect from the service without being charged the special payment.

9 Licensee –Services Provider Relations

9.1 The Licensee may allow a services provider to perform telecommunications operations via its installations in order to provide erotic services; the services provider will be exempt from the duty of obtaining a license for telecommunications services, under the provisions of section 3(5) of the Law.

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• 9.2 The Licensee will include the provisions of this appendix, mutatis mutandis, in the agreement between the Licensee and the services provider, in such manner that the services provider will be obligated to fulfill said provisions.
• 9.3 The Licensee will provide the Director with any agreement between such and a services provider, upon demand.

10 Interconnection

• 10.1 The conditions for interconnection between the network and the Licensee's public telecommunications network, in all matters relating to provision of billing and collection services by one Licensee to another licensee, for purposes of provision of erotic services given via the network to another licensee's subscriber, will be formalized in an agreement between the Licensee and the other licensee; if the parties cannot reach an agreement, the Minister will decide on the matter.
• 10.2 The Licensvee will, upon demand, provide the Director with a signed copy of all agreement it has with other licensees in the matter of said interconnection.

11 General

• 11.1 The Licensee will be responsible to handle all erotic services customer complaints, in all matters relating to subscriber access to the service, and problems of billing and collection in connection witvh the service, and will establish a mechanism for dealing with customer queries for such purpose; the services provider will be responsible to deal with subscriber complaints in regard to service content. If the Licensee himself provides the erotic services, the Licensee will be responsible to handle erotic services customer complaints regarding the service content as well.
• 11.2 The Licensee may not disconnect, stop or harm the basic telephone services of a subscriber who has used erotic services and refuses to pay for such, however, the Licensee may disconnect such subscriber from continued use of the erotic services.
• 11.3 The Licensee may not provide a subscriber's particulars to another services provider or to others, without the subscriber's written consent , and only after verification of the authenticity of such consent.
• 11.4 A Licensee shall, within three (3) working days, provide any subscriber so requesting the following particulars regarding the services provider, without charge:
  • A. The name and address of the provider;
  • B. The telephone number at which such provider may be reached.
• 11.5 The provisions of this appendix will apply, mutatis mutandis, to provision of erotic services provided as a network service to the Licensee's subscribers only.
• 11.6 The Licensee may himself provide erotic services, and the provisions of this appendix will apply thereto, mutatis mutandis.

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Annex P – Premium Service Provided at a Premium Tariff A76

1.	Definitions
1.1	In this Annex:
	"License Holder"	-An entity which received a general license by virtue of the law;
	"Host License Holder"	-A License Holder through whose Network the Service Provider provides its services;
	"Source License Holder"	-A landline or mobile domestic License Holder, whose Subscriber wishes to purchase a Premium Service;
	"Service Order"	-Any action initiated by the Subscriber for the purpose of receiving a Premium Service, including calling aDialing Code, entering the Subscriber's telephone number, entering a password and entering a code;
	"Telephone Bill"	-A bill submitted by a License Holder to a Subscriber for services provided to him;
	"Writing"	-Including via facsimile or e-mail;
	"International Operator"	-An entity which received a general license to provide international telecommunications services;
	"Subscriber"	-A subscriber of the Source License Holder;
	"Service Number"	-A 10-digit telephone number determined according to the provisions of the numbering plan and theinstructions of the Directorate in this regard, which includes a designated Dialing Code plus several digits,which the Host License Holder allocates to a Service Provider, and the dialing of which allows aSubscriber access to a Premium Service;
	"Service Provider"	-An entity which provides Premium Service through a License Holder's telecommunications Network, thepayment for which is made through the Telephone Bill;
	"Dialing Code"	-A national dialing code, in a format determined by the Ministry for the purpose of accessing a PremiumService;
	"Network"	-A system of telecommunications facilities through which a License Holder provides its services;
	"Premium Service"	-Voice message announcement or visual message presentation service, including a recorded message,which is provided through a telecommunications device, directly or indirectly, inter alia for one of thefollowing purposes: the provision of information and content, entertainment, advice, dating service, chat,entering a competition, a lottery, a game or a vote or service provided over the internet, and with theexception of an erotic service; for this purpose, "indirectly" – including by way of making contact fromthe Subscriber's end equipment or entering
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	TRANSLATION FROM HEBREWTHE BINDING VERSION IS THE HEBREW VERSION
	the Subscriber's telephone number, including on the internet, as a condition to provision of or charging forthe service;
"Premium Tariff"	-The tariff for payment for a Premium Service is in accordance with the requirement of the Host LicenseHolder; this tariff shall include a tariff for completing the call on the Host License Holder's publictelecommunications Network, which is determined pursuant to the Communications Regulations(Telecommunications and Broadcasting) (Payments for Interconnect), 5760-2000, and with respect to aservice that is provided by an International Operator as a Host License Holder, the tariff shall include thepayment to be retained by the International Operator;
"Regular Tariff"	-The tariff collected from the Subscriber by the Source License Holder, in accordance with the tariff planset forth in the engagement agreement between it and the Subscriber18.

1.2 Words and expressions in this annex that have not been defined in this section will bear the same meaning as in the law, in the regulations promulgated thereunder, in the Interpretation Law, 5741-1981, in Section 1 of the license or as specified elsewhere in this annex, unless another meaning is implied by the context.

2. Access to Service and the Duty of Universality

• 2.1 A Source License Holder will allow every Subscriber access to any Premium Service provided on all of the Networks of the license holders.
• 2.2 A Host License Holder will allow all callers of all license holders access to the Premium Services provided through its Network.
• 2.3 A Host License Holder and a Source License Holder will allow provision of Premium Services only through the Dialing Code and Service Number.
• 2.4 Referral to the Dialing Code will be made only in order to receive a Premium Service; referral to such Dialing Codes for other purposes, including charging and collection arrangements, customer service or administration, is absolutely prohibited.
• 2.5 The license holder will block access to a telephone number, including an international number, without the Dialing Codes for a Premium Service, insofar as it is informed by the Ministry or otherwise learns that a Premium Service is provided through this telephone number.

3. Duty of a recorded announcement and notification to the Subscriber

3.1 Immediately after consummation of the engagement, and before providing a Premium Service, the Host License Holder will play a recorded message to the

18 In the event that the Subscriber has a limited monthly minutes package, the License Holder shall deduct the payment according to the duration of the call from the monthly minute quota; in the event that the Subscriber has an unlimited plan, he will not be charged any additional payment for dialing a Service Number; in the event that the Subscriber has a tariff plan other than in the framework of a package, his Regular Tariff will be identical to the tariff for an inter-network calling minute.

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caller, in the language in which the service is provided, using clear and universally understandable words, and without interference on the recording. The recorded message will include the following details, according to the following order:

• (a) The nature of the service;
• (b) The Premium Tariff, in addition to the Subscriber's Regular Tariff;
• (c) The maximum tariff that may be collected for the service;
• (d) The maximum duration determined for the purpose of receipt of a Premium Service, if determined;
• (e) The possibility available to the caller to disconnect the call before commencement of provision of the service, without being charged, until the end of the sounding of the signal as specified in Section 3.2.
• 3.2 Upon completion of the sounding of the recorded announcement as stated in Section 3.1, and before commencement of provision of the service, the Host License Holder will sound a special signal to the caller, following which he shall be afforded at least 5 seconds to disconnect the call, without being charged the Premium Tariff. The license holder may afford the Subscriber the possibility of confirming receipt of the service by pressing a certain key on the end equipment in his possession to start the provision of the services before expiration of the said time.
• 3.3 If access to a Premium Service is blocked as stated in Section 7.1, the Source License Holder shall play a recorded message to the Subscriber whereby such service cannot be received, due to blocking of the access to the Dialing Code. The license holder may specify, in the recorded message, the ways of removing the blocking.

4. Purchase of a Service

• 4.1 Upon completion of the process stated in Section 3.2, the caller will be afforded the possibility of purchasing the Premium Service.
• 4.2 The service purchase will be made for each service separately, and according to the Dialing Code, and the purchase of a certain service shall not be deemed as the purchase of an additional service, whether the same service or another service.

5. Price of the Service

• 5.1 For all of the Dialing Codes specified below, the service tariff for the Subscriber will be the Premium Tariff for the service plus the Regular Tariff.
• 5.2 For a service provided with the Dialing Code 1-900, a maximum sum of NIS 0.5 per calling minute may be charged, and no more than NIS 30 for the entire call.
• 5.3 For a service provided with the Dialing Code 1-901, a maximum sum of NIS 50 may be charged, regardless of whether the Premium Tariff for the service was collected on a one-time basis or the tariff was determined according to the duration of the service, or a combination of the two.
• 5.4 For a service provided with the Dialing Code 1-902, a maximum sum of NIS 100 may be charged, regardless of whether the Premium Tariff for the service was determined on a one-time basis or the tariff was determined according to the duration of the service, or a combination of the two.

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• 5.5 Subject to the provisions of Sections 5.2-5.4, the binding Premium Tariff is the tariff provided to the Subscriber in the recorded announcement, prior to provision of the service, in accordance with Section 3.1.
• 5.6 The prices stated in this section include V.A.T.

6. Collection and charging arrangements

• 6.1 A Source License Holder will not collect from a Subscriber payment for a Premium Service, which was provided contrary to the provisions of this annex.
• 6.2 The Source License Holder will collect from the Subscriber payment for the Premium Service according to the charge records that the Host License Holder forwarded thereto, in addition to the Regular Tariff.
• 6.3 The Host License Holder will forward to the Source License Holder, at least once a day, charge records in respect of a Premium Service (the "Premium Records File") which was provided to the Subscriber, as delivered to the Subscriber in an announcement according to Section 3.1.
• 6.4 The Source License Holder will remit to the Host License Holder payments that it collected from its Subscribers in respect of Premium Services, according to the Premium Tariff, and will not be required to do so in respect of payments, as aforesaid, that it was unsuccessful in collecting from its Subscribers.
• 6.5 If a Subscriber disconnects the call before provision of the service has begun, the Source License Holder may collect from him a Regular Tariff, and will not remit to the Host License Holder an interconnect tariff, as set forth in the Communications Regulations (Telecommunications and Broadcasting) (Payments for Interconnect), 5760-2000 (the "Interconnect Regulations").

7. Discontinuation of a Premium Service

• 7.1 A Host License Holder may disconnect the caller from a Premium Service upon the payment for the call reaching the maximum payment as stated in Section 5.
• 7.2 A Source License Holder shall block the Premium Service for prepaid Subscribers upon exhaustion of the balance available to the Subscriber, or at the very latest, upon receipt of the "Premium Records File".
• 7.3 The provisions of Section 7.2 shall apply also to a credit-restricted postpaid Subscriber who has reached the credit limit agreed with him.

8. Blocking Access to Service

• 8.1 The license holder will allow every Subscriber, existing or new, to choose whether the access from his telephone line to Premium Services with Dialing Codes 1-900 and 1-901 will be open or blocked. The Subscriber's decision will be made by checking the "blocked" or "open" box on the access to services form (the "Form").
• 8.2 The license holder will prepare the access to services form or amend the access to services form defined in its license (the "Access to Services Form") so as to include the provisions of the access to premium services form in Section 12.
• 8.3 The license holder will post the Access to Services Form on its website.
• 8.4 A new Subscriber's choice will be made by checking a box on the form which constitutes part of the "engagement agreement", when made in a transaction in the presence of the Subscriber and a representative of the license holder, in the framework of the "engagement terms and conditions document", when the

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engagement is made in a remote sale transaction via a telephone call, or as marked by the Subscriber on an online form, when the engagement is made via the internet.

• 8.5 The license holder will notify an existing Subscriber, in the Telephone Bill, of the option of downloading the form from its website, and marking his choice regarding access to Premium Services with Dialing Codes 1-900 and 1-901. If an existing Subscriber filled out a form in the past and is now only filling out his choice regarding access to Premium Services, his previous choices regarding access to services shall remain in place, unless the Subscriber explicitly requests to modify them.
• 8.6 If an existing Subscriber does not explicitly mark, within two months from this annex taking effect, his choice regarding access to Premium Services which are provided with Dialing Codes 1-900 and 1-901, the default option will be as follows:

a. With respect to code 1-900 – open;

• b. With respect to code 1-901 blocked.
• 8.7 The blocking of access to Premium Services with Dialing Code 1-901 according to the default option as stated in Section 8.4, will be performed by the license holder within seven (7) working days from two months after this annex takes effect. A Subscriber's first-time blocking of access to codes 1-900 and 1-901, whether according to the Subscriber's choice or as a default option, will be performed free of charge.
• 8.8 The license holder will block the access of all of its Subscribers to the services provided with the Dialing Code 1-902 as a default option, free of charge, within one working day, from the date of this annex taking effect. A Subscriber's request to remove the blocking will be made in writing, or orally, provided that the license holder performs a reliable identification of the Subscriber submitting the request, according to the procedure determined thereby.
• 8.9 If a Subscriber requests removal of a blocking, the license holder shall remove the blocking within a reasonable time.
• 8.10 The license holder shall document the Subscriber's request to remove the blocking of Premium Services. The documentation will be available at the license holder for delivery or transfer, as the case may be, to the Director within five (5) working days from the date on which the Subscriber submitted his request.

9. Provision of the service in Israel through an International Operator

9.1 An International Operator may be a Host License Holder, and allow provision of a Premium Service through its Network, without being required to route the call overseas.

10. Miscellaneous provisions

• 10.1 A Host License Holder may permit a Service Provider to perform telecommunications actions through the facilities of the License Holder for the purpose of provision of the service; the Service Provider is exempt from the duty to obtain a general permit or license for the purpose of performance of telecommunications actions, pursuant to the provisions of Section 3(5) of the law.
• 10.2 If a Subscriber does not pay a Telephone Bill which includes a charge in respect of Premium Services, the License Holder will forward to the Host License Holder
• A76 Amendment No. 76

the following details of the Subscriber: his full name, I.D. number and contact details.

• 10.3 In a Telephone Bill which includes charges in respect of Premium Services, the License Holder will specify in respect of each Service Provider, charges in respect of whose services are included in the bill, the following details:
  • a. Name and address of the Host License Holder;
  • b. Company number or licensed dealer number of the Host License Holder;
  • c. Details for contacting the Host License Holder, including a telephone number.
• 10.4 A Host License Holder may not use means of payment details, provided thereto by the caller for the purpose of payment for other services, in order to collect a premium payment.

11. Temporary provision

• 11.1 (a) A Host License Holder will play an announcement to the caller whereby the Premium Service is provided only through use of the Dialing Codes 1-900, 1-901 and 1-902 in the following cases:
  • (1) By calling Premium Services, access to which was enabled until the provisions of this annex took effect, by dialing an international number;
  • (2) By calling Premium Services, access to which was enabled until the provisions of this annex took effect, by dialing a network access code, as defined in the numbering plan in Israel.
  • (b) The announcement will be made in the language in which the Premium Service is given.
  • (c) The Host License Holder will play the announcement for six months from the date on which the provisions of this annex take effect.
  • (d) The source operator may charge the Subscriber the Regular Tariff in respect of the announcement.

1. Access to Premium Services form:

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	Form of Access via the Telephone Device to Services Charged in the Telephone Bill
Name of License Holder
			Ways to send the form:
		Address
		E-mail address
		Facsimile no.
			Date: ____________
I, whose details are recorded below, request access to the services specified below, for the telephone number stated on this form, as follows:Details of the SubscriberName of the Subscriber / name of the company: __________ I.D./P.C. __________ Address: _______________ Telephone number:
_______________service.	Check the box according to your choice and sign. Please note that partial checking and signing mean blocking the possibility of receiving the
Type of service		Blocked	Open	Subscriber'ssignature
Access to Premium Services, which includea.playing of audio content or presentation ofvisualcontent,suchas:information,entertainment, advice, dating service, entering	1-900 numbers at a tariffof up to 50 Agorot perminute and no more thanNIS 30 for an entire call.	'†	†
competitions, etc., which are provided byb.dialing 1-900 and 1-901 numbers.	1-901 numbers at a tariffthat does not exceed NIS50 for an entire call.	†	†
In an engagement in the presence of a representative of the License Holder –
I, the undersigned subscriber, declare that this form was marked and signed by me.
Name of representative of the License Holder: ________________
Signature of representative of the License Holder: ________________
The Subscriber's signature: _________________

A76 Amendment No. 76

SHARE PURCHASE AGREEMENT

by and among:

The Sellers as Listed Herein;

Cellcom Israel Ltd. an Israeli Company;

Golan Telecom Ltd. an Israeli Company;

and

Michael Golan as Sellers' Representative

Dated as of November 4, 2015

SHARE PURCHASE AGREEMENT

THIS SHARE PURCHASE AGREEMENT (this "Agreement") is entered into on and as of this 4 day of November 2015, by and among Mr. Michael Golan, Israeli ID#327156444; PP Telecom no. 01779128, an entity organized under the laws of Belgium; GP Telecom no. 01779129, an entity organized under the laws of Belgium; Mr. David Golan, Israeli ID#333797553; and NJJ Invest Tel, French Company No. 53-530010-7 (together the "Sellers"); Cellcom Israel Ltd., a public company organized under the laws of the State of Israel (the "Purchaser"); Golan Telecom Ltd., a private company organized under the laws of the State of Israel (the "Company"); and Mr. Michael Golan, solely in his capacity as Sellers' Representative (the "Sellers' Representative"); (Each of the Sellers, the Purchaser, the Company and the Sellers' Representative shall each be referred to hereinafter as a "Party" and collectively as the "Parties").

RECITALS:

• WHEREAS the Sellers hold at the date hereof (and will hold at Closing) twenty thousand (20,000) shares (the "Shares") representing 100% of the share capital and voting rights of the Company, in the proportions set forth in Schedule A;
• WHEREAS the Company holds at the date hereof (and will hold at Closing) 100% of the issued and outstanding share capital and voting rights of each of the Subsidiaries;
• WHEREAS the Company is a telecom operator in Israel which entered the Israeli market in 2012;
• WHEREAS the Purchaser has agreed to purchase from the Sellers and the Sellers have together agreed to sell and transfer to the Purchaser the Shares and the Shareholders' Loans, subject to and in accordance with the terms and conditions of this Agreement; and
• WHEREAS the Parties desire to set forth their mutual rights and obligations in relation to the matters set forth herein;

NOW, THEREFORE, the Parties hereby represent, covenant and agree as follows:

1. Preamble; Schedules and Exhibits; Interpretation and Definitions

• 1.1. The preamble and Schedules to this Agreement and the Exhibits attached hereto constitute integral parts hereof.
• 1.2. Section headings have been included in this Agreement for convenience of reading only and shall not be used in the interpretation thereof and in no way alter, modify, amend, limit, or restrict any contractual obligations of the Parties.
• 1.3. For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders; the words "include" and "including," and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words "without limitation"; the use of the word "or" shall not be exclusive; and except as otherwise indicated, all references in this Agreement to "Sections," "Schedules" and "Exhibits" are intended to refer to Sections of this Agreement and Schedules and Exhibits to this Agreement. A document shall be deemed to have been "made available" or "delivered" by the Company or the Sellers to Purchaser or its Representatives only if has been posted in the Electronic Dataroom at least three (3) Business Days prior to the date hereof, unless otherwise agreed in writing by the Parties.
• 1.4. Each of the Parties acknowledges that it was represented by legal counsel in the negotiation, execution and delivery of this Agreement. Accordingly, and based on the foregoing facts, among other factors, each Party acknowledges and agrees that, for purposes of interpreting this Agreement, no party has had any preference in the design of the provisions of this Agreement (within the meaning of Section 25(b1) of the Israeli Contracts Law (General Part), 1973 (as amended).

