As filed with the Securities and Exchange Commission on June 12, 2007

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

⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________

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 1-14968

PARTNER COMMUNICATIONS COMPANY LTD.

(Exact Name of Registrant as Specified in its Charter) ISRAEL

(Jurisdiction of Incorporation or Organization) 8 AMAL STREET AFEQ INDUSTRIAL PARK ROSH-HA'AYIN 48103 ISRAEL

(Address of Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities Registered Pursuant to Section 12(g) of the Act:

Title of Class

American Depositary Shares Ordinary Shares*

* Not for trading, but only in connection with the registration of American Depositary Shares representing such ordinary shares, pursuant to the requirements of the Securities and Exchange Commission.

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

NONE

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:

ORDINARY SHARES OF NIS 0.01 EACH 154,516,217

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 1934.

YES NO ⌧

Indicate by check mark whether the Registrant (1) 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 (2) has been subject to such filing requirements for the past 90 days:

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.

Large Accelerated Filer Accelerated Filer ⌧ Non-Accelerated Filer

Indicate by check mark which financial statement item the Registrant has elected to follow:

ITEM 17 ITEM 18 ⌧

If this is an annual report, indicate by checkmark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act.

YES NO ⌧

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	4
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	4
ITEM 3. KEY INFORMATION	4
ITEM 4. INFORMATION ON THE COMPANY	18
ITEM 4A. UNRESOLVED STAFF COMMENTS	41
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	41
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	49
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	62
ITEM 8. FINANCIAL INFORMATION	66
ITEM 9. THE OFFER AND LISTING	68
ITEM 10. ADDITIONAL INFORMATION	69
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	78
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	79
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	79
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	79
ITEM 15. CONTROLS AND PROCEDURES	79
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	80
ITEM 16B. CODE OF ETHICS	80
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	80
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	81
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES	81
ITEM 17. FINANCIAL STATEMENTS	81
ITEM 18. FINANCIAL STATEMENTS	81
ITEM 19. EXHIBITS	82
GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS	84

1

INTRODUCTION

As used herein, references to "we," "our," "us," "Partner" or the "Company" are references to Partner Communications Company Ltd. and to its wholly-owned subsidiaries, Partner Future Communications 2000 Ltd., Partner Land-Line Communications Solutions LLP and Partner Business Communications Solutions, LLP (of which Partner Future Communications 2000 Ltd. serves as the general partner and the Company serves as the limited partner), except as the context otherwise requires. In addition, references to our "financial statements" are to our consolidated financial statements except as the context otherwise requires.

In this document, references to "$," "US$," "US dollars" and "dollars" are to United States dollars and references to "NIS" and "shekels" are to New Israeli Shekels. This annual report contains translations of NIS amounts into US dollars at specified rates solely for the convenience of the reader. No representation is made that the amounts referred to in this annual report as convenience translations could have been or could be converted from NIS into US dollars at these rates, at any particular rate or at all. The translations of NIS amounts into US dollars appearing throughout this annual report have been made at the representative exchange rate on December 29, 2006 of NIS 4.225= US$1.00 as published by the Bank of Israel, unless otherwise specified. See "Item 3A. Key Information – Selected Financial Data – Exchange Rate Data."

We maintain our financial books and records in shekels. Our financial statements included in this annual report are prepared in accordance with accounting principles generally accepted in the United States, or US GAAP, and the accompanying discussion of the results of our operations is based on our results under US GAAP. See "Item 18. Financial Statements" and "Item 5A. Operating and Financial Review and Prospects – Operating Results".

FORWARD-LOOKING STATEMENTS

This annual report includes forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, Section 21E of the US Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about Partner.

Words such as "believe," "anticipate," "expect," "intend," "seek," "will," "plan," "could," "may," "project," "goal," "target" and similar expressions often identify forwardlooking statements but are not the only way we identify these statements. All statements other than statements of historical fact included in this annual report, including the statements in the sections of this annual report entitled "Item 3D. Key Information – Risk Factors," "Item 4. Information on the Company" and "Item 5". Operating and Financial Review and Prospects" and located elsewhere in this annual report regarding our future performance, plans to increase revenues or margins or preserve or expand market share in existing or new markets, reduce expenses and any statements regarding other future events or our future prospects, are forward-looking statements.

Because such statements involve risks and uncertainties, actual results may differ materially from the results currently expected. Factors that could cause such differences include, but are not limited to:

y the effects of the high degree of regulation in the telecommunications market in which we operate;
y regulatory developments related to the implementation of number portability;
y regulatory developments relating to tariffs, including interconnect tariffs, roaming charges, and SMS tariffs;
y the difficulties associated with obtaining all permits required for building and operating of antenna sites;
y the requirement to indemnify planning committees in respect of claims made against them relating to the depreciation of property values or to alleged health damage resulting from antenna sites;
y the effects of vigorous competition in the market in which we operate and for more valuable customers, which may decrease prices charged, increase churn and change our customer mix, profitability and average revenue per user, and the response of competitors to industry and regulatory developments;
y regulatory developments which permit the Ministry of Communications to require us to offer our network infrastructure to other operators, which may lower the entry barrier for new competitors;
y uncertainties about the degree of growth in the number of consumers in Israel using wireless personal communications services and the growth in the Israeli population;
y the risks associated with the implementation of a third generation (3G) network and business strategy, including risks relating to the operations of new systems and technologies, potential unanticipated costs, uncertainties regarding the adequacy of suppliers on whom we must rely to provide both network and consumer equipment and consumer acceptance of the products and services to be offered, and the risk that the use of internet search engines by our 3G customers will be restricted;

y the results of litigation filed or that may be filed against us;
y the risk that, following a possible rearrangement of spectrum, we may lose some of our frequencies or we may be allocated spectrum of inferior quality;
y the risks associated with technological requirements, technology substitution and changes and other technological developments;
y alleged health risks related to antenna sites and use of telecommunication devices;
y the impact of existing and new competitors in the market in which we compete, including competitors that may offer less expensive products and services, desirable or innovative products, technological substitutes, or have extensive resources or better financing;
y fluctuations in foreign exchange rates;
y the possibility of the market in which we compete being impacted by changes in political, economic or other factors, such as monetary policy, legal and regulatory changes or other external factors over which we have no control; and
y the availability and cost of capital and the consequences of increased leverage.

as well as the risks discussed in "Item 3D. Key Information – Risk Factors," "Item 4. Information on the Company" and "Item 5. Operating and Financial Review and Prospects". In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might not occur.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

3A. Selected Financial Data

The following table sets forth our selected financial data as at and for each of the years in the five-year period ended December 31, 2006 prepared in accordance with US GAAP. The selected financial data for each of the years in the three-year period ended December 31, 2006 and at December 31, 2006 and 2005 are derived from our consolidated financial statements set forth elsewhere in this annual report. The selected financial data for each of the years ended December 31, 2003 and 2002 and at December 31, 2004, 2003 and 2002 are derived from our audited financial statements not appearing in this annual report. The selected financial data set forth below should be read in conjunction with "Item 5. Operating and Financial Review and Prospects" and the financial statements and notes thereto included elsewhere in this annual report.

			Year ended December 31,
	2002	2003	2004	2005	2006	2006
			New Israeli Shekels in thousands (except per share data)			Conveniencetranslationinto US$
Statement of Operations Data
Revenues, net
Services	3,766,584	4,117,887	4,615,781	4,619,932	5,027,310	1,189,896
Equipment	287,979	349,832	524,956	503,007	579,401	137,136
	4,054,563	4,467,719	5,140,737	5,122,939	5,606,711	1,327,032
Cost of revenues
Services	2,499,534	2,586,707	2,885,077	3,022,480	3,085,507	730,297
Equipment	569,924	549,749	729,937	743,872	811,760	192,133
	3,069,458	3,136,456	3,615,014	3,766,352	3,897,267	922,430
Gross profit	985,105	1,331,263	1,525,723	1,356,587	1,709,444	404,602
Selling and marketing expenses	308,079	314,008	325,244	272,900	307,592	72,803
General and administrative expenses	143,594	162,387	181,133	180,781	183,460	43,422
Operating profit	533,432	854,868	1,019,346	902,906	1,218,392	288,377
Financial expenses, net	445,180	321,710	260,545	345,448	166,442	39,395
Loss on impairment of
investments in non-
marketable securities	4,054	3,530	-	-	-	-
Income before tax	84,198	529,628	758,801	557,458	1,051,950	248,982
Tax benefit (tax expenses)	-	633,022	(287,248)	(202,898)	(370,675)	(87,734)

Income beforecumulative effect of achange in accountingprinciples	84,198	1,162,650	471,553	354,560	681,275	161,248
Cumulative effect, atbeginning of year, of achange in accountingprinciples	-	-	-	-	1,012	240

Net income for the year	84,198	1,162,650	471,553	354,560	682,287	161,488

				Year ended December 31,
	2002	2003	2004	2005	2006	2006
			New Israeli Shekels in thousands (except per share data)			Conveniencetranslationinto US$
Earnings per ordinary shareand per ADS
Basic:Before cumulative effectCumulative effect	0.47-	6.39-	2.57-	2.19-	4.430.01	1.05-
	0.47	6.39	2.57	2.19	4.44	1.05
Diluted:Before cumulative effectCumulative effect	0.46-	6.34-	2.56-	2.17-	4.400.01	1.04-
	0.46	6.34	2.56	2.17	4.41	1.04
Weighted average number of sharesOutstanding
Basic:	179,984,090	181,930,803	183,389,383	161,711,125	153,633,758	153,633,758
Diluted:	183,069,394	183,243,157	184,108,917	163,617,272	154,677,685	154,677,685
Other Financial Data
Capital expenditures, net	556,376	232,293	600,944	486,421	487,946	115,490
EBITDA(1)Statement of Cash Flow Data	1,052,240	1,379,830	1,575,996	1,568,616	1,850,107	437,895
Net cash provided byoperating activities	682,191	1,031,492	1,272,802	1,006,324	1,223,469	289,578
Net cash used in investingactivities	(815,968)	(376,769)	(673,616)	(546,692)	(448,686)	(106,198)
Net cash providedby (used in) financing activities	129,865	(652,309)	(598,349)	(460,235)	(701,244)	(165,975)
Balance Sheet Data (at year end)
Current assets	816,416	865,319	1,057,148	1,170,976	1,274,350	301,621
Investments and long-termreceivables	45,991	72,630	165,815	264,456	355,489	84,139
Fixed assets, netLicense and deferred charges, net	1,864,5111,269,348	1,694,5841,325,948	1,843,1821,325,592	1,768,8951,321,167	1,747,4591,247,084	413,600295,168
Deferred income taxes	-	413,752	94,442	86,505	76,139	18,021
Total assets	3,996,266	4,372,233	4,486,179	4,611,999	4,700,521	1,112,549
Current liabilities (2)	735,153	760,256	859,741	986,995	1,027,841	243,276
Long-term liabilities (2)	3,357,497	2,536,413	2,039,363	2,809,653	2,418,213	572,358
Total liabilities	4,092,650	3,296,669	2,899,104	3,796,648	3,446,054	815,634
Shareholders' equity (capitaldeficiency)	(96,384)	1,075,564	1,587,075	815,351	1,254,467	296,915
Total liabilities andshareholders' equity	3,996,266	4,372,233	4,486,179	4,611,999	4,700,521	1,112,549

(1) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is presented because it is a measure commonly used in the telecommunications industry and is presented solely to enhance the understanding of our operating results. EBITDA, however, should not be considered as an alternative to operating income or income for the year as an indicator of our operating performance. Similarly, EBITDA should not be considered as an alternative to cash flow from operating activities as a measure of liquidity. EBITDA is not a measure of financial performance under generally accepted accounting principles and may not be comparable to other similarly titled measures for other companies. EBITDA may not be indicative of our historic operating results nor is it meant to be predictive of potential future results.

(2) See Notes 4 5, and 6 to our consolidated financial statements for information regarding long-term liabilities and current maturities of long-term bank loans.

				Year ended December 31,
	2002	2003	2004	2005	2006	2006
			New Israeli Shekels in thousands			Conveniencetranslationinto US$
Reconciliation Between Operating
Cashflow and EBITDA
Net cash provided by operatingactivities	682,191	1,031,492	1,272,802	1,006,324	1,223,469	289,578
Liability for employee rights uponretirement	(18,632)	(15,540)	(16,302)	(9,430)	(11,142)	(2,637)
Accrued interest, exchange andlinkage differences on long-term
liabilities	(91,027)	67,438	10,258	(108,411)	4,646	1,100
Amount carried to deferred charges	3,805	-	-	13,820	-	-
Accrued interest, exchange andlinkage differences on security
deposit	6,925	(8,877)	-	-	-	-
Increase (Decrease) in accountsreceivable:
Trade	56,638	(22,721)	225,860	262,262	254,748	60,295
Other	8,056	5,557	13,615	26,970	304,492	72,069
Decrease (Increase) in accountspayable and accruals:
Trade	(31,909)	93,444	(135,600)	(112,857)	58,568	13,862
Related parties	-	-	-	(10,513)	(5,317)	(1,258)
Other	(14,796)	(47,541)	(41,613)	75,884	(49,923)	(11,816)
Decrease (Increase) in inventories	12,996	(34,647)	(1,205)	107,667	(82,857)	(19,611)
Decrease (Increase) in asset
retirement obligation		(1,228)	(464)	92	(1,069)	(253)
Financial expenses(*)	437,993	312,453	248,645	316,806	154,492	36,566
EBITDA	1,052,240	1,379,830	1,575,996	1,568,614	1,850,107	437,895

(*) Financial expenses excluding any charge for the amortization of deferred financial costs.

	2004	2005	2006

Industry Data
Estimated population of Israel (in thousands)(1)	6,870	6,986	7,114.4
Estimated Israeli mobile telephone subscribers (in thousands)(2)	7,217	7,851	8,383
Estimated Israeli mobile telephone penetration(3)	105%	113%	118%

6

			Year ended December 31				Three months ended
	2002	2003	2004	2005	2006	March 31,2006	June 30,2006	Sept. 30,2006	Dec. 31,2006

Partner DataSubscribers (000's) (at
period end)(4)	1,837	2,103	2,340	2,529	2,668	2,560	2,585	2,626	2,668
Pre-paid	540	639	700	754	781	762	768	772	781
Post-paid (private)	1,004	1,117	1,207	1,268	1,282	1,266	1,260	1,273	1,282
Post-paid (business)	293	347	433	507	605	532	557	581	605
Share of total Israelisubscribers (at period
end)(5)	29%	31%	32%	32%	32%	32%	32%	32%	32%
Average monthly usage persubscriber (mins.)(6)	280	277	286	294	311	301	307	322	316
Average monthly revenueper subscriber including
in roaming (NIS)(7)	183	171	170	156	158	152	158	164	159
Churn rate(8)	10.9%	13.6%	12%	13.6%	15.6%	4.2%	3.8%	3.7%	4.0%
Estimated coverage ofIsraeli population (at
period end)(9)	97%	97%	97%	97%	97%	97%	97%	97%	97%
Number of employees (fulltime equivalent) (at
period end)(10)	2,685	2,769	3,164	3,403	3,714	3,365	3,477	3,590	3,714

(1) The population estimates are published by the Central Bureau of Statistics in Israel.

(2) We have estimated the total number of Israeli mobile telephone subscribers from information contained in published reports issued by, and public statements made by, Pelephone Communications Israel Ltd., or Pelephone, and Cellcom Israel Ltd., or Cellcom, or by their shareholders and from Partner subscriber data at December 31, 2004, 2005 and 2006.

(3) Total number of estimated Israeli mobile telephone subscribers expressed as a percentage of the estimated population of Israel. This includes dormant subscribers as well as other subscribers who are not included in the Israeli population figures, such as Palestinians, visitors, and foreign workers.

(4) In accordance with general practice in the mobile telephone industry, we use the term "subscriber", unless the context otherwise requires, to indicate a telephone or a data or video device, rather than either a bill-paying network customer, who may have a number of telephones connected to the network, or a mobile telephone user who may share a single telephone with a number of other users. "Subscriber" includes our pre-paid customers. References to the number of subscribers are stated net of subscribers who leave or are disconnected from the network, or who have not generated revenue for the Company for a period of over six consecutive months ending at a reporting date.

(5) Total number of Partner subscribers expressed as a percentage of the estimated total number of Israeli subscribers.

(6) We have calculated our average monthly usage per subscriber by (i) dividing, for each month in such period, the total number of minutes of usage, excluding inroaming usage, during such month by the average of the number of our subscribers, and (ii) dividing the sum of such results by the number of months in the relevant period.

(7) We have calculated Partner average monthly revenue per subscriber by (i) dividing, for each month in the relevant year, the Partner revenue during the month, excluding revenue from equipment sales and including revenue from foreign network operators for calls made by their roaming customers while in Israel using our network, by the average number of Partner subscribers during that month, and (ii) dividing the sum of all such results by the number of months in the relevant period. We have presented the amounts in NIS.
(8) We define the "churn rate" as the total number of subscribers who disconnect from our network, either involuntarily or voluntarily, in a given period expressed as a percentage of the average of the number of our subscribers at the beginning and end of such period. Our churn rate includes subscribers who have not generated revenue for us for a period of the last six consecutive months ending at a reporting date. Involuntary churn includes disconnections due to non-payment of bills or suspected fraudulent use, and voluntary churn includes disconnections due to subscribers switching to a competing mobile telephone network or terminating their use of our services. From July 2002, we refined our criteria for reporting active subscribers. As a result, we have included in churn for this period those subscribers who generated minute revenues only from incoming calls directed to their voice mail.
(9) We measure coverage using computerized models of our network, radio propagation characteristics and topographic information to predict signal levels at two meters above ground level in areas where we operate a cell site. According to these coverage results, we estimate the population serviced by our network and divide this by the estimated total population of Israel. Estimates are published by the Central Bureau of Statistics in Israel.
(10) A full-time employee is contracted to work a standard 186 hours per month. Part-time employees are converted to full-time equivalents by dividing their contracted hours per month by the full-time standard. The result is added to the number of full-time employees to determine the number of employees on a full-time equivalent basis.

Exchange Rate Data

The following table sets forth, for the years indicated, exchange rates between the shekel and the US dollar, expressed as shekels per US dollar and based upon the daily representative rate of exchange on the last day of each year as published by the Bank of Israel.

	2002	2003	2004	2005	2006

Average(1)	4.736	4.512	4.480	4.485	4.457
High	4.994	4.924	4.634	4.741	4.725
Low	4.437	4.283	4.308	4.299	4.176
End of period	4.737	4.379	4.308	4.603	4.225

(1) Calculated based on the average of the exchange rates on the last day of each month during the relevant period.

	December2006	January2007	February2007	March2007	April2007	May2007

High	4.234	4.260	4.254	4.222	4.135	4.065
Low	4.176	4.187	4.183	4.155	4.014	3.932

On June 8, 2007, the exchange rate was NIS 4.1970 per US dollar as published by the Bank of Israel. Changes in the exchange rate between the shekel and the US dollar could materially affect our financial results.

3B. Capitalization and Indebtedness

Not applicable.

3C. Reasons for the Offer and Use of Proceeds

Not applicable.

3D. Risk Factors

We operate in a highly regulated telecommunications market which limits our flexibility to manage our business. Regulatory decisions may materially and adversely affect our results of operations.

Our business is highly regulated. We are subject to government regulation regarding telecommunications licenses, antitrust, frequency allocation and cost arrangements pertaining to interconnection and leased lines customer relations, billing, data and connect services or equipment. Our business and operations could be adversely affected by changes in laws, regulations or government policy affecting our business activities, such as decisions by the regulator:

y reducing or limiting tariffs, including roaming, call and/or SMS termination tariffs;
y adopting policies and imposing new regulations for the erection of antenna sites;
y lowering the barriers of entry to new competitors, including Mobile Virtual Network Operators (MVNOs);
y changing the method of calculating call duration;
y implementing number portability in the cellular market in Israel;
y increasing the rate of royalties to be paid to the State of Israel;
y broadening the range of the types of revenues on which royalties are paid;
y setting policies and imposing new regulations governing electronic trade and content services, including 3G content services;
y changing the regulation affecting our roaming business;
y imposing new safety and health requirements;
y requiring us to terminate customer contracts at the end of their term where the customer has not requested an extension;
y changing frequency allocations;
y limiting our ability to offer subscribers tariff plans, including tariff plans that bundle different types of services, plans linking airtime rebates or benefits with the purchase of handsets;
y otherwise limiting the prices that we may charge our customers; and
y further regulate access to adult services.

Further risks and uncertainties result from the fact that changes in such laws, regulations or government policy may not be adopted or implemented in the manner that we expect and may be further amended, interpreted or enforced in an unexpected manner or in a manner adverse to us.