1.5. Certain capitalized terms used in this Agreement are defined in Schedule 1.5 hereto.

2. Sale of Shares and Assignment of Shareholders' Loans

On and subject to the terms of this Agreement, at the Closing, the Sellers shall sell, and the Purchaser agrees to purchase, the Shares and the Shareholders' Loans. The Shares and the Shareholders' Loans shall be sold free and clear from any Liens.

3. Consideration

• 3.1. Amount. The aggregate consideration for the purchase of the Shares and the Shareholders' Loans under this Agreement shall be an amount equal to the Purchase Price and shall be payable to and will consist of:
  • (a) The Purchase Price less (i) the Convertible Note Amount, less (ii) the Company Debt (excluding (A) the National Roaming Gap, (B) the Shareholders' Loans, and (C) to the extent included in Company Debt, the amount of the Bank Guarantees), less (iii) the Transaction Expenses that have not been paid prior to the Closing, plus the VAT Credit (and subject to the other adjustments set forth herein, the "Closing Payment"), payable in cash on the Closing Date, for the benefit of the Sellers which shall be payable in accordance with the provisions of this Agreement; and
  • (b) Four Hundred Million NIS (NIS 400,000,000), which shall be payable to Sellers in accordance with the terms of this Agreement and the Convertible Notes; provided however that Purchaser may elect, at its sole discretion, to reduce the Convertible Note Amount by providing written notice to the Sellers' Representative no later than three (3) Business Days prior to the Closing (the NIS 400,000,000 as may be so reduced, the "Convertible Note Amount").
• 3.2. Convertible Note. As soon as practicable following the date hereof, Purchaser and Sellers shall agree upon a detailed Subordinated Mandatory Convertible Note in respect of the Convertible Note Amount, the principal terms of which are attached hereto as Exhibit 3.2 (the "Convertible Note"). It is hereby agreed that Purchaser will not be required to issue an aggregate amount of Conversion Shares which require the approval of Purchaser's shareholder meeting, provided, however, that in such a case Purchaser will increase the Closing Payment accordingly.
• 3.3. Registration Rights Agreement. As soon as practicable following the date hereof, and in any event, at Closing, Purchaser and the Sellers (as defined in the RRA) shall enter into a Registration Rights Agreement, the principal terms of which are/in substantially the form attached hereto as Exhibit 3.3 (the "RRA").
• 3.4. Purchase Price Adjustment**.** The Purchase Price shall be reduced by a sum equal to (A) the Adjusted Accounts Payable (if any) plus (B) the Adjusted Purchaser Payable; plus (C) Adjusted Prepaid Payable (if any) (all of such adjustments, the "Adjusted Payables").

Such reduction of the Purchase Price shall be effected as follows: the Convertible Note Amount and the Closing Payment shall be reduced (and the principal amount underlying the Convertible Notes shall be deemed adjusted downwards) by such amount of Adjusted Payables, pro rata to their initial relative portion of the Purchase Price.

The determination of the Adjusted Payables shall be as follows:

(a) As promptly as practicable, but no later than five Business Days prior to the Closing Date, Company shall prepare and deliver, and the Sellers shall cause to be prepared and delivered to Purchaser a certificate, duly executed by its CEO and CFO (the "Closing Statement") setting forth the Company's good faith, best estimate and reasonable calculation of (i) each of the Adjusted Payables as of the end of business on the Closing Date, (ii) the Transaction Expenses that remain outstanding as of the end of business on the Closing Date, (iii) the Company Debt as of the end of business on the Closing Date, (iv) EBITDA for the period consisting of the most recently completed fiscal quarter, as well as the period ending on the last calendar day of the month ending prior to the delivery of the Closing Statement in accordance with this Section 3.4(a); ("Closing

EBITDA"), (v) Revenues for the three month period ending on the last day of the month immediately preceding the month in which the Closing Date ("Closing Revenues") and (vi) number of Active Customers as of the end of last business day of month immediately preceding on the Closing Date ("Closing Active Customers"). The Closing Statement shall be accompanied by the calculations made and methodology used by the Company, and such other information, documents and data reasonably necessary or otherwise reasonably requested by the Purchaser in order to facilitate a review, examination and confirmation of the information included therein.

• (b) If Purchaser disagrees with the Sellers' calculation of the Adjusted Payables or the other items included therein (including the Transaction Expenses as of the end of business on the Closing Date, the Company Debt as of the end of business on the Closing Date, Closing Revenues or the Closing Active Customers) delivered pursuant to Section 3.4(a) (but not the Closing EBITDA), Purchaser may, within 60 days after delivery of the Closing Statement, deliver a notice executed by Purchaser's CFO or CEO, to the Sellers' Representative disagreeing with such calculation(s) and setting forth Purchaser's calculation of such amount(s). Any such notice of disagreement shall specify those items or amounts as to which Purchaser disagrees.

• (c) If a notice of disagreement shall not be timely delivered pursuant to Section 3.4(b) above, the Closing Statement and all amounts included therein shall be deemed final. However, if a notice of disagreement is timely delivered pursuant to Section 3.4(b) above, the Sellers' Representative and Purchaser shall, during the thirty (30) days following such delivery, use their reasonable efforts to reach agreement on the disputed items or amounts in order to determine, as may be required, the amount of Adjusted Accounts Payable or the other items disputed, as the case may be. If during such period, the Sellers' Representative and Purchaser are unable to reach such agreement, they shall promptly thereafter cause a major international accounting firm reasonably acceptable to Purchaser and Sellers' Representative (the "Accounting Expert") to review this Agreement and the disputed items or amounts for the purpose of calculating the disputed amounts (it being understood that in making such calculation, the Accounting Expert shall be functioning as an expert and not as an arbitrator). In making such calculation, the Accounting Expert shall consider only those items or amounts in the Closing Statement as to which Purchaser has disagreed. The Accounting Expert shall deliver to the Sellers' Representative and Purchaser, as promptly as practicable (but in any case no later than thirty (30) days from the date of engagement of the Accounting Expert), a report setting forth such calculation. Such report shall be final and binding upon the Sellers and Purchaser, shall not be appealable and will be enforceable in a court of law. The cost of such review and report of the Accounting Expert shall be borne equally by the Sellers (50%) and Purchaser (50%).

• (d) The Parties shall, and shall cause their respective representatives to, cooperate and assist the Accounting Expert in the conduct of the review referred to in this Section 3.4, including, but subject to a confidentiality agreement, the making available to the extent necessary of books, records, work papers and personnel.

• (e) If the applicable Final Adjusted Payable exceeds the respective Closing Adjusted Payable as shown in the Closing Statement, Purchaser shall pay to the Sellers, as an adjustment to the Purchase Price the amount of such excess and, if Closing Adjusted Payable exceeds the Final Adjusted Payable*,* the Sellers shall pay to Purchaser, as an adjustment to the Purchase Price the amount of such excess. "Final Adjusted Payables" means the applicable Closing Adjusted Payable as shown in the Final Closing Statement; provided, however, that in no event shall Final Adjusted Payables be more than the Sellers' calculation of the Closing Adjusted Payables delivered pursuant to Section 3.4(b). "Final Closing Statement" means (i) the Closing Statement if no notice of disagreement with respect thereto is timely delivered pursuant to Section 3.4(b); or (ii) if a notice of disagreement is delivered, (A) as agreed by the Sellers' Representative and Purchaser, or (B) in the absence of such agreement, as shown in the Accounting Expert's calculation.

• (f) Notwithstanding anything contained herein to the contrary in this Section 3.4, in the event that any of the adjustments under this section 3.4 above is determined to be less than an amount of NIS 500,000 then no adjustment shall be made.

• (g) Any payment pursuant to Section 3.4(e) shall be made (without derogating from the Purchaser's right to recover such amount pursuant to the provisions of Section 10) within five (5) Business Days after Final Adjusted Payable has been determined, in the case of adjustment to the Closing Payment, by wire transfer by Purchaser (or the Paying Agent, if any is appointed, on its behalf) or Sellers, as the case may be, of immediately available funds to the account of such other party or parties as may be designated in writing by the Sellers' Representative or the Purchaser, as the case may be.

• (h) Any amounts paid pursuant to the provisions of this Section 3.4 shall be deemed to be and treated, to the extent permitted by Law, as an adjustment to the Purchase Price for all purposes.

• 3.5. MAE Purchase Price Adjustment. The Purchaser shall be entitled to a further downward adjustment to the Purchase Price in the events and in accordance with the procedures set forth in Exhibit 3.5 hereto.

3.6. Withholding Tax.

• (a) Notwithstanding anything to the contrary contained in this Agreement or the other Transaction Documents, Purchaser (including any other Person, such as a paying agent, if any is appointed, required to withhold with respect to any payment made under this Agreement) shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement or the other Transaction Documents such amounts as are required to be deducted or withheld therefrom under any provision of applicable Tax Law. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement and the other Transaction Documents as having been paid to the Person to whom such amounts would otherwise have been paid. Notwithstanding the foregoing, for purposes of Israeli Tax, if the Person entitled to payment has provided to Purchaser a Valid Certificate at least seven (7) Business Days prior to making any payment payable pursuant to this Agreement, Purchaser shall not withhold or shall withhold a reduced Tax amount pursuant to this Section in accordance with the provisions of the applicable Valid Certificate. A "Valid Certificate" shall be a certificate or ruling issued by the Israeli Tax Authority ("ITA") which is sufficient to enable Purchaser to conclude that no withholding (or reduced withholding) of Israeli Tax is required with respect to the payment to such Person. For the avoidance of doubt, in the absence of a Valid Certificate that both (i) applies to the funds payable from the Convertible Note payable and (ii) approves that the payment by Purchaser to the Sellers by way of the Convertible Note will not be subject to Israeli withholding tax, the calculation of the applicable amount to be withheld from the amount to be paid to a Person at Closing will also include the applicable amount to be withheld from such Person's portion of the Convertible Note.
• (b) Notwithstanding the foregoing, if, and only if, a Paying Agent is appointed as contemplated in Section 3.7 below, then with respect to any amount to be deducted or withheld pursuant to Section 3.6(a) above, any consideration payable or otherwise deliverable pursuant to this Agreement or the other Transaction Documents to any Person, shall be paid to and retained by the Paying Agent for the benefit of each such Person for a period of one hundred eighty (180) days after the Closing (the "Withholding Drop Date"), or a shorter period of time if requested in writing by a Person in respect of such Person's consideration, during which time none of Purchaser, the Company or the Paying Agent shall withhold any Israeli Tax on such consideration, except as provided below, and during which time each such Person may obtain a Valid Certificate regarding the deduction or withholding of Tax from any consideration payable to such Person hereunder. In the event that no later than seven (7) Business Days prior to the Withholding Drop Date, a Person submits a

Valid Certificate, the Paying Agent shall withhold and transfer to the ITA such amount of withholding due from such Person as specified in such Valid Certificate, and shall pay to such Person only the balance of the payment due to such Person that is not so withheld. If any Person (A) does not provide the Paying Agent with such Valid Certificate, no later than seven (7) Business Days prior to the Withholding Drop Date, or (B) submits a written request to the Paying Agent to release its portion of any consideration on a date prior to the Withholding Drop Date and fails to submit a Valid Certificate on or before such date, then Israeli Tax will be withheld from such Person's portion of the aforementioned consideration as determined by Purchaser and the Paying Agent in their discretion in accordance with Israeli Tax Laws, which amount shall be delivered to the ITA by the Paying Agent and the Paying Agent shall pay to such Person the balance of the payment due to such Person that is not so withheld. In such event, the Paying Agent shall provide to the relevant Person a certificate evidencing such withholding.

(c) To the extent Purchaser, the Company or the Paying Agent withholds any amounts pursuant to this Section 3.6, the withholding shall be increased by interest and Israeli CPI adjustments for the period between Closing and the time the relevant payment is made.

3.7. Payment of Purchase Price.

• (a) At the Sellers' Representative reasonable request, prior to the Closing Date, Purchaser shall appoint an Israeli agent reasonably acceptable to the Sellers' Representative (the "Paying Agent") to receive the Closing Payment to which the Sellers are entitled hereunder, as the Closing Payment may be adjusted hereunder, and Purchaser shall have entered into a paying agent agreement (the "Paying Agent Agreement") with the Paying Agent. At or as promptly as practicable after the Closing Date or, in the case of payments pursuant to Section 3.4 or 3.5, when ascertained and if applicable, Purchaser shall deposit, or cause to be deposited, with the Paying Agent, for the benefit of the Sellers, cash in an amount sufficient to pay the Closing Payment (the "Payment Fund"). The Paying Agent shall pay, or cause to be paid, the amount of cash to which each Seller is entitled to receive pursuant to this Agreement by wire transfer to such accounts and in such amounts in accordance with and set forth in Schedule A attached hereto promptly after delivery by such Seller to the Paying Agent of a properly completed letter of transmittal. Any portion of the Payment Fund that remains undistributed to the Sellers on the date that is one year after the Closing Date shall be delivered by the Paying Agent to Purchaser, upon demand, and any Seller who has not theretofore demanded or received its applicable portion of the Closing Payment shall thereafter look only to Purchaser for payment of such consideration.
• (b) Schedule A shows, for each Seller: (A) the name, the address, email address, and residency of such Seller, telephone number, bank information (the respective bank name and number, the branch name, number and address, swift number and account number), (B) the number and class of shares of Company capital stock held, (C) a calculation of the portion of the Purchase Price payable to such Seller, including the Pro Rata Share, relative portion of the Holdback Amount, Shareholder Loans and Convertible Notes, and (D) such additional details reasonably required by Purchaser (or the Paying Agent, if any is appointed) so as to properly process payments. Other than the name and those items set forth in subclause (B) above, other details of Schedule A shall be provided within 14 days from the date hereof.

4. Closing

4.1. Closing of Transactions. The consummation of the sale of Shares, the assignment of the Shareholders' Loans and the other Transactions (the "Closing") shall take place at the offices of Gornitzky & Co., 45 Rothschild Blvd., Tel Aviv, Israel on a date to be specified by Purchaser and the Sellers' Representative, which date shall be the later of (i) three (3) Business Days following the satisfaction or waiver (by the applicable Party) of all the conditions set forth in Section 9 (other than the conditions which, by their nature, are intended to be satisfied

at the Closing, but subject to the satisfaction or waiver by the applicable Party of those conditions at the Closing) has been completed, or (ii) upon written notification of such from the Purchaser to the Sellers' Representative, up to 30 days following the satisfaction or waiver of the closing conditions involving the receipt Governmental Approvals; provided, however, that (i) the Closing may take place by exchange of executed documents by facsimile or email transmission, or at such other time or on such other date or at such other place as the Sellers' Representative and Purchaser may mutually agree upon in writing, and in the event that the Closing Date is determined in accordance with subclause (ii) above, Purchaser may advance the Closing by way of three (3) Business Days prior written notice to the Sellers' Representative. All deliveries by one Party to any other party at Closing shall be deemed to have occurred simultaneously and none shall be effective until and unless all have occurred or been waived in accordance with this Agreement.

• 4.2. Closing Deliveries by the Sellers and the Company. Upon the Closing, the Company and the Sellers shall, and where required, Sellers shall procure that the Company shall, deliver to the Purchaser:
  • (a) an updated shareholders' register of the Company, reflecting the transfer of the Shares to the Purchaser, effective as of the Closing Date;
  • (b) duly signed resignation letters (containing a customary waiver of claims) with effect as of the Closing Date, of all directors of the Company and any Subsidiaries, in the form reasonably to the satisfaction of the Parties;
  • (c) any authorizations, consents, orders and approvals of all third parties set forth on Schedule 7.3, in each case in form and substance reasonably satisfactory to Purchaser;
  • (d) a certificate, dated as of the Closing Date, signed by the Sellers' Representative and by the CEO and CFO of the Company, certifying, among other things, as to the satisfaction of the conditions specified in Section 9.3, reasonably to the satisfaction of the Purchaser;
  • (e) an additional copy of the Closing Statement as set forth in Section 3.4;
  • (f) duly executed share transfer deeds (together with the original share certificates or appropriate certificate of loss) with respect to the Shares owned by each Seller for transfer from the Sellers to Purchaser in a form reasonably satisfactory to the Purchaser;
  • (g) evidence reasonably satisfactory to Purchaser that each Seller which is not an individual has duly approved the Transactions;
  • (h) a duly executed copy of each of the Convertible Note and Registration Rights Agreement by each of the Sellers;
  • (i) copies of duly executed agreements, in a form reasonably satisfactory to Purchaser, from each holder of Call Options, evidencing such Call Option holder's acknowledgment that such Call Options are redeemed or otherwise cancelled not later than the Closing (the "Optionholder Acknowledgements");
  • (j) a duly executed copy of a non-compete undertaking, substantially in the form of Exhibit 4.3(j), from each natural Person who is the ultimate beneficial owner of any Seller who is not an individual (the "Non-Compete Undertaking");
  • (k) a duly executed copy of an assignment deed of the Shareholders' Loans, in a form reasonably satisfactory to Purchaser;
  • (l) a copy of resolutions of (i) the Board or Directors of the Company and (ii) the shareholders of the Company, approving the Transactions, in a form reasonably satisfactory to the Purchaser; and
  • (m) such other customary documents, instruments or certificates as shall be reasonably requested by Purchaser and as shall be consistent with the terms of this Agreement.
• 4.3. Closing Deliveries by the Purchaser. Upon the Closing, the Purchaser shall deliver to the Sellers' Representative (or to others if otherwise indicated herein):

• (a) a certified copy of resolutions of the Board or Directors of Purchaser, substantially in the form set forth as Exhibit 4.3, approving the Transactions;
• (b) an amount equal to the Closing Payment, by wire transfer of immediately available funds to those bank accounts designated in writing by the Sellers in Schedule A or, if a paying agent has been appointed, by the Paying Agent, at least two (2) Business Days prior to the Closing Date;
• (c) the Convertible Notes and the Registration Rights Agreements, each duly executed by the Purchaser;
• (d) a certificate, dated as of the Closing Date, signed by a duly authorized officer of the Purchaser, reasonably to the satisfaction of the Seller.
• (e) such other customary documents, instruments or certificates as shall be reasonably requested by the Sellers Representative and as shall be consistent with the terms of this Agreement.