We may be adversely affected by regulatory developments relating to number portability.

As a result of an amendment to the Telecommunications Law in March 2005, we and the other mobile and fixed-line telephone operators were required to implement number portability by September 1, 2006. Number portability permits a mobile telephone subscriber to switch to another mobile operator while retaining the same telephone number. Despite efforts to introduce the requisite technology and coordinate the transition to number portability by September 1, 2006, currently none of the cellular or fixed-line operators has implemented number portability. We, Cellcom, and Pelephone have filed a petition with the Israeli High Court of Justice for the issuance of an order to the Government of Israel and the Ministry of Communications to show cause for their failure to act immediately in order to initiate an amendment to the Telecommunications Law postponing the deadline for the implementation of number portability. Due to this delay a purported class action law suit has been filed against us, see Note 7 in "Item 18 Financial Statements". In May 2007, the Ministry of Communications announced that the final implementation date for number portability is December 1, 2007. However, the Ministry is considering imposing monetary sanctions on relevant telecommunication license holders, including us, in accordance with the Telecommunications Law for alleged violation of the obligation to implement number portability by September 2006. As a result, we may be exposed to substantial monetary sanctions and further legal claims.

We cannot predict with certainty the consequences of number portability, including the response of mobile telephone subscribers following the implementation of number portability. We expect, however, that number portability will increase churn rates and may increase subscriber acquisition and retention costs. In addition, we cannot be sure how implementation of number portability will affect the overall functioning of our network and billing systems. These developments may have a material adverse effect on our business and on the overall functioning of our network system.

We may be adversely affected by regulatory developments relating to interconnect tariffs, roaming charges, and SMS tariffs.

The Ministry of Communications has also indicated that it intends to start implementing a process to unify rates for calls terminating both on and off an operator's network. Preliminary hearings with the cellular operators in Israel on this matter commenced in August 2005, but have been suspended and are expected to be resumed in 2008. This change, if implemented, could also adversely affect our revenues and profits.

The Ministry of Communications has declared its intention to evaluate roaming charges. As a result of this evaluation new regulations may be implemented that would limit fees charged by Israeli cellular companies for calls made by foreign network operators' subscribers while in Israel using our network as well as for calls made by our own subscribers using their handsets abroad. Because we consider roaming charges to be a significant source of revenue, such regulatory limits could affect our revenues.

In 2005, our license was amended to regulate charging for SMS messages sent outside our network, which, under one interpretation of the amendment, may lead to claims of our SMS charges not being in compliance with our license. To date, we have fulfilled the license requirements, even under this potential interpretation, with respect to SMS messages sent to subscribers of one other cellular operator. However, due to technological difficulties which we and our competitors face that have not yet been resolved, we may face claims, if such interpretation of the amendment prevails, of not having implemented the amendment with respect to SMS messages sent to subscribers of two other operators. We have notified the Ministry of Communications of our technological inability to fully implement the amendment, if it is so interpreted. The Ministry of Communications has proposed an amendment to our license to resolve this problem, which we believe is unsatisfactory because it does not change the charging criteria but mainly proposes certain customer notification requirements. Until such time as the cellular operators develop the necessary interfaces or our license is amended, we may be exposed, if such an interpretation prevails, to substantial sanctions and legal claims.

We have had difficulties obtaining some of the permits for which we have applied, and have not yet applied for other permits that are required for the erection of our antenna sites. These difficulties could continue and therefore affect our ability to erect or maintain antenna sites. This could have an adverse effect on the extent, quality and capacity of our network coverage and may result in criminal or civil liability to us or to our officers and directors.

Our ability to maintain and improve the extent quality and capacity of our network coverage depends in part on our ability to obtain appropriate sites and approvals to install our network infrastructure, including antenna sites. The erection and operation of most of these antenna sites require building permits from local or regional zoning authorities, as well as a number of additional permits from governmental and regulatory authorities, such as:

y erection and operating permits from the Ministry of the Environment;
y permits from the Civil Aviation Authority, in certain cases; and
y permits from the Israeli Defense Forces.

In addition, as part of our 3G network build out, we are erecting additional antenna sites and making modifications to our existing antenna sites, for which we may be required to obtain new consents and approvals.

Like our competitors, we have experienced difficulties in obtaining some consents and permits, especially those from local building authorities. As of December 31, 2006, approximately 20% of our antenna sites were operating without local building permits or applicable exemptions. A substantial portion of these antenna sites are microsites. We believe that a portion of the sites operating without permits from local authorities do not require local building permits under the Planning and Building Law 1965. In addition, some of the building permits we have received are not compatible with the antenna sites for which they were obtained. If we continue to experience difficulty in obtaining approvals for the erection of antenna sites, this could adversely affect our existing network and delay the erection of additional antenna sites to our network. This difficulty could have an adverse effect on the extent, quality and capacity of our network coverage and on our ability to continue to market our products and services effectively. Our inability to resolve these issues in a timely manner could also prevent us from achieving or maintaining the network coverage and quality requirements contained in our license.

In addition, we, like the other mobile telephone operators in Israel, provide repeaters, also known as bi-directional amplifiers, to subscribers seeking an interim solution to weak signal reception within specific indoor locations. In light of the lack of a clear policy of the local planning and building authorities, and in light of the practice of the other mobile telephone operators, we have not requested permits under the Planning and Building Law for the repeaters. We have received an approval to connect the repeaters to our communications network, however, from the Ministry of Communications. We have also approached the Ministry of the Environment, asserting that no permits are necessary for the repeaters, based on the Ministry's previous advice that permits are not necessary for devices with levels of emission comparable to those of "Fixed Cellular Terminals". If the local planning and building authorities determine that permits are necessary for the installation of these devices, or any other receptors that we believe do not require a building permit, it could have a negative impact on our ability to obtain permits for our repeaters. Recently, the Non-Ionizing Radiation Law, 2006 was enacted which defines the various powers of the Ministry of the Environment as they relate, inter alia, to the grant of permits for antenna sites and which sets standards for permitted levels of non-ionizing radiation emissions and reporting procedures. Pursuant to this law, which entered into effect on January 1, 2007, the Ministry of Environment will grant an operating permit for a site only if a building permit has been properly obtained for such site. If we continue to face difficulties in obtaining building permits from the local planning and building committee, we may also be unable to obtain operation permits from the Ministry of Environment. Operation of an antenna site without a permit from the Ministry of Environment could result in criminal and civil liability to us or to our officers and directors.

The erection of an antenna site without a required local building permit is a violation of the Planning and Building Law, 1965 and, in some cases, has resulted in a demolition order being imposed on us and in the filing of criminal charges and civil proceedings against us and our officers and directors. In the future, we may face additional demolition orders, monetary penalties and criminal charges, including against our officers and directors.

In connection with certain building permits, we may also be required to indemnify certain planning committees in respect of claims against them relating to the depreciation of property values that result from the granting of permits for antenna sites, which may have a material adverse effect on our financial condition and results of operations.

The extent of our potential liability in connection with alleged depreciation in the value of nearby properties as a result of the building of antenna sites may be increased as a result of various developments

Under the Planning and Building Law, 1965, local planning committees may be held liable for the depreciation of the value of nearby properties as a result of approving a building plan. Under the Non-Ionizing Radiation Law, which became effective as of January 2006, the National Council for Planning and Building requires indemnification undertakings from cellular companies as a precondition for obtaining a building permit for new or existing antenna sites. The National Council has decided that until National Building Plan 36 is amended to reflect a different indemnification amount, cellular companies will be required to undertake to indemnify the committees in full against all losses resulting from claims against a committee for reduction in property values. Thus, at present, in order to obtain a building permit for a new or existing antenna site, we must undertake to provide full indemnification for the reduction of property value. We cannot predict whether the legal requirement to provide full indemnification will be adopted in the amended National Building Plan 36, nor can we predict when the National Building Plan 36 will be amended. To date, we have provided local authorities with more than 100 indemnification undertakings. These indemnifications expose us to risks which are difficult to quantify or mitigate and which may have a material adverse effect on our financial conditions and results of operations if we are required to make substantial payments in connection therewith. In addition, the requirement to provide indemnification in connection with new building permits may impede our ability to obtain building permits for existing antenna sites or to expand our network with the erection of new antenna sites. In addition, the requirement to provide indemnifications in connection with new building permits may cause us to change the location of our antenna sites to different, less suitable locations or to dismantle existing antenna sites which may have an adverse effect on the extent, quality and capacity of our network coverage.

Further, there have been a number of attempts by local planning committees to include mobile phone operators in claims against such committees for the depreciation in value of nearby properties as a result of the erection of antenna sites. If the local planning committees succeed in including mobile phone operators in these actions, it may expose us to significant liability and have a material adverse effect on our financial condition and results of operation. In two such actions, we were included as defendants, although we do not believe that these actions expose us to significant liability. For more information, see "Item 8. Financial Information – Legal and Administrative Proceedings." We have had difficulties obtaining some of the permits for which we have applied, and have not yet applied for other permits that are required for the erection of our antenna sites. These difficulties could continue and thereby affect our ability to erect or maintain antenna sites. This could have an adverse effect on the extent, quality and capacity of our network coverage and may result in criminal or civil liability to us or to our officers and directors**."**

There are alleged health risks related to antenna sites and the use of mobile telecommunications devices, including handsets. The actual or perceived health risks of mobile telephone communications devices could have a material adverse effect on our business, operations and financial condition.

A number of studies have been conducted to examine the health effects of wireless phone use and antenna sites, and some of these studies have been construed as indicating that wireless phone use causes adverse health effects. Media reports have suggested that radio frequency emissions from antenna sites, wireless handsets and other mobile telecommunication devices may raise various health concerns and may interfere with various electronic medical devices, including hearing aids and pacemakers. While, to the best of our knowledge, the handsets that we market comply with the applicable laws that relate to acceptable Specific Absorption Rate ("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 along the lifecycle of the handsets, including in the case of handset repair.

Several lawsuits have been filed outside of Israel against operators and other participants in the wireless industry alleging adverse health effects and other claims relating to radio frequency transmissions to and from handsets and other mobile telecommunications devices. We may be subject to potential future litigation relating to these health concerns.

Furthermore, we do not expect to be able to obtain insurance with respect to such liability. The perception of increased health risks related to antenna sites may cause us increased difficulty in obtaining leases for new antenna site locations or renewing leases for existing locations. If it is ever determined that health risks existed or that there was a deviation from SAR standards which would result in a health risk from sites or handsets, this would have a material adverse effect on our business, operations and financial condition, including through exposure to potential liability, a reduction in subscribers and reduced usage per subscriber.

Competition from existing competitors may require us to increase our subscriber acquisition and customer retention costs, decrease our tariffs, and may increase our churn rate.

We compete primarily with Cellcom, Pelephone and MIRS, the other mobile telephone network operators in Israel. In 2006, Cellcom expanded its UMTS/HSDPA service, and Pelephone, which currently uses CDMA-1x technology as well as EVDO, announced its intention to roll out a GSM network and to offer UMTS/HSDPA (High Speed Uplink Packet Technology). Cellcom is an Israeli corporation that is part of the IDB group, a large Israeli conglomerate with holdings in companies that operate in many different markets in Israel. Due to the IDB group's strong position in Israel, we believe that in some cases we have experienced and may further experience the loss of business subscribers who are affiliates of the IDB group or do business with the IDB group, and who transfer their cellular business to Cellcom.

Because of the ease of switching between cellular operators, we have already faced and may continue to face an increase in our churn rate and may be forced to increase our customer retention costs, including subsidies towards upgrades of subscribers' handsets, in order to retain our subscribers. In addition, the planned introduction of mobile number portability in 2007 will further facilitate the switching of subscribers between cellular operators and is expected to increase our churn rate and customer retention costs. These developments may adversely affect our market share, financial condition and results of operations.

To the extent that fixed-line telephones are used instead of mobile telephones, we also compete with Bezeq, the incumbent fixed-line operator in Israel. In 2004, Bezeq completed its acquisition of 100% of the shares of Pelephone, which may enable Pelephone to offer combined packages of fixed-line, mobile telephone and other telecommunication services, subject to regulatory approval. We also compete with HOT, the cable television operator in Israel that also offers fixed-line telephone service. We may in the future compete with other holders of licenses to provide fixed-line telephone service.

In January 2007, we received a license for the provision of domestic fixed-line services which enables us to offer fixed-line services to subscribers. We may, however, be at a competitive disadvantage relative to operators who may be able to offer combined packages of fixed-line, mobile telephone and other communications services, using their wholly owned infrastructure. We may also face competition from additional fixed-line operators, if additional fixed-line licenses are granted. As part of our fixed-line telephony license, the Ministry of Communications granted us the right to offer Voice Over Broadband ("VOB") services using the infrastructure of Bezeq and HOT to access customers and to provide them with fixed-line telephony service without any payment to the infrastructure owner.

In March 2007, the Ministry of Communications engaged NERA, an international consulting firm, to review the level of competition in Israel's mobile market and to review whether to allow the entry of new operators including MVNO operators in the Israeli telecommunications market. Based on the findings of their review, the Ministry of Communications may opt to grant licenses to MVNOs, who may use Partner's infrastructure or other cellular operators' infrastructure to offer mobile telephone services.

Increased competition may require us to increase our subscriber acquisition and customer retention costs. Competition may also limit our ability in the future to increase tariffs, or cause us to reduce tariffs. In 2006, our churn rate was higher than in 2005. Competition, including increased competition resulting from the introduction of number portability, may further increase our level of churn.

We may be required in the future to offer access to our network infrastructure to other operators. This may lower the entry barriers for potential new competitors, such as MVNOs, and adversely affect our financial results and condition and our ability to provide services to our subscribers. These operators could also gain market share at our expense by offering lower prices to our customers.

Under the Communications Law (Telecommunications and Broadcasting), 1982, the Ministry of Communications has the power to require us, like the other telephone operators in Israel, to offer access to our network infrastructure to other operators. Similarly, our license also requires us, upon demand by the Minister of Communications, to permit other operators to provide telecom services using our network. We believe such access to our network would require additional statutory and regulatory action. Were such action to be taken, however, access to our network would lower the entry barriers for potential new competitors and increase the likelihood of additional new competitors entering the mobile telephone market in Israel. Our capacity is limited, and if we are required to allocate capacity to other operators, the services to our subscribers may be harmed or we may be required to invest additional capital in order to enable additional use of our network. If we fail to agree with new operators that are given access to our network regarding the tariffs for the usage of our infrastructure, the Ministry of Communications may set those tariffs. If the Ministry of Communications sets those tariffs too low, this may adversely affect our financial condition. In addition, operators, such as MVNOs, could offer mobile telecommunication services to our current customers at prices that are lower than our prices, thereby reducing our market share and/or causing price erosion and adversely affect our financial results and condition.

Possible changes in the law could result in increased anti-trust regulation on the mobile telephone industry in Israel, which could have a material adverse effect on our revenues and financial results.

In the past, the former Israeli Commissioner of Restrictive Trade Practices expressed his view that the mobile telephone industry in Israel operates as an oligopoly and that the Israeli government should intervene to regulate prices and tariffs. In part, the Commissioner based his statements on the increase in prices by the mobile telephone operators as a result of the Ministry of Communications' decision to lower call termination tariffs. The chairman of the Knesset's Economic Committee announced that the committee would act to declare the mobile telephone operators as an oligopoly. Such a finding could result in increased regulatory intervention (including with regard to tariffs and tariffing practices), the application of certain limitations on our conduct and increased litigation, including class action lawsuits. Additional regulation, including as a result of our being declared, together with the other mobile telephone operators in Israel, as part of an oligopoly, could materially and adversely affect our revenues and our financial results.

Our subscriber growth rate, and consequently our revenue growth rate, has begun to slow, because Israel's mobile telephone services market is highly penetrated, making it more difficult for us to obtain new subscribers than in the past and retain existing subscribers.

Although Israel's mobile telephone services market has experienced substantial growth, and we have experienced substantial subscriber growth since our commercial launch in 1999, the Israeli market for mobile telephone services is now highly penetrated, and the growth of the overall Israeli market and of our own subscriber base has been slower than in the past. According to data from the Central Bureau of Statistics, the population of Israel at the end of December 2006 was approximately 7.1 million. According to a recent report issued by a research company, at December 31, 2006, Israel's mobile telephone market penetration is estimated to be approximately 118%. This may include dormant subscribers as well as subscribers who are not included in the Israeli population figures, such as Palestinians, visitors, and foreign workers. Because the Israeli market for mobile telephones is highly penetrated, it is not growing at the same rate as in the past, and our own subscriber growth is not developing at the same rate as in the past. Similarly, whereas in the past our revenue growth has largely resulted from growth in the overall market, our future revenues will depend significantly on our ability to retain existing subscribers and to attract subscribers from the other mobile telephone network operators as well as on our ability to generate higher revenues from existing subscribers.

High handset prices, delays in the development of handsets, services and network compatibility and components, and supplier interoperability may hinder the deployment of 3G technology and may increase the costs related to both subscriber acquisition and subscriber retention. If we are unable to successfully develop attractive 3G services for our subscribers our results of operations will be adversely affected.

Establishing a 3G network or upgrading its technology and developing services requires investing substantial capital resources. There is no assurance that subscribers will adopt 3G services, how widespread the usage of these new services will be, how many subscribers will be willing to pay for these services and new devices and whether the revenue generated from these services will justify the costs involved in establishing and operating our 3G networks. If we are unable to develop attractive 3G services for our subscribers, we may be required to write off all or a portion of our investment and our results of operations would be adversely affected.

High handset prices, high handset maintenance costs and high service costs may make our 3G offering less attractive to potential subscribers or increase costs related to SAC as well as costs related to retaining subscribers (SRC), as the costs of providing handsets and upgrades to customers will increase. We also rely on application developers to develop services that will stimulate demand for our 3G network. We cannot predict whether customer demand will develop as expected. If application developers fail to develop such services, or experience delays in their development of such services, our ability to generate revenues from our 3G network will be adversely affected.

We have selected both Nortel Networks and Ericsson to supply the infrastructure necessary to build-out our 3G network. Recently, the Nortel UMTS access business was sold to Alcatel Lucent and we are now negotiating the terms of the assignment of our agreement with Nortel. We cannot assure that Alcatel Lucent will be able to successfully deliver all of the requirements of our network, including interoperability with our existing system (including equipment of Nortel and Ericsson).

We are exposed to, and currently engaged in, a variety of legal proceedings, including claims for infringement of third party intellectual property rights and class action lawsuits.

We are subject to the risk of intellectual property rights claims against us, including in relation to innovations we develop ourselves. 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. If we cannot obtain all necessary licenses on commercially reasonable terms, we may be forced to stop using or selling the products and services, which could adversely affect our ability to provide certain services and products.

Due to the scope and magnitude of our operations, we are subject to the risk of a large number of lawsuits, including class action suits by consumers which may be costly to defend and which may result in significant judgments against us. The Israeli Class Actions Law, 2006 and the 2005 amendment to the Israeli Consumer Protection Law, 1981 include provisions that expand the causes of action for which a class of litigants may bring suit, including with regard to any damages allegedly incurred prior to the effective date of these laws. These laws have reduced the requirements for certification of a class action lawsuit and the qualifications required to be a lead plaintiff in a class action lawsuit. These laws may increase the number of requests for approval of class actions and the number of class action suits against us, our legal exposure and our legal costs in defending against such suits, which as a result may materially and adversely affect our financial results. Currently, we are engaged in a number of purported class action suits as a defendant, some of which are for substantial amounts. For a summary of certain material legal proceedings, see "Item 8. Financial Information – Legal and Administrative Proceedings."

We may be subject to increased regulation in respect of handset sales.

The Ministry of Communications is considering adopting changes to the licenses of the cellular operators that would prohibit cellular operators from offering tariff plans that include handset subsidies to subscribers who purchase their handsets from the operators, unless the same tariff plans are also offered to subscribers who purchase their handsets elsewhere. If such proposed changes are adopted, we may not be able to offer handsets to our subscribers at subsidized prices or in conjunction with exclusive tariff plans. This may lead to difficulties in selling advanced handsets that have the potential to generate high content-related revenues, which in turn may reduce our potential revenues or require higher subscriber acquisition costs and adversely affect our results of operations.

Following a possible rearrangement of spectrum, we may lose some of our frequencies or we may be allocated spectrum of inferior quality.

A recent press report alleges that the Israeli State Comptroller is investigating the possibility that the Ministry of Communications improperly allocated to us a portion of our spectrum which was intended for the use of the Palestinian authorities. We have not been formally informed of this investigation, however we were asked by the Ministry of Communications to present our position regarding the use of this spectrum. We believe that we are entitled to use all of the spectrum we are currently using and that we are paying the required consideration for the use of this spectrum. In addition, following a possible rearrangement of spectrum, the Ministry of Communications may reallocate the spectrum that was allocated to us and may allocate new spectrum to us which may be of inferior quality. If we were to be prevented from using a portion of our existing spectrum, or alternative equivalent spectrum would not be allocated to us, or if we were to be required to pay additional significant amounts for use of our existing spectrum, this could have a material adverse effect on our operations and our profitability.

The telecommunications industry is subject to rapid and significant changes in technology which could reduce the appeal of our services.

We may face competition from existing or future technologies, including fixed-line and cordless technologies, satellite-based personal communications services, private and shared radio networks, wireless broadband access services, voice over Internet Protocol services, wireless fidelity, or Wi-Fi, technologies*,* WIMAX, and other communications services that have the technical capability to handle mobile telephone calls and to interconnect with the fixed-line telephone network and with internet networks. The effect of emerging and future technological changes, including the convergence of technologies and the introduction of new competitors with the ability to provide mobile telecommunication services to customers while mobile, or the viability or competitiveness of our network cannot be accurately predicted. We cannot assure you that the technologies we employ or intend to employ, including 3G technologies, will not become obsolete or subject to competition from new technologies in the future, nor can we predict the effect of competition from new technologies in the future on our financial condition or results of operations.

Our company is controlled by a single shareholder.

As of April 15, 2007, our controlling shareholder, Hutchison Telecommunications International Limited, or Hutchison Telecom, held approximately 50.52% of our shares. Hutchison Telecom has the ability to influence our business through its ability to control all actions that require shareholder approval and through its representatives on our board of directors. Hutchison Telecom is not obligated, however, to provide us with financial support or to exercise its rights as a shareholder in our best interests or in the best interests of our minority shareholders and noteholders, and it may engage in activities that conflict with such interests. If the interests of our controlling shareholder conflict with the interests of our other shareholders and noteholders, those shareholders and noteholders could be disadvantaged by the actions that this controlling shareholder chooses to pursue. In addition, our controlling shareholder may cause our business to pursue strategic objectives that may conflict with the interests of our other shareholders and noteholders.

We benefit from our relationship with Hutchison Telecom and Hutchison Whampoa, who are global leaders in the mobile telecommunications market. We cannot assure you that we will continue to enjoy the benefits of this relationship.

Hutchison Telecom and its largest shareholder, Hutchison Whampoa Limited, or HWL, are global leaders in the mobile telecommunications market, and we rely on and benefit from the assistance, knowledge and experience of Hutchison Telecom and HWL, for example, in connection with our ability to access a supply of 3G handsets on favorable pricing terms. We cannot assure you that Hutchison Telecom will continue to be our controlling shareholder or that HWL will continue to be the largest shareholder of Hutchison Telecom. Nor can we assure you that if Hutchison Telecom ceases to be our controlling shareholder, or HWL ceases to be the largest shareholder of Hutchison Telecom, that we will continue to enjoy the benefits of our relationship with Hutchison Telecom and HWL that we currently do.

Operating a mobile telecommunications network involves the inherent risk of fraudulent activities and potential abuse of our services, which may cause loss of revenues and non-recoverable expenses.

There is an inherent risk of potential abuse by individuals, groups, businesses or other organizations that use our mobile telecommunications services and avoid paying for them. The effects of such fraudulent activities may be, among others, a loss of revenue and out of pocket expenses which we will have to pay to third parties in connection with those services, such as interconnect fees, payments to international operators or to operators overseas and payments to content providers. Such payments may be non-recoverable. Although we are taking measures in order to prevent fraudulent activities, we have suffered from these activities in the past, and we may suffer from them in the future. The financial impact of fraudulent activities that have occurred in the past has not been material. However, we cannot assure you that should fraudulent activities occur in the future, they will not materially affect our financial condition and results of operations.

We are dependent upon our ability to interconnect with other telecommunications carriers. We also depend on Bezeq and other suppliers for transmission services. The failure of these carriers to provide these services on a consistent basis could have a material adverse effect on us.

Our ability to provide commercially viable mobile telephone services depends upon our ability to interconnect with the telecommunications networks of existing and future fixedline, mobile telephone and international operators in Israel in order to complete calls between our customers and parties on the fixed-line or other mobile telephone networks. All fixedline, mobile telephone and international operators in Israel are legally required to provide interconnection to, and not to discriminate against, any other licensed telecommunications operator in Israel. We have signed interconnect agreements with Pelephone, Cellcom and MIRS, the other mobile telephone network operators in Israel, and with the Israeli international operators Bezeq International, Barak, Netvision, Internet Gold and Exfone. We have an operating arrangement with Golden Lines. We are currently operating without any formal interconnect agreements with Bezeq. Our day-to-day arrangements with Bezeq substantially conform to a draft interconnect agreement negotiated with Bezeq. We have no control over the quality and timing of the investment and maintenance activities that are necessary for these entities to provide us with interconnection to their respective telecommunications networks. The failure of these or other telecommunications providers to provide reliable interconnections to us on a consistent basis could have a material adverse effect on our business, financial condition or results of operations.

We currently lease most of our transmission capacity from Bezeq, and we lease additional capacity from other suppliers, primarily Cellcom. Although we intend to use the transmission network that we recently acquired from Med I.C.-1 (1999) Ltd., this transmission network will not entirely replace our leased capacity. We have no control over the quality and timing of the investment and maintenance activities that are necessary for these suppliers to provide us with transmission services. Disruptions, stoppages, strikes and slowdowns experienced by them may significantly affect our ability to provide mobile telephone services. The failure by our suppliers to provide reliable transmission services to us on a consistent basis could have a material adverse effect on our business, financial condition or results of operations.

We can only operate our business for as long as we have a license from the Ministry of Communications.

We conduct our operations primarily pursuant to a general mobile telephone license granted to us by the Ministry of Communications on April 7, 1998. Our license is valid until February 2022. Our license may be extended for an additional six-year period upon our request to the Ministry of Communications and confirmation from the Ministry that we have met certain performance requirements. We may request renewal of our license for successive six-year periods thereafter, subject to regulatory approval. We cannot be certain that our license will not be revoked, will be extended when necessary, or, if extended, on what terms an extension may be granted.

Furthermore, although we believe that we are currently in compliance with all material requirements of our license, the interpretation and application of the technical standards used to measure these requirements, including the requirements regarding population coverage and minimum quality standards, and other license provisions may not be certain, and disagreements have arisen and may arise in the future between us and the Ministry of Communications. We have provided a bank guarantee to the Ministry of Communications in the amount of US$10 million to guarantee our performance under our license. If we are found to be in material breach of our license, the guarantee may be forfeited and our license may be revoked. In addition, the Ministry of Communications is authorized to levy significant fines on us for breaches of our licenses which could have a material adverse effect on our financial condition or results of operations.

Our mobile telephone license imposes certain restrictions on who can own our shares. If these restrictions are breached, we could lose our license.

As with other companies engaged in the telecommunications business in Israel, our license requires that a certain minimum of the economic and voting interest, and certain other defined means of control, of our company be owned by Israeli citizens and residents or entities in their control. If this requirement were not complied with, we could be found to be in breach of our license and our license could be revoked. The Ministry of Communications amended our license effective April 14, 2005, reducing the required holdings by Israeli citizens and residents from 20% to 5%, which shall be held by our founding shareholders who are Israeli entities or their approved substitutes, and requiring that these shareholders appoint at least 10% of our board of directors. In 2006, our founding Israeli shareholders sold substantially all of their shares in the Company to Israeli institutional investors. See "Item 7A Major Shareholders – Significant Changes in Holdings of Major Shareholders During the Past Three Years." In addition, according to the amendment, among other things (i) we are required to appoint a Committee for Security Matters consisting only of members who have security clearance and security compatibility to be determined by the General Security Service and (ii) the Minister of Communications shall be entitled to appoint an observer to our board of directors and its committees subject to certain qualifications and confidentiality undertakings. See "Item 4B. Business Overview – Regulation." In addition, no transfer or acquisition of 10% or more of any of such means of control, or the acquisition of control of our company, may be made without the consent of the Ministry of Communications. Our license also restricts cross-ownership and cross-control among competing mobile telephone operators, including the ownership of 5% or more of the means of control of both our company and of a competing operator, without the consent of the Ministry of Communications, which may limit certain persons from acquiring our shares. Shareholdings in breach of these limits relating to transfers or acquisitions of means of control or control of Partner could face two consequences. First, the shares that are in excess of the limits will be converted into "dormant" shares, with no rights other than the right to receive dividends or other distributions to shareholders, and to participate in rights offerings until such time as the consent of the Ministry of Communications has been obtained. Second, the breach of the limits could be the basis for revoking our license.

Our marketing strategy is, in part, based upon the international Orange brand. If our license agreement terminates or is revoked, we will lose one of our main competitive strengths.

Our marketing strategy is based upon the international Orange brand. We can operate our business under the Orange brand only if we have the right to use it under the brand license agreement with Orange International Developments Limited, a subsidiary of Orange plc. Under this license agreement, we are required to comply with the Orange brand guidelines established by Orange International. We have the right to use the Orange brand as long as we are able and legally eligible under the laws of Israel to offer telecommunications services to the public in Israel. Our right to use the Orange brand is royalty-free until 2013, after which the parties will negotiate the amount of royalty payments. If the parties do not agree on the amount of royalty payments, the determination of royalty payments will be referred to an arbitrator. The brand license agreement may be terminated by mutual agreement, or at our discretion, or by Orange International if a court determines that we have materially misused the brand and we continue to materially misuse the brand after such determination of material misuse. If we lose the right to use the Orange brand, our financial condition and results of operations may be materially adversely affected.

We depend on a limited number of suppliers for our network equipment. Our results of operations could be adversely affected if our suppliers fail to provide us with adequate supplies of network equipment or maintenance support on a timely basis.

We purchase our network equipment, such as switching equipment, base station controllers and base transceiver stations and network software, from Alcatel (which acquired the Nortel 3G business in 2006), Ericsson and Nokia. Although our network utilizes standard equipment that is produced by several suppliers, we cannot be certain that we will be able to obtain equipment from one or more alternative suppliers on a timely basis in the event that any of these suppliers is unable to satisfy our equipment requirements. Our results of operations could be adversely affected if our suppliers fail to provide us with adequate supplies of equipment, as well as ongoing maintenance support, in a timely manner. In addition, our results of operations could be adversely affected if the price of network equipment rises significantly. In our experience, suppliers from time to time extend delivery times, limit supplies and increase the prices of supplies due to their supply limitations and other factors.

Our business may be impacted by the shekel exchange rate fluctuations and inflation.

Substantially all of our revenues and a majority of our operating expenses are denominated in shekels. However, through December 31, 2006, a substantial amount of our operating expenses, including a substantial majority of our equipment purchases, were linked to the US Dollar and other non-shekel currencies. These expenses related mainly to the acquisition of handsets where the price paid by us is based on various foreign currencies. In addition, a substantial majority of our capital expenditures (including with respect to our 3G networks) are incurred in, or linked to, non-shekel currencies. Thus, any devaluation of the shekel against the dollar (or other foreign currencies), will increase the shekel cost of our non-shekel denominated or linked expenses and capital expenditures. Such an increase may have an adverse impact on our results, which may be material. Material changes in exchange rates may cause the amounts that we must invest to increase materially in shekel terms.

We hedge a portion of our foreign currency commitments. As of December 31, 2006, the notional amounts of our foreign currency derivatives were approximately US$83 million. Our derivative transactions are mainly designed to hedge short term cash flows related to anticipated payments in respect of purchases of handsets and capital expenditures in foreign currency.

Our bank credit facility borrowings and Notes due 2012 are currently in shekels, most of which are linked to the CPI. We may not be permitted to raise our tariffs pursuant to our license in a manner that would fully compensate for any increase in the CPI. Therefore, an increase in the rate of inflation may also have a material adverse impact upon us by increasing our financial expenses without an offsetting increase in revenue. We enter into derivative transactions in order to protect ourselves from an increase in the CPI. As of December 31, 2006, the notional amounts of our CPI derivatives were approximately NIS 1,100 million (or approximately 50% of our CPI exposure).

Our inability to successfully integrate new businesses or technologies could have a material adverse effect on our business.

In order to expand and improve our offering of services to our subscribers, attract new subscribers and secure new sources of revenue, we may acquire complementary businesses and technologies. The identification, acquisition and integration of new businesses or technologies may require substantial management attention, cause us to incur unforeseen costs and disrupt our ongoing business. Until now we have not engaged in significant acquisitions. Our inability to successfully integrate any such acquisitions quickly and efficiently with our existing business could have a material adverse effect on our business, results of operations, financial condition or cash flows.

We may fail to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, which may have a material adverse effect on our operating results and our share price.

Our efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 relating to the evaluation of our internal control over financial reporting, which started in connection with this Annual Report, have resulted in increased general and administrative expenses and a diversion of management time and attention. We expect these efforts to require the continued commitment of resources. If we fail to maintain the adequacy of our internal controls, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting. Although our management has concluded that our internal control over financial reporting was effective as of December 31, 2006, we may identify material weaknesses or other disclosable conditions in our future control over financial reporting. Failure to maintain effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities and significant effort and expense, and could have a material adverse effect on our operating results and on the market price of our ordinary shares.

The political and military conditions in Israel may adversely affect our financial condition and results of operations.

The political and military conditions in Israel directly influence us. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners and political instability within Israel or its neighboring countries are likely to cause our revenues to fall and harm our business. The establishment in 2006 of a government in the Palestinian Authority by representatives of the Hamas militant group has created additional unrest and uncertainty in the region. Further, Israel was recently engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group, which involved thousands of missile strikes and disrupted most day-to-day civilian activity in northern Israel. Ongoing violence between Israel and its Arab neighbors and Palestinians may have a material adverse effect on the Israeli economy, in general, and on our business, financial condition or results of operations.

Some of our directors, officers and employees are currently obligated to perform annual reserve duty. Additionally, all reservists are subject to being called to active duty at any time under emergency circumstances. We cannot assess the full impact of these requirements on our workforce and business if conditions should change, and we cannot predict the effect on us of any expansion or reduction of these obligations.

During an emergency, including a major communications crisis in Israel's national communications network, a natural disaster, or a special security situation in Israel, control of our network may be assumed by a lawfully authorized person in order to protect the security of the State of Israel or to ensure the provision of necessary services to the public. During such circumstances, the government also has the right to withdraw temporarily some of the spectrum granted to us. We cannot assure you that we are fully prepared for every disaster or emergency situation, or that we could recover fully from any such occurrence. This may materially harm our ability to provide services to our subscribers in such emergency circumstances.

Our leverage could adversely affect our financial health.

On December 31, 2006, our total long-term indebtedness was approximately NIS 2,289 million ($542 million) net of current maturities. This debt represented approximately 65% of our total capitalization (bank loans plus notes payable plus shareholders' equity) on December 31, 2006. Our credit facility and the indenture governing the Notes due 2012 currently permit us to incur additional indebtedness, subject to some limitations.

Our substantial debt could adversely affect our financial health by, among other things:

y increasing our vulnerability to adverse economic, industry or business conditions or increases in prevailing interest rates, particularly because a substantial portion of our borrowings is linked to the CPI;
y limiting our flexibility in planning for, or reacting to, changes in our industry and business as well as the economy generally;
y requiring us to dedicate a substantial portion of our cash flow from operations to service our debt, which reduces the funds available for operations and future business development; and
y limiting our ability to obtain the additional finance we need to operate, develop and expand our business.

Our credit facility contains a number of restrictions and obligations that limit our operating and financial flexibility.

Our credit facility contains a number of restrictive covenants that may limit our operating and financial flexibility, and may restrict our ability to pledge or dispose of our assets, incur certain types of borrowing, make certain acquisitions, or make substantial changes to the nature of our business. Our credit facility also contains covenants regarding achieving certain levels of financial ratios during the term of the facility. Depending on the future performance of our business, these covenants could materially and adversely affect our ability to finance our future operations or the manner in which we operate our business.

We cannot assure that we will distribute dividends in the future, nor the amounts of any such dividends.

In 2005, our board of directors and shareholders approved the distribution of our first cash dividend, and in the second quarter of 2006, we adopted a dividend policy targeting a payout ratio of 60% of net income. In 2006, we distributed cash dividends in the aggregate amount of NIS 307.4 million, or NIS 2.0 per share. In 2007, we approved the distribution of an additional cash dividend in the amount of NIS 1.28 per share. Under Israeli law, the payment of dividends may be made only from accumulated retained earnings or retained earnings accrued over a period of eight quarters (after deducting prior dividends to the extent not already deducted from retained earnings), and in either case, provided there is no reasonable concern that a dividend will prevent the company from satisfying current or foreseeable obligations as they come due. In addition, our credit facility also limits the amount of dividends we may pay. Accordingly, there is no assurance that we will be able to continue paying dividends or increase our payment of dividends in the future, nor is there any assurance that our board of directors will not change our dividend policy in the future.

A recent decision of the Israeli Supreme Court has limited, subject to several exceptions, the ability of a company to deduct for tax purposes interest expense incurred on debt in circumstances where the proceeds from the debt are determined to have been used to pay dividends. If this decision were found to be applicable to us, we could lose the ability to recognize, for tax purposes, interest expenses on borrowing used for distributing dividends or share buyback. As a result, we could suffer a reduction in our retained earnings and, in turn, a decrease in the amount available to us in the future for distribution of dividends.

ITEM 4. INFORMATION ON THE COMPANY

4A. History and Development of the Company

We were incorporated in Israel under the laws of the State of Israel on September 29, 1997 as Partner Communications Company Ltd. Our products and services are marketed under the Orange Brand. Our principal executive offices are located at 8 Amal Street, Afeq Industrial Park, Rosh Ha'ayin 48103, Israel (telephone: 972-54-7814-888). Our website address is www.orange.co.il. Information contained on our website does not constitute a part of this annual report. Our agent for service in the United States is CT Corporation, 111 Eighth Avenue, New York, New York 10011.

In our short history, we have achieved a number of important milestones:

y In April 1998, we received our license to establish and operate a mobile telephone network in Israel.
y In January 1999, we launched full commercial operations with approximately 88% population coverage and established a nationwide distribution.
y In October 1999, we completed our initial public offering of ordinary shares in the form of American Depositary Shares, and received net proceeds of approximately NIS 2,092 million, with the listing of our American Depositary Shares on NASDAQ and the London Stock Exchange. We used part of these net proceeds to repay approximately NIS 1,494 million in indebtedness to our principal shareholders, and the remainder to finance the continued development of our business.
y In August 2000, we completed an offering, registered under the US Securities Act of 1933, as amended, of $175 million (approximately $170.5 million after deducting commissions and offering expenses) in 13% unsecured senior subordinated notes due 2010.
y On March 31, 2001, we had over 1,000,000 subscribers.
y In July 2001, we registered our ordinary shares for trading on the Tel Aviv Stock Exchange.
y In December 2001, the Ministry of Communications awarded us two bands of spectrum: one band of GSM 1800 spectrum and one band of UMTS third generation spectrum.
y In June 2002, our license was extended until February 2022.
y In August 2003, we had over 2,000,000 subscribers.
y In December 2004, we commercially launched our 3G network, having implemented our "soft launch" in June 2004.
y In March 2005, we completed a debt offering, raising NIS 2.0 billion in a public offering in Israel of notes due 2012.
y In April 2005, we repurchased approximately 33.3 million shares from our Israeli founding shareholders, representing approximately 18.1% of our outstanding shares immediately before the repurchase.
y In August 2005, we redeemed our outstanding $175 million 13% unsecured senior subordinated notes.
y In the third quarter of 2005, our board of directors and shareholders approved the distribution of our first cash dividend, in the amount of NIS 0.57 per share, totaling approximately NIS 86.4 million.
y In July 2006, we purchased Med I.C.–1 (1999) Ltd.'s fiber-optic transmission business for approximately NIS 71 million (US$16.8 million) in order to enable us to reduce our transmission costs as well as to provide our business customers with bundled services of transmission of data and voice.
y In the second quarter of 2006, we adopted a dividend policy targeting a payout ratio of 60% of net income over 2006.

For information on our capital expenditures for the last three financial years, see "Item 5B. Liquidity and Capital Resources".

4B. Business Overview

We were the first GSM mobile telephone network operator in Israel and on December 1, 2004, we commercially launched our UMTS third generation, or 3G, service. We received our mobile telephone license in April 1998 and commenced full commercial operations of our digital GSM mobile telephone network in January 1999. Since then, we have expanded rapidly, and on December 31, 2006, we had approximately 2.67 million subscribers, representing an estimated 32% of total Israeli mobile telephone subscribers at that date. During the twelve months ended December 31, 2006, we increased our customer base by approximately 5.5%. At December 31, 2006, approximately 48% of our subscribers had private post-paid tariff plan contracts with us, approximately 29% of our subscribers were in pre-paid subscriber plans, and approximately 23% of our total subscribers were business subscribers. As of December 31, 2006, we also had more than 276,000 3G customers, all of whom are post-paid subscribers.