5. Representations and Warranties of the Purchaser.

Except (i) as set forth in the Purchaser SEC Documents (excluding any risk factor disclosures contained in the "Risk Factors" section thereof), but other than with respect to Sections 5.1-5.3 and 5.8, and (ii) as set forth on Schedule 5, the Purchaser hereby represents and warrants to the Sellers that:

• 5.1. Organization and Good Standing. Purchaser is a company duly organized and validly existing under the laws of the State of Israel and has all requisite corporate power and authority to own, lease and operate properties and carry on its business.
• 5.2. Authorization of Agreement. Purchaser has full corporate power and authority to execute this Agreement and each other agreement, document, or instrument or certificate contemplated to be executed or delivered by the Purchaser under this Agreement, including the Convertible Note and the Registration Rights Agreement (together, the "Purchaser Documents"), and to consummate the Transactions. The execution and performance by Purchaser of this Agreement and the Purchaser Documents have been duly authorized by all necessary corporate action on behalf of Purchaser, and no shareholder approval is required by Purchaser for the execution or performance of any Purchaser Document. This Agreement has been, and each of the Purchaser Documents will be at or prior to the Closing Date, duly executed by Purchaser and (assuming the due authorization, execution and delivery by the other Parties hereto) this Agreement constitutes, and the Company Documents when executed will constitute, the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).
• 5.3. Conflicts; Consents. None of the execution by Purchaser of this Agreement, the consummation of the Transactions, or compliance by Purchaser with any of the provisions hereof will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation, modification, payment or acceleration, or result in the creation of any Lien on any of the properties or assets of the Purchaser under, any provision of (i) the organizational documents of Purchaser; (ii) any Contract or Permit to which Purchaser is a party or by which any of the properties or assets of Purchaser are bound; (iii) any Order of any Governmental Authority applicable to Purchaser or by which any of the properties or assets of Purchaser are bound; or (iv) any applicable Law, except in the case of clauses (ii)-(iv), that would prevent or materially adversely affect the ability of the Purchaser to consummate the Transactions in accordance with the terms hereof. Other than in connection with the Antitrust Condition and the MOC Condition, no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or

notification to, any Person or Governmental Authority is required on the part of Purchaser in connection with the execution of this Agreement or the compliance by Purchaser with any of the provisions hereof, in each case, that would prevent or materially adversely affect the ability of the Purchaser to consummate the Transactions in accordance with the terms hereof.

• 5.4. Litigation. There are no Legal Proceedings pending or, to the knowledge of Purchaser, threatened against Purchaser that are reasonably likely to prohibit or restrain the ability of Purchaser to enter into this Agreement or consummate the Transactions contemplated hereby.
• 5.5. Financial Advisors. No Person has acted, directly or indirectly, as a broker, finder or financial advisor for Purchaser in connection with the Transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof.
• 5.6. Financing. Purchaser will have at the Closing sufficient funds to pay the Purchase Price and any expenses incurred by Purchaser in connection with the Transactions.
• 5.7. Solvency. The Purchaser is not now insolvent, and assuming the accuracy of the representations set forth in Sections 6 and 7, inasmuch as they affect Purchaser's solvency, it will not be rendered insolvent immediately following the Transactions.
• 5.8. Issuance of Conversion Shares. The ordinary shares, par value NIS 0.01 per share, of Purchaser (the "Purchaser Shares"), to be issued to Sellers pursuant to this Agreement and the Convertible Note (the "Conversion Shares") have been duly authorized, and when issued in accordance with this Agreement and the Convertible Note, will be validly issued, fully paid and nonassessable and free and clear of any Lien (except to the extent that such rights are limited by this Agreement and the other Transaction Documents, Purchaser's organizational documents, the terms of the licenses issued by the MOC and applicable Laws).
• 5.9. Public Filings. Purchaser has timely filed with or otherwise furnished to the SEC all forms, reports, schedules, statements and other documents required to be filed or furnished by it under the Securities Exchange Act of 1934, as amended (the "Exchange Act") since January 1, 2015 together with all certifications required pursuant to the Sarbanes-Oxley Act (these documents, as supplemented or amended since the time of filing, and together with all information incorporated by reference therein and schedules and exhibits thereto, the "Purchaser SEC Documents"). As of their respective filing dates, the Purchaser SEC Documents (or, if filed after the date hereof and before the Closing, will) comply in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC thereunder, as the case may be. Purchaser has delivered or made available to the Company and Sellers (including through the SEC EDGAR system) accurate copies of the Purchaser SEC Documents*.*
• 5.10.Acknowledgment. Notwithstanding anything contained in this Agreement to the contrary, Purchaser acknowledges and agrees that neither the Company nor any Seller is making any representations or warranties whatsoever, express or implied, beyond those expressly given by the Company and the Sellers, as the case may be, in Sections 6 and 7 (as modified by the Schedules thereto) or any Closing certificate delivered pursuant hereto.

6. Representations and Warranties of the Sellers.

Except as set forth on Schedule 6, each Seller represents and warrants, severally and not jointly, to the Purchaser as follows in respect of itself and not in respect of any other Seller:

• 6.1. Organization and Power. Each Seller which is not an individual is duly organized and validly existing (and, where such concept is recognized, in good standing) under the laws of the jurisdiction in which it is organized and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now conducted. Each Seller has all requisite power and authority to enter into this Agreement and to carry out its obligations hereunder.
• 6.2. Authorization. Each Seller has all requisite power, authority and legal capacity to execute this Agreement and each other agreement, document, or instrument or certificate contemplated to be executed or delivered by the Seller under this Agreement, including the Convertible Note and the Registration Rights Agreement (together, the "Seller Documents"), and to

consummate the Transactions. The execution of this Agreement, and the Seller Documents and consummation of the Transactions has been duly authorized by all required action on the part of such Seller. This Agreement has been, and each of the Seller Documents will be at or prior to the Closing Date, duly and validly executed by such Seller, and (assuming the due authorization, execution by the other parties hereto and thereto) this Agreement constitutes, and the Company Documents when executed will constitute, the legal, valid and binding obligation of such Seller, enforceable against such Seller in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

6.3. No Conflict.

• (a) None of the execution by such Seller of this Agreement, the consummation of the transactions contemplated hereby or thereby, or compliance by such Seller with any of the provisions hereof will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation, modification, payment or acceleration, or result in the creation of any Lien on any of the properties or assets of the Seller, under, any provision of (i) organizational documents of such Seller (if such Seller is not an individual); (ii) any Contract, or Permit to which such Seller is a party or by which any of the properties or assets of such Seller is bound; (iii) any Order of any Governmental Authority applicable to such Seller or by which any of the properties or assets of such Seller are bound; or (iv) any applicable Law, in each case, that would limit, prevent or adversely affect the ability of such Seller to consummate the Transactions.
• (b) Other than the Antitrust Condition and the MOC Condition, no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Authority is required on the part of such Seller in connection with the execution of this Agreement, the compliance by such Seller with any of the provisions hereof, or the consummation of the Transactions contemplated hereby, in each case, that would limit, prevent or adversely affect the ability of such Seller to consummate the Transaction, and perform its or their obligations thereunder.

6.4. Ownership of Shares.

• (a) Such Seller is the record and beneficial owner of the Shares indicated as being owned by such Seller on Schedule A, free and clear of any and all Liens. Such Seller has the power and authority to sell, transfer, assign and deliver such Shares as provided in this Agreement, and such delivery will convey to Purchaser good and marketable title to such Shares, free and clear of any and all Liens. Each Seller has the sole right to vote or direct the voting of the Shares, at each such Seller's discretion, on any matter submitted to a vote of the equity holders of the Company having the right to vote thereon.

• (b) There are no (i) voting trusts, voting agreements, or other arrangements relating to the share capital of the Company that will continue to be in effect following the Closing, and (ii) no other Contracts between Seller or its Affiliates and any of the Group Companies. Each such Seller is not an Affiliate of another Seller. Schedule 6.4 sets forth, with respect to each Seller who is not an individual each natural Person who is the ultimate controlling shareholder of such Seller.

• 6.5. Litigation. No pending Legal Proceedings has been commenced or threatened against the Seller that would challenge, or may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Transactions or any provisions of this Agreement. Such Seller does not have any claim against the Company, whether present or future, contingent or unconditional, fixed or variable under any Contract or on any other basis, which shall not have been waived or fulfilled as of Closing.

• 6.6. Financial Advisors. No Person has acted, directly or indirectly, as a broker, finder or financial advisor for Seller in connection with the Transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof.

• 6.7. Solvency. None of the Sellers are now insolvent, and none of them will be rendered insolvent immediately following the Transactions.

• 6.8. Ownership of Purchaser Shares. None of the Sellers or any of its Affiliates, directly or indirectly, owns, beneficially or otherwise 1% or more of the Purchaser Shares.

6.9. Securities Laws Matters.

• (a) Such Seller is acquiring the Convertible Note and the Conversion Shares (together, the "Securities") for such Seller's own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act.
• (b) Such Seller is either (i) an "accredited investor" (as defined in Regulation D promulgated under the Securities Act) or (ii) not a U.S. Person (as defined in Regulation S promulgated under the Securities Act).
• (c) Such Seller can afford to bear the economic risk of holding the Securities.
• (d) Such Seller, if not a U.S. Person (as defined in Regulation S promulgated under the Securities Act), then: (1) only to the extent that such Sellers is not an individual, it was not organized under the laws of any United States jurisdiction, and was not formed for the purpose of investing in Securities not registered under the Securities Act, (2) received all communications relating to the issuance of the Securities, and executed all documents relating thereto, outside the United States and, on the date hereof, is outside the United States, (3) it is not acquiring the Securities for the account or benefit of any U.S. Person, and (4) it will not offer or sell any of the Securities in the United States, to or for the account or benefit of a U.S. Person other than in accordance with Regulation S or pursuant to an effective registration statement under the Securities Act or any available exemption therefrom and, in any case, in accordance with applicable state securities laws.
• (e) Such Seller understands that the Securities have not been registered under the Securities Act and will be issued in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of its investment intent as expressed herein. Such Seller understands that the Securities are "restricted securities" under the United States federal securities laws and, absent registration, may be resold without registration under the Securities Act only in very limited circumstances. Such Seller acknowledges and agrees that the Securities shall bear a legend, substantially in the form attached hereto as Schedule 6.9.
• (f) In order to prevent any transfer from taking place in violation of applicable Law, each Seller hereby agrees that Purchaser may cause a stop transfer order to be placed with its transfer agent and that Purchaser will not be required to transfer on its books any Securities that have been sold or transferred in violation of any provision of this Agreement or applicable Law.
• (g) If the Seller is neither a "U.S. Person" nor an Israeli resident, he or it hereby further represent that he/it has satisfied him/itself as to the full observance of the laws of his/its jurisdiction in connection with any invitation to subscribe for the Securities, including the legal requirements within his/its jurisdiction for the purchase of the Securities, if any.
• 6.10.Acknowledgment. Notwithstanding anything contained in this Agreement to the contrary, each Seller acknowledges and agrees that Purchaser is not making any representations or warranties whatsoever, express or implied, beyond those expressly given by

the Purchaser in Section 5 (as modified by the Schedules thereto, if any) or any Closing certificate delivered pursuant hereto.

7. Representations and Warranties of the Company.

Except (i) as set forth in Schedule 7 to this Agreement (which shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Section; it being understood that each such disclosures shall qualify (A) the corresponding paragraph in this Section and (B) the other paragraphs in this Section to the extent reasonably apparent from a reading of such disclosure that it also qualifies or applies to such other paragraphs), and (ii) solely with respect to Sections 7.3(b), 7.7, 7.8, 7.10 (a) through (c), 7.12, 7.14 and 7.19), no disclosure shall be required to be made with respect to those matters to the extent directly arising under any Contracts or legal proceedings between the Company and the Purchaser, the Company hereby represents and warrants to the Purchaser as follows:

• 7.1. Organization and Qualification. The Company is duly organized and validly existing under the laws of the State of Israel and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now conducted. The Company is duly qualified, licensed or admitted to do business in each jurisdiction in which the nature of its business or the ownership, leasing, license, use or operation of its assets and properties makes such qualification, licensing or admission necessary, except where the failure to be so qualified, licensed or admitted would not constitute a Material Adverse Effect.
• 7.2. Authorization. The Company has all requisite power and authority to execute this Agreement and each other agreement, document, or instrument or certificate contemplated to be executed or delivered by the Company under this Agreement (together, the "Company Documents"), and to consummate the Transactions contemplated hereby. The execution of this Agreement and the Company Documents and the consummation of the Transactions have been duly authorized by all requisite corporate action on the part of the Company. This Agreement has been, and each of the Company Documents will be at or prior to the Closing Date, duly and validly executed by the Company and (assuming the due authorization and execution by the other parties hereto and thereto) this Agreement constitutes, and the Company Documents when executed will constitute, the legal, valid and binding obligations of the Company, enforceable against it in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). The copies of the organizational documents of the Company attached hereto as Schedule 7.2 are true, complete and correct copies of such documents as in effect on the date of this Agreement, and the Company is not in violation of any provision thereof.

7.3. Conflicts; Consents of Third Parties.

(a) None of the execution by the Company of this Agreement or the Company Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by the Company with any of the provisions hereof will conflict with, or result in any violation of or default under, or give rise to a right of termination, cancellation, modification, payment or acceleration, or result in the creation of any Lien on any of the properties or assets of the Group Companies under, any provision of (i) the organizational documents of any of the Group Companies; (ii) any Contract, or Permit to which any Group Company is a party or by which any of the properties or assets of the Group Companies are bound; (iii) any Order of any Governmental Authority applicable to the Company or any Subsidiary or by which any of the properties or assets of a Group Company are bound; or (iv) any applicable Law, other than, in the case of clauses (ii), (iii) and (iv), such conflicts, violations, defaults, terminations or cancellations, that would not have a Material Adverse Effect.

• (b) No consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Authority is required on the part of the Company or any Subsidiary in connection with the execution of this Agreement or the Company Documents or the compliance by the Company with any of the provisions hereof or thereof, or the consummation of the transactions contemplated hereby or thereby, except (A) in connection with the Antitrust Condition and the MOC Condition; and (B) for such consents, waivers, approvals, Orders, Permits or authorizations the failure of which to obtain would not have a Material Adverse Effect.
• 7.4. Capitalization. The authorized capital of the Company consists of 1,000,000 ordinary shares, NIS 0.01 par value per share (the "Ordinary Shares"). As of the date hereof, there are 20,000 Ordinary Shares issued and outstanding, all of which are, and shall be at Closing, owned beneficially and of record by Sellers as set forth in Schedule A. All of the issued and outstanding Ordinary Shares were duly authorized for issuance and are validly issued, fully paid and non-assessable. There is no existing option, warrant, call, right, or Contract of any character to which the Company, or to its knowledge, any other Person, is a party requiring, and there are no securities of the Company outstanding which upon conversion or exchange would require, the issuance, of any shares of capital stock of the Company or other securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase shares of capital stock of the Company. The Company is not a party to any voting trust or other Contract with respect to the voting, redemption, sale, transfer or other disposition of the Common Stock of the Company. There are no declared or accrued but unpaid dividends with respect to any Company capital stock. The Company does not own any share capital of the Company.

7.5. Subsidiaries.

• (a) Schedule 7.5(a) sets forth the name of each Subsidiary, and, with respect to each Subsidiary, the jurisdiction in which it is incorporated, the number of shares of its authorized capital stock, the number and class of shares thereof issued and outstanding, the names of all stockholders or other equity owners and the number of shares of stock owned by each stockholder or the amount of equity owned by each equity owner. Each Subsidiary is duly organized and validly existing (and, where such concept is recognized, is in good standing) under the laws of the jurisdiction of its incorporation or organization. Each Subsidiary is duly qualified, licensed or admitted to do business in each jurisdiction in which the nature of its business or the ownership, leasing, license, use or operation of its assets and properties makes such qualification, licensing or admission necessary, except where the failure to be so qualified, licensed, or admitted would not have a Material Adverse Effect. Each Subsidiary has all requisite power and authority to own, lease and operate its properties and carry on its business as now conducted.
• (b) The outstanding shares of each Subsidiary are validly issued, fully paid and non-assessable, and all such shares or other equity interests are owned by the Company free and clear of any and all Liens. There is no existing option, warrant, call, right or Contract to which any Subsidiary or the Company is a party requiring, and there are no convertible securities of any Subsidiary outstanding which upon conversion would require, the issuance of any shares of capital stock or other equity interests of any Subsidiary or other securities convertible into shares or other equity interests of any Subsidiary. Other than the Subsidiaries, the Company (directly or through its Subsidiaries) does not own or control and has never owned or controlled, directly or indirectly, any equity or similar interest in, or have any commitment or obligation to invest in, any corporation, partnership, joint venture or other business association or entity.

7.6. Financial Statements.

(a) Attached as Schedule 7.6(a)(1) hereto, and except as stated in Schedule 7.6(a)(2), are true, correct and complete copies of (i) the audited non consolidated balance sheets, including the related audited statements of income, and stockholders' equity, of each

of the Company and its Subsidiaries as at, and for the periods ended, December 31, 2013 and 2014, together with the audit opinion thereon of Raviv Lavi (the "CPA"), and (ii) the unaudited balance sheets of each of the Company and its Subsidiaries as at September 30, 2015 (such audited and unaudited statements, including the related notes and schedules thereto, are referred to herein as the "Financial Statements"). Each of the Financial Statements has been prepared in accordance with GAAP consistently applied and presents fairly in all material respects the financial positions, results of operations and cash flows of the Company and its Subsidiaries as at the dates and for the periods indicated therein (except, in the case of interim Financial Statements, the absence of notes thereto).

• (b) The Company (i) makes and keeps accurate books and records that fairly reflect in all material respects the transactions and dispositions of assets of the Group Companies, and (ii) maintains internal accounting controls which provide reasonable assurance that transactions are recorded as necessary to permit preparation of its financial statements in conformity with GAAP. In the past three years, there has been no disagreement with the CPA in connection with any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure and no dismissal of independent auditors in connection therewith. There are no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on the financial condition, including results of operations and liquidity, of the Group Companies.

• (c) Schedule 7.6(c) sets forth a true, complete and correct list of all Company Debt as of October 31, 2015.

• (d) Schedule 7.6(d) shows a true and correct calculation of the Company Indebtedness, EBITDA, Revenues and number of Active Customers, all prepared in accordance the same procedures of Section 3.4, but as if the Closing was conducted (i) as of September 30, 2015 (the EBITDA and Revenues for the three-month period ending on such date being referred to herein as the "Q3 EBITDA" and "Q3 Revenues", respectively) and (ii) with respect to Active Customers (such Active Customers being referred to herein as the "Signing Active Customers"), as of October 31, 2015. The Closing EBITDA properly reflects the required calculation of EBITDA as set forth in Section 3.4(a) above, based upon the Company's management accounts as of the relevant date.

• (e) All accounts receivable that are reflected on the Financial Statements or the Closing Statement represent valid and bona fide obligations arising from sales actually made or services actually performed by the Group Companies. Except to the extent paid prior to the Closing Date, such accounts receivable are as of the Closing Date current (in all but de minimis respects) and collectible net of the reserves shown on the Financial Statements or the Closing Statement (which reserves are adequate and calculated in accordance with GAAP) and, to the Knowledge of the Company, all such accounts receivable either have been or are able to be collected using reasonable commercial efforts, within a reasonable period of time not to exceed 90 days after the Closing.

• (f) For the purposes hereof, the unaudited (and unreviewed by the CPA) balance sheets of the Company and its Subsidiaries as at September 30, 2015 is referred to as the "Balance Sheets" and September 30, 2015 is referred to as the "Balance Sheet Date".