We market our services by capitalizing on the strong international Orange brand and the experience of our largest shareholder, Hutchison Telecom. The Orange brand, which is licensed to us, has been used successfully in other markets to promote mobile telephone services. Market surveys show that we have achieved strong brand awareness in Israel. We have also received awards recognizing our high standards of customer service. In 2006, we were named by Globes, a leading Israeli business daily newspaper, as the number-one provider of customer service in Israel in the telecommunications market as well as the number one communications brand in Israel.

We currently operate our GSM network in the 900 MHz and 1800 MHz bands. Our GSM services include standard and enhanced GSM services, as well as value-added services and products such as roaming, voice mail, voice messaging, color picture messaging, ringtone and game downloads, information services, General Packet Radio Services, or GPRS, which enables the packet transfer of data.

Our 3G network, which as of the end of 2006 covered approximately 97% of the Israeli population, offers a wide range of new services, such as video calls, a new portal of content services including a rich selection of video-based services under the "obox live" brand, and the transmission of data at speeds of up to 384 Kbps.

In March 2006, we launched services based on the High Speed Downlink Packet Access (HSDPA) technology to the business sector. HSDPA is a technological enhancement to our 3G services that offers subscribers the ability to access our 3G services at higher speeds. We also launched HSDPA with limited coverage in the center of Israel and plan to expand the coverage area gradually.

We have set forth in the following table an estimate of each operator's share of total subscribers in the Israeli cellular market at December 31, 2002, 2003, 2004, 2005 and 2006:

Market Share*	2002	2003	2004	2005	2006

Partner	29%	31%	32%	32%	32%
Cellcom	39%	35%	34%	33%	34%
Pelephone	28%	30%	30%	30%	29%
MIRS	4%	4%	4%	5%	5%

* Based on information contained in published reports issued by, and public statements made by, Pelephone and Cellcom or by their respective shareholders and from Partner subscriber data. The figures for MIRS are our estimates.

We operate primarily in one business segment, mobile telephony and related services, and one geographic segment, Israel.

Overview of Mobile Telecommunications Industry in Israel

There are currently four mobile telephone network operators in Israel: Partner, Pelephone, Cellcom and MIRS.

Pelephone is an Israeli corporation wholly owned by Bezeq, the primary fixed-line operator in Israel that is controlled by S.C.G. Group (Haim Saban), the Apax Fund, and Arkin Communications (Mori Arkin). Pelephone, which currently uses CDMA-1x technology, announced its intention to roll out a GSM network and to offer UMTS/HSDPA technology. Cellcom is an Israeli corporation whose major beneficial shareholders are Discount Investment Corporation Ltd, DIC Communications Ltd., and PEC Israel Economic Corporation. Cellcom operates nationwide mobile telephone networks based on GMS 1800 MHz and D-AMPS technologies and also provides commercial service over the UMTS/HSDPA spectrum. MIRS is an Israeli corporation whose major shareholder is Motorola Communications (Israel) Ltd. MIRS operates using an Enhanced Specialized Mobile Radio, or "trunking," iDEN network.

In addition, the Palestine Telecommunication Co. Ltd., or Paltel, operates a GSM mobile telephone network under the name "Jawwal" in the Palestinian Authority administered areas of the West Bank and Gaza Strip, as well as a fixed-line network. Paltel's GSM network competes with our network in some border coverage overlap areas.

The following are some of the special characteristics that we believe differentiate the Israeli market from other developed mobile telecommunications markets:

y High Mobile Phone Usage. Israeli usage of mobile phones is relatively high compared to Western Europe.
y Calling Party Pays. In Israel, only the party originating a telephone call pays for the airtime (except for 1-800 numbers). Mobile telephone network operators do not charge subscribers to receive calls on their handsets, except while roaming. This encourages higher rates of mobile telephone usage.
y High Mobile Telephone Penetration. Since Cellcom's launch in 1994, the market has sustained a rapid annual rate of growth from a 2.6% penetration rate at year-end 1994 to an estimated penetration rate in Israel at December 31, 2006 of 118% representing approximately 8.4 million subscribers. This may include dormant subscribers and subscribers to multiple networks as well as other subscribers who are not included in the Israeli population figures, such as Palestinians, visitors, and foreign workers.
y Multiple Different Mobile Telephone Technologies. The four mobile telephone licensees in Israel have systems based on multiple technologies. Pelephone uses the N-AMPS analog, the CDMA and CDMA1x digital systems, and the EVDO system and has announced its intention to roll out a GSM network and to offer UMTS/ HSDPA. Cellcom uses the D-AMPS, GSM/GPRS, EDGE, and UMTS HSDPA systems. MIRS uses an iDEN system. We are currently one of two network operators using a GSM digital system and a UMTS system. GSM is an advanced, internationally accepted technology, and according to an industry source, was used by approximately two billion people worldwide as of December 31, 2006.
y Favorable Geography. Israel covers an area of approximately 8,000 square miles (20,700 square kilometers) and its population tends to be centered in a small number of densely populated areas. In addition, the terrain of Israel is relatively flat. These factors facilitate the roll out of a cellular network in a cost effective manner.
y Strong Potential For Value-Added Services. Published market data shows that the relatively young Israeli population has a propensity to accept and use high technology products. We believe that this characteristic of the Israeli population will facilitate further growth in the Israeli mobile telecommunications market as well as the acceptance of new value-added services as they become available on our network.

Strategy

We intend to continue enhance revenues and profitability, and to continue to create value for our shareholders, customers and employees. In order to accomplish this, we intend to:
y Broaden 3G Service Use and Subscriber Base. We believe that a major source of growth for us is additional revenues from our 3G subscribers consuming more data and content services. We are leveraging our brand and our outstanding reputation for network quality, innovation, and customer service to develop our 3G business in order to benefit from that growth. We aim to offer desirable content and to make our 3G services widely accessible and affordable.
y Broaden the Portfolio of our Services. We believe that a growth opportunity exists by broadening the portfolio of our services beyond the cellular service to include fixedline telephony, transmission services, ISP services and other accompanying telecom services. In order to reach customers, we will use our own fiber optic transmission network, leased transmission lines, or, with respect to VOB services, the existing infrastructure of Bezeq and HOT. Our licenses enable us to provide a wide range of services that will be used to create a bundle of telecom and other adjacent services which we believe will favorably affect our ability to control cellular churn rates, enhance customer loyalty, and generate additional streams of revenues. In the near future, we believe that revenues from these services will not be significant compared to our total cellular revenues.
y Retain the Strength of our Brand. We believe that a focused marketing strategy based upon the strong international Orange brand is critical to our subscriber growth and loyalty. In light of the benefits that our strong brand gives us, we intend to continue to promote our brand, including in connection with our 3G services, in order to maximize these advantages. We also intend to support our brand by continuing to focus on customer service, innovation and the quality of our network.

y Be First in Technology. We believe that we have benefited historically from being a first-mover in technology, and aim to retain this first-mover advantage in order to drive our future subscriber growth. We believe that we will have an advantage in our ability to gain subscribers by continuing to capitalize on technological innovation in this manner in the future.

Competitive Strengths

We believe that the following competitive strengths differentiate us from our competitors and will assist us in achieving our mission and implementing our strategies:

y Strong Brand Identity. Since the launch of full commercial operations, we have made a substantial investment in promoting the Orange brand in Israel to represent quality, innovation and customer service. Our marketing activities have resulted in wide-scale recognition of the Orange brand in Israel.
y 3G Services. As of December 31, 2006, we had an Israeli nationwide UMTS network, which offers high speed data, advanced video content and video telephony, and in most populated areas also offers the features of HSDPA. We believe we are positioned as leaders in our 3G offering, both in terms of network quality as well as in terms of available content.
y Focus on Customer Service. We believe we provide outstanding customer service through quick, simple and reliable handling of customer needs and interactions, which we have achieved through investments in technology and training of customer service skills. In 2006, we were named by Globes, a leading Israeli business daily newspaper, as the number one provider of customer service in Israel in the telecommunications market.
y High Quality Network and Technology Leadership. We believe that we set high standards for network quality and that our use of sophisticated network planning and optimization tools and techniques and our investment in dense base station coverage have produced a high quality network. Additionally, we believe that we are a recognized leader in the development and provision of mobile services in Israel and worldwide.
y Beneficial Relationship with Hutchison Telecom. Our largest shareholder, Hutchison Telecom and its largest shareholder, HWL, are global leaders in the 2G and 3G mobile telecommunications market. Hutchison Telecom has a substantial interest in 3G operating companies in Hong Kong, Macau (under development) and Indonesia and HWL has a substantial interest in 3G operating companies in Austria, Australia, Denmark, Ireland, Italy, Norway (under development), Sweden and the United Kingdom. We derive benefits from the knowledge and experience of Hutchison Telecom and HWL and from a cost sharing agreement with certain members of the HWL group of companies for the joint acquisition and development of information technology platforms and software solutions, hardware, content and other services in connection with our 3G business. In particular, our relationship with Hutchison Telecom and HWL enhances our competitive position in the provision of 3G services by giving us access to supply of 3G handsets on favorable terms.
y Strong Financial Performance and Financial Position. Our net cash provided by operating activities less net cash used in investing activities has improved significantly and has grown from negative NIS 1,163.0 million in the year ended December 31, 2000 to positive NIS 774.8 million in the year ended December 31, 2006.
y Strong and Motivated Management Team. We have been able to attract a number of Israeli senior managers from the telecommunications, high-tech and consumer products industries. Our management team is experienced and highly respected and, we believe, well-positioned to manage the Company. We believe that our performancebased incentive package aligns the interests of senior management with those of our investors.

Marketing and Brand

We believe that a focused marketing strategy is critical to support our goal of sustaining our position as a leading provider of quality and innovative mobile communications solutions in Israel. Our marketing strategy is based upon the strong international Orange Brand and emphasizes network quality, feature rich services, simplicity, innovation, customer service and customer retention. In carrying out this strategy we have made a substantial effort in promoting the Orange Brand in Israel as a vehicle for differentiating our services from those of our competitors. We believe the brand, which is licensed to us, has been a significant factor in our success.

Our marketing strategy is based on the concept of high value for money and introducing advanced services for subscribers. In order to carry out our strategy, we offer our subscribers competitive tariffs, technologies and services that we believe are advanced, including our 3G services as well as our GPRS services. During 2006, the primary objective of our marketing strategy was to increase our 3G subscriber base and 3G usage by our customers as well as to enhance our long-term relationship with our customers through innovative retention activities.

We commercially launched our 3G network on December 1, 2004, having implemented our "soft launch" in June 2004, when we distributed 3G handsets to selected customers for the purpose of evaluating the quality of our 3G network and services. As of December 31, 2004, we had approximately 8,000 3G subscribers, and as of December 31, 2006 we had more than 276,000 3G subscribers. As of the end of 2006, our 3G network covered approximately 97% of the population of Israel. During 2007 we plan to further expand our 3G population coverage. Our 3G network offers a wide range of new services, such as video calls; a new portal of content services including a rich selection of video-based and MP3 based services under the "obox live" brand, and the transmission of data at speeds of up to 384 Kbps. We have concluded content agreements with a variety of content providers and suppliers in the Israeli television and entertainment industry. As a result of our relationship with Hutchison Telecom and HWL, we have a supply of 3G handsets on favorable pricing terms.

In order to promote our advanced new services and to increase awareness of these services, we are taking many promotional steps, using a broad range of advertising media. We also intend to maintain our advertising presence in the media in order to maintain high exposure for our brand and advanced technologies. During 2006, our main advertising activities focused on promoting the subscribership and usage of the 3G services. Our marketing strategy focuses on promoting our services to various segments of the Israeli population, and we have extended this to our 3G services. We advertise our services in several languages. In addition to traditional media, we promote our brand and services by sponsoring and initiating cultural and community programs, such as a special events program on the Passover holiday, a three-day international music festival held in the Haifa harbor, a lecture by the conductor and author, Benjamin Zander, for our business customers and the International Film Festival, a major cultural event in Israel that takes place every year in Jerusalem and attracts international attention. We usually focus our sponsorship activities on events which are of an international nature to support our brand. We use the distinctive Orange Brand logo in all our promotional activities and advertising. See "Item 4B. Information on the Company–Business Overview–Intellectual Property."

At December 31, 2006, approximately 23% of our subscribers were business subscribers. We are continually developing tailored value-added services to meet the special needs of business subscribers and to enhance our long-term relationship with our business subscribers.

Services and Products

Our principal business is the provision of mobile telephone services in Israel. Our goal is to offer our subscribers a wide range of sophisticated and easy to use services based upon the latest proven technology. Our most basic service is telephony service – provided on both our GSM/GPRS network and our UMTS/HSDPA network. Our basic offer includes international dialing, roaming, voice mail, short message services, intelligent network services, content based on our mobile portal, data and fax transmission and other services. Our use of HSCSD, GPRS, UMTS and HSDPA technologies enables high speed data transmission. All our content services are unified under the obox brand: our 2G and 2.5G content services are all branded as obox and our 3G services are branded as obox live. Our orange obox services enable the downloading of rich applications and content and WAP browsing, while our obox live services are enhanced by the video and audio capabilities of our 3G network. Our MMS services enable subscribers to send photos, multimedia and animation from handset to handset and from handset to web. We also offer 24-hour, seven-day a week customer service, as well as handset repair and replacement services, to subscribers who acquire these services.

We received and maintain the accreditation of the ISO 9001:2000 Standard from the Institute of Quality and Control, a quality system certification and registration body authorized by Bureau Veritas Quality International. ISO 9001:2000 is a quality management system specification whose requirements are aimed primarily at achieving customer satisfaction by preserving standardization at all stages, and throughout company processes.

Tariff Plans

Since the beginning of our full commercial operations, we have introduced tariff plans aimed at bringing innovation to the Israeli mobile communications market. Our tariff plans offer features attractive to business users such as: the charging of fees based on airtime usage without adding the interconnect charges imposed by other mobile and fixed-line providers for calls made by our subscribers that terminate on third party networks, and the provision of discounts for calls to designated numbers within a subscriber's calling circle. In addition, we usually offer handset subsidies to customers joining these tariff plans. Our tariff plans for private customers feature a certain number of free minutes for calls made between family members and offer limited handset subsidies. The elements of our tariff plans for private customers are packaged and marketed in various ways to create tariff packages attractive to target markets, including families, soldiers, Orthodox Jews, Arab and Russian communities, teens and students. Some of the tariff plans include minimum subscription periods of up to 36 months.

We also offer a pre-paid plan. Upon purchase of a phone card or prepayment by credit card, customers can use our network, including some of our value-added services, without the need to register with us or enter into any contract. Our pre-paid plans enable us to compete in the growing pre-paid mobile services market.

International Roaming

Israelis are frequent travelers. According to the Israel Central Bureau of Statistics, in 2006, more than 3.7 million overseas departures of Israelis were recorded, and almost 1.8 million people visited Israel during 2006. Roaming allows a mobile phone subscriber to place and to receive calls while in the coverage area of a network to which he or she does not subscribe and to be billed for such service by his or her home network. Facilitating international roaming was a primary design goal of the GSM system from its inception. A GSM roamer can therefore expect to enjoy substantially the same services, features and security while traveling as he does at home. We consider international roaming to be a significant source of revenue. The Ministry of Communications may introduce new regulations that would limit our revenues from roaming services. See "Item 4. Information on the Company – 4B. Business Overview – Regulation."

At December 31, 2006, we had open commercial roaming relationships with 358 operators in 168 countries or jurisdictions. We also have agreements with satellite operators, providing global coverage, requiring the use of unique handsets. Creating roaming relationships with multiple operators in each country increases potential incoming roaming revenue for us and gives our subscribers more choice in coverage, services and prices in that country.

On December 31, 2006, we had 3G roaming agreements with operators in 32 countries, enabling our 3G roamers to experience video calls, high speed data and video and audio content while abroad. Since we operate our GSM services on the 900 MHz band, which is the most widely-used among GSM operators worldwide in terms of handsets, and also on the 1800 MHz band, all of our roaming enabled subscribers may roam to most countries where we have roaming capability using their own handsets without modification. In some countries cellular networks use either the 1900 MHz band of GSM or other technologies (GSM 850, CDMA or UMTS) with which we have established international roaming. Our subscribers who own dual or tri-band handsets that work on GSM 1900 as well as GSM 900 may also use their own handsets in countries that deploy GSM 1900 frequency with networks using GSM 1900. Other subscribers who advise us of their intention to visit those countries are either loaned free of charge a compatible handset into which they insert their SIM, thus retaining their own phone number, phone book and all other regular features, or are given the option to rent such handsets at their destination upon their arrival. Since the launch of our 3G network, UMTS networks around the world are becoming gradually available to our 3G subscribers.

The Ministry of Communications and regulatory bodies in other countries are considering regulations that will change the tariffs that we can charge from our roaming customers. Such changes could adversely affect our revenues.

Value-Added Services

In addition to standard GSM value-added services, including voice mail, Short Message Service (SMS), voice messaging, fax mail, call waiting, call forwarding, caller identification and conference calling, we currently offer and are developing a variety of additional value-added services. Value-added network services are important to our business as they create differentiating factors and increase customer usage and satisfaction. We follow all major market developments regarding value-added network services, and we intend to implement and offer those services that are likely to be popular with customers and which would add value to our business. Some of the value-added services that we offer are available only to subscribers who have certain handset models.

Our main focus throughout 2006 was to continue to expand our 3G business in Israel and to enhance our relationship with our customers through active retention activities. In order to meet these goals, we have expanded our 3G handset portfolio so as to cater to several market segments, we have enhanced our content portal offering and we have launched several innovative retention activities. The main value-added services we currently offer include the following:

y Blackberry. This service offers customers one of the most advanced mail solutions. We offer the Blackberry handset along with the Blackberry service, with Hebrew support for emails and SMS messages.
y Call back. While roaming, this service allows subscribers to return calls to Israel at discounted rates from most countries.
y Content Download. This service enables the downloading of rich applications and content, including games, interactive screensavers and polyphonic ringtones. Our 3G users can also download specially edited video clips, MP3 songs, MP3 ringtones and other content items. A small portion of our 2.5G customers can also download several video and MP3 items over our GPRS network. In order to use these download services, the users have to own specific handsets.
y Fun Tone. Personal ring back tone which is subject to the customer preference, from a wide international library of music tracks or other types of audio elements (e.g. sound effects) which is heard when dialing to this customer.
y High Speed Data. We offer high speed data access through either Packet-Switched or Circuit Switched technology. Packet-Switched services are through GPRS and HSPDA. We also support traditional Circuit-Switched based HSCSD service.
y MMS Services. These services enable subscribers to send photos, multimedia and animation from handset to handset and from handset to e-mail, from handset to web album and from a web album to handsets, based on Multimedia Message Services (MMS) platform and on a web MMS storage album.
y Orange Hotspots. The service enables Wi-Fi access from laptops to wireless networks, in more than a few thousand hotspots in Israel and around the world, in hotels, airports, restaurants, etc.
y Orange mail. Mobile e-mail services that enable access to e-mail accounts (private or business accounts) through our WAP portal.
y Organizational Voice Recognition. A service that allows for voice recognition of the names listed in a customer's global contact list. The customer is able to dial a number and ask for the contact person and the system connects the customer to that person.
y PC to Mobile Video Calling. This service allows 3G subscribers to speak with any other party using an internet camera. This service expands the video telephony available to customers who do not have a 3G handset or are not within the 3G coverage area.
y SIM Backup. This service allows customers to backup their phonebook entries on the SIM card on a network server. If the SIM card or phone is lost, the subscriber does not lose his contact list.
y Speed Detectors. This service allows subscribers to receive a notice about speed detectors in their vicinity.
y Vehicle Fleet Management. This service provides a comprehensive system for businesses to manage their vehicle fleet. It allows tracking the position, speed and direction of vehicles, which helps speed up delivery times, cut running costs and improve customer service. It provides the ability to assess at a glance which driver is best placed to respond to the next call, optimizing driver time, cutting fuel costs and improving efficiency. In addition, it provides the option to communicate with drivers via text messages.
y Video and Audio Streaming. We provide our 3G customers (and a small portion of our 2.5G customers) the ability to watch video clips and to listen to full music tracks without downloading them to their handset. These services offer a wide range of information and entertainment clips to view and listen to, and enable the customer to watch live television broadcasts.
y Video Calls. This service enables our 3G users (while in our 3G coverage area and with a 3G handset) to speak with each other through video conferences to hear and to see the other party simultaneously.
y Video Mail. This service enables our 3G subscribers to send and receive video messages if the receiver is not available.
y Virtual Private Network. User groups can be formed in multiple layers, and the members can then reach each other through short dialing codes, like extension numbers. This service is mostly used among business customers.
y WAP Services. We have WAP technology that enables WAP-related services. WAP services create a significant incremental demand for content services and increase usage of our network.
y Orange Shop. Website offering new and existing customers an online shop-for handsets and plans.

Handsets

We provide handsets to our subscribers at discounts of up to 100% when they first become subscribers. The price at which the handset is provided depends upon the tariff package and special promotions.

We currently offer a range of different handset models supplied by a number of manufacturers. We offer handsets to satisfy our subscribers' roaming needs in the 900 MHz, 1800 MHz and 1900 MHz bands and in 2100 MHz (UMTS) as well. Not all handsets support all band ranges. We evaluate the technical features of every new mobile handset and, if we decide to make it available to subscribers, we obtain a type approval from the Ministry of Communications for such handset. We advise our sales representatives and dealers on compatibility and technical issues. All our handsets are EFR compatible to provide high voice quality. Most of our handset models have Hebrew language displays. We have begun selling some innovative handsets with enhanced applications, including multicolor, large screens with high resolution displays, high quality music performance, MMS capabilities, Bluetooth support, high quality cameras and video capabilities. Pursuant to the launch of our 3G network, we sell 3G handsets that enable customers to make video calls, consume video and MP3 audio-based content services and use laptops with high-speed rates of data transmission.

Customer Division

Our Customer Division incorporates all service, sales and distribution channels, and on December 31, 2006, had approximately 2,680 full-time employees, including managers, sales representatives and service representatives.

Customer Service

Our customer support and service provides several channels for our customers: call centers, walk-in centers and self-services, such as IVR, web-based services and via SMS.

Call Centers. Guided by our aim to provide high quality service, our call-center services are divided into several sub-centers as follows: customer segment (business, private and pre-paid) and specialized support and services (finance, network, international roaming and data transfer related issues). The call center services are provided in four languages: Hebrew, Arabic, English and Russian.

Walk-in Centers. We currently operate 36 Partner owned service and sales centers across Israel. These centers provide a face-to-face, uniformly designed, contact channel and offer all services that we provide to customers: sales, handset upgrade, handset maintenance and other services (finance, rate-plan changes, subscription to new services etc.). Several of these centers are focused on sales to both private and small business customers. These stores are located in central locations, such as shopping malls in Tel Aviv and its periphery, Jerusalem, Haifa and Be'er-Sheba. Lease agreements for our retail stores and service centers are for periods of two to five years. We have the option to extend the lease agreements for different periods of up to twenty years including the initial lease period . The average size of our retail stores and service centers is approximately 230 square meters. See also Note 7a (3) to our consolidated financial statements.

Self-Service. We provide our customers with various self-service channels, such as IVR, web-based services, services via SMS and services via WAP. These channels provide general and specific information, including tariff plans, account balance, billing related information and roaming tariffs. They also provide customers information regarding trouble shooting and handset-operation, and enable customers to activate and de-activate services and to download content.

All of our service channels are monitored and analyzed regularly in order to assure the quality of our services and to detect areas that require improvement.

Sales and Distribution

We apply a multi-channel approach to target various market segments and to coordinate our sales strategy.

We distribute our services and products primarily through:

y Direct sales channels, which consist of Partner-owned sales centers and business sales representatives; and
y Indirect sales channels, which consist of traditional networks of specialized dealers and non-traditional networks of retail chains and stores.

Direct Sales Channels

Orange Sales and Service Centers: All of our walk-in centers serve as sales centers. The face-to-face contact enables customers to get "a feel and a touch" of new handsets and services demonstrated by our representatives. The "feel and touch" approach enables us also to promote in particular our 3G products and services.

Direct Sales Force: Our sales force is comprised of sales representatives, account managers and area managers, targeting business customers.

y A team of regional representatives and customer account managers, located in five regional offices, supports small to medium-sized businesses. This team primarily focuses on small and medium-sized enterprises, which tend to use more airtime and yield higher margins.
y A team of corporate representatives and customer account managers services large corporate customers.
y Specialized VIP representatives provide service to opinion leaders and prominent individuals.
y A "door to door"sales-force focuses on individual and small business customers.
y A telemarketing department conducts direct sales by phone (to private and business customers), initiates contacts to prospective customers and coordinates appointments for the sales representatives.

Our sales force undergoes regular training to improve their skills of selling advanced solutions such as mobile data, intranet extension and connectivity, virtual private networks and other value-added services that appeal to corporate customers.

Indirect Sales Channels

Traditional Dealer Networks. On December 31, 2006, we had agreements with 31 traditional dealers providing 48 points of sale, selling a range of our products. The private dealer network is an important distribution channel because of its ability to attract existing cellular users to our network. Our dealer network focuses primarily on sales to individual customers and, to a lesser extent, small business customers. Most of our dealers specialize in sales for post-paid customers, and others specialize on sales for pre-paid customers and distribution of pre-paid handsets to sub-dealers. Our dealers are highly professional and some of them have previous experience selling cellular services in Israel. In addition, we have specific dealers that target different segments of the Israeli population with the appropriate style, language and locations. We provide regular training to employees of our dealers to update them on our products and services. Our dealer managers visit dealers on a regular basis to provide information and training, answer questions and solve any problems that may arise. We pay our dealers competitive commissions and provide handset subsidies. However, dealers are not entitled to commissions for any customers that terminate their service within 60 days of activation.

Non-Traditional Dealer Networks. Non-traditional dealers consist of generalist retailers or specialized stores that sell related products. This distribution channel is not common in the Israeli cellular market today, and we believe that it provides us with a competitive advantage over and differentiates us from our competitors.

We have contracted with "Super-Pharm", the largest drugstore chain in Israel, to sell our network services. At December 31, 2006 our services were sold in 81 Super-Pharm stores nationwide in a variety of formats, including Partner shop-in-shops, kiosks, wall-unit displays and at front counters. In 2006, approximately 15% of our new subscribers were recruited through sales by Super-Pharm. Super-Pharm sells our network services in their stores, and we cooperated with them in establishing a chain of stores called "Super-Link" that is dedicated to selling communications services and equipment. The parties are currently negotiating an extension to their agreement.

In addition, we continue to develop our distribution network with other non-traditional dealers, such as the "Cellular Center for Vehicles", which has approximately 34 locations for the sale, installation and maintenance of car kits, and "Auto Depot", which has nine such locations. Another non-traditional dealer is Eurocom Communications Ltd. See "Item 7. Major Shareholders and Related Party Transactions." We provide regular training to the employees of our non-traditional dealers to update them on our products and services.

All indirect sales channels are supported by a specialized "dealer support" call center providing information, support and coordination of appointments of car-set installations.

Customer Contracts, Credit Policy, Billing Bad Debt and Disconnection

Part of our subscriber contracts for customers on our original tariff plans provide for a 36-month term. Under the terms of these contracts, customers who terminate their contracts prior to the expiration of the 36-month term and who have purchased their handset from our dealers or from us can be charged for payment of the residual price of their handset. This charge reflects the difference between the price they paid for the handset, if any, and the list price, adjusted for the number of months that the customer has been a subscriber.

Most of our subscribers pay for the handsets in 36 installments, which is charged directly to their credit card or to their monthly bill. If the customer opts to pay for the installment via his monthly bill, the outstanding installment payments are not secured. Subscribers are billed monthly for airtime charges and charges per services. Most of our business customers have signed 36-month contracts.

Most of our individual subscribers pay for their services by credit card. All credit card accounts are subject to an initial maximum credit limit each month, which varies depending upon the type of credit card and for which we obtain prior approval from the card issuer. When a subscriber account reaches this limit, we may seek approval from the card issuer. If the card issuer does not grant the approval, we may require the customer to provide other means of payment or arrange an increase in the approved limit from his credit card issuer. If this does not occur, the customer's usage may be limited or suspended until we receive a cash deposit or guarantee from the customer.

All business subscribers and some of our individual subscribers can subscribe and pay for their services by credit card or direct debit. Customers acquiring more than eight handsets (or four in certain circumstances) are subject to a credit scoring review performed by outside credit agencies. All customers are subject to a monthly maximum credit limit. When the monthly limit is exceeded, usage may be limited. Roaming access for direct debit subscribers is subject to credit scoring by outside credit agencies and may require additional guarantees or credit checks.

Our Network

We have built an extensive, resilient and advanced mobile network system in Israel, allowing us to offer our services with extensive coverage and consistent high quality. Through December 31, 2006, we have made net capital expenditures of NIS 3,791 million ($897 million) in our network infrastructure and other related fixed assets.

Overview

The "first generation" of wireless communication, based on analog technology, provides simple voice telephony. The "second generation" of wireless communication, such as the digital GSM standard, provides additional data facilities ranging from short messaging services to narrow band data, which is sufficient for the basic data services offered by network operators, but cannot support high resolution video or multimedia applications.

New types of services are made possible by the roll out of technological developments that increase the speed and efficiency of existing GSM networks such as GPRS, which is a 2.5G technology. 2.5G technology network operators are able to deliver multimedia and services at speed rates that are higher than the rates offered through "second generation" technology. Packet data rates vary from 20 Kbps-44 Kbps, depending mainly on handset capabilities. Approximately 50% of our customers who have GPRS enabled handsets use and pay for GPRS services.

Third generation wireless communication, which offers full interactive multimedia capabilities at data rates of up to 384 Kbps, are bringing wire-free networks significantly closer to the capabilities of fixed-line networks. Improvements in coding and data compression technology will provide better voice quality and more reliable data transmission. UMTS is the global standard adopted for the implementation of third generation wireless telecommunications capable of data rates of 3.6 MB and is the 3G technology we use. HSDPA is a technological enhancement to our 3G services that offers subscribers the ability to access our 3G services at higher speeds.

Infrastructure

As of December 31, 2006, our GSM network consisted of 1,659 macrobase transceiver stations and 309 microbase transceiver stations, all linked to 30 base station controllers. The base station subsystem is controlled by 11 mobile switching centers. Base transceiver stations, mobile switching centers and base station controllers are interconnected by approximately 4,530 transmission links. Ericsson and Nokia supply our base station controller and base transceiver station sites for our GSM and GPRS network.

As of December 31, 2006, our UMTS network consisted of 1,430 macrobase transceiver base stations and 137 microbase and indoor transceiver stations, all linked to ten radio network controllers. The base station subsystem is controlled by one mobile switching center and two media gateways. The base transceiver stations, the mobile switching center and the radio network controllers are interconnected by approximately 1,450 transmission links. Nortel Networks and Ericsson supply our 3G UTRAN and Ericsson supplies our core network equipment.

In addition, our network is interconnected with two public switched telephone companies: Bezeq and HOT, in several locations across Israel. Our network is also directly connected to the mobile networks of Pelephone, Cellcom, Mirs and the six Israeli international operators, Bezeq International, Barak, Golden Lines, Internet Gold, Netvision and Exfone, and indirectly to the fixed-line and mobile telephone networks of Paltel.

Our transmission network is made up of leased lines from Bezeq and Cellcom and our own microwave links. Currently most of our transmission network consists of leased lines. In July 2006, we purchased from Med I.C.–1 (1999) Ltd, its fiber-optic transmission business in order to enable us to reduce our transmission costs as well as to provide our business customers with bundled services of transmission of data and voice.

Our UMTS network covers approximately 97% of the populated areas of Israel. We are continuing to expand and improve the coverage, capacity and quality of our UMTS network.

Network Design

Our primary design objective is to build a UMTS mobile telephone network engineered to provide high voice, video and packet quality, call reliability, high capacity and high coverage quality and to maintain technological advantages over our competitors. In formulating our network design objectives, we have been guided by our business strategy to build the highest quality network. The quality parameters that we seek to satisfy are those that we believe are important to mobile phone users: voice quality, high data rate packet sessions, low "blocked call" rate, low "dropped call" rate and deep indoor penetration, especially in densely populated areas or areas of special commercial interest. The two main examined parameters used to measure network performance for voice and packet data are the setup call success rate and the drop calls rate.

With these quality parameters in mind, we have rolled out our UMTS/HSDPA network, which shares locations with the GSM sites. We use monitoring probes and counters to ensure network quality.

Our transmission network design confers the following benefits: (i) necessary bandwidth for GSM and UMTS/HSDPA services; (ii) resilience; (iii) use of high transmission rate back-bone routes based on Synchronous Digital Hierarchy; and (iv) the ability to utilize a new generation of sophisticated technology to optimize the system and increase capacity where necessary. Our switching architecture is based on two transit switches connected to all of our systems and platforms.

Spectrum Allocation and Capacity

Spectrum availability is limited and is allocated by the Ministry of Communications through a licensing process. Pursuant to the terms of our license and subsequent allocations, we were allocated 2x10.4 MHz in the 900 MHz frequency band, of which 2x2.4 MHz are shared with Paltel which operates in the West Bank and the Gaza Strip. We also have an agreement to use an additional 2x2.4 MHz of spectrum in the 900 MHz frequency band on a shared basis with Paltel. Under this agreement, which has been endorsed by the Ministry of Communications, we are permitted to use this additional spectrum in Israel so long as we do not cause interference in areas where Paltel operates.

We were also allocated two additional bands of spectrum: 2 x 10 MHz of GSM 1800 spectrum and 2 x 10 MHz and 1 x 5 MHz of UMTS/ HSDPA third generation spectrum. During 2002, we have been deploying GSM 1800 MHz band base transceiver stations to enhance the capacity of our GSM 900 MHz network, and to further improve our GSM 900 MHz network's quality.

Other Systems

On December 1, 2004 we commercially launched our UMTS network with advanced applications and services including, among others, a 3G content portal offering a variety of services such as live TV channels, JAVA games, maps and directions application, wide range of music (MP3) services and an e-commerce movie ticketing application. We have installed a video gateway and a streaming server, enabling us to offer our customers a range of video services on their 2.5G and 3G handsets.

Site Procurement

Once a new coverage area has been identified, our technical staff determines the optimal base station location and the required coverage characteristics. The area is then surveyed to identify antenna sites. In urban areas, typical sites are building rooftops. In rural areas, masts are usually constructed. Technical staff also identify the best means of connecting the base station to the network, for example, via leased or owned and operated microwave links or wired links leased from Bezeq. Once a preferred site has been identified and the exact equipment configuration for that site decided, we begin the process of obtaining necessary approvals.

The erection of most of these antennas require building permits from local or regional authorities, as well as a number of additional permits from governmental and regulatory authorities, such as:

y erection and operating permits from the Ministry of the Environment;
y permits from the Civil Aviation Authority, in certain cases; and
y permits from the Israeli Defense Forces.

See "Item 4B. Information on the Company–Business Overview–Regulation" for a description of the approvals that are required for the erection and operation of antenna sites and the requirement to provide indemnification undertakings to local committees.

Suppliers

Our network utilizes standard equipment, which is available from a limited number of suppliers. In November 2003, we entered into a framework agreement with Nortel Networks to supply us with our UMTS wireless network. Under the agreement, Nortel supplies us with mobile switching centers, radio network controllers, Node B's and other UMTS equipment. In 2006, the Nortel UMTS access business was sold to Alcatel Lucent, and we are now negotiating with Nortel and Alcatel Lucent Israel the terms of the assignment of our agreement with Nortel.

Ericsson, together with its affiliates, is a major supplier of GSM equipment and with mobile switching centers, base station controllers, base transceiver stations, transit transmission centers, operation support systems and transmission systems equipment. Ericsson is also our major supplier of GPRS network equipment, including GPRS support nodes and gateway GPRS support nodes, as a second vendor for UMTS infrastructure equipment,. Nokia also supplies us base station controllers, base transceiver stations and network management system equipment. We have agreements with Baran Raviv, Bintech and H. Mer, all Israeli engineering companies, for the construction of our sites. We continue to purchase certain network components from various other key suppliers. We believe that our network suppliers' price structure is competitive with industry standards. See "Item 3D. Key Information–Risk Factors–We depend on a limited number of suppliers for our network equipment. Our results of operations could be adversely affected if our suppliers fail to provide us with adequate supplies of network equipment or maintenance support on a timely basis."

Seasonality

Our revenues and profitability show some seasonal trends over the year, but the overall impact is not considered to be material. Generally, airtime minutes and consequently airtime revenues are affected by the number of daylight hours in the day, which varies throughout the year. In addition, airtime revenues are lower in February which is a shorter than average month and during the Jewish holiday period, but are higher in the summer months as a result of roaming charges from increased travel abroad by subscribers and from foreign roamers using our network. There is no assurance that these trends will continue in the future.

		Three months ended
New Israeli Shekels in thousands	March 31	June 30	Sept. 30	Dec. 31

Revenues, net
2005	1,260,468	1,250,875	1,352,322	1,259,274
2006	1,326,644	1,372,945	1,461,989	1,445,133

		28

Interconnection

All telecommunications providers with general licenses in Israel have provisions in their licenses requiring them to connect their networks with all other telecommunications networks in Israel. Currently, our network is connected directly or indirectly through Bezeq with all other telecommunications networks operating in Israel.

We are currently operating without any formal interconnect agreements with Bezeq. Our day-to-day arrangements with Bezeq substantially conform to a draft interconnect agreement negotiated with Bezeq. The interconnect rates charged by Bezeq are set by Israeli legislation and Bezeq is required by law not to discriminate against any licensed telecommunications operator in Israel with respect to the provision of interconnect services. We currently pay Bezeq an interconnection fee based on a tariff structure set forth in the Interconnection Regulations (Telecommunications and Broadcasts) (Fees for Interconnection) (2000).

We have formal interconnect agreements with Cellcom, Pelephone and MIRS. The interconnection tariffs charged by Cellcom, Pelephone and MIRS are set forth in the Interconnection Regulations (Telecommunications and Broadcasts) (Fees for Interconnections) 2000 that, coupled with a change to the mobile telephone operators' licenses, imposes a uniform call termination tariff for all mobile telephone operators. We also have direct and indirect interconnect arrangements with other telecommunications services providers in Israel.

In recent years, the Ministry of Communications has reduced the call termination tariffs from NIS 0.50 per minute in the beginning of 2003 to NIS 0.26 per minute as of the date of this Annual Report, and SMS termination tariffs from NIS 0.38 in May 2004 to NIS 0.025 as of the date of this Annual Report. Call termination tariffs are scheduled to be reduced again in March 2008 from NIS 0.26 to NIS 0.22 per minute. A recent regulatory change linked call termination tariffs and SMS termination tariffs to the CPI, such that the call termination tariffs were adjusted to NIS 0.2659 per minute and the SMS termination tariffs were adjusted to NIS 0.0256. The tariffs described above will be adjusted each March to conform to changes in the CPI. In response to the tariff reductions described above, we implemented cost-cutting measures as well as price increases and repackaging of our tariff plans. Depending on the effectiveness of such steps, and other factors such as general market conditions, these regulatory changes may negatively impact our revenues and profits. See "- Regulation – Telecommunications Law" below.

We have written interconnect agreements with Bezeq International, Barak, Netvision, Internet Gold and Exfone. We currently have an operating arrangement with Golden Lines. The Ministry of Communications regulation and the change to the mobile telephone operators' licenses also impose a uniform call termination tariff for incoming international calls of NIS 0.2557 per minute. This rate will be reduced to NIS 0.22 per minute, in line with the reduction in termination tariffs for incoming domestic calls, effective March 1, 2008 (adjusted to conform to changes in the CPI).

In January 2007, our subsidiary received a domestic fixed line license. Our subsidiary is connected, directly and indirectly through Bezeq, with all other telecommunication networks operating in Israel.

Competition

There are currently four mobile telephone network operators in Israel: Partner, Cellcom, Pelephone and MIRS. Cellcom operates nationwide mobile telephone networks based on GSM 1800 MHz, EDGE and D-AMPS, technologies. Cellcom commercially launched its UMTS service and handsets in July 2006. Pelephone currently operates nationwide mobile telephone networks in Israel using both the N-AMPS analog and the CDMA and CDMA1 xRTT, as well as the EV-DO technology. Pelephone has announced its intention to roll out a GSM network and to offer UMTS/HSDPA. MIRS, an Enhanced Specialized Mobile Radio, or "trunking," network, was granted a general license to operate as a mobile telephone operator in 2001.

According to our estimations, at December 31, 2006, Cellcom had approximately 2,884,000 subscribers, representing approximately 34% of the Israeli mobile telecommunications market; Pelephone had approximately 2,401,000 subscribers as of the end of the third quarter, representing approximately 29% of the Israeli mobile telecommunications market and MIRS had over 430,000 subscribers, representing approximately 5% of the Israeli mobile telecommunications market. We compete with Cellcom, Pelephone and MIRS principally on the basis of telecommunications service quality, brand identity, variety of handsets, tariffs, value-added services and the quality of customer services.