• 7.7. No Undisclosed Liabilities. As of the date hereof, neither the Company nor any Subsidiary has any Liabilities of any kind that would have been required to be reflected in, reserved against or otherwise described on the Balance Sheet or in the notes thereto in accordance with GAAP and were not so reflected, reserved against or described, other than (i) Liabilities incurred in the ordinary course of business after the Balance Sheets Date, (ii) Liabilities incurred in connection with the Transactions contemplated hereby that constitute part of the Transaction Expenses, or (iii) Liabilities that would not be reasonably expected to exceed, in the aggregate, more than NIS 1,000,000.

• 7.8. Absence of Certain Developments. Since the Balance Sheets Date (a) except as contemplated by this Agreement, the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course of business; (b) there has not been any event, change, occurrence or circumstance that has had a Material Adverse Effect; and (c) and there has not been any (i) damage, destruction or other casualty loss with respect to any material asset or material property owned, leased or otherwise used by the Group Companies; (ii) declaration, setting aside or payment of any dividend or other distribution in respect of the capital stock of the Company or any other payment to the Sellers or their Affiliates; (iii) incurrence, assumption or guarantee by the Company of any Company Indebtedness more than NIS 1,000,000 in the aggregate; (iv) creation or assumption by the Group Companies of any Lien (other than Permitted Liens); (v) change by the Company in its accounting principles, practices or methods, except as required by concurrent changes in GAAP; (vi) any increase of, or an undertaking for, any increase in the compensation payable or that could become payable by the Group Companies to any of its employees, officers or directors, other than increases that do not exceed, in the aggregate, NIS 1,000,000 per annum; (vii) any capital expenditures or commitments therefor that exceed, in the aggregate, NIS 1,000,000; (viii) termination or creation of any Material Contract, or any material amendments thereto or defaults thereunder; or (ix) (A) acceleration of the payment of customer accounts receivables (including shortening payment terms, providing incentives for early payment or otherwise) or (B) delaying of the payment on accounts payable to suppliers, vendors or others beyond due dates; or (C) varying any inventory purchasing practices, in each case, in any material respect from past practices. .

• 7.9. Taxes. Each of the Company and its Subsidiaries has timely filed all Tax Returns and reports required to be filed by it, and all Taxes required to be paid by it have either been paid or are reflected in accordance with GAAP as a reserve for Taxes on the most recent Financial Statements, and all such returns and reports are correct and complete, or valid requests for extensions to file such returns or reports have been timely filed, granted and have not expired, except to the extent that such failures to file, to pay or to have extensions granted that remain in effect individually or in the aggregate have not had and would not reasonably be expected to materially and adversely affect the Group Companies as a whole, and the Financial Statements reflect an adequate reserve for all Taxes payable by the Company and its Subsidiaries for all taxable periods and portions thereof through the date of such Financial Statements. No deficiencies for any Taxes have been proposed, asserted or assessed in writing against the Company or any of its Subsidiaries that are still pending. No requests for waivers of the time to assess any such Taxes have been made in writing that are still pending. All assessments for Taxes due with respect to any concluded litigation have been fully paid or have been adequately reserved on the Financial Statements in accordance with GAAP. Neither the Company nor any of its Subsidiaries is liable for the Taxes of any other person as a result of any indemnification provision, Tax sharing or other contractual obligation ("Tax Sharing Agreements"). There are no Liens with respect to material Taxes upon any of the assets or properties of the Group Companies, other than with respect to Taxes not yet due and payable or being contested in good faith by appropriate proceedings and listed on Schedule 7.9. Neither the Company nor any of its Subsidiaries is subject to any restrictions or limitations pursuant to Part E2 of the Israeli Tax Ordinance or pursuant to any Tax ruling made with reference to the provisions of such Part E2. The Group Companies have duly collected all amounts on account of any VAT required by applicable Tax Laws to be collected by it, and has duly and timely remitted to the appropriate Taxing Authority any such amounts required by applicable Tax Law. The Group Companies are not subject to any restrictions or limitations pursuant to any Tax ruling issued by a Taxing Authority. All Taxes that the Group Companies were required by Law to withhold or collect have been duly withheld or collected and, to the extent required, have been properly paid to the appropriate Taxing Authority. This Section 7.9 represents the sole and exclusive representation and warranty of the Company regarding tax matters.

7.10. Real Property; Title to Assets.

• (a) The Company does not own any real property. Schedule 7.10 sets forth a complete list of all leases of real property by the Company or a Subsidiary (the "Real Property Leases"). Neither the Company nor any Subsidiary has received any written notice of any default or event that with notice or lapse of time, or both, would constitute a material default by the Company or any Subsidiary under any of the Real Property Leases.
• (b) The Group Companies have good and valid title or, in the case of leased assets (other than real property), a valid leasehold interest, free and clear of all Liens, except for immaterial Liens, to all of its tangible property and assets, and such property and equipment is in good operating condition and repair, subject to normal wear and tear, in all material respects and are adequate for the uses to which they are being put and have been maintained and serviced in accordance with prudent practice and in material compliance with all applicable Laws.
• (c) With respect to the assets and property that are leased, the Group Companies are in compliance with all provisions of such leases in all material respects,
• (d) The property and assets (tangible or not) owned or leased by the Group Companies are (and immediately following the Closing will be) sufficient for the operation of the business of the Group Companies as currently conducted.
• 7.11. Intellectual Property. The Company and its Subsidiaries own or have valid licenses to use all Intellectual Property used by them in, or necessary for, the conduct of their businesses (the "Company Intellectual Property") in all material respects. To the Knowledge of the Company, (i) the material Company Intellectual Property does not infringe, misappropriate or otherwise violate the Intellectual Property Rights of a third party and (ii) neither the Company nor any Subsidiary has received any written notice of any default or any event that with notice or lapse of time, or both, would constitute a default under any material Company Intellectual Property license to which the Company or any Subsidiary is a party or by which it is bound.

7.12. Material Contracts.

• (a) Schedule 7.12(a) sets forth all of the following Contracts to which the Company or any of its Subsidiaries is a party or by which it is bound (all such Contracts required to be set forth therein, collectively, the "Material Contracts"):
  • (i) Contracts with any Seller or any current (or former, if obligations under such Contract are still outstanding) officer or director of the Company or any of its Subsidiaries;
  • (ii) Contracts for the sale of any of the assets of the Company or any of its Subsidiaries (other than the sale of products or services in the ordinary course of business), for consideration in excess of NIS 1,000,000 in the aggregate;
  • (iii) Contracts relating to the acquisition by the Company or any of its Subsidiaries of any operating business or the share equity of any other Person, in each case for consideration in excess of NIS 1,000,000 in the aggregate;
  • (iv) Contracts relating to the incurrence of Indebtedness, or the making of any loans, in each case involving amounts in excess of NIS 1,000,000 in the aggregate;
  • (v) Contracts which involve the expenditure of more than NIS 2,000,000 in the aggregate or require performance by any party more than one year from the date hereof that, in either case, are not terminable by the Company or a Subsidiary without penalty on notice of 120 days' or less;
  • (vi) Contracts granting or evidencing a Lien (other than Permitted Liens) on any of the material properties or assets of the Group Companies; and
  • (vii) Contracts (A) limiting or purporting to limit the ability of the Company to engage in any line of business or to compete with any Person or in any geographical area, (B) granting or purporting to grant any exclusive rights to any Person, (C) containing any future royalty payments, or (D) containing any "most

favored nation" or "most favored customer" terms or similar "best pricing" provisions.

(b) Neither the Company nor any Subsidiary has received any written notice of any default or event that with notice or lapse of time, or both, would constitute a default by the Company and its Subsidiaries under any Material Contract, except for immaterial defaults. Each Material Contract is in full force and effect and is not subject to any material default on the part of Group Companies, and to the knowledge of the Seller, no other party to such contracts is in material default with respect thereto.

7.13. Employees.

• (a) Neither the Company nor any of its Subsidiaries is, or, to the Company's Knowledge, is in the process of becoming, a party to any labor or collective bargaining agreement, nor party to any Contract relating to the membership of, or participation by the Company or any of its Subsidiaries in, or the affiliation of it with, any industry standards group or association.
• (b) There are no, and to the Company's actual knowledge, there will not be as a result of the Transactions, (i) strikes, work stoppages, work slowdowns or lockouts pending or threatened against or involving the Company or any of its Subsidiaries, or (ii) unfair labor practice charges, grievances or complaints pending or, to the Knowledge of the Company, threatened by or on behalf of any employee or group of employees of the Company or any of its Subsidiaries.
• (c) The Group Companies are in compliance in all material respects with applicable Laws (including any Orders) and Contracts relating to (i) the employment of their employees and (ii) to the proper withholding and remission to the proper tax authorities or to the proper withholding or contribution and remission to the proper pension or provident, life insurance, disability insurance, continuing education or other similar funds of all sums required to be withheld, contributed or remitted, legally or contractually.
• (d) Schedule 7.13(d) is a true and accurate summary of the compensation terms of each of the Key Employees (without specifying the identities thereof), including position/title, location, salary, commissions (if any), company car, entitlement of vacation days and accrual, notice of termination period, and any outstanding loans. To the Company's Knowledge, as of the date of this Agreement, no Key Employee intends to terminate his employment within the next 12 months.
• (e) The employment of each Employee is subject to termination upon up to thirty (30) days' prior written notice under the termination notice provisions included in the applicable engagement Contract with such Employee or applicable Law.
• (f) A list of all Benefit Plans maintained by the Group Companies is attached as Schedule 7.13(f) hereto. Each Benefit Plan is in material compliance with all applicable Laws and has been administered and operated in all material respects in accordance with its terms.
• 7.14. Litigation. There are no Legal Proceedings pending or, to the Knowledge of the Company, threatened against the Company, its Subsidiaries or its directors or officers (in their capacities as such) before any Governmental Authority, which, if adversely determined, would have a Material Adverse Effect or would result in a monetary remedy in excess of NIS 1,000,000 (nor does the Company have knowledge of any basis therefore). Neither the Company nor any of its Subsidiaries is subject to any Order that has a Material Adverse Effect.

7.15. Compliance with Laws; Permits.

(a) The Company and its Subsidiaries are in compliance with all Laws applicable to their respective businesses or operations, except where the failure to be in compliance would

not have a Material Adverse Effect. Neither the Company nor any Subsidiary has received any written notice of or been charged with the violation of any Laws, except where such violation would not have a Material Adverse Effect.

(b) The Company and its Subsidiaries currently have all Permits which are required for the operation of their respective businesses as presently conducted, except where the absence of which would not have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in material default or violation (and no event has occurred which, with notice or the lapse of time or both, would constitute a default or violation) of any term, condition or provision of any Permit to which it is a party, except where such default or violation would not have a Material Adverse Effect

7.16. Environmental Matters.

• (a) the operations of the Company and each of its Subsidiaries are in compliance, in all material respects, with all applicable Environmental Laws and all Permits issued pursuant to Environmental Laws or otherwise;

• (b) the Company and each of its Subsidiaries has obtained all material Permits required under all applicable Environmental Laws necessary to operate its business;

• (c) neither the Company nor any of its Subsidiaries is the subject of any outstanding material Order or Contract with any Governmental Authority respecting Environmental Laws;

• (d) neither the Company nor any of its Subsidiaries has received any written communication alleging that the Company or any of its Subsidiaries may be in material violation of any Environmental Law or any Permit issued pursuant to Environmental Law, or may have any material liability under any Environmental Law; and

• (e) to the Knowledge of the Company, there are no investigations of the businesses of the Company or any of its Subsidiaries, or currently or previously owned, operated or leased property of the Company or any of its Subsidiaries pending or threatened which would reasonably be expected to result in the imposition of any material liability pursuant to any Environmental Law, nor is there any basis therefor.

• 7.17. Interested Party Transactions. No shareholder holding at least 4% of the Company or anyone controlling such shareholder, officer or director of the Company (i) owns or holds, directly or indirectly, any interest in (except holdings solely for passive investment purposes of securities of publicly held and traded entities constituting less than five percent (5%) of the equity of any such entity or of portfolio companies for which the officers and directors are not officers and directors of the Company), or (ii) is an officer, director, Employee or consultant of any Person that is, a competitor, lessor, or supplier of the Company. No officer, director or stockholder of the Company (and in the case of clause (ii), any Employee) (i) has any interest in any property, real or personal, tangible or intangible, used in or pertaining to the business of the Company or (ii) is indebted to the Company, nor is the Company indebted other than the Shareholders Loans (or committed to make loans or extend or guarantee credit) to any of them.

• 7.18. Insurance. The Group Companies have insurance against the types of risks and losses usually insured against by companies carrying on the same or a similar business, and in amounts and with such coverage limits as are generally appropriate to such businesses. Without prejudice to the generality of the foregoing, the insurance policies of the Group Companies (i) are all provided by a well-established and reputable insurer(s) and insure the Company against the risk of accident, damage, injury, third party loss (including product liability), subject to the terms of the policies (ii) are in full force and effect, all premiums due and payable to date thereunder have been paid and the applicable Group Company is otherwise in compliance in all material respects with the terms thereof, and (iii) are fully compliant with the terms of insurance required to be maintained under the MOC License.

• 7.19. Major Suppliers and Customers. Schedule 7.19 sets forth an accurate and complete list of (i) the ten (10) largest customers of the Company, taken as a whole (without specifying the identities thereof), by aggregate means of payment (the "Key Customers") for each of 2014 and 2015, and (ii) the ten (10) largest suppliers by expenditures (the "Key Suppliers") for each of 2014 and 2015. None of the Key Suppliers or Key Customers has, to the Company's knowledge, indicated to the Company any intent to discontinue or alter in any manner adverse to the Company the terms of such Key Supplier's or Key Customer's relationship with the Company. The Company is in compliance with its obligations under each Contract with its Key Customers and Key Suppliers and in the event such Contract is no longer in effect, the Group Company was in compliance in all material respects with its obligations thereunder.

• 7.20. Financial Advisors. No Person has acted, directly or indirectly, as a broker, finder or financial advisor for any Group Company in connection with the Transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof.

• 7.21. Acknowledgment. Notwithstanding anything contained in this Agreement to the contrary, the Company acknowledges and agrees that Purchaser is not making any representations or warranties whatsoever, express or implied, beyond those expressly given by the Purchaser in Section 5 (as modified by the Schedules thereto, if any) or any Closing certificate delivered pursuant hereto.

8. Affirmative Covenants

• 8.1. Conduct of Business. During the period commencing on the date hereof and ending on the earlier of the date of valid termination of this Agreement or the Closing (such earlier date, the "Expiration Date"):

  • (a) Except as otherwise contemplated by this Agreement or with the prior written consent of Purchaser (which consent may not be unreasonably withheld, delayed or conditioned), the Company shall, and shall cause its Subsidiaries to (i) conduct their respective businesses in the ordinary course of business and consistent with past practice; and (ii) use its commercially reasonable efforts to (A) preserve the present business operations, organization and goodwill of the Company and its Subsidiaries, and (B) preserve the present relationships with customers and suppliers of the Company and its Subsidiaries.
  • (b) In furtherance and not in limitation of Section 8.1(a), but subject at all times to applicable antitrust Laws, except as otherwise expressly contemplated by this Agreement or with the prior written consent of Purchaser (which consent may not be unreasonably withheld, delayed or conditioned), the Company shall not, and shall cause its Subsidiaries not to:
    • (i) split, combine or otherwise modify their share capital, issue or authorize the issuance of new securities (including Company Options) or transfer of existing securities;
    • (ii) amend the articles of association of any Group Company, except if required following the date hereof by a Governmental Authority;
    • (iii) declare, set aside, make or pay any dividend or other distribution, including redemption, reclassification or repurchase, in respect of the share capital of any Group Company;
    • (iv) make any loan or advance to, incur or pay any management, consulting, advisory or other fees or incur or make any other payments to any Seller, other than payments of management, consulting, advisory or other fees in accordance with existing Contracts;
    • (v) merge or consolidate with any other Person, enter into any recapitalization, reorganization, corporate restructuring, liquidation or dissolution or acquire or dispose of any shares, business or division of a business (including pursuant to an acquisition or disposition of assets);

• (vi) (i) increase the annual level of compensation of any director or executive officer of any Group Company, (ii) increase the annual level of compensation payable or to become payable by a Group Company to any of their respective directors or executive officers, (iii) grant any unusual or extraordinary bonus, benefit or other direct or indirect compensation to any director or executive officer, or (iv) increase the annual level of compensation of any employees of any Group Company, in each case, other than in the ordinary course of business and consistent with past practices, or, in the event the Company enters into a collective agreement or similar arrangement with its employees, not in excess of 10% per year in the aggregate;

• (vii) enter into, materially amend, become subject to, violate, terminate or otherwise modify or waive any of the material terms of, any Material Contract (including, for the sake of clarity, any Contract that would constitute a Material Contract) except in the ordinary course of business, consistent with past practice;

• (viii) mortgage, pledge or encumber any of its material assets;

• (ix) enter into any Contract which sets forth that the consummation of the Transactions shall give rise to, or trigger the application of, any rights of any third party or any obligations of the Company or its Subsidiaries that would come into effect upon the Closing;

• (x) (A) take any action reasonably likely to (i) accelerate the payment of customer accounts receivables (including shortening payment terms, providing incentives for early payment or otherwise) or (ii) delay the payment on accounts payable to suppliers, vendors or others beyond due dates; or (B) vary any inventory purchasing practices in any material respect from past practices;

• (xi) make any capital expenditure, other than in the ordinary course of business and consistent with past practices;

• (xii) make any material change to the business of the Company; or

• (xiii) agree or commit to do anything prohibited by this Section 8.1 or take any other action that would reasonably be expected to prevent the Company from performing, or cause the Company not to perform, any of its covenants and agreements under this Agreement.

• (c) Nothing in this Section 8.1 is intended to inhibit or otherwise restrict the Company from conducting its business in the ordinary course of business. Nothing contained in this Agreement is intended to give Purchaser, directly or indirectly, the right to control or direct the Company's operations prior to the Closing Date or vice versa. Prior to the Closing, each of the Parties shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its subsidiaries respective operations.

• 8.2. Access to Information. Until the Expiration Date, Purchaser shall be entitled, through its officers, employees and other representatives (including for purposes of this Agreement, consultants, agents, legal advisors and accountants), to make such investigation of the properties, businesses, operations, books and records of the Group Companies as it reasonably requests, and to make extracts and copies of such books and records; provided that any such investigation and examination shall be conducted during regular business hours and under reasonable circumstances and shall be subject to restrictions under applicable Laws (which restrictions may include limitations under applicable antitrust Law). The Company shall cause the officers, employees, and other representatives of the Group Companies to cooperate with Purchaser and Purchaser's representatives in connection with such investigation and examination, and Purchaser and its representatives shall cooperate with the Company and its representatives and shall use their reasonable efforts to minimize any disruption to the business. Notwithstanding anything herein to the contrary, no such investigation or examination shall (i) be permitted to the extent that it would require the

Company or any of its Subsidiaries to disclose information relating to matters between the Company and Purchaser which are subject to attorney-client privilege or conflict with any confidentiality obligations to which any Group Company is bound, and (ii) affect or be deemed to modify any representation or warranty made by the Company or the Sellers. Subject to applicable Laws, and notwithstanding anything to the contrary contained herein and without derogating from any provision of the Confidentiality Agreement, prior to the Closing, without the prior written consent of the Company, (i) Purchaser shall not utilize any Confidential Information provided by or on behalf of the Company or any Seller to contact any suppliers or customers of, the Company, and (ii) Purchaser shall have no right to perform invasive or subsurface investigations of the properties or facilities of the Company or any of its Subsidiaries.

• 8.3. NRA etc. By way of execution of this Agreement, the Parties hereby further agree as follows:
  • (a) The Company shall continue to purchase from the Purchaser national roaming services under the NRA and, commencing as of October 1, 2015, shall be liable and pay an agreed monthly fixed consideration of NIS 10.6 million (NIS 10,600,000), plus VAT (the "NRA Monthly Consideration"), without regard to the traffic used. Purchaser shall issue monthly invoices for the NRA Monthly Consideration and the Company shall pay the NRA Monthly Consideration in accordance with the payments terms for the NRA Monthly Consideration detailed in the NRA.
  • (b) As of January 1, 2016 through the Expiration Date, the Company shall be liable for and pay monthly sum of NIS 21.0 million (NIS 21,000,000) (referred to as the "Monthly Consideration") without regard to the traffic used. Purchaser shall issue monthly invoices for the Monthly Consideration and the Company shall pay the Monthly Consideration in accordance with the payments terms for the NRA Monthly Consideration detailed in the NRA.
  • (c) If this Agreement is validly terminated by either of the Parties, then the Purchaser and the Company shall negotiate in good faith, for a period of 90 days after such termination, a new network sharing agreement between them ("New NSA") and submit the same to the approval of the MOC and the Antitrust Authorities; it being understood that until the MOC and the Antitrust Authorities issue the approvals therefor, the Company shall to be liable for, and pay, the Monthly Consideration as per the above, independently of the traffic.
  • (d) Notwithstanding the foregoing, if either (i) the New NSA is not entered into within 90 days after termination of this Agreement, or (ii) approvals of the MOC and the Antitrust Authorities are not obtained within six (6) months after the New NSA is signed, then the Company shall revert to making the payments to Purchaser as agreed under the NRA (which, other than with respect to payment terms, shall be without giving effect to the letters of May 25, 2014 and September 21, 2014).
  • (e) Notwithstanding anything to the contrary hereunder, within 30 days following the earlier of (i) valid termination of this Agreement by either of the Parties, for whatever reason, or (ii) the Cut-Off Date (the earlier of such dates, the "Required Repayment Date"), the Company shall pay the Purchaser the full amount of Six Hundred Million NIS (NIS 600,000,000) plus VAT, being the Company's agreed outstanding debt for national roaming services rendered and to be rendered until December 31, 2015 (the "National Roaming Gap") (which outstanding gap will not accrue any interest from the date hereof until the Required Repayment Date), against a valid Tax invoice provided to the Company by the Purchaser.
  • (f) Prior to December 15, 2015, Purchaser shall issue the Company credit for the portion of the outstanding National Roaming Gap accrued until September 30, 2015. The Company shall pay all the resulting VAT to the ITA no later than the 15th of the calendar month following such issuance.
  • (g) For the sake of clarity, the Parties acknowledge that the NSAs are null and void 'ab initio' and are in no force or effect.

8.4. Antitrust and MOC Conditions and other Regulatory Approvals.

• (a) Each Party shall use reasonable commercial efforts to ensure that the Antitrust Condition and the MOC Condition are fulfilled as soon as possible. The Parties shall co-operate and, in the case of the Sellers, use reasonable commercial efforts to cause the relevant Group Companies to co-operate, in order to do so. Without derogating from the generality of the above, the Parties shall, within fifteen (15) Business Days from the date of this Agreement, make full and accurate filing with the Antitrust Authorities and the Israeli Ministry of Communications with respect to the Transactions for the purpose of fulfilling the Antitrust and MOC Conditions, and supply promptly any additional information and documentary material requested by the Antitrust Authorities and the Israeli Ministry of Communications.
• (b) Each Party shall keep the other Parties regularly informed of the processing of the filings with the Antitrust Authorities and the Israeli Ministry of Communications, and promptly inform the other Parties if such Party becomes aware of any matter that may reasonably result in the fulfillment of the Antitrust or MOC Condition being delayed or denied.
• (c) Without derogating from the above, each Party will use reasonable commercial efforts to obtain and comply with all other approvals, actions, waivers, consents and authorizations of Governmental Authorities necessary for the consummation of the Transactions.
• (d) Notwithstanding anything in this Agreement to the contrary, it is expressly understood and agreed that: (i) each Party shall have the obligation to litigate and contest any adverse administrative or judicial action or proceeding or any decree, judgment, injunction or other order, whether temporary, preliminary or permanent in connection with the Governmental Approvals required for the consummation of the Transactions; and (ii) Purchaser shall not be under any obligation to make proposals, execute or carry out agreements, enter into consent decrees or submit to orders of any Governmental Authorities (including the Antitrust Authorities and the Israeli Ministry of Communications) providing for or imposing any burdensome conditions or limitations (including divestiture, license or other disposition) that would lead a reasonable person to conclude that they, individually or in the aggregate, materially undermine the benefits of the Transactions to Purchaser or materially limits Purchaser's rights and ability to conduct its business, including the business of the Group Companies (any of the foregoing, a "Material Regulatory Restraint"). The parties agree that if any Governmental Authority does not approve the Transaction, or a Material Regulatory Restraint (or other restriction or condition that does not constitute a Material Regulatory Restraint) is imposed as part of any Governmental Approval (as defined below), they shall consult (subject to applicable Law) each other with respect to the matter and, to the extent any Party (or both) determines to litigate, appeal and/or contest the matter, shall cooperate with each other in litigating, appealing and/or contesting the matter. The Parties acknowledge that the following matters (individually or in the aggregate) shall not constitute nor will be taken into account when determining] whether a Material Regulatory Restraint exists: (i) a requirement to maintain the Company as a separate entity for a period of up to three (3) years following the Closing, (ii) obligation to return to a Governmental Authority or otherwise lose the rights to frequencies allocated or granted to the Company, and (iii) limitations or prohibitions imposed upon the usage of new 058 numbers (excluding limitations or prohibitions in connection with 058 numbers existing as of the Closing Date).
• 8.5. Further Assurances. Each of Sellers, the Purchaser and the Company shall use (and the Sellers shall cause the Company to use and the Company shall cause each of its Subsidiaries to use) its reasonable commercial efforts to (i) take all actions necessary or appropriate to consummate the Transactions contemplated by this Agreement and (ii) cause the fulfillment at the earliest practicable date of all of the conditions to their respective obligations to

consummate the Transactions contemplated by this Agreement, and (iii) notwithstanding the provisions of Section 4.1(ii) above, to consummate the Transactions contemplated by this Agreement at the earliest reasonable practicable date following fulfillment of such conditions. Without derogating from the generality of the foregoing, the Company shall use its best efforts to cause the Key Employees to remain with the Company through Closing and for a period of not less than six (6) months thereafter, provided, however, that with respect to Michael Golan: he will retained by the Company on a part time basis (in addition to working with other Sellers during such period) for 2 months, and will reasonably assist the Purchaser and the Company during such transition period.

8.6. Notification of Certain Matters. Until the Expiration Date, Sellers and the Company shall promptly notify Purchaser, and Purchaser shall promptly notify the Company and the Sellers' Representative, in writing of the discovery of any of the following: (i) any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a material inaccuracy in or breach of any representation or warranty made by the relevant party in this Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that causes or constitutes, or could reasonably be seen as likely to cause or constitute, a material inaccuracy in or breach of any representation or warranty made by the relevant party in this Agreement; (iii) any breach of any material covenant or obligation of the relevant party; and (iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions set forth in Section 9 impossible, unlikely or postponed. The Sellers shall also have the right to update Schedule 7 in connection with events occurring between the date hereof and the Closing Date. No such notice or update (whether the updates to Schedule 7 or pursuant to subsections (i) through (iv) above) shall have any effect on the satisfaction of or otherwise deem to modify the conditions to Closing set forth in Section 9 nor on the rights of any Party hereunder to any remedy or indemnification (including, in the case of representations and warranties, not having any effects for the purpose of determining the accuracy thereof and any indemnification obligation hereunder). Notwithstanding anything to the contrary, any public filing with the SEC by the Purchaser, shall be deemed to satisfy the update or notice requirement of the Purchaser under this Section 8.6. .

8.7. Non-compete.

• (a) Each Seller acknowledges that it has and may further become familiar with confidential or proprietary information concerning the Company and its business. Therefore, in further consideration for the Purchase Price and the other obligations of Purchaser hereunder, the Sellers commit that they (including their Affiliates) shall not, directly or indirectly, either for Seller or for any other Person, either alone or together or in cooperation with any other Person, Engage (as defined below) in any of the following: TV, broadband internet, and/or telephony (mobile or fixed, including international long distance and roaming abroad), all for the Israeli market and/or roaming in Israel for foreign roamers, such commitment being effective as from the Closing and remaining valid until the expiry of a three (3) year period following the Closing Date. The term "Engage" (as well as "Engaging" or "Engagement") means develop, produce, distribute, market, promote, sell, own, manage, control, provide a license or any other right for, "Participate" in, consult to, render services for, permit its name to be used, or in any other manner engage in; and the term "Participate" means serving as an officer, director, shareholder (except as a shareholder solely for passive investment purposes of securities of publicly held and traded entities constituting less than five percent (5%) of the equity of any such entity), manager, employee, partner, proprietor, agent, representative, franchisor, franchisee, licensor, licensee, creditor (other than for trade payables in the ordinary course of business) or owner.
• (b) For a period starting at the Closing and ending two (2) years thereafter, Seller and its Affiliates (and any representative on their behalf) shall not, directly or indirectly, (i) encourage, induce or solicit any officer, director, manager, or Key Employee of the Group Companies or of the Purchaser's Group to leave the employ of the Group

Companies or the Purchaser's Group, as the case may be; (ii) otherwise hire or employ any Person who was an officer, director, manager, or Key Employee of the Group Companies or the Purchaser's Group at any time during the three (3) month period immediately prior to the date of this Agreement; or (iii) make any disparaging statements in order to cause any harm to the Company's or the Purchaser's reputation in the market; provided, however, that Sellers shall not be precluded from hiring any such officer, director, manager, or Key Employee (i) where the Company has terminated such Person's employment following the Closing other than for 'cause', (ii) in connection with a response by such Person to a general solicitation not targeted at any of the Group Companies' employees, (including through general searches by use of advertisements or the media which are not directly targeted at such Persons), and (iii) without derogating from the noncompete undertaking of any Seller, key employee which is a Seller.

• (c) Each Seller acknowledges and represents that: (i) sufficient consideration has been given by each party to this Agreement to the other as it relates hereto; (ii) Seller has consulted with independent legal counsel regarding its rights and obligations under this Section; (iii) Seller fully understands the terms and conditions contained herein; (iv) the restrictions and agreements herein are reasonable in all respects and necessary for the protection of the Company and the other members of the Group Companies and the Purchaser and its confidential information and goodwill and that, without such protection, the Group Companies and the Purchaser respective customer and client relationship and competitive advantage would be materially adversely affected; (v) the agreements herein are an essential inducement to the Purchaser to enter into this Agreement and they are in addition to, rather than in lieu of, any similar or related covenants to which Sellers are party or by which it is bound; and (vi) notwithstanding anything to the contrary under any Contract or Applicable Law, it is the parties' intention that the agreements in this Section be applied and binding upon the Sellers.
• (d) The parties hereto agree that any breach of the provisions contained in this Section will result in serious and irreparable injury and therefore money damages would not be an adequate remedy for any such breach. Therefore, in the event of a breach or threatened breach of any provisions of this Section that is continuing, the Purchaser and the Company, their respective successors and assigns and any third-party beneficiary to this Agreement, in addition to other rights and remedies existing in their favor, shall be entitled to specific performance or injunctive or other relief in order to enforce, or prevent any violations of, the provisions hereof.
• (e) Notwithstanding any other provision of this Agreement, no Seller shall be obligated to make any payment to any Person due to a breach of this Section 8.7 by another Seller.

8.8. Publicity.

• (a) None of the Sellers, the Company or Purchaser shall issue any press release or public announcement concerning this Agreement or the Transactions without obtaining the prior written approval of the other Parties hereto (with Sellers' approval to be provided by Seller's Representative on their behalf), which approval will not be unreasonably withheld or delayed, unless, in the judgment of the Sellers, the Company or Purchaser, as applicable, disclosure is otherwise required by the disclosing Party or its Affiliates (whether as a result of ongoing reports or otherwise) by applicable Law (including the applicable rules of any stock exchange on which such Party lists its securities); provided that, to the extent permitted by applicable Law, the Party intending to make such release shall use its commercially reasonable efforts consistent with applicable Law to advise the other Party of such intended disclosure and the proposed text thereof.
• (b) The terms of this Agreement shall not be disclosed or otherwise made available to the public and copies of this Agreement shall not be publicly filed or otherwise made available to the public, except (1) where such disclosure, availability or filing by the

disclosing Party or its Affiliates is required (whether as a result of ongoing reports or otherwise) by applicable Law (including the applicable rules of any stock exchange on which such Party lists its securities) and only to the extent required by such Law, or to the extent necessary to fulfill the provisions hereof and (2) with the prior written approval of the other Parties (with Sellers' approval to be provided by Seller's Representative on their behalf).

8.9. Confidentiality.

• (a) The Purchaser shall, and shall procure that, other than as required by applicable Law:
  • (i) each member of the Purchaser's Group shall keep confidential all Confidential Information provided to it by or on behalf of any Seller or otherwise obtained by or in connection with (a) the Agreement, which information relates to a Seller, and (b) until the Closing, any of the Group Companies;
  • (ii) if, following Closing, any of the Group Companies holds Confidential Information relating to any of the Sellers, it shall procure that such information shall be confidential and, to the extent reasonably practicable, shall procure to return that information to the relevant Seller or destroy it, in each case without retaining copies other than as may be required by applicable Law or as record retention copies held with the Purchaser's representatives.
• (b) The Purchaser and the Company acknowledge that they shall continue to be bound by the Confidentiality Agreement through the Closing Date and the Sellers acknowledge that they have, and shall continue to, comply therewith.
• (c) Each Seller shall:
  • (i) keep confidential all Confidential Information provided to it by or on behalf of any member of the Purchaser's Group or otherwise obtained by or in connection with this Agreement, which information relates to any member of the Purchaser's Group; and
  • (ii) if, following Closing, any Seller holds Confidential Information relating to any member of the Purchaser's Group or any of the Group Companies, it shall keep that information confidential and, to the extent reasonably practicable, shall return that information to the Purchaser or the Group Companies or destroy it, in each case without retaining copies.
• (d) Nothing in this Section prevents disclosure of Confidential Information by any party (i) to that Party's representatives who are made aware of the terms of this clause and such Party shall use all reasonable endeavors to procure that such representative adheres to those terms as if he were bound by the provisions of this Section, or (ii) to the extent required by any court of competent jurisdiction or any competent Governmental Authority, but a Party required to disclose any such information shall promptly notify the other relevant party where practicable and to the extent lawful to do so.

8.10. D&O Indemnification.

(a) From and after the Closing until seven (7) years thereafter, (i) Purchaser will cause the Company to fulfill and honor the obligations of the Company pursuant to (A) the indemnification provisions of its Articles of Association as to be amended (only to the extent required by this Section 8.10(a)) within 14 days from the date hereof, and (B) the D&O indemnification agreements to be entered into within 14 days from the date hereof with the present officers and directors of the Company (the "Indemnity Agreements") listed in Schedule 8.10 hereto (the " D&O Indemnitees") in respect of acts or omissions in the capacity of such persons as officers and directors, in each case, with respect to claims arising out of acts or omissions occurring at or prior to, and including the Closing, which Indemnity Agreements must be reasonably

acceptable to Purchaser, and in any event may not cover claims in the aggregate that exceed the amount of the Run Off Policy, and (ii) unless and to the extent required by applicable Law, Purchaser will not amend, repeal or modify (and will procure that no successor of Purchaser will amend repeal or modify) such provisions in any manner that would adversely affect the rights thereunder of such persons.

• (b) In addition, until the Closing, the Company shall, subject to applicable Law, purchase a "tail" directors' and officers' liability insurance coverage (the "Run Off Policy") from a reputable insurer and on terms and amounts no less favorable than those of such policy in effect on the date of this Agreement, which policy (i) has an effective insurance period of seven (7) years from the Closing Date, (ii) covers each of the natural persons who served as directors and/or officers and who were covered by the Company's directors' and officers' liability insurance policy as of the date of this Agreement in respect of acts and/or omissions arising prior to the Closing Date and (iii) the cost of purchasing such Run Off Policy is no more than $300,000 (the amount actually used by the Company for this purpose being referred to herein as the "D&O Insurance Expenses").
• (c) The provisions of this Section 8.10 shall survive the Closing and are (a) expressly intended to benefit each of the D&O Indemnitees, and (b) in addition to, and not in substitution for, any other rights to indemnification or contribution that any such Person may have by contract or otherwise.

8.11. No-Shop.

• (a) The Sellers and the Company acknowledge that Purchaser has spent and will continue to spend considerable time, and have incurred and will continue to incur substantial costs and expenses, in connection with the Transactions. Accordingly, and without derogating from their other obligations hereunder, the Sellers and the Company agree, severally and jointly, that, during the period commencing on the date hereof and continuing until the Expiration Date, they shall not, and shall cause their respective Affiliates, stockholders, directors, officers, employees, and other Representatives not to, directly or indirectly, (i) enter into or continue any discussions or negotiations with respect to, agree to, approve, recommend, or enter into any agreement or any understanding with respect to, or solicit, initiate, knowingly encourage, or facilitate the submission of any inquiries, proposals, or offers for, the acquisition (including, without limitation, by stock purchase, asset sale, merger, consolidation, or other business combination) by any person or entity (other than as contemplated by this Agreement), directly or indirectly, of any shares of capital stock or other equity interests in the Company or all or any portion of the assets or Company Indebtedness (other than its repayment), other than sales of products and services in the ordinary course of business (each, an "Alternative Transaction"), or (ii) furnish, or cause to be furnished, any information concerning the Company, its Affiliates, or their respective assets or liabilities, or allow access to the books, records, properties, or management of the Company or any of its Affiliates, to any person or entity with a view to, or in furtherance of, an Alternative Transaction. If the Sellers, Company or any of its Representatives, shall receive an indication of interest, term sheet, letter of intent, proposal, request for information, or any similar submission (whether written or oral), in each case in respect of an Alternative Transaction, the Sellers and the Company shall, immediately upon receipt thereof, subject to relevant Law as deliver written notice thereof (including a summary of terms and identity thereof) to Purchaser. Without derogating from the Sellers' liability for the above, the Company shall be liable for any and all breaches by Sellers (including its Affiliates, stockholders, directors, officers, employees, and other Representatives) of the terms set forth in this Section.
• (b) The Sellers and the Company acknowledge that this Section was a significant inducement for Purchaser to enter into this Agreement.