For more information, see "Item 3D. Risk Factors–Competition from existing competitors may require us to increase our subscriber acquisition costs and customer retention costs and increase our churn rate".

Information Technology

We depend upon a wide range of information technology systems to support network management, subscriber registration and billing, customer service and marketing and management functions. These systems execute critical tasks for our business, from rating and billing of calls, to monitoring our points of sale and antenna sites, to managing highly segmented marketing campaigns. As our subscriber base has grown, we have devoted significant resources to expanding and enhancing our information technology systems, adopting and implementing new systems, including Customer Relations Management, or CRM, systems, which have contributed to our customers' satisfaction with our service, as well as updating our financial management and accounting system. We believe these systems have been an important factor in our achievements since our commercial launch.

While many of our systems have been developed by third-party vendors, all of them have been modified and refined to suit our particular needs. In certain instances, we have developed critical information technology systems internally to meet our specific requirements. For example, significant segments of our CRM and business information infrastructure were developed internally and were designed to integrate our customer service outreach with our overall sales and marketing effort. In other cases, conversely, we have outsourced responsibility for certain systems to third parties. We have completed upgrading our systems to support data packet switching services for 2.5 and third generation. Our "Vantive" CRM system is becoming obsolete and we contracted with IBM to implement a new CRM system based upon "Siebel" software. The migration to the new CRM system may require significant management time and could adversely impact the functioning of our network systems.

Intellectual Property

We are the registered owners of the trademark "Partner" in Israel with respect to telecommunications-related devices and services as well as additional trademarks. We have also registered several internet Web domain names, including, among others: www.partner.co.il, www.orange.co.il and www.partnergsm.co.il.

We have entered into a brand license agreement with Orange International Developments Limited, a subsidiary of Orange plc. Under this agreement, Orange International appointed us as a permitted user of its trademarks in Israel. Under this license agreement, we have the exclusive right to use the Orange Brand in advertising and promotional materials in Israel. The term of the brand license began on July 1, 1998. The trademark license is royalty-free for the first 15 years of its term. In 2012, the parties are to discuss the royalties to be paid for a five-year term beginning July 1, 2013. In 2017, the parties are to again consider the royalties to be paid for an additional five-year term beginning July 1, 2018. If the parties do not agree on the amount of royalty payments, the determination of royalty payments is referred to an arbitrator. Under this license agreement, we are required to comply with the Orange Brand guidelines established by Orange International. We have the right to use the Orange Brand as long as we are able and legally eligible under the laws of Israel to offer telecommunications services to the public in Israel. However, the license agreement may be terminated by mutual agreement, or at our discretion, or by Orange International if a court determines that we have materially misused the brand and we continue to materially misuse the brand after such determination of material misuse.

We have also entered into a brand support/technology transfer agreement with Orange Personal Communications Services Limited. Under this agreement, Orange Personal will provide us with information and expertise to support the Orange Brand in Israel at an agreed cost. See "Item 3D. Risk Factors–Our marketing strategy is based upon the international Orange Brand. If our license agreement terminates or is revoked, we will lose one of our main competitive strengths."

In addition, we are a full member of the GSM Association. In conjunction with the promotion and operation of our GSM network, we have the right to use their relevant intellectual property, such as the GSM trademark and logo, security algorithms, roaming agreement templates, and billing transfer information file formats. We are eligible to remain a member of the GSM Association for as long as we are licensed to provide GSM service.

Regulation

Overview

We operate within Israel primarily under the Communications Law (Telecommunications and Broadcasting), 1982 (the "Telecommunications Law"), the Wireless Telegraphy Ordinance (New Version), 1972 (the "Wireless Telegraphy Ordinance"), the regulations promulgated by the Ministry of Communications and our license. The Ministry of Communications issues the licenses which grant the right to establish and operate mobile telephone and other telecommunication services in Israel, and sets the terms by which such services are provided. The regulatory framework under which we operate consists also of the Planning and Building Law, 1965, the Consumer Protection Law, 1981, and the Non-Ionizing Radiation Law, 2006. Additional areas of Israeli law may be relevant to our operations, including antitrust law, specifically the Restrictive Trade Practices Law, 1988, the Class Actions Law, 2006, and administrative law. The Israeli telecommunications market is in a state of transition, moving to a more liberalized environment in which various markets, such as the mobile, international services, and domestic markets and infrastructure, are gradually being opened to competition after the government-owned monopolies have been privatized. As a result, there is a possibility that changes may take place in the regulatory framework described below.

Telecommunications Law

The principal law governing telecommunications in Israel is the Telecommunications Law and related regulations. The Telecommunications Law prohibits any person, other than the State of Israel, from providing public telecommunications services without a license issued by the Ministry of Communications.

General licenses, which relate to telecommunications activities over a public network or for the granting of nationwide services or international telecommunications services, have been awarded to Bezeq, and to HOT, to the four mobile telephone operators, Pelephone, Cellcom, Partner and MIRS, and to the six international operators, Barak, Bezeq International, Golden Lines, Netvision, Internet Gold and Exfone. In addition, the Ministry of Communications may issue additional mobile telephone operator and other licenses in the future.

The Ministry of Communications has the authority to amend the terms of any license. The grounds to be considered in connection with such an amendment are government telecommunications policy, public interest, the suitability of the licensee to perform the relevant services, the promotion of competition in the telecommunications market, the level of service and changes in technology. The Ministry of Communications may also make the award of certain benefits, such as new spectrum, conditional upon the licensee's consent to a license amendment. The Ministry of Communications also has the authority to revoke, limit or suspend a license at the request of the licensee or when the licensee is in breach of a fundamental condition of the license, when the licensee is not granting services under the license or is not granting services at the appropriate grade of service or when the licensee has been declared bankrupt or an order of liquidation has been issued with respect to the licensee. Public interest may also be grounds for the rescission or suspension of a license.

The Ministry of Communications, with the consent of the Minister of Finance, may also promulgate regulations to determine interconnect tariffs, or formulae for calculating such tariffs. Moreover, the Ministry of Communications may, if interconnecting parties fail to agree on tariffs, or if regulations have not been promulgated, set the interconnect tariff based on cost plus a reasonable profit, or based on each of the interconnecting networks bearing its own costs.

The Telecommunications Law also includes certain provisions which may be applied by the Ministry of Communications to general licensees, including rights of way which may be accorded to general licensees to facilitate the building of telecommunications networks or systems and a partial immunity against civil liability which may be granted to a general licensee, exempting the licensee, inter alia, from tort liability with the exception of direct damage caused by the suspension of a telecommunications service and damage stemming from intentional or grossly negligent acts or omissions of the licensee. The Ministry of Communications has applied the partial immunity provisions to us, including immunity in the event that we cause a mistake or change in a telecommunication message, unless resulting from our intentional act or gross negligence.

In January 2007, the Telecommunications Law was amended to provide that the Ministry of Communications is authorized to impose significant monetary sanctions on a license holder that breaches a provision of its license, which breach causes, or may cause, significant harm to the public or to competition.

Royalties. Pursuant to the Telecommunication (Royalties) Regulations, 2001, we must pay royalties to the State of Israel every quarter based on our chargeable revenues, as defined in the regulation, from mobile telephone services (including, among other, airtime, monthly subscription fees, roaming services and non-recurring), on a cumulative basis, excluding value-added tax. Revenues for purposes of royalty calculation also exclude revenues transferred to other telecommunications license holders, bad debts, payments for roaming services to foreign mobile telephone operators and certain other revenues. The regulation provided a rate of 4% in 2003 and a rate of 3.5% in 2004 and 2005. In November 2004, the Ministry of Communications announced that from January 2006 the rate of royalties payments will be reduced annually by 0.5% to a level of 1%.

Fair Competition and Antitrust Law

Provisions protecting Partner from anti-competitive practices can be found in our license and in the licenses of the other telecommunications operators, in the various telecommunications regulations and in the Restrictive Trade Practices Law. Our license emphasizes the principle of granting users equal access to the systems of each of the operators upon equitable terms. The Telecommunications Law also provides certain protection against disruption of service by Bezeq, whose interconnection and transmission services are necessary in order for us to be able to provide certain services.

The Restrictive Trade Practices Law is the principal statute concerning restrictive practices, mergers and monopolies. This law prohibits a monopoly from abusing its market position in a manner that might reduce competition in the market or negatively affect the public. The law empowers the Commissioner of Restrictive Trade Practices to instruct a monopoly abusing its market power to perform certain acts or to refrain from certain acts in order to prevent the abuse. Bezeq has been declared a monopoly in certain markets, a ruling it failed to challenge successfully. For more information see "Item 3D. Risk Factors– We operate in a highly regulated telecommunications market which limits our flexibility to manage our business. Regulatory decisions may materially and adversely affect our results of operations".

Furthermore, in recent statements, the Israeli Commissioner of Restrictive Trade Practices has expressed his view that the mobile telephone industry in Israel operates as an oligopoly and that the Israeli government should intervene to regulate prices. In part, the Commissioner based his statements on the increase in prices by the mobile telephone operators as a result of the Ministry of Communications' decision to lower call termination tariffs. The chairman of the Knesset's Economic Committee announced that the committee would act to declare the mobile telephone operators as an oligopoly. Such a finding could result in increased regulatory intervention (including with regard to tariffs and tariffing practices), the application of certain limitations on our conduct and increased litigation. Recent tariff increases by the mobile telephone operators prompted the Ministry of Communications to express its intention to intervene in the market by, inter alia, introducing new operators.

Regulatory Developments

In 2003, the Ministry of Communications decided to open the international call market to new competitors. However, the Ministry announced that it will not allow mobile operators to enter the international call market, at this stage.

In 2004, the Ministry of Communications began authorizing the issuance of licenses to provide domestic fixed-line (wireline and wireless) services to customers, competing with Bezeq, on a non-universal service basis. Services provided under such license must be precisely defined by the provider, must be provided to customers in a region, or regions, defined by the provider and must be provided to a defined type of customer. Under the terms of such license, the provider must demonstrate aggregate revenues of no less than NIS 50 million within 3 years from the launching of the services. The license term is 20 years. We and Cellcom, Golden Lines and GlobeCall, have been granted this license.

The Ministry of Communications has promulgated regulations that, coupled with a change effected in the mobile telephone operators' licenses, impose a uniform call and SMS termination tariff. In November 2004, the Ministry of Communications announced regulatory changes significantly reducing call termination tariffs and SMS termination tariffs, effective March 1, 2005, with additional reductions mandated for the coming years. In addition, the Ministry of Communications further announced that billing units will be reduced from the present intervals of up to 12 seconds to 1 second, effective December 31, 2008. Furthermore, the Ministry of Communications also indicated that it intends to start implementing a process to bring about unification of rates for calls terminating both on and off an operator's network, and disallow charging the customer with a separate interconnect tariffs. Preliminary hearings with the cellular operators in Israel on this matter commenced in August 2005, but have been suspended and are expected to be resumed in 2008. See "Item 4B. Information on the Company–Business Overview–Interconnection."

In November 2006, our license was amended in a manner that obligates us as of January 2007 to provide, in all calls made to our subscribers and directed to voicemail, an announcement that the call is being directed to voicemail. We are not allowed to charge for a call terminated up to one second after the announcement is made. Such regulation has adversely affected our financial results.

In January 2007, the Ministry of Communications published a policy regarding VOB services. The policy, among other things, allows licensed third parties to access the infrastructure of Bezeq and HOT in order to provide VOB services to customers, charging customers directly, with no need to pay to the access owner any usage fees. Our domestic fixed-line license was amended in February 2007 in accordance with this policy.

The Ministry of Communications is evaluating the cost of roaming and may introduce new regulations that would limit fees charged by Israeli cellular companies for calls made by foreign network operators' customers while in Israel using our network as well for calls made by our own customers using their handsets abroad. Because we consider roaming charges to be a significant source of revenue, such regulatory limits could adversely affect our revenues.

In January 2007, the Ministry of Communications appointed a public committee, headed by Prof. Grunau, a professor of economics at Hebrew University, to formulate recommendations regarding the policy and the principles of competition in the Israeli telecommunications market. The issues to be examined by the committee include the structural separation of activities, such as transmission and content, including the structural separation of Bezeq; the requirement that licensed telecommunication companies provide access to their infrastructure to other companies; and the principle of convergence arrangements between mobile and fixed-line operators, as well as between voice service providers and video and data service providers. We have submitted our position and recommendations to the committee.

In April 2007, the Ministry of Communication initiated a hearing process to consider limiting mobile operators' ability to offer tariff plans that are based on one-minute billing units and other billing units longer than twelve seconds. We believe that limiting our ability to offer a variety of tariff plans, including those based on different billing units, may adversely affect our business.

Entry of MVNO Operators

In March 2007, the Ministry of Communications engaged NERA, an international consulting firm, to review the level of competition in the Israel mobile market and to review whether to allow the entry of MVNO operators in the Israeli telecommunications market. Based on the findings of their review, the Ministry of Communications may opt to grant licenses to MVNOs, who may use Partner's infrastructure or other cellular operators to offer mobile telephone services.

Number Portability

In March 2005, the Telecommunications Law was amended to require the Minister of Communications to implement a mobile number portability plan and, separately, a fixed number portability plan by September 2006. The number portability plan would permit subscribers in Israel to change their service provider to another network operator while retaining the same telephone number. Once implemented, we anticipate that number portability will provide us with the opportunity to transfer new subscribers to our network.

Despite efforts to introduce the requisite technology and to coordinate the transition to number portability by September 2006, at present, none of the cellular or fixed-line operators has implemented number portability. We, Cellcom and Pelephone have filed a petition with the Israeli High Court of Justice requesting that the court order the Government of Israel and the Ministry of Communications to show cause for failing to amend the Telecommunications Law in order to postpone the number portability implementation deadline. The justifications for our petition includes our inability to comply with the implementation timeline due to the unique technological environment of the Israeli cellular market, the complex requirements of the Israeli regulator and the absence of a detailed plan as was originally contemplated by the law. Consequently, since September 2006, all relevant telecommunications license holders, including us, face the risk of claims for violating the Telecommunications Law and the terms of the general license without having the ability to comply with the law or the license. Individual subscribers have sought to intervene in the petition and have also filed a purported class action against us and other mobile and fixed-line operators based on the alleged failure to comply with the number portability requirements. See "Item 8 Financial Information- Legal and Administrative Proceedings". At this preliminary stage, we are unable to assess the lawsuit's chance of success.

In May 2007 the Ministry of Communications announced that the last implementation date for number portability is December 1, 2007. However, the Ministry is considering imposing monetary sanctions on relevant telecommunication license holders, including us, in accordance with the Telecommunications Law for alleged violation of the obligation to implement number portability by September 2006. We can submit our position to the Ministry of Communications until June 24, 2007.

WIMAX Bandwidth

The Ministry of Communications is in the process of conducting hearings regarding the allocation of bandwidth in the Worldwide Interoperability for Microwave Access (WIMAX) spectrum. WIMAX is a technology that aims to provide wireless data over long distances, in a variety of different methods, from point to point links to full mobile cellular type access. Following the hearings, the Ministry of Communications may elect to adopt regulations that prohibit Partner from receiving an allocation of bandwidth from the WIMAX spectrum. If the Ministry of Communications elects to adopt such regulations, it could harm our ability to compete with telecommunications providers using the WIMAX spectrum.

Our Mobile Telephone License

On April 7, 1998, the Ministry of Communications granted to us a general license to establish and operate a mobile telephone network in Israel for which we paid a license fee and associated costs totaling approximately NIS 1,571 million, including an amount of approximately NIS 12 million as a license fee adjustment to reflect changes in the CPI from the time we submitted a bid for our license until the time our license was granted by the Ministry of Communications. We paid this additional fee under protest and requested a refund of the fee from the Ministry of Communications. As a result of the rejection of our request by the Ministry of Communications, we filed a suit in the Jerusalem District court, which ruled in our favor. The Ministry of Communications is appealing the decision.

We were also allocated two additional bands of spectrum: 2 x 10 MHz of GSM 1800 spectrum and 2 x 10 MHz and 1 x 5 MHz of UMTS third generation spectrum. During 2002, we started deploying GSM 1800 MHz band base transceiver stations to enhance the capacity of our GSM 900 MHz network, and to further improve our GSM 900 MHz network's quality. Under the terms of our license, the Ministry of Communications may reallocate the spectrum bands that were previously allocated to us. Following the award of this spectrum, the Minister of Communications amended and extended our mobile telephone license through 2022.

Under the terms of the amended license, we have provided a $10 million guarantee to the State of Israel to secure the Company's adherence to the terms of the license. For more information, see "Item 5B. Liquidity and Capital Resources."

In 2004, our license was amended to regulate access to adult voice services through all cellular media including voice, picture, chat and dating services. The access to adult voice services is through a domestic dialing code by a plan set by the Ministry of Communications and a service number that we allocate to the provider of the adult voice services. Access to the adult voice services is automatically barred as a default for all our subscribers unless they specifically request the service and verify that they are over 18 years of age. This amendment has been applied to all cellular operators, to Bezeq and recently to the international operators. The Ministry of Communications will hold the operators liable and accountable for any infractions of this amendment. Additional amendments during 2006 extended the regulation of access for adult voice services described above to 3G technologies as well, including non-voice and internet services provided (directly and indirectly) either through phone calls to numbers allocated by us or through our internet portal.

On March 9, 2005, our license was further amended. The principal elements of this amendment are as follows:

y Our founding shareholders and their approved substitutes must hold, in the aggregate, at least 26% of each of our means of control. Furthermore, the maintenance of at least 26% of our means of control by our founding shareholders and their approved substitutes allows Partner to be protected from a license breach that results from a transfer of shares for which the authorization of the Ministry of Communications was required, but not obtained.
y Israeli entities from among our founding shareholders and their approved substitutes must hold at least 5% of our issued share capital and of each of our means of control. "Israeli entities" are defined as individuals who are citizens and residents of Israel and entities formed in Israel and controlled, directly or indirectly, by citizens and residents of Israel, provided that indirect control is only through entities formed in Israel, unless otherwise approved by the Israeli Prime Minister or Minister of Communications.
y At least 10% of our board of directors must be appointed by Israeli entities, as defined above, among our founding shareholders or their approved substitutes, provided that if the board of directors is comprised of up to 14 members, only one such director must be so appointed, and if the board of directors is comprised of between 15 and 24 members, only two such directors must be so appointed.
y A new board of directors committee shall be formed to deal with security matters. Only directors with the required clearance and those deemed appropriate by Israel's General Security Service may be members of this committee.
y The Minister of Communications shall be entitled to appoint an observer to the board of directors and its committees, subject to certain qualifications and confidentiality undertakings.

In November 2006, our license was again amended. The principal elements of this amendment were as follows:

y We are required to operate a telephone information service which provides telephone listings for our subscribers. We are also obligated to share our telephone subscriber listing information with other operators to be used in their telephone information systems.
y For telephone calls transferred to our subscriber's voicemail, we are required to allow the calling party an opportunity to disconnect the call within the first few seconds without incurring a charge.

In March 2007, our license was further amended. Among the changes was a requirement not to provide access to services, whether from Partner or a content supplier, if the subscriber has not specifically requested access to such service and for which there is a significant charge to the subscriber. We must also inform subscribers that they have the ability to block access to such services.

Term. Our license authorizes us on a non-exclusive basis to establish and operate a mobile telephone network in Israel. A mobile telephone network is a wireless telephone network through which mobile telephone service is provided to the public. Our license allocates to us specified frequencies and telephone numbers. Our license was originally valid for a period of ten years (until April 2008), but has been extended until 2022.

The license may be extended for an additional six-year period upon our request to the Ministry of Communications, and a confirmation from the Ministry of Communications that we have met the following performance requirements:

y observing the provisions of the Telecommunications Law, the Wireless Telegraphy Ordinance, the regulations and the provisions of our license;
y acting to continuously improve our mobile telephone services, their scope, availability, quality and technology, and that there has been no act or omission by us harming or limiting competition in the mobile telephone sector;
y having the ability to continue to provide mobile telephone services of a high standard and to implement the required investments in the technological updating of our system in order to improve the scope of such services, as well as their availability and quality; and
y using the spectrum allocated to us efficiently, compared to alternative applications.

At the end of this additional six-year period, we may request renewal of our license for successive six-year periods thereafter, subject to regulatory approval.

Contracting with Customers. Pursuant to our license, our standard agreement with customers must receive the Ministry of Communications' approval. We have submitted our standard agreement to the Ministry of Communications for approval pursuant to our license. To date, we have not received any comments from the Ministry of Communications regarding this agreement.