8.12. Waiver and Release. Each Seller (on behalf of itself and on behalf of each of its (i) agents, trustees, beneficiaries, directors, officers (each in their capacity as such), and (ii) affiliates, subsidiaries, estate, successors and assigns) hereby waives and releases, effective as of and contingent upon the Closing, any and all rights, claims and causes of action assertable, in each case whether known or unknown, against any of the Group Companies and each of such Group Companies' respective directors, officers, employees, Representatives (each in their capacity as such) (each, a "Released Party"), including claims in respect of its ownership of any securities of the Company and any rights it may have under the Shareholders' Loans hereto but excluding claims (a) arising from any employment agreement, if such employment agreement was disclosed in Schedule 8.12(A) hereto; or (b) specified in Schedule 8.12(B) hereto. Any and all agreements between the Seller or its Affiliates, on the one hand, and the Company or its Affiliates, on the other hand, and any and all rights which Seller or its Affiliates may have under such agreements shall automatically terminate as of the Closing, except for (i) the matters specified in Schedule 8.12(B) hereto, (ii) employment agreements disclosed in Schedule 8.12(A) hereto, and (iii) the Shareholders' Loans, it being clarified that any and all rights of Sellers under the Shareholders' Loans shall, effective as of the Closing, be assigned to Purchaser pursuant to this Agreement.

8.13. Tax Matters.

• (a) Purchaser shall cause the Group Companies to timely prepare and file all Tax Returns that are required to be filed (taking into account extensions) following the Closing Date, including taxable periods ending on or before the Closing Date (the "Pre-Closing Date Tax Returns"). Purchaser or the Group Companies shall duly and timely file such Pre-Closing Date Tax Return to the appropriate taxing authority and the Sellers shall reimburse Purchaser that amount equal to such Taxes of the Group Companies with respect to such Pre-Closing Tax Period.

• (b) The Sellers shall be responsible for and shall promptly pay when due all Taxes levied with respect to the Group Companies attributable to any Pre-Closing Tax Period. All Taxes levied with respect to the Group Companies in the case of any Straddle Period, shall be apportioned between Sellers and Purchaser as follows: (i) in the case of a Tax based upon or related to income or receipts, the amount of such Tax allocable to the Pre-Closing Tax Period shall be based on an "interim closing of the books" as of the close of business on the Closing Date (as though the Straddle Period had ended upon such interim closing for purposes of the Tax being imposed); and (ii) in the case of a Tax other than a Tax described in clause (i), including property taxes, the amount of such Tax allocable to the Pre-Closing Tax Period shall be on a per diem basis whereby the product of (x) the amount of such Tax for the entire Straddle Period, and (y) a fraction the numerator of which is the number of calendar days in the period ending on (and including) the Closing Date and the denominator of which is the number of calendar days in the entire Straddle Period.

• (c) Purchaser and the Sellers shall retain or cause to be retained all Tax Returns and all books and records relating to Taxes of the Group Companies for all taxable periods beginning on or before the Closing Date until thirty (30) days after the expiration of the applicable statute of limitations for the Tax in question (and, to the extent notified by Purchaser or the Sellers, any waiver or extension thereof), and abide by all record retention agreements entered into with any Governmental Authority.

• (d) All Tax Sharing Agreements (if any) entered into by any of the Group Companies with any third party shall be terminated on or before the Closing Date. After the Closing Date, no third party shall have any right or obligations under any such Tax Sharing Agreement.

• 8.14. SEC Compliant Financial Statements.

• (a) Commencing on the date hereof, the Company shall prepare and, to the extent permitted by Law, provide to Purchaser, as soon as practicable and in any event within 90 days prior to Closing, such financial or other information (including audited consolidated financial statements, interim financial statements and pro forma financial statements, all prepared in accordance with IFRS), as required by Purchaser to comply with applicable securities Laws (whether for ongoing reports or otherwise), including the delivery of such representations, comfort letters and consents from the Company's independent accountants (who shall be PCAOB certified and which identity will be approved by Purchaser, which approval shall not be unreasonably withheld), in each case, as may be requested by Purchaser or its accountants (collectively, the "SEC Compliant Financial Statements"). The out-of-pocket expenses incurred by the Company in the preparation of such SEC Compliant Financial Statements, shall be borne by the Purchaser and shall not be considered Transaction Expenses. The provisions of the preceding sentence shall survive the termination of this Agreement.

• (b) The Company undertakes that the SEC Compliant Financial Statements shall be true and correct in all material respects.

• 8.15. Asset Purchase Agreement. At Purchaser's request, the Parties shall work together in good faith to explore, and Sellers and the Company shall use best efforts to investigate, the possibility of converting this Agreement into an agreement under which the Purchaser would purchase all or substantially all of the assets of the Group Companies, under commercial terms that would leave the Parties in substantially the same economic condition as they will be at the Closing pursuant to the terms of this Agreement, in each case on such terms as shall be agreed to by the Parties.

• 8.16. Litigation Support. Until the Expiration Date, in the event that, and for so long as, any party hereto is actively contesting or defending against any Legal Proceeding (other than Legal Proceeding between the parties hereof or their respective Affiliates or in connection with a dispute arising under this Agreement or the other Transaction Documents) in connection with any Transaction contemplated by this Agreement or the other Transaction Documents, the other Parties will cooperate, at their own expense, with such contesting or defending Party and its counsel in the contest or defense; provided, however, that, for the avoidance of doubt, the foregoing shall not require any party to take any such action(s) if (i) it may result in a waiver or breach of any attorney-client privilege or (ii) doing so would violate Law.

9. Conditions to Closing

• 9.1. Conditions to Obligations of Each Party. The obligation of each Party to complete the Transactions contemplated hereby is subject to the fulfillment or written waiver (at the sole discretion of each Party, which Party in the case of the Sellers and the Company shall be the Sellers' Representative), upon or prior to the Closing, of each of the following conditions:

  • (a) No Injunction. No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits the sale of the Shares by the Sellers or the assignment of the Shareholders' Loans or the other Transactions.
  • (b) Governmental Approvals. The Purchaser, the Company and the Sellers, as applicable, shall have received the authorizations, consents, orders and approvals of the Antitrust Authorities and the Israeli Ministry of Communications and other material Governmental Authorization, if any, necessary to effect the Transactions (together, the "Governmental Approvals").

• 9.2. Conditions to Obligations of the Company and Sellers. The obligation of the Company and each Seller to complete the Transactions contemplated hereby is subject to the fulfillment or written waiver (at the sole discretion of the Sellers' Representative), upon or prior to the Closing, of each of the following conditions:

• (a) Representations and Warranties. The representations and warranties of the Purchaser contained in this Agreement shall have been true and correct in all respects when made and in all material respects (except for those (i) made as of a specified date, which shall be true and correct in all respects as of such specified date), or (ii) heretofore qualified by any materiality standard, in which case, no duplicate standard of materiality shall be applied) as of the Closing.

• (b) Compliance with Agreements. The Purchaser shall have performed or complied with all covenants and agreements required by this Agreement to be performed or complied with by the Purchaser on or prior to the Closing, including delivery of all items set forth in Section 4.3.

• (c) Replacement of Bank Guarantees. At Closing, if and to the extent the Bank Guarantees are still required by the MOC as of Closing, the Purchaser shall have provided or cause to be provided bank guarantees to the benefit of the Israeli Ministry of Communication or otherwise obtain the release of the Bank Guarantees, in each case which terms and conditions shall be acceptable to the Israeli Ministry of Communication.

• 9.3. Conditions to Obligations of Purchaser. The obligation of the Purchaser to complete the Transactions contemplated hereby is subject to the fulfillment or written waiver (at the sole discretion of the Purchaser), upon or prior to the Closing, of each of the following conditions:

  • (a) Representations and Warranties of Sellers. The representations and warranties of the Sellers and the Company contained in (i) Sections 6.1, 6.2, 6.4(a), 7.1, 7.2, and 7.4 of this Agreement shall have been true and correct in all respects when made and as of the Closing and (ii) all other Sections of this Agreement shall have been true and correct in all respects, both when made and as of Closing (except for those made as of a specified date, which shall be true and correct in all respects as of such specified date), except to the extent that the failure of such representation and warranty to be so true and correct would not constitute a Material Adverse Effect.
  • (b) Compliance with Agreements. The Sellers and the Company shall have performed or complied with all covenants and agreements required by this Agreement to be performed or complied with by the Sellers and the Company on or prior to Closing, including delivery of all items set forth in Section 4.2.
  • (c) MAC Factor Event. Each of the MAC Factors is less than 50%.
  • (d) Consents and Approvals. The Governmental Approvals shall have been obtained and do not contain or impose any Material Regulatory Restraint.
  • (e) No Convertible Securities. Immediately prior to the Closing, all Company Stock Options (if any) and Call Options (and any other securities other than the Shares held by the Sellers) shall have been duly terminated or canceled.
  • (f) Mizrahi Debt. Upon or prior to the Closing, the Company's debt to Bank Mizrahi LTD was repaid or the consent of Bank Mizrahi LTD to the change of control in the Company as per this Agreement was obtained.

• 9.4. No Party may rely on the failure of any condition set forth in this Section 9, if such failure was caused by such Party's failure to comply with any provision of this Agreement.

10. Indemnification

10.1. General. The representations and warranties of each of the Parties contained in this Agreement shall survive Closing and, effective as of the Closing, claims may be asserted with respect to the representations and warranties made by the Parties only to the extent permitted by this Section 10.

10.2. Indemnification.

(a) Subject to the limitations set forth in this Section 10, the Sellers (which, together with their respective successors and assigns, are sometimes referred to in this Section 10 as the indemnifying party/ies) shall, severally and jointly, indemnify, defend and hold

Purchaser and its directors, officers, employees, Affiliates (including, following the Closing, the Group Companies), agents, attorneys, representatives, successors and assigns (collectively, the "Purchaser Indemnified Parties") harmless from and against any and all losses, liabilities, obligations, damages (including diminution in value), notices, actions, suits, proceedings, claims of any kind (including threats of legal proceedings), demands, assessments, judgments, costs, interest, penalties and expenses, including reasonable attorneys' and other professionals' fees and disbursements and all other reasonable fees or expenses paid in investigation, defense or settlement of any of the foregoing, whether arising out of claims by or on behalf of any party to this Agreement or any third party claims (individually, a "Loss" and, collectively, "Losses") to the extent arising, suffered or incurred by any of the Purchaser Indemnified Parties or to which any of them may otherwise become subject (regardless of whether or not such Losses relate to any third-party claim) and which arise from or as a result of, or are directly or indirectly connected with the following matters (including any Legal Proceeding relating to the below clauses for the purpose of enforcing any of Purchaser Indemnified Parties rights under this Section 10):

• (i) any breach or inaccuracy of any of the representations and warranties made by the Sellers or the Company in this Agreement, in any certificate delivered pursuant hereto (including any Closing certificate) or in the other Transaction Documents (other than the Specified Representations);
• (ii) any breach or inaccuracy of any of the Specified Representations as well as any inaccuracy contained in the Closing Statement (excluding the Closing EBITDA);
• (iii) any breach of any of the Company's or the Sellers' Representative or Sellers' covenants or agreements in this Agreement or in any certificate delivered pursuant to this Agreement or in any of the Transaction Documents;
• (iv) any claim by (A) a current or former holder of share capital of the Company or any rights or options therein, or (B) any other Person or entity, seeking to assert, or based upon, ownership or rights to ownership of any shares of the Company capital stock or of any of its Subsidiaries or that he, she or it is entitled to any consideration pursuant to this Agreement and/or any Transactions, including any portion of the Purchase Price that is not listed in Schedule A or any appraisal claim;
• (v) any and all Taxes attributable to any Pre-Closing Tax Period;
• (vi) The matters set forth on Schedule 10.2(a)(vi) hereto (collectively, "Basic Indemnity Matters");
• (vii) The matters set forth on Schedule 10.2(a)(vii) hereto ("Special Indemnity Matters"); and
• (viii) any amounts paid by the Group Companies following Closing on account of the Current Accounts Payable, within 24 months from the Closing.
• (b) The representations, warranties, covenants and obligations of the Company and Sellers, and the rights and remedies that may be exercised by the Purchaser Indemnified Parties, shall not be limited or otherwise affected by or as a result of either (i) any waiver of Closing conditions by Purchaser or any of its Representatives, or (ii) any information furnished to, or any investigation made by or knowledge of, any of the Purchaser Indemnified Parties.
• (c) Sellers and the Company acknowledge and agree that, if the Group Companies suffers, incurs or otherwise become subject to any Losses as a result of or in connection with any incompleteness of, inaccuracy in or breach of any representation, warranty, covenant or obligation, then (without limiting any of its rights as an Purchaser Indemnified Parties) Purchaser shall also be deemed, by virtue of its direct or indirect ownership of the shares of the Company, to have incurred Losses as a result of and in connection with such incompleteness, inaccuracy or breach.

10.3. Indemnification Procedures – Direct Claims.

• (a) Any Purchaser Indemnified Party who believes it is entitled to indemnification pursuant to Section 10.2 may make an indemnification claim by delivering a claim certificate to the Sellers' Representative (in each case, a "Claim Certificate"), which Claim Certificate shall: (i) to the extent reasonably capable of estimation, a good faith estimate of the amount of Losses such Purchaser Indemnified Party claims to have so incurred or suffered or reasonably believes in good faith it may incur or suffer and the Purchaser Indemnified Party may update such estimate from time to time by written notice; and (ii) specify in reasonable detail (based upon the information then possessed by the Purchaser Indemnified Party) the nature of the claim for which indemnification is being sought. The sole and exclusive remedy for any defective Claim Certificate shall be a demand for cure of such defect and delivery of a conforming certificate.
• (b) In the event that the Sellers' Representative shall object to the indemnification of a Purchaser Indemnified Party in respect of any claim or claims specified in any Claim Certificate, it shall, within twenty (20) calendar days after receipt of such Claim Certificate, deliver a notice to such effect, specifying in reasonable detail the basis for such objection, and shall, within the twenty (20) day period beginning on the date of receipt by the Purchaser Indemnified Party of such objection, attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If they shall succeed in reaching agreement on their respective rights with respect to any of such claims, Purchaser and the Sellers' Representative shall promptly prepare and sign a memorandum setting forth such agreement. Should they be unable to agree as to any particular item or items or amount or amounts within such time period, then the Purchaser Indemnified Party shall be permitted to submit such dispute to the courts as set forth in Section 12.4. Claims for Losses specified in any Claim Certificate to which there is no objection in writing by the applicable Party within twenty (20) days of receipt of such Claim Certificate shall be deemed final and binding.

10.4. Indemnification Procedures – Third Party Claims.

• (a) In the event that any Legal Proceedings shall be instituted by a third party against any Purchaser Indemnified Party (an "Indemnification Claim"), and if such Purchaser Indemnified Party (sometimes referred to herein as the "indemnified party") intends to seek indemnity with respect thereto under Section 10.2 above, the indemnified party shall promptly cause written notice of the assertion of such Indemnification Claim of which it has knowledge which is covered by this indemnity to be forwarded to the Sellers' Representative (the "Third Party Claim Notice"); provided, that the failure to so notify shall not relieve the Sellers of their indemnity obligations hereunder, except, and solely to the extent, that such failure actually and materially prejudiced the defense of such Legal Proceedings. The sole and exclusive remedy for any defective Third Party Claim Notice shall be a demand for cure of such defect and delivery of a conforming certificate.
• (b) The Sellers' Representative (acting on behalf of the indemnifying parties) shall have the right, at its sole option and expense, to (i) be represented in the defense of such Indemnification Claim by counsel of its choice, which must be reasonably satisfactory to the Purchaser Indemnified Party, and (ii) to assume the defense of any Indemnification Claim which relates to any Losses indemnified against hereunder; provided, in the case of (ii) herein, that it shall, within 14 days following receipt of the Third Party Claim Notice, notify the Purchaser Indemnified Party of its intent to assume the defense and that it irrevocably agrees that any and all indemnifiable Losses incurred in connection with such Indemnification Claim shall be recoverable.
• (c) Notwithstanding the foregoing, the Sellers' Representative shall not be entitled to assume the defense of any Indemnification Claim which involves a claim (i) that, in the reasonable judgment of Purchaser, would result in Losses in excess of the then

available, if any, Holdback Amount (if such claim is subject to the Holdback Amount) or any other claim that seeks monetary damages the amount of which would reasonably be expected to exceed any limitation on the amount of Losses that may be recovered under this Section 10 (after satisfaction of other pending indemnity claims), (ii) involving criminal liability, a claim by Governmental Authority, or in which injunction or other equitable relief is sought against any Purchaser Indemnified Party, (iii) that has been brought by or on behalf of any customer or supplier of any Purchaser Indemnified Party with respect to such customer or supplier relationship, or (iv) that, in the reasonable judgment of Purchaser, would create a conflict of interest by the indemnifying parties.

• (d) If the Sellers' Representative elects not to assume the defense of any Indemnification Claim (or is not entitled to do so because it failed to timely notify the indemnified party of such assumption, because Purchaser invoked its right to assume the defense under clause (c) above, or because it failed to diligently pursue such defense), the indemnified party may assume and control the defense against, negotiate, settle or otherwise deal with such Indemnification Claim (subject to subsection (h) below).
• (e) If the Sellers' Representative shall assume the defense of any Indemnification Claim, the indemnified party may participate, at his or its own expense, in the defense of such Indemnification Claim; provided, however, that (A) with the expenses of such separate counsel to the indemnified party shall be borne by the indemnifying party if, (i) the indemnified party was requested by the indemnifying party to participate or (ii) in the reasonable opinion of counsel to the indemnified party, a conflict or potential conflict exists between the indemnified party and the indemnifying party that would make such separate representation advisable; and provided, further, that the indemnifying party shall not be required to pay for more than one such counsel for all indemnified parties in connection with any Indemnification Claim, and (B) the Sellers' Representative shall be required to consult regularly with the indemnified party and its counsel regarding the direction of the defense of such Indemnity Claim.
• (f) The Parties agree to cooperate fully with (and keep reasonably informed) each other in connection with the defense, negotiation or settlement of any Indemnification Claim.
• (g) Notwithstanding anything in this Section 10.4 to the contrary, the Sellers' Representative shall not, without the written consent of the Purchaser Indemnified Parties (which consent shall not be unreasonably withheld, conditioned or delayed), settle or compromise any Indemnification Claim or permit a default or consent to entry of any judgment or otherwise act as agent or make statements or commitments on behalf of the Company or any Purchaser Indemnified Parties, provided, however, that solely with respect to monetary settlements (i.e. where the sole remedy is the payment of funds by the Sellers) with full and irrevocable release of the Purchaser Indemnified Parties proposed by the Sellers Representative to the Purchaser, if the relevant Purchaser Indemnified Parties withholds its consent to such settlement, then indemnified Losses in excess of such proposed settlement, will be borne by the Purchaser Indemnified Parties, and any payments incurred up to the amount of the proposed settlement, shall be borne by the Sellers.
• (h) Assumption by the Purchaser Indemnified Parties of control of any defense, compromise, or settlement of an Indemnity Claim shall not be deemed a waiver by it of its right to indemnification hereunder nor shall the settlement or compromise of any such claim without the prior written consent of the Sellers' Representative to such settlement or compromise (as long as consent shall not be unreasonably withheld, conditioned or delayed) serve as evidence of either (A) that the Indemnity Claim is indemnifiable hereunder or (B) the amount of indemnifiable Losses incurred by the Purchaser Indemnified Parties in connection with such claim; provided however that if the Sellers' Representative shall have (i) notified (on behalf of Sellers) the Purchaser Indemnified Party that it irrevocably agrees that any and all indemnifiable Losses incurred in connection with such Indemnification Claim shall be recoverable from

Sellers, and (ii) provided such indemnified party reasonable assurance of the ongoing payment of all expenses (including attorney fees) incurred by Purchaser, then the indemnified party shall not settle or compromise any such claim without the prior written consent of the Sellers' Representative (not be unreasonably withheld, conditioned or delayed).