Tariffs. Our license requires us to submit to the Ministry of Communications our tariffs (and any changes in our tariffs) before they enter into effect. Our license allows us to set and change our tariffs for outgoing calls and any other service without approval of the Ministry of Communications. However, the Ministry of Communications may intervene in our tariffs if it finds that our tariffs unreasonably harm consumers or competition.

Payments. Our license specifies the payments we may charge our subscribers. These include one-time installation fees, fixed monthly payments, airtime fees, payments for the use of other telecommunication systems, payments for handset maintenance and payments for additional services. In some of our tariff plans we have chosen to charge only for airtime and use of services. See "Item 4B. Information on the Company–Business Overview–Services and Products–Tariff Plans."

Interconnection. Like the licenses of Pelephone, Cellcom and MIRS, our license requires that we interconnect our mobile telephone network to other telecommunications networks operating in Israel, including that of Bezeq and other domestic fixed line operators, the other mobile telephone operators and the international operators.

Conversely, Partner must allow other network operators to interconnect to its network. See "Item 4B. Information on the Company–Business Overview–Interconnection."

Service Approval. The Ministry of Communications has the authority to require us to submit for approval details of any of our services (including details concerning tariffs). In addition, we are required to inform the Ministry of Communications 30 days prior to the activation of any service on a specified list of services.

Access to Infrastructure. The Ministry of Communications has the power to require us, like the other telephone operators in Israel, to offer access to our network infrastructure to other operators. We may also be required to permit other operators to provide value-added services using our network.

Universal Service. We are required to provide any third generation service with the same coverage as our existing network within 24 months from the commercial launch of each such service.

Territory of License. Our license authorizes us to provide mobile telephone services within the State of Israel as well as offer roaming services outside the State of Israel. In May 2000, we were also granted a license from the Israeli Civil Administration, to provide cellular services to the Israeli populated areas in the West Bank. The license is effective until April 7, 2008. The provisions of the general license described above, including as to its extension, generally apply to this license, subject to certain modifications. We believe that we will be able to receive an extension to this license upon request.

License Conditions. Our license imposes many conditions on our conduct. We must at all times be a company registered in Israel. Our license may not be transferred, mortgaged or attached without the prior approval of the Ministry of Communications. We may not sell, lease or mortgage any of the assets which serve for the implementation of our license without the prior approval of the Ministry of Communications, other than in favor of a banking corporation which is legally active in Israel, and in accordance with the conditions of our license.

Our license provides that no direct or indirect control of Partner may be acquired, at one time or through a series of transactions, and no means of control may be transferred in a manner which results in a transfer of control, without the consent of the Ministry of Communications. Furthermore, no direct or indirect holding of 10% or more of any means of control may be transferred or acquired at one time or through a series of transactions, without the consent of the Ministry of Communications. In addition, no shareholder of Partner may permit a lien to be placed on shares of Partner if the foreclosure on such lien would cause a change in the ownership of 10% or more of any of Partner's means of control unless such foreclosure is made subject to the consent of the Ministry of Communications. For purposes of our license, "means of control" means any of:

y voting rights in Partner;
y the right to appoint a director or managing director of Partner;
y the right to participate in Partner's profits; or
y the right to share in Partner's remaining assets after payment of debts when Partner is wound up.

Each of our ordinary shares and ADSs is considered a means of control in Partner.

In addition, Partner, any entity in which Partner is an Interested Party, as defined below, an Office Holder, as defined below, in Partner or an Interested Party in Partner or an Office Holder in an Interested Party in Partner may not be a party to any agreement, arrangement or understanding which may reduce or harm competition in the area of mobile telephone services or any other telecommunications services.

In connection with our initial public offering, our license was amended to provide that our entering into an underwriting agreement for the offering and sale of shares to the public, listing the shares for trading, and depositing shares with the depositary or custodian will not be considered a transfer of any means of control, as defined below. Pursuant to the amendment, if the ADSs (or other "traded means of control," that is, means of control which have been listed for trade or offered through a prospectus and are held by the public) are transferred or acquired in breach of the restrictions imposed by the license with respect to transfer or acquisition of 10% or more of any means of control, we must notify the Ministry of Communications and request the Minister's consent within 21 days of learning of the breach. In addition, should a shareholder, other than a founding shareholder, breach these ownership restrictions, or provisions regarding acquisition of control or cross-ownership or cross-control with other mobile telephone operators or shareholdings or agreements which may reduce or harm competition, its shareholdings will be converted into dormant shares, as long as the Minister's consent is required but not obtained, with no rights other than the right to receive dividends and other distributions to shareholders, and to participate in rights offerings.

The dormant shares must be registered as dormant shares in our share registry. Any shareholder seeking to vote at a general meeting of our shareholders must notify us prior to the vote, or, if the vote is by deed of vote, must so indicate on the deed of vote, whether or not the shareholder's holdings in Partner or the shareholder's vote requires the consent of the Ministry of Communications due to the restrictions on transfer or acquisition of means of control, or provisions regarding cross-ownership or cross-control with other mobile telephone operators or shareholders. If the shareholder does not provide such certification, his instructions shall be invalid and his vote not counted.

The existence of shareholdings which breach the restrictions of our license in a manner which could cause them to be converted into dormant shares and may otherwise provide grounds for the revocation of our license will not serve in and of themselves as the basis for the revocation of our license so long as:

y the founding shareholders or their approved substitutes of Partner continue to hold in the aggregate at least 26% of the means of control of Partner;
y our Articles of Association include the provisions described in this paragraph;
y we act in accordance with such provisions;
y our Articles of Association provide that an ordinary majority of the voting power at the general meeting of Partner is entitled to appoint all the directors of Partner other than external directors.

The amendment of our license providing for the dormant share mechanism does not apply to our founding shareholders.

The provisions contained in the amendment to our license are also contained in our Articles of Association. In addition, our Articles of Association contain similar provisions in the event the holdings of shares by a shareholder breaches the Israeli and foreign mobile radio telephone operator ownership limits contained in our license.

Revoking, limiting or altering our license. Our license contains several qualifications that we are required to meet. These conditions are designed primarily to ensure that we maintain at least a specified minimum connection to Israel and that we benefit from the experience of a foreign mobile radio telephone operator. Other eligibility requirements address potential conflicts of interest and cross-ownership with other Israeli telecommunications operators. The major eligibility requirements are set forth below. A failure to meet these eligibility requirements may lead the Ministry of Communications to revoke, limit or alter our license, after we have been given an opportunity and have failed to remedy it.

y Founding shareholders or their approved substitutes must hold at least 26% of the means of control of Partner.
y Israeli entities from among our founding shareholders and their approved substitutes must hold at least 5% of our issued share capital and of each of our means of control.
y A Foreign Mobile Radio and Telephone operator (as defined below) (or a controlling corporation thereof) must hold directly or indirectly at least 25% of the means of control of Partner.
y The majority of our directors, and our general manager, must be citizens and residents of Israel.
y Neither the general manager of Partner nor a director of Partner may continue to serve in office if he has been convicted of certain legal offenses.
y No trust fund, insurance company, investment company or pension fund that is an Interested Party in Partner may: (a) hold, either directly or indirectly, more than 5% of any means of control in a competing mobile radio telephone operator without having obtained a permit to do so from the Ministry of Communications, or (b) hold, either directly or indirectly, more than 5% of any means of control in a competing mobile radio telephone operator in accordance with a permit from the Minister, and in addition have a representative or appointee who is an Office Holder in a competing mobile radio telephone operator, unless it has been legally required to do so, or (c) hold, either directly or indirectly, more than 10% of any means of control in a competing mobile radio telephone operator, even if it received a permit to hold up to 10% of such means of control.
y No trust fund, insurance company, investment company or a pension fund that is an Interested Party in a competing mobile radio telephone operator may: (a) hold, either directly or indirectly, more than 5% of any means of control in Partner, without having obtained a permit to do so from the Ministry of Communications; or (b) hold, directly or indirectly, more than 5% of any means of control in Partner in accordance with a permit from the Ministry of Communications, and in addition have a representative or appointee who is an Office Holder in Partner, unless it has been legally required to do so; or (c) hold, either directly or indirectly, more than 10% of any means of control in Partner, even if it received a permit to hold up to 10% of such means of control.
y Partner, an Office Holder or Interested Party in Partner, or an Office Holder in an Interested Party in Partner does not control a competing mobile radio telephone operator, is not controlled by a competing mobile radio telephone operator, by an Office Holder or an Interested Party in a competing mobile radio telephone operator, by an Office Holder in an Interested Party in a competing mobile radio telephone operator, or by a person or corporation that controls a competing mobile radio telephone operator.

Our license may also be revoked, limited or altered by the Ministry of Communications if we have failed to uphold our obligations under the Telecommunications Law, the Wireless Telegraphy Ordinance or the regulations, or have committed a substantial breach of the license conditions. Examples of the principal undertakings identified in our license in this connection are:

y We have illegally ceased, limited or delayed any one of our services;
y Any means of control in Partner or control of Partner has been transferred in contravention of our license;
y We fail to invest the required amounts in the establishment and operation of the mobile radio telephone system in accordance with our undertakings to the Ministry of Communications;
y We have harmed or limited competition in the area of mobile radio telephone services;
y A receiver or temporary liquidator is appointed for us, an order is issued for our winding up or we have decided to voluntarily wind up; or
y Partner, an Office Holder in Partner or an Interested Party in Partner or an Office Holder in an Interested Party of Partner is an Interested Party in a competing mobile radio telephone operator or is an Office Holder in a competing mobile radio telephone operator or in an interested party in a competing mobile radio telephone operator without first obtaining a permit from the Ministry of Communications to do so or has not fulfilled one of the conditions included in such permit. See "Item 4B. Information on the Company–Business Overview–Regulation–Our Permit Regarding Cross Ownership."

In addition, our amended license, like the licenses of our competitors, provides that if we participate in a future tender for a mobile telecommunications license, we may be required by the terms of a new tender, if we win such tender, to transfer our network to another operator according to terms which the Minister of Communications may decide upon and to cease providing mobile telephony services.

Change in license conditions. Under our license, the Ministry of Communications may change, add to, or remove conditions of our license if certain conditions exist, including:

y A change has occurred in the suitability of Partner to implement the actions and services that are the subject of our license.
y A change in our license is required in order to ensure effective and fair competition in the telecommunications sector.
y A change in our license is required in order to ensure the standards of availability and grade of service required of Partner.
y A change in telecommunications technology justifies a modification of our license.
y A change in the electromagnetic spectrum needs justifies, in the opinion of the Ministry of Communications, changes in our license.
y Considerations of public interest justify modifying our license.
y A change in government policy in the telecommunications sector justifies a modification of our license.
y A change in our license is required due to its breach by Partner.

During a period of an emergency, control of Partner's mobile radio telephone system may be assumed by any lawfully authorized person for the security of the State of Israel to ensure the provisions of necessary service to the public, and some of the spectrum granted to us may be withdrawn. In addition, our license requires us to supply certain services to the Israeli defense and security forces. Furthermore, certain of our senior officers are required to obtain security clearance from Israeli authorities.

For the purposes of this discussion, the following definitions apply:

y "Office Holder" means a director, manager, company secretary or any other senior officer that is directly subordinate to the general manager.
y "Control" means the ability to, directly or indirectly, direct the activity of a corporation, either alone or jointly with others, whether derived from the governing documents of the corporation, from an agreement, oral or written, from holding any of the means of control in the corporation or in another corporation, or which derives from any other source, and excluding the ability derived solely from holding the office of director or any other office in the corporation. Any person controlling a subsidiary or a corporation held directly by him will be deemed to control any corporation controlled by such subsidiary or by such controlled corporation. It is presumed that a person or corporation controls a corporation if one of the following conditions exist: (1) such person holds, either directly or indirectly, fifty percent (50%) or more of any means of control in the corporation; (2) such person holds, either directly or indirectly, a percentage of any means of control in the corporation which is the largest part in relation to the holdings of the other Interested Parties in the corporation; or (3) such person has the ability to prevent the taking of business decisions in the corporation, with the exception of decisions in the matters of sale or liquidation of most businesses of the corporation, or fundamental changes of these businesses.
y "Controlling Corporation" means a company that has control, as defined above, of a foreign mobile radio telephone operator.
y "Foreign Mobile Radio Telephone Operator" means an operator of a mobile telephone system abroad, through which mobile telephone services are provided to at least 500,000 subscribers.
y "Interested Party" means a person who either directly or indirectly holds 5% or more of any type of means of control, including holding as an agent.

Our Permit Regarding Cross Ownership

Our license generally prohibits cross-control or cross-ownership among competing mobile telephone operators without a permit from the Ministry of Communications. In particular, Partner, an Office Holder or an Interested Party in Partner, as well as an Office Holder in an Interested Party in Partner may not control or hold, directly or indirectly, 5% or more of any means of control of a competing mobile radio telephone operator. Our license also prohibits any competing mobile radio telephone operator or an Office Holder or an Interested Party in a competing mobile radio telephone operator, or an Office Holder in an Interested Party in a competing mobile radio telephone operator or a person or corporation that controls a competing mobile radio telephone operator from either controlling, or being an Interested Party in us.

However, our license, as amended on April 14, 2002 also provides that the Ministry of Communications may permit an Interested Party in Partner to hold, either directly or indirectly, 5% or more in any of the means of control of a competing mobile radio telephone operator if the Ministry of Communications is satisfied that competition will not be harmed, and on the condition that the Interested Party is an Interested Party in Partner only by virtue of a special calculation described in the license and relating to attributed holdings of shareholders deemed to be in control of a corporation.

Other Licenses

Domestic Fixed-Line License. In January, 2007, the Ministry of Communications granted us a license for the provision of domestic fixed-line telecommunications services. The license expires in twenty years but may be extended by the Ministry of Communications for successive periods of ten years provided that we have complied with the terms of the license and have acted consistently for the enhancement of telecom services and their enhancement. We deposited a bank guarantee in the amount of NIS 10 million with the Ministry of Communications upon receiving the license which shall be used to secure the licensee's obligations under the License. The general conditions of the mobile telephone license described above, generally apply to this license, subject to certain modifications. In addition to any 10% share transfer requiring the prior approval of the Ministry of Communications, the license additionally requires approval prior to a third party acquiring the ability to exercise significant influence over us. In this context, holding 25% of our means of control is presumed to confer significant influence. The license was amended in February 2007 to grant us the right to offer Voice Over Broadband ("VOB") services using the infrastructure of Bezeq and HOT to access customers and to provide them with fixed-line telephony service without any payment to the infrastructure owner.

Transmission License. In August 2006, the Ministry of Communications granted us a special license for the provision of transmission and data communications services. This special license allows us to provide digital transmission services over fixed lines to enable our customers to create a data-link between customer sites and between the site of one customer and that of another. The special license also allows us to enter into agreements to charge our customers for this service and to lay, install, and connect cable to support the digital transmission services. The special license is valid through July 2007, or until such date as we will be granted an exclusive general license, the later of the two. Regardless of the aforesaid, the Minister of Communications may determine that the validity of the license will not expire upon termination of the aforesaid license period and the Minister will have the right to issue special instructions in this respect.

ISP License. In March 2001, we received a special license granted by the Ministry of Communications, allowing us through our own facilities to provide internet access to both mobile and fixed-line network customers. The license is valid until March 2008.

NTP License. In February 2007 we received a special license granted by the Ministry of Communications allowing us to provide certain telecom services, including providing and installing equipment and cabling, representing the subscriber with local fixed operators, and establishing and operating control facilities within a subscribers' premises. The license is valid until February 2012.

Other Licenses. The Ministry of Communications has granted us a trade license pursuant to the Wireless Telegraphy Ordinance. This license regulates issues of servicing and trading in equipment, infrastructure and auxiliary equipment for our network. We have also been granted a number of encryption licenses that permit us to deal with means of encryption, as provided in the aforementioned licenses, within the framework of providing mobile radio telephone services to the public.

Permits of the Ministry of Environment

Pursuant to the Pharmacists (Radioactive Elements and Products) Regulations, 1980 (the "Pharmacists Regulations") issued under the Pharmaceutics Ordinance, the Ministry of the Environment is empowered to grant erection permits and operation permits for our antennas. The granting of such permits is subject to the satisfaction of conditions to which we are subject under the Pharmacists Regulations. The application to the Ministry of Environment must include a discussion of the type of device, its impact on the environment both during ordinary operation and in maximum level of operation, and details of the possible dangers posed by the device and the manner in which these dangers may be prevented or neutralized. In addition, the application includes an engineer's sketch of the device and its related equipment.

The Ministry of the Environment has adopted the International Radiation Protection Agency's standard as a basis for the consents it gives for the erection and operation of our antennas. This standard is an international standard based upon a number of years of scientific study.

On January 1, 2006, the Non-Ionizing Radiation Law (5766-2006) was enacted, which defines the various powers of the Ministry of the Environment as they relate, inter alia, to the grant of permits for antenna sites and sets standards for permitted levels of non-ionizing radiation emissions and reporting procedures. Pursuant to this law, which entered into effect on January 1, 2007, a request for an operating permit from the Ministry of Environment with respect to either new sites or existing sites would require a building permit for such site(s). If we will continue to face difficulties in obtaining building permits from the local planning and building committee, we may fail to obtain also operation permits from the Ministry of Environment. Operation of an antenna site without a permit from the Ministry of Environment may result in criminal and civil liability to us or to our officers and directors.

Local Building Permits

The Planning and Building Law requires that we receive a building permit for the construction of most of our antennas. The local committee or local licensing authority in each local authority is authorized to grant building permits, provided such permits are in accordance with National Building Plan No. 36 which came into effect on June 15, 2002. The local committee is made up of members of the local municipal council. The local committee is authorized to delegate certain of its powers to subcommittees on which senior members of the local authority may sit.

The local committee examines the manner in which an application for a building permit conforms to the plans applying to the parcel of land that is the subject of the application, and the extent to which the applicant meets the requirements set forth in the Planning and Building Law. The local committee is authorized to employ technical, vista, and aesthetic considerations in its decision-making process. The local committee may grant building permits that are conditioned upon the quality of the construction of the structure, the safety of flight over the structure, and the external appearance of the structure. Every structure located on a certain parcel of land must satisfy the requirements and definitions set forth in the building plan applicable to such parcel.

On January 3, 2006, the National Council for Planning and Building added a new requirement for obtaining a building permit for antenna sites: the submission of an undertaking to indemnify the local committee for claims relating to the depreciation of the surrounding property value as a result of the construction or existence of the antenna.

A decision by a local committee not to grant a building permit may be appealed to the District Appeals Committee. A person harmed by the ruling of the District Appeals Committee may have such ruling examined judicially by means of an administrative petition to the District Court sitting as an Administrative Affairs Tribunal.

National Building Plan No. 36

National Building Plan No. 36 which came into effect on June 15, 2002 regulates the growth of telecommunications infrastructure in Israel. Chapter A of National Building Plan No. 36 sets forth the licensing, view, flight safety and electromagnetic radiation requirements for the construction of mobile radio telephone infrastructure. National Building Plan No. 36 also adopts the radiation emission standards set by the International Radiation Protection Agency which were also previously adopted by the Ministry of the Environment. We believe that we currently comply with these standards.

Under the Non-Ionizing Radiation Law, which imposes criminal sanctions for non-compliance with its dictates, the National Council for Planning and Building was granted the power to determine the level of indemnification for reduction of property value to be undertaken as a precondition for a cellular company to obtain a building permit for a new or existing antenna site. As a result, the National Council for Planning and Building has decided that until National Building Plan 36 is amended to reflect a different indemnification amount, cellular companies will be required to undertake to indemnify the building and planning committee for 100% of all losses resulting from claims against the committee. Thus, at present, in order to obtain a building permit for a new or existing antenna site, we must provide full indemnification for the reduction of property value.

We cannot predict whether the legal requirement to provide full indemnification will be adopted in the amended National Building Plan 36, nor can we predict when the National Building Plan 36 will be amended. These recent developments may have a material adverse effect on our financial condition and results of operations, as well as plans to expand and enhance network coverage. For more information, see "Item 3D. Risk Factors – In connection with certain building permits, we may also be required to indemnify certain planning committees in respect of claims against them relating to the depreciation of property values that result from the granting of permits for antenna sites, which may have a material adverse effect on our financial condition and results of operations".

Other Approvals

The construction of our antennas may be subject to the approval of the Civil Aviation Administration which is authorized to ensure that the construction of our antennas does not interfere with air traffic, depending on the height and location of such antennas. The approval of the Israeli Defense Forces is required in order to coordinate site frequencies so that our transmissions do not interfere with the communications of the Israel Defense Forces.