(i) After any final decision, judgment or award shall have been rendered by a Governmental Authority of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or the indemnified party and the indemnifying party shall have arrived at a mutually binding agreement with respect to an Indemnification Claim hereunder, the indemnified party shall forward to the Sellers' Representative notice of any sums due and owing by the indemnifying party pursuant to this Agreement with respect to such matter (it being clarified that nothing in the foregoing shall be deemed to derogate from Sellers' undertaking to pay (by wire transfer of immediately available funds) promptly, and in any event no later than seven (7) Business Days, following receipt from a Purchaser Indemnified Party of a bill, together with all accompanying reasonably detailed back-up documentation, all, for an indemnifable Loss pursuant to this Section 10.

10.5. Limitations on Indemnification.

• (a) Notwithstanding anything herein to the contrary, Purchaser must deliver a Claim Certificate or Third Party Claim Notice, as applicable, to the Sellers' Representative of any claim for indemnification under (i) Section 10.2(a)(i) - prior to the expiration of the twenty four (24) month anniversary of the Closing Date and (ii) Section 10.2(a)(ii) - prior to the expiration of 60 days following the expiration of the applicable statute of limitation. Except in the case of fraud or willful misrepresentation, any such indemnity claims not made by Purchaser on or prior to such dates will be irrevocably and unconditionally released and waived.
• (b) Notwithstanding anything herein to the contrary, except in the case of fraud or willful misrepresentation or, the Sellers shall not have any indemnification obligations for Losses under Section 10.2(a)(i), unless and until the aggregate amount of all Losses indemnifable hereunder is equal to or exceeds NIS Six Million (NIS 6,000,000) (the "Basket"), in which case the Purchaser Indemnified Parties shall be entitled to the entire amount of such Losses (from the first dollar of Losses) and not just the amount of Losses that exceed the Basket.
• (c) Except in the case of fraud, willful misrepresentation, the Special Indemnity Matters, Section 10.02(a)(v) or an intentional breach of Section 8.7(a), in no event shall the aggregate indemnification to be paid by the Sellers under: (i) Sections 10.2(a)(i), 10.2(a)(viii) and the Basic Indemnity Matters exceed the Holdback Amount (the "Basic Indemnity Cap"), (ii) Sections 10.2(a)(ii) and 10.2(a)(iv) exceed 100% of the Purchase Price (the "Purchase Price Indemnity Cap"), (iii) Section 10.02(a)(iii) exceed 150% of the Purchase Price (the "Increased Indemnity Cap"; and each of the aforesaid Indemnity Caps being referred to as an "Indemnity Cap").
• (d) Notwithstanding anything herein to the contrary, no Seller shall be liable for any amount in excess of such Seller's Pro Rata Share of the applicable Indemnity Cap other than, with respect to each Seller, any fraud or intentional breach by such Seller.
• (e) Notwithstanding anything herein to the contrary, no Seller shall be liable for a Loss suffered by a Purchaser Indemnified Party resulting from a breach of a covenant or representation and warranty of another Seller, other than (in the aggregate), up to the Holdback Amount.
• (f) Notwithstanding anything herein to the contrary, all Losses indemnifiable hereunder shall be reduced by any insurance proceeds (net of deductibles and increase in premiums) actually received by the Purchaser Indemnified Parties from any insurance policy of the Group Companies existing and in effect as of and through the Closing (excluding any renewal of any such insurance policy by after the Closing) in connection

with the Loss which forms the basis of the claim for indemnification hereunder by such indemnified parties; provided, however, that no Purchaser Indemnified Party shall have any obligation to make or submit any claim to any insurance provider.

• (g) For purposes of this Section 10, in determining (i) the amount of Losses suffered as a result of a breach of any representation or warranty or covenant of the Company or Sellers, any qualifications in the representations, warranties and covenants with respect to a "Material Adverse Effect," "materiality," "material," "in all material respects" or similar terms shall be disregarded and (ii) whether a breach of any representation or warranty or covenants of the Company or Sellers exists, any qualifications in the representations, warranties and covenants with respect to a "Material Adverse Effect" shall be replaced with "material" or "in all material respects", as the context requires.
• (h) Purchaser acknowledges that in case that a breach of Section 6.7 is due to a breach by Purchaser of its representations under Section 5, then the Losses resulting therefrom, shall not be indemnifiable hereunder.
• 10.6. Tax Treatment. The Parties agree to treat for income Tax purposes any indemnity payment made pursuant to this Agreement as an adjustment to the Purchase Price for Tax purposes.
• 10.7. No Special Losses. Notwithstanding anything herein to the contrary, no Party shall, in any event, be liable to any other Person for any indirect and speculative, special or punitive damages of such other Person (except that, in respect of any of the foregoing, damages awarded by a final non-appealable decision of a competent court/arbitrator or other authority having jurisdiction to a third party as part of an Indemnity Claim pursuant to Section 10.4 shall be indemnifiable hereunder).
• 10.8. Nature of Loss. Any indemnification due by the Sellers shall be calculated taking into account the effect of any Tax benefit actually realized by relevant Purchaser Indemnified Party after Closing and resulting from the Tax deductibility of the relevant Loss. For purposes hereof, a Tax benefit will only exist to the extent that it results in, or with commercially reasonable steps capable of being taken (but without any obligation to do so) by the Purchaser Indemnified Party, as to result in, a refund of or actual reduction in Tax with respect to the taxable period in which indemnification claim is paid, or on any Tax Return with respect thereto.
• 10.9. Off-Set; Source of Payment. Subject to the limitations set forth in Section 10.5, and only up to the Holdback Amount, to the extent that the Purchaser or any other Purchaser Indemnified Party is entitled to any payment from the Sellers under this Section 10, while a claim for indemnification is pending and not yet finally resolved, then the Purchaser shall be entitled to withhold such amount from any payment due or payable to the Sellers in accordance with this Agreement or the other Transaction Documents until such time that the applicable indemnity claim is finally resolved; provided, however, that the Purchaser shall first send Indemnity claim to the Seller Representative, and if such claim is not paid in cash within 5 Business Days then the Purchaser Indemnified Party shall proceed first by withholding an amount in Conversion Shares the value of which shall be (based on the market price at the time of claim) the amount of the claim; provided further that if at any time the amount of the claim is higher than the value of the said shares then Purchaser may withhold such additional amount but subject at all times to the Holdback Amount and to the right of the Seller Indemnified Parties, at any time, to pay such claim in cash (or if the indemnity claim is not yet resolved, deposit in escrow until resolved in accordance with this Agreement) against the release of the relevant Conversion Shares (or the rights thereto), and Seller will be entitled to require the release of shares should the value exceed the sum of the claim.
• 10.10. No Double Counting. In the event that a particular matter entitles an indemnified party to indemnification pursuant to more than one clause of this Section 10, such indemnified party shall be entitled to recover a particular dollar amount of Losses associated with such matter only once and in no event shall an indemnified party be entitled to recover an aggregate amount exceeding the amount of such Losses. For the avoidance of doubt, in such event that

a particular matter entitles an indemnified party to indemnification pursuant to more than one clause of this Section 10, such indemnified party may institute a claim for indemnification hereunder based on any or all such provisions.

10.11. Exclusive Remedy. From and after the Closing, except in the case of fraud or willful misrepresentation, the sole and exclusive remedy to the Purchaser under any theory of liability or claim (whether in contract, equity, strict liability, tort or otherwise) for any breach or inaccuracy, or alleged breach or inaccuracy, of any representation or warranty by the Sellers or the Company in this Agreement or any covenant or agreement to be performed on or prior to the Closing Date, shall be indemnification in accordance with this Section 10. Notwithstanding the above, each Purchaser Indemnified Party shall be (a) entitled to seek injunctive relief to enjoin the breach, or threatened breach, of any provision of this Agreement, and (b) entitled to seek the equitable remedy of specific performance in connection with this Agreement.

10.12. Purchaser Indemnity.

• (a) From and after the Closing, the Purchaser shall, indemnify, defend and hold Sellers and their directors, officers, employees, Affiliates, agents, attorneys, representatives, successors and assigns (collectively, the "Seller Indemnified Parties") harmless from and against any and all Losses (as defined in Section 10.2(a)) to the extent, suffered or incurred by any of the Seller Indemnified Parties or to which any of them may otherwise become subject (regardless of whether or not such Losses relate to any third-party claim) and which arise from or as a result of, or are directly or indirectly connected with the following matters (including any Legal Proceeding relating to the below clauses for the purpose of enforcing any of Seller Indemnified Parties rights under this Section 10):
  • (i) any breach or inaccuracy of any of the representations and warranties made by the Purchaser in this Agreement, in any certificate delivered pursuant hereto or in the other Transaction Documents; and
  • (ii) any breach of any of the Purchaser's covenants or agreements in this Agreement or in any certificate delivered pursuant to this Agreement or in any of the Transaction Documents;
• (b) The provisions and procedures regarding the indemnification by the Sellers set out in Sections 10.1-10.11 above shall apply to the indemnity undertaking of Purchaser in this Section 10.12, mutatis mutandis, except as follows:
  • (i) Sections 10.2(a), 10.4(c), 10.4(h) and 10.9 shall not apply; and
  • (ii) Any claim for indemnification under Section 10.12(a)(i), except for breaches of Sections 5.2 and 5.8 (for which the indemnification period shall expire 60 days following the expiration of the applicable statute of limitation) must be made prior to the expiration of the twenty four (24) month anniversary of the Closing Date.

11. Termination

• 11.1. Termination of Agreement. This Agreement may be terminated prior to the Closing as follows:
  • (a) At the election of the Sellers' Representative or Purchaser on or after November 3, 2016 (the "Cut-Off Date"), if the Closing shall not have occurred by the close of business on such date; provided that the terminating party may not terminate this Agreement pursuant to this clause if such Party's action or failure to act has been a principal cause of or resulted in the failure of the Closing to occur on or before such date and such action or failure to act constitutes breach of this Agreement;
  • (b) by the Purchaser if the Company or the Sellers or the Sellers' Representative shall have (i) breached any representation, warranty, covenant or agreement contained in this Agreement], such that the closing conditions set forth in Section 9.1 or 9.3 would

not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, and such breach shall not have been cured, or by its nature cannot be cured, within 10 Business Days following receipt by such Party of written notice of such breach; or (ii) breach of any provision of Section 8.3 by the Company and such breach shall not have been cured within 10 Business Days following receipt by Company of written notice of such breach;

• (c) by the Sellers' Representatives if the Purchaser shall have breached any representation, warranty, covenant or agreement contained in this Agreement, such that the closing conditions set forth in Section 9.1 or 9.2 would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, and such breach shall not have been cured, or by its nature cannot be cured, within 10 Business Days following receipt by such Party of written notice of such breach;
• (d) by mutual written consent of the Sellers' Representative and Purchaser; or
• (e) by the Sellers' Representative or Purchaser if there shall be in effect a final nonappealable Order of a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the Transactions contemplated hereby.
• 11.2. Procedure upon Termination. In the event of termination by Purchaser or Sellers' Representative, or both, pursuant to Section 11.1 above, written notice thereof shall be given to the other Parties, and this Agreement shall terminate, and other than as set forth in Section Error! Reference source not found. above, the Transactions shall be abandoned, without further action by Purchaser or Sellers.
• 11.3. Effect of Termination. In the event that this Agreement is validly terminated in accordance with Section 11.1, then each of the Parties shall be relieved of their duties and obligations arising under this Agreement after the date of such termination and such termination shall be without liability to Purchaser, the Company or any Seller; provided, that no such termination shall relieve any Party hereto from liability for any material breach of this Agreement and, provided, further, that the rights and obligations of the parties set forth in Sections 8.3, 8.8, 8.9, 11 and 12 hereof shall survive any such termination and shall be enforceable hereunder.
• 1. Miscellaneous.
  • 12.1. Taxes. All transfer Taxes of any nature, including VAT, applicable to, or resulting from, the Transactions contemplated by this Agreement shall be borne by Purchaser. Notwithstanding the above, in connection with the VAT (if any) to be paid on the fixed deferred amount payable to the Sellers in connection with the Convertible Shares, if and to the extent the Purchaser is not credited by the ITA for such VAT, the Sellers shall pay an amount equal to 50% of such non-credited VAT amount.
  • 12.2. Expenses. Except as otherwise provided in this Agreement, the expenses incurred by any Party in connection with the negotiation and execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby, including fees for legal and investment banking services shall be paid by the party incurring such costs and expenses, except that, prior to Closing, the Company may bear all such expenses incurred by Sellers, if and to the extent included as Transaction Expenses.
  • 12.3. Sellers' Representative.
    • (a) Each Seller hereby irrevocably appoints Mr. Michael Golan (the "Sellers' Representative") (and by the execution of this Agreement as the Sellers' Representative, Mr. Michael Golan hereby accept of his appointment) as such Seller's representative, attorney-in-fact and agent, with full power of substitution to act in the name, place and stead of such Seller with respect to the transfer of such Seller's Shares and Shareholders' Loans in accordance with the terms and provisions of this Agreement and the other Transaction Documents, and to act on behalf of such Seller in any

amendment of or litigation or arbitration involving this Agreement and the other Transaction Documents and to do or refrain from doing all such further acts and things, and to execute all such documents, as such Sellers' Representative shall deem necessary or appropriate in conjunction with any of the Transactions contemplated by this Agreement and the other Transaction Documents, including the power:

• (i) to take all action necessary or desirable in connection with the waiver of any condition to the obligations of the Sellers to consummate the Transactions contemplated by this Agreement and the other Transaction Documents;
• (ii) to negotiate and execute all ancillary agreements, statements, certificates, statements, notices, approvals, extensions, waivers, undertakings, amendments and other documents required or permitted to given in connection with the consummation of the Transactions (it being understood that such Seller shall execute any such documents which the Sellers' Representative agrees to execute);
• (iii) to terminate this Agreement if the Sellers are entitled to do so;
• (iv) to give and receive all notices and communications to be given or received under this Agreement and the other Transaction Documents and to receive service of process in connection with the any claims under this Agreement and the other Transaction Documents, including service of process in connection with any Legal Proceedings relating hereto or thereto;
• (v) to take all actions which under this Agreement and the other Transaction Documents may be taken by the Sellers and to do or refrain from doing any further act or deed on behalf of the Seller which the Sellers' Representative deems necessary or appropriate in his sole discretion relating to the subject matter of this Agreement and the other Transaction Documents as fully and completely as such Seller could do if personally present;
• (vi) authorize delivery to Purchaser Indemnified Parties of the applicable portion of the Purchase Price, Holdback Amount or supplemental indemnification amounts, if any, in satisfaction of claims by them, object to such deliveries, and agree to, negotiate, defend, resolve, enter into settlements and compromises of, any suit, proceeding, claim or dispute under this Agreement or the other Transaction Documents on behalf of the Sellers and comply with orders of courts and awards of arbitrators with respect to such claims; and
• (vii) to take all actions necessary or appropriate in the judgment of the Sellerrs' Representative for the accomplishment of any or all of the foregoing.
• (b) If Mr. Michael Golan becomes unable to serve as Sellers' Representative, including if he is no longer a resident of Israel, such other Person or Persons with an Israeli address as may be designated by the holders of a majority of the Pro Rata Share (the "Majority Holders") and notified to the Purchaser in writing upon not less than fifteen (15) days' prior written notice, shall succeed as the Sellers' Representative.
• (c) The Sellers' Representative shall not be liable to any Seller for any error of judgment, or any action taken, suffered or omitted to be taken, under this Agreement, except in the case of its willful misconduct (which shall be deemed not to exist if the Sellers' Representative acted in good faith). The Sellers' Representative may consult with legal counsel, independent public accountants and other experts and shall not be liable for any action taken or omitted to be taken in good faith in accordance with the advice of such counsel, accountants or experts. The Sellers' Representative shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement. The Sellers shall, severally and not jointly, indemnify, defend and hold the Sellers' Representative harmless against any Losses that may be incurred as such Losses are incurred by the Sellers' Representative and arising out of or in connection with the acceptance or administration of the Sellers' Representatives duties hereunder. The Sellers shall be responsible for, and shall

reimburse the Sellers' Representative, upon demand, for, all reasonable expenses, disbursements and advances incurred or made by the Sellers' Representative in accordance with any of the provisions of this Agreement.

• (d) Any and all decisions, acts, consents or instructions made or given by the Sellerrs' Representative in connection with this Agreement or the Transaction Documents shall constitute a decision of all the Sellers and shall be final, binding and conclusive upon each and every Seller, and the Purchaser shall be entitled to rely upon any such decision, act, consent or instruction of the Sellers' Representative.
• (e) Without duplicating or adding to the undertakings of any Seller hereunder, the Sellers' Representative, in his capacity as Sellers' Representative, shall treat confidentially and, subject to any applicable Law, not disclose any nonpublic information from or about the Group Companies or Purchaser to anyone (except on a need to know basis to individuals (identified to the Company and Purchaser in writing in advance) who agree in writing to, or are bound by, confidentially.
• 12.4. Governing Law; Jurisdiction. This Agreement and any dispute arising herefrom shall be governed exclusively by and construed solely according to the internal laws of the State of Israel, without regard or giving effect to the conflict of laws or choice of law provisions thereof or of any other jurisdiction. Each of the Parties hereby expressly and irrevocably submits to the exclusive jurisdiction of the appropriate court in Tel-Aviv, Israel. SUCH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN THE PARTIES HERETO, WHETHER IN LAW OR EQUITY, ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS AND THE PARTIES CONSENT TO AND AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS. EACH OF THE PARTIES HEREBY WAIVES AND AGREES NOT TO ASSERT IN ANY SUCH DISPUTE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT (A) SUCH PARTY IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, (B) SUCH PARTY AND SUCH PARTY'S PROPERTY IS IMMUNE FROM ANY LEGAL PROCESS ISSUED BY SUCH COURTS OR (C) ANY LITIGATION OR OTHER PROCEEDING COMMENCED IN SUCH COURTS IS BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 12.8 BELOW. NOTHING IN THIS AGREEMENT SHALL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. It is hereby clarified that Purchaser may commence any legal proceeding in any other court, solely for the purpose of enforcing an order or judgment issued by the Israeli courts.
• 12.5. Successors and Assigns; Assignment. Except as otherwise expressly limited herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the Parties. No Party may sell, assign, transfer or otherwise convey any of its rights or duties under this Agreement. Notwithstanding the foregoing, Purchaser may assign its rights, interests and obligations hereunder to any of its Affiliates; provided that it remains jointly and severally liable, together with such assignee for all obligations hereunder and in connection with any Transaction Document.
• 12.6. Third Party Beneficiaries. Except as expressly set forth herein, this Agreement is for the sole benefit of the Parties hereto and their successors and permitted assigns and nothing herein expressed or implied shall give or be construed to give to any Person, other than the Parties and such successors and permitted assigns, any legal or equitable rights hereunder.
• 12.7. Entire Agreement. This Agreement and the Schedules and Exhibits hereto constitute the full and entire understanding and agreement between the Parties with regard to the subject matters hereof and thereof, and supersede and preempt all prior understandings, agreements, undertakings and representations by or between the Parties, written or oral, with respect to the subject matter hereof and thereof.

12.8. Notices. All notices, requests and other communications required or permitted hereunder to be given to a Party shall be in writing and shall be delivered by courier or other means of personal service, or sent by email or mailed first class, postage prepaid, by certified mail, return receipt requested, in all cases, addressed to such Party's address as set forth below or at such other address as a Party shall have furnished to the other Party in writing in accordance with this provision:

if to the Company prior to Closing:	Golan Telecom Ltd98 Igal AlonTel AvivAttn: Michael GolanE-Mail: mgolan@golantelecom.co.il
with a copy to(which shall not constitute notice):
If to any Seller or the Sellers' Representative, to theSellers' Representative:	Michael GolanGolan Telecom Ltd98 Igal AlonTel AvivE-mail: boukomichael@gmail.com
With a copy to (which shall not constitute notice):	Gornitzky & Co.45 Rothschild Blvd.Tel Aviv, IsraelFax: 03-5606555Attn: Chaim Friedland, Adv.
If to the Purchaser (and, after Closing, theCompany):	Cellcom Israel Ltd10 Hagavish st., NetaniaAttn: Liat MenahemiFax: 09-8607986
with a copy to	Goldfrarb, Seligman & Co.Ampa Tower
(which shall not constitute notice):	98 Igal Alon St.Tel AvivAttn: Nechama Brin, Adv, Ido Zemach, Adv.Fax: 03-6089909

Any notice sent in accordance with this Section shall be effective: (i) if mailed, seven days after mailing, (ii) if sent by messenger, upon delivery, and (iii) if sent via email, upon delivery. However, if any communication would otherwise become effective on a non-Business Day or after 6 p.m. on a Business Day, it shall instead become effective at 9 a.m. on the next Business Day.

• 12.9. Amendment and Waiver. Any term of this Agreement may be amended only with the written consent of the Purchaser and the Sellers' Representative.
• 12.10. Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, illegal or unenforceable under applicable law, then such provision shall be excluded from this Agreement and the validity, legality and enforceability of the remainder of this Agreement and the remaining provisions shall not in any way be affected or impaired thereby (unless the exclusion of such provision materially undermines the purpose and intent of the Parties, in which case this Agreement shall be null and void); provided, however, that in such event, this Agreement shall be interpreted so as to give effect, to the greatest extent

consistent with and permitted by applicable law, to the meaning and intention of the excluded provision as determined by such court of competent jurisdiction.

• 12.11. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and enforceable against the Parties actually executing such counterpart, and all of which together shall constitute one and the same instrument. The exchange of a fully executed Agreement (in counterparts or otherwise) by electronic transmission in .PDF format or by facsimile shall be sufficient to bind the Parties to the terms and conditions of this Agreement.
• 12.12. Existing Purchaser-Company Contracts. Except as set forth in Section 8.3 hereof, nothing in this Agreement (including the Schedules hereof) shall be construed as a modification of any existing Contracts between the Purchaser Group and the Group Companies nor be deemed as any representation or warranty by them regarding such Contracts or any disputes arising therefrom.

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IN WITNESS WHEREOF the Parties have signed this Agreement as of the date first hereinabove set forth.

Schedule 1.5

Definitions

Active Subscribersmeans, with respect to a specified date, the average between: (a) the number of Sim cards that were active in theVLR during the preceding 90 days, and (b) the number of subscribers who were billed by the Company duringthe preceding 90 days.Adjusted Accounts Payablemeans, on the Closing Date, accounts payable by the Group Companies to suppliers (other than Purchaser), thatare due for more than 90 days from the end of the month in which the relevant invoice was issued (current + 90),excluding accounts payable by the Group Companies to (i) Powerwave; (ii) all Israeli ILDs ("Current AccountPayables").Adjusted Prepaid Payablemeans, in case the Closing Date occurs before the date of the operational change in the Company relating toCompany's obligation to charge the package flat rate postpaid rather than prepaid, the amount before VAT to becollected for the calendar month in which the Closing Date falls regarding monthly package flat rate, net of (a)promotions,(b) out-of-package, above-package, (c) SIM revenues, and (d) other items, which are not impactedby the operational change in the above Company obligation.Adjusted Purchaser Payablemeans all sums (excluding the National Roaming Gap) that, as of the Closing Date, are due to the Purchaserfrom the Group Companies but are scheduled to be payable following the Closing.Affiliatemeans, with respect to any Person, any other Person that, directly or indirectly through one or moreintermediaries, controls, or is controlled by, or is under common control with, such Person, and the term"control" (including the terms "controlled by" and "under common control with") means the possession, directlyor indirectly, of the power to direct or cause the direction of the management and policies of such Person,whether through ownership of voting securities, by contract or otherwise.Antitrust Conditionmeans the valid approval, consent, waiver, license, order, permit, ruling, authorization or clearance in relation tothe sale of the Shares and, to the extent required, the other Transactions, from the Israel Antitrust Authority (the"Antitrust Authorities").Bank Guaranteesmeans those bank guarantees delivered by the Company for the benefit of the Israeli Ministry ofCommunication, in the aggregate principle amount of NIS 95,000,000, as set forth in Schedule 7.3Benefit Plansmeans each employee benefit plan and each equity based compensation, incentive, bonus, profit sharing, savings,deferred compensation, health, medical, dental, life insurance, disability, accident, supplemental unemploymentor retirement or fringe benefit plan or program maintained by the Group Companies or to which they contribute(or have any obligation to contribute) or have or could have any liability or are a party.Business Daymeans any day other than a Friday, Saturday or a day on which the banking institutions in Israel are required tobe closed due to applicable Law or a Governmental Authority Order.

Call Options	means as set forth in Schedule 6.4.
Cash and Cash Equivalents	means cash and cash equivalents in accordance with GAAP, including the restricted deposit collateral securingBank Guarantees and loans from Bank Mizrahi-Tefahot, in the Company's account there, Branch 61, the balanceof which stands at NIS 36,000,000 as of the date hereof.
Closing Date	means the date on which Closing shall occur.
Company Debt	means, without duplication, the Indebtedness of the Company and the Subsidiaries as of the specified date,including the MOC Payment, minus the Cash and Cash Equivalents as of the relevant date.
Confidentiality Agreement	means that Confidentiality Agreement, dated [ ].
Confidential Information	means, with respect to any Person, such Person's proprietary or personal information except to the extent thatsuch information can be shown to have been (i) known prior to disclosure by such Person on a non-confidentialbasis by the recipient, or (ii) in the public domain other than by breach of this Agreement by the recipient or (iii)later acquired by such recipient from sources, other than the disclosing Person, not bound by any confidentialityobligation to the disclosing Person with respect to such information.
Contract	means any (written or oral) contract, indenture, note, bond, lease, commitment or other agreement.
EBITDA	means the earnings before interest, tax, depreciation and amortization of the Company, on a consolidated basis,for the specified period, determined in accordance with GAAP as consistently applied by the Company.
Electronic Dataroom	means the data room maintained by Purchaser at Intralinks.com.
Environmental Law	means any foreign, federal, state or local statute, regulation, ordinance, rule of common law or other legalrequirement relating to the protection of human health and safety, the environment (including ambient air, soil,surface water or groundwater, or subsurface strata) or natural resources.
GAAP	means generally accepted accounting principles in the State of Israel as of the date hereof.
Governmental Authority	means any government or governmental or regulatory body thereof, or political subdivision thereof, whetherfederal, state, local or foreign, or any agency, instrumentality or authority thereof, or any court or arbitrator(public or private).
Group Companies	means the Company and the Subsidiaries.
Holdback Amount	means NIS 117 Million
Indebtedness	of any Person means, as of any specified date, the amount equal to the sum (without duplication), of thefollowing obligations (whether or not then due and payable or with recourse or not): (i) the principal of andpremium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtednessevidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person isresponsible or liable; (ii) all obligations of such Person for the reimbursement of any obligor on any letter ofcredit, banker's acceptance or similar credit transaction; (iii) all obligations of the type referred to in clauses (i)

and (ii) of other Persons for the payment of

	which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise,including guarantees of such obligations; (iv) obligations under capital leases; (v) interest (including defaultinterest), premiums, penalties, breakage fees and other amounts owing in respect of the items described in theforegoing clauses (i) through (iv); and (vi) all obligations of the type referred to in clauses (i) through (iv) ofother Persons secured by any Lien on any property or asset of such Person (whether or not such obligation isassumed by such Person)].
Intellectual Property	means all intellectual property rights [used by the Company and the Subsidiaries arising from or in respect of thefollowing: (i) all patents and applications therefor, (ii) all trademarks, service marks, trade names, service names,brand names, trade dress rights, logos, internet domain names and corporate names, together with the goodwillassociated with any of the foregoing, and all applications, registrations and renewals thereof, and (iii) copyrightsand registrations and applications therefor, works of authorship and mask work rights].
Key Employees	means as set forth (without specifying the identities thereof) in Schedule 7.13.
Knowledge	means (a) with respect to a Seller, the actual knowledge and the knowledge after reasonable inquiry of suchSeller, (b) with respect to Purchaser, the actual knowledge and the knowledge after reasonable inquiry of theCEO, CFO and General Counsel of Purchaser, and (c) with respect to the Company, the actual knowledge andthe knowledge after reasonable inquiry of those Persons identified on Schedule B.
Law(s)	means any domestic or foreign law, statute, code, ordinance, rule or regulation, including any principle ofcommon law, Order, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise putinto effect by or under the authority of any Governmental Authority.
Legal Proceedings	means any judicial, administrative or arbitral actions, suits or proceedings (public or private) by or before aGovernmental Authority.
Liability	means any debt, liability or obligation, and including all costs and expenses relating thereto, whether accrued orfixed, known or unknown, absolute or contingent, matured or unmatured or determined or determinable andwhether or not the same would be required by GAAP to be reflected in financial statements or disclosed in thenotes thereto.
Lien	means any lien, encumbrance, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option,right of first refusal, preemptive or similar rights, easement, servitude or similar restrictions, including anyrestriction on voting, transfer, receipt of income or exercise of any other attribute of ownership.
Permitted Liens	mean (i) statutory liens for Taxes that are not yet due and payable or are being contested in good faith byappropriate proceedings and are disclosed, if any, in Schedule [7.9], (ii) statutory or common law liens to secureobligations to landlords, lessors or renters under leases or rental agreements confined to the premises rented andare disclosed in Schedule [ ], (iii) statutory or common law liens in favor of warehousemen, mechanics andmaterialmen to secure claims for labor, materials or supplies, and [(iv) immaterial liens incurred in the ordinarycourse of business which do not impair use of the related asset as

	presently used in the business of the Company and its Subsidiaries].
material	means to include material, on individual or aggregate basis (such as a series of immaterial recurring or relatedevents that, in the aggregate, are material).
Material Adverse Effect	means any event, circumstance, development, condition, state of facts, occurrence, change or effect (each, an"Effect") that, individually or together with any other Effect (a) is or would reasonably be expected to, eitherindividually or in the aggregate, to have a material adverse effect on the business, assets, properties, results ofoperations or financial condition of the Company and its Subsidiaries (taken as a whole) or (b) is or wouldreasonably be expected to, either individually or in the aggregate, to prevent, materially alter or materially delaythe ability of the Company or the Sellers to consummate the Transactions contemplated by this Agreement, otherthan, with respect to clause (a), an effect resulting from any one or more of the following (except, in each case,to the extent any such effect disproportionately affects the Company or its business as compared to similarlysituated companies or businesses): (i) the effect of any change in the Israel or foreign economies or securities,financial, or communication (including telephony (mobile or fixed), TV, and internet) markets in general; (ii) theeffect of any change that generally affects the industry in which the Company or any of its Subsidiaries operates;(iii) the effect of any change arising as a result of earthquakes, hostilities, acts of war, sabotage or terrorism ormilitary actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorismor military actions existing or underway as of the date hereof (but not the actual damage or loss resultingtherefrom) (iv) the effect of any changes in applicable Laws or accounting rules; or (v) the effect of any actiontaken by the Company at the express written request of Purchaser.
MOC Condition	means the valid approval, consent, waiver, license, order, permit, ruling, authorization or clearance in relation tothe sale of the Shares and, to the extent required, the other Transactions (including with respect to theConvertible Note), from the Israeli Ministry of Communication.
MOC License	[means the General License for the provision of Cellular Services ('Rishion Ratan') issued by the Israeli Ministryof Communication to the Company.]
MOC Payment	means the sum payable to the Israeli Ministry of Communication in the event of a change of control pursuant toSection 21.2 of the MOC License. Such sum shall be reduced if and to the extent that Purchaser has received,prior to Closing, a valid written approval from the Israeli Ministry of Communication, in form and substancereasonably satisfactory to Purchaser, to the effect that the Israeli Ministry of Communication had reduced theMOC Payment.
NRA	means the National Roaming Agreement, dated October 6, 2011, as amended from time to time, including by theMay 25, 2014 and September 21, 2014 letters.
NSAs	mean (i) the IRU Agreement, dated December __, 2013, and (ii) the Network Sharing Agreement, dated May25, 2014, both as amended and updated from time to time.
Order	means any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award of a GovernmentalAuthority.

Ordinary course or ordinarycourse of business	means a course of action that (a) is consistent in nature, scope and magnitude with the past practices of a Personand is taken in the ordinary course of the normal, day-to-day operations of such Person, (b) does not requireauthorization by the board of directors or shareholders of such Person (or by any Person or group of Personsexercising similar authority), and (c) is substantially similar in nature, scope and magnitude to actionscustomarily taken, without any separate or special authorization, in the ordinary course of the normal, day-to-dayoperations of other Persons that are in the same line of similarly situated business as such Person.
Permit	means any approvals, authorizations, consents, licenses, permits or certificates.
Person	means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust,unincorporated organization, Governmental Authority or other entity.
Pro Rata Share	the percentage that reflects the portion out of the Purchase Price payable to the applicable Seller pursuant to theirshare
Purchase Price	means NIS 1,170,000,000 (NIS one billion, one hundred and seventy million), consisting of: (i) NIS 316,679,990for the Shareholder Loans; (ii) and the balance for the Shares.
Purchaser's Group	means the Purchaser and its Subsidiaries.
Revenues	means the revenues of the Company for the specified period, determined in accordance with GAAP asconsistently applied by the Company.
Shareholders' Loans	means [the amount (in principal and interest) owed by the Company to the Sellers pursuant to the shareholders'loans held by the Sellers in the books of the Company as of the Closing Date. As of the date hereof and as of theClosing, the total amount of Shareholders' Loans and its allocation between the Sellers are set forth in ScheduleA.
Specified Representations	means Sections 6.1, 6.2, 6.4, 6.7, 7.1, 7.2, 7.4, and 7.9.
Straddle Period	means any taxable period that begins prior to and ends after the Closing Date.
Subsidiaries	means all of the Company's direct and indirect Subsidiaries, including those Persons set forth on Schedule 7.5(a).
Tax(es)	means (i) all domestic or foreign taxes, charges, fees, imposts, levies or other assessments, including all netincome, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capitalstock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp,occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind, (ii) allinterest, penalties, fines, additions to tax or additional amounts imposed by any taxing authority in connectionwith any item described in clause (i), and (iii) any transferee liability in respect of any items described in clauses(i) and (ii).
Tax Return	means all returns, declarations, reports, estimates, information returns and statements required to be filed inrespect of any Taxes.

Transactions	means the transactions contemplated by this Agreement and by the Transaction Documents, including the sale ofthe Shares and the assignment of the Shareholders' Loans in accordance with the terms hereof.
Transaction Documents	means this Agreement, the Registration Rights Agreement, the Convertible Note, and all agreements ancillary tothis Agreement.
Transaction Expenses	means (a) all out-of-pocket costs, fees and expenses payable to third parties (including all fees and disbursementsof counsel, investment banks, financial advisors and accountants) incurred by the Company or its Subsidiaries(or any Seller to the extent a Liability or obligation of the Company or its Subsidiaries) on or prior to the Closingin connection with the negotiation and preparation of this Agreement, the other Transaction Documents, and theother documents required to effectuate the Closing, and the performance of this Agreement and the otherTransaction Documents and the Transactions, whether or not invoiced or billed prior to the Closing and (b) alltransaction bonus, change-of-control payment, retention, severance or other payments or other forms ofcompensation that are created, accelerated or become payable by the Company or its Subsidiaries as a result ofthe Closing or the Transactions and any payroll taxes incurred or to be incurred by them in connection therewith,except to the extent the right to receive such payment or other form of compensation is waived by the applicablerecipient, together, in the case of each of clauses (a) and (b) above, with all Taxes (including VAT) and otheramounts required to be paid by or on behalf of the Company or its Subsidiaries in connection with any of theforegoing. For the sake of clarity, the D&O Insurance Expenses payable pursuant to Section 8.10 are deemed tobe Transaction Expenses.
VAT Credit	means any VAT amount relating to Invoices not yet filed in VAT report of the company, or VAT amount forinvoices that are included in VAT report of the company for which the company has not received from VATauthorities (VAT return) as of the Closing Date. Invoices regarding considerations will be issued up to the 8th ofthe month following the activity period. .

I, Nir Sztern, Chief Executive Officer of the Company, certify that:

• 1. I have reviewed this annual report on Form 20-F of Cellcom Israel Ltd;
• 1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
• 1. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
• 1. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
  • (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  • (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  • (c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  • (d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
• 1. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
  • (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
  • (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.

Date: March 21, 2016

/s/ Nir Sztern Nir Sztern Chief Executive Officer

Exhibit 12.2

I, Shlomi Fruhling, Chief Financial Officer of the Company, certify that:

• 1. I have reviewed this annual report on Form 20-F of Cellcom Israel Ltd;
• 1. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
• 1. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
• 1. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
  • (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  • (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  • (c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  • (d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
• 1. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
  • (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
  • (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.

Date: March 21, 2016

/s/ Shlomi Fruhling Shlomi Fruhling Chief Financial Officer

The certification set forth below is being submitted in connection with the Annual Report on Form 20-F of Cellcom Israel Ltd. for the year ended December 31, 2015 (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Nir Sztern, the Chief Executive Officer and Shlomi Fruhling, the Chief Financial Officer of Cellcom Israel Ltd., each certifies that:

• 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
• 1. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cellcom Israel Ltd.

Date: March 21, 2016

/s/ Nir Sztern Name: Nir Sztern Chief Executive Officer

/s/ Shlomi Fruhling Name: Shlomi Fruhling Chief Financial Officer

The Board of Directors Cellcom Israel Ltd:

We consent to the incorporation by reference in the registration statements (No. 333-141639, No. 333-184955 and 333-206338) on Form S-8 of Cellcom Israel Ltd. ("the Company") of our report dated March 14, 2016, with respect to the consolidated statements of financial position of the Company as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2015, and the effectiveness of internal control over financial reporting as of December 31, 2015, which report appears in the December 31, 2015 annual report on Form 20-F of the Company.

/s/ Somekh Chaikin

Certified Public Accountants (Israel) Member Firm of KPMG International

Tel Aviv, Israel

March 21, 2016