We, like other mobile telephone operators in Israel, provide repeaters, also known as bi-directional amplifiers, to subscribers seeking an interim solution to weak signal reception within specific indoor locations. In light of the lack of a clear policy of the local planning and building authorities, and in light of the practice of the other mobile telephone operators, we have not requested permits under the Planning and Building Law for the repeaters. However, we have received from the Ministry of Communications an approval to connect the repeaters to our communications network. We have also approached the Ministry of the Environment, asserting that no permits are necessary for the repeaters, based on the Ministry's previous advice that permits are not necessary for devices with comparable levels of emission called "Fixed Cellular Terminals."

We have received approval from the Ministry of Communications for selling and distributing all of the handsets and other terminal equipment we sell. The Ministry of the Environment also has authority to regulate the sale of handsets in Israel, and under the new Non-Ionizing Radiation Law, certain types of devices, which are radiation sources, including cellular handsets, have been exempted from requiring an approval from the Ministry of Environment so long as the radiation level emitted during the use of such handsets does not exceed the radiation level permitted under the Non-Ionizing Radiation Law. Since June 15, 2002, we have been required to provide information to purchasers of handsets on the Specific Absorption Rate, or SAR, of the handsets as well as its compliance with certain standards pursuant to a regulation under the Consumer Protection Law. While, to the best of our knowledge, the handsets that we market comply with the applicable laws that relate to acceptable SAR levels, we rely on the SAR published by the manufacturer of these handsets and do not perform independent inspections of the SAR levels of these handsets.

In November 2005, a new procedure was adopted by the Ministry of Communications with regard to the importation, marketing, and approval for 2G and 2.5G handsets. Prior to the implementation of the new procedure, suppliers of 2G and 2.5G handsets in Israel were required to obtain an interim, non-binding approval of the handset type from the relevant mobile telephone operators before receiving final approval from the Ministry of Communications to supply such handsets in Israel to such operators. Under the new procedure, handsets that have already received the internationally recognized Global Certification Forum approval prior to their importation into Israel are now exempt from the requirement of receiving an interim, non-binding approval from the relevant mobile telephone operators in Israel. This could expose us to the risk that handsets not reviewed and approved by us may interfere with the operation of our network. The new procedures described above do not apply to 3G handsets, which still require mobile telephone operators to grant an interim, nonbinding approval to the Ministry of Communications before the Ministry grants its final approval in all circumstances.

In addition, this procedure also called for repaired handsets to comply with all applicable standards required for obtaining handset type approval, including standards relating to the safety, electromagnetic levels, and SAR levels. Under a December 2005 amendment to this procedure, in the event that the SAR level is not measured after the repair of a handset, the repairing entity is required to notify the customer by means of a label affixed to the handset that the SAR may have been altered following the repair, in accordance with the provisions relating to the form of such label set forth in the procedure. At present, a consultant has been retained by the Ministry of Communications to formulate a recommendation regarding the appropriate manner to implement the procedure for repairing handsets. In the course of the consultant's work, he has met with mobile telephone operators, including Partner. We intend to comply with the decision of the Ministry of Communications on this matter once a decision is published.

In April 2007, the Minister of Communications granted us the rights to use public grounds for the purpose of deploying and maintaining our transmission network, subject to the consent of the relevant local planning committees pursuant to an expedited approval process. As a result of these rights, we are exempt from applying for a building permit under the Planning and Building Law in connection with the deployment and maintenance of our transmission network in public grounds.

Liberalization of Handset Market

The Ministry of Communication announced in October 2005 its plans to increase competition in the cellular handset market by opening the market to competitors. We are unable at this point to assess how the market liberalization in the handset market would affect us, although we believe that such competition will not have a material affect on our business.

4C. Organizational Structure

We currently have three subsidiaries, Partner Future Communications 2000 Ltd., an Israeli corporation, Partner Land-Line Communications Solutions LLP, an Israeli limited partnership, and Partner Business Communications Solutions, LLP, an Israeli limited partnership (of which Partner Future Communications 2000 Ltd. serves as the general partner and the Company serves as the limited partner of each subsidiary), which are wholly-owned by us. We are an indirect subsidiary of Hutchison Telecom which as of April 15, 2007, held approximately 50.52% of our shares. Hutchison Telecom is a leading international provider of mobile and fixed-line telecommunications services with operations in eight markets.

4D. Property, Plants and Equipment

Headquarters

We lease our headquarter facilities in Rosh Ha-ayin, Israel, as follows:

(1) Main office at 8 Amal St. a building of 10,532 square meters plus 6,345 square meters mainly for parking. The lease agreement is for a 20 year period commencing on June 1998. We have an option to shorten the lease period by 3.5 to 8.5 years.
(2) Main office at 6 Amal St. a building of 9,172 square meters plus 14,877 square meters of parking and service areas. In 2003, we increased our lease to 18,151 square meters and 14,877 square meters for parking and service areas. In 2004, we increased our lease to 19,000 square meters plus 14,877 square meters for parking and service areas. The lease agreement is for a 16 year period commencing in November 2002. We have an option to terminate the lease on May 31, 2012 or May 31, 2018.
(3) Main office at 10 Amal St. 2,468 square meters plus 500 square meters of parking and service areas. The lease agreement is for an initial period of 24 months commencing in December 2002. We have an option to continue the lease period for seven additional periods of 24 months each. The lease for the main office at 10 Amal St. renews automatically at the end of each term.

We lease a call center at 5 Kornas St. in Haifa–a building of 2,525 square meters. The lease agreement is for a 5 year period commencing in November 2001. We have the option to extend the lease period for 6 years.

Network Sites

We lease most of the sites where our mobile telecommunications network equipment is installed throughout Israel. At December 31, 2006, we had 2,283 antenna sites (including micro-sites). The lease agreements relating to our cell sites are generally for periods of two to three years. We have the option to extend the lease periods up to ten years (including the original lease period).

The operation of most of these antenna sites requires building permits from local or regional zoning authorities, as well as a number of additional permits from governmental and regulatory authorities, and we have had difficulties in obtaining some of these permits. Difficulties obtaining required permits could continue and therefore affect our ability to maintain antenna sites. See "Item 3. Key Information – 3D. Risk Factors – We have had difficulties obtaining some of the permits for which we have applied, and have not yet applied for other permits that are required for the erection of our antenna sites. These difficulties could continue and therefore affect our ability to erect or maintain antenna sites. This could have an adverse effect on the extent, quality and capacity of our network coverage and may result in criminal or civil liability to us or to our officers and directors."

Service Centers and Points of Sale

Lease agreements for our retail stores and service centers are for periods of two to five years. We have the option to extend the lease agreements for different periods of up to twenty additional years (including the original lease period). The average size of our retail stores and service center is approximately 230 square meters. See also Note 7a(3) to our consolidated financial statements.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following operating and financial review and prospects are based upon and should be read in conjunction with our financial statements and selected financial data, which appear elsewhere in this report. You should also read the risk factors appearing in this annual report for a discussion of a number of factors that affect and could affect our financial condition and results of operations.

5A. Operating Results

Overview

We were formed in September 1997. We submitted our bid to the Ministry of Communications for our license on October 28, 1997. The Ministry of Communications awarded us our license on April 7, 1998, and we began full commercial operations to the general public in January 1999.

In December 2001 we were awarded additional spectrum: second generation ("2G") band (1800 MHz) and third generation ("3G") UMTS band (1900 MHz and 2100 MHz). We commercially launched our 3G network in December 2004. See "Item 4A. Information on the Company–History and Development of the Company" for significant events since we commenced commercial operations and "Item 5B. Liquidity and Capital Resources" for information on the costs required to build and expand our network and services.

The attached table is a summary of selected financial and operating data for each of the years ended December 31, 2006, 2005, 2004, 2003 and 2002:

	2002	2003	2004	2005	2006

Revenues (NIS million)	4,055	4,468	5,141	5,123	5,607
Operating profit (NIS million)	533	855	1,019	903	1,218
Income before taxes (NIS million)	84	530	759	557	1,052
Net income (NIS million)	84	1,163	472	355	682
Capital expenditures, net (NIS million)	556	232	601	486	488
Cash flow provided by (used in) operating activities
net of investment activities (NIS million)	(134)	655	599	460	775
Subscribers (thousands)	1,837	2,103	2,340	2,529	2,668
Annual churn rate (%)	10.9%	13.6%	12.0%	13.6%	15.6%
Average monthly usage per subscriber (in minutes)	280	277	286	294	311
Average monthly revenue per subscriber (NIS)	183	171	170	156	158

Revenues

Our principal source of revenues is from the sale of network services, primarily network airtime usage fees, and is denominated primarily in shekels. In 2006, as in each of 2005 and 2004, over 50% of network airtime usage fees were derived from outgoing calls, with the remainder generated from incoming calls, roaming and value-added services. We also derive revenues from sales of handsets, car kits, accessories and handset maintenance services to subscribers as well as other services. Network airtime usage fees are derived from subscribers originating calls on our network and payments received from other telecommunications network operators, both local and international, for delivering calls originating on their networks and terminating on our network. We recognize revenues from airtime usage and other services at the time we provide the service to the subscriber. We recognize revenues from handset sales, car kits and other equipment only upon delivery and the transfer of ownership to the subscriber.

Cost of Revenues

Our principal components of cost of revenues are:

y interconnect fees paid to the fixed-line and other telecommunication network operators in Israel and charges paid to foreign GSM network operators;
y handset and car-kit costs;
y depreciation of our network and amortization of our license;
y salaries and related expenses, including compensation related to employee stock option plans;
y leases;
y network maintenance;
y royalties paid to the Israeli Government under our license; and
y costs of replacing or repairing damaged handsets.

Selling and Marketing Expenses

Our principal components of selling and marketing expenses are:

y advertising and promotion;
y commissions to dealers; and
y salaries and related expenses, including compensation related to employee stock option plans.

General and Administrative Expenses

Our principal components of general and administrative expenses are:

y salaries and related expenses, including compensation related to employee stock option plans;
y professional fees and consultancy fees;
y insurance;
y depreciation and amortization; and
y provision for bad debts.

Financial Expenses

Our principal components of financial expenses are:

y interest on notes and bank loans;
y net hedging costs on foreign currency and CPI exposure; and
y exchange rate and linkage differences.

Key Business Indicators (Operating Data)

Our primary key business indicators are described below. These indicators are widely used in the cellular telephone service industry to evaluate performance:

y number of subscribers;
y average monthly revenue per subscriber (ARPU);
y average monthly minutes of usage per subscriber (MOU); and
y churn rate.

2006 Developments

In 2006, our revenues increased by approximately 9.4% over our revenues in 2005, despite continued reductions in interconnect tariffs during the year. To mitigate the effects of these reductions, we have continued our efforts to implement cost-cutting measures, including reducing distribution and advertising costs, to implement price increases and to repackage our tariff plans. We are not able to predict with certainty the effect of future regulatory changes, including the effect of the implementation of number portability, the possible reduction in roaming charges and how we will address these changes.

During 2006, the number of our 3G subscribers grew to approximately 276,000, more than doubling the number of our 3G subscribers at the end of 2005. As a result, we are seeing an increase in data and content revenues. In addition, our business subscribers increased from approximately 20% to almost 23% of our subscriber base while business customers accounted for 71% of the added net new active subscribers of 2006.

In July 2006, we acquired the transmission business of Med I.C.–1 (1999) Ltd., including its fiber-optic cable infrastructure comprising of a network of approximately 900 kilometers of submerged and terrestrial transmission fiber for approximately NIS 71 million (US $16.8 million). The acquisition will enable us to reduce our transmission costs as well as to provide some of our business customers with bundled services of transmission of data and voice. As of July 2006, the transmission activity has been included in the financial results.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. We also evaluate our estimates, on an ongoing basis. We base our estimates on historical experience and on various other assumptions and information 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.

Please refer to Note 1 to our consolidated financial statements included in this annual report for a summary of all of our significant accounting policies.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition

As described in Note 1j to our consolidated financial statements, we recognize service revenues as services are rendered, and revenues from sale of handsets and other equipment upon delivery. We recognize service revenues based upon minutes used, net of credits and adjustments for service discounts. Because our billing cycles use cut-off dates, which for the most part do not coincide with our reporting periods, we are required to make estimates for service revenues earned but not yet billed at the end of each reporting period. These estimates are based primarily upon historical data and trends. In certain cases, cellular handsets are sold to subscribers within the context of airtime packages, in order to divide the revenues into separate units of accounting, we are required to estimate the fair value of each deliverable. These estimates are based upon the price of each deliverable when it is sold on a stand alone basis. The amount allocable to the delivered item (the handset) is limited to the amount that is not contingent upon the delivery of any additional services under the contract (airtime services).

Actual billing cycle results and related revenue may vary, depending on subscriber usage and rate plan mix, from the results estimated at the end of each period.

Long-Lived Assets

We have substantial investments in tangible and intangible long-lived assets, primarily our communications network, our license and spectrum. 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. We amortize our communications network by the straight-line method, mainly over 6.7 years (15% per year). For instance, had the percentage of depreciation been decreased by 5%, our operating profit would increase by approximately NIS 124 million and had the percentage of depreciation increased by 5%, our operating profit would decrease by approximately NIS 114 million. We amortize our license by the straight-line method over the utilization period of the license, which is based upon the license period. During 2002, our license was extended by 14 years to 2022. Consequently, the amortized balance of our license is amortized as of 2002 over the period ending in 2022. We review our communications network, license and spectrum for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable through undiscounted future cash flows. If necessary, we write down the assets to their estimated fair values. No write-downs of our long-lived assets have been recorded since incorporation.

Allowance for Doubtful Accounts

We maintain allowance for doubtful accounts for estimated losses resulting from the inability of our subscribers to make required payments. We base our allowance on the likelihood of recoverability of accounts receivable based on the age of the balances, our historical write-off experience net of recoveries, changes in the credit worthiness of our customers, and collection trends. The allowance is periodically reviewed. The allowance charged to expenses is determined in respect of specific debts doubtful of collection, calculated as a specified percentage of the outstanding balance in each debt age group, with the percentage of the allowance increasing as the age of the debt increases. For example, a debt that is between 1 to 1.5 years overdue is reserved for at the rate of 82%. If we decreased our percentage of the allowance for all aging debts by 15%, our operating profit would increase by NIS 18 million. If we increased such percentage by 15%, our operating profit would decrease by NIS 12 million. The debt becomes fully reserved once it is at least 1.5 years overdue. Actual customer collections could differ from our estimates. For example, if the financial condition or our customers were to deteriorate, additional allowances may be required. Our bad debt expenses as a percentage of revenues were 0.4%, 0.6% and 0.5% for the years ended December 31, 2004, 2005 and 2006, respectively.

Results of Operations for the Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Revenues in 2006 were NIS 5,606.7 million (US $1,327 million), increasing by 9.4% from NIS 5,122.9 million in 2005.

Revenues in 2006 from services were NIS 5,027.3 million (US $1,189.9 million) in 2006, representing an increase of 8.8% from 2005 service revenues of NIS 4,619.9 million. Compared with 2005, total network minutes increased in 2006 by 13.2%, partially offset by a 5.5% dilution in the average tariff per minute including incoming calls. The increase in total network minutes was driven primarily by an expanding subscriber base which grew by 5.5% in 2006. The dilution in the average tariff per minute compared with 2005 was driven primarily by the reduction in interconnection tariffs which went into effect in March 2006, as well as by increased competition and the increased weight of business subscribers in our customer base. The average business subscriber generates substantially more minutes of use than post-paid private and prepaid subscribers, whilst their average tariff per minute is lower.

Revenues in 2006 from equipment were NIS 579.4 million (US $137.1 million), an increase of 15.2% from NIS 503 million in 2005. This increase was caused by an increase in the average revenue per sale, reflecting a higher proportion of 3G handset sales to new and upgrading subscribers, as well as an increase in the number of handsets sold to new and upgrading subscribers.

Data and content revenues, including SMS messages, totaled NIS 526.7 million (US $124.7 million) for 2006 as a whole, accounting for 9.4% of total revenues or 10.5% of service revenues, up from NIS 404.2 million, 7.9% of total revenues, or 8.7% of service revenues, in 2005, despite the mandated 49% reduction in SMS interconnection tariffs which went into effect in March 2006. The increase compared with 2005 was driven by data and content non-SMS service revenues, which increased by 36.1%. Revenues from SMS services in 2006 increased by 21.7% compared with 2005, despite the reduction in SMS interconnect tariffs from March 2006, as mandated by the Ministry of Communications. SMS messages accounted for approximately 38% of data and content revenues in 2006, compared with approximately 42% in 2005.

Cost of revenues in 2006 increased by 3.5% to NIS 3,897.3 million (US $922.4 million) from NIS 3,766.4 million in 2005.

Cost of revenues – services in 2006 increased by 2.1% to NIS 3,085.5 million (US $730.3 million), from NIS 3,022.5 million in 2005. The increase was primarily driven by higher variable airtime costs resulting from the growth in airtime usage, offset by lower depreciation, lower royalties, and efficiency measures taken by the Company.

Cost of revenues – equipment in 2006 increased by 9.1% to NIS 811.8 million (US $192.1 million) from NIS 743.9 million in 2005. The increase was driven primarily by the selling of more advanced and higher cost 3G handsets and an approximate 7% growth in sales transactions to new and upgrading subscribers.

Gross profit for 2006 was NIS 1,709.4 million (US$ 404.6 million), the equivalent of 30.4% of revenues, up by 26.0% from NIS 1,356.6 million, or 26.5% of revenues, in 2005.

Selling and marketing expenses in 2006 were NIS 307.6 million (US$ 72.8 million), an increase of 12.7% from NIS 272.9 million in 2005. The increase was primarily due to an increase in the sales force, which contributed to growth in sales transactions, as well as increases in distribution and advertising costs.

General and administrative expenses in 2006 were NIS 183.5 million (US$ 43.4 million), up by 1.5% from NIS 180.8 million in 2005, the increase primarily due to fees related to ensuring Sarbanes-Oxley Act compliance.

Operating profit for 2006 was NIS 1,218.4 million (US$ 288.4 million), an increase of 34.9% from NIS 902.9 million in 2005. As a percentage of revenues, operating profit increased from 17.6% in 2005 to 21.7% in 2006.

Financial expenses in 2006 were NIS 166.4 million (US$39.4 million), a decrease of 51.8% from NIS 345.4 million in 2005. The decrease is primarily attributed to one-off charges in 2005 including a NIS 63 million charge related to the redemption of the US$ 175 million 13% Senior Subordinated Notes in August 2005. The decrease also reflects lower interest expenses resulting from the refinancing of the Company's long term debt with lower cost CPI linked shekel-denominated debt, as well as lower expenses resulting from the lower average CPI level in 2006 of -0.1% compared with 2.4% in 2005.

Income before taxes for 2006 was NIS 1,052 million (US$ 249 million) up 88.7%- compared to NIS 557.5 million in 2005.

Following the ruling of the Supreme Court in November 2006 in the matter of Paz Gas Marketing Company Ltd. and Others vs. the Assessing Officer and Others, which overturned the rules regarding the recognition of financing expenses, the Company included in its financial statements an additional provision of taxes in the amount of NIS 35 million. This provision is an estimate of the additional tax expense relating to the possibility that part of the financing expenses accrued in the years 2005 and 2006 in respect of a financial debt, which is attributable, inter alia, to the financing of a repurchase of Company shares, will not be recognized as an expense for tax purposes. The Company believes that it has justifications for the recognition of these expenses for tax purposes, or part of them. The Company is examining the possible effects of the ruling, if any, on its policies in the future.

Net income in 2006 was NIS 682.3 million (US$ 161.5 million) or earnings of NIS 4.44 (US$ 1.05) per basic ADS or share (NIS 4.41 per diluted ADS or share), representing a 92.4% increase from NIS 354.6 million, or earnings of NIS 2.19 per basic ADS or share (NIS 2.17 per diluted ADS or share), in 2005.

During 2006, our net active subscribers increased by 139,000, or 5.5%. The Company's subscriber base at the end of December 2006 was approximately 2,668,000, accounting for an approximate market share of 32%, including approximately 605,000 business subscribers or 23% of the base, approximately 1,282,000 postpaid private subscribers, or 48% of the base, and approximately 781,000 prepaid subscribers, or 29% of the base. Of the Company's subscriber base, approximately 276,000 were 3G subscribers. Net new active subscribers in the business sector accounted for approximately 71% of net new active subscribers in the year.

The annual churn rate in 2006 increased to 15.6% up from 13.6% in 2005. The increase was primarily related to the prepaid sector.

Average monthly usage per subscriber (MOU) for 2006 was 311 minutes, an increase of 5.8% compared with 294 minutes in 2005. Average monthly revenue per subscriber (ARPU) in 2006 was NIS 158 (US$ 37.4), an increase of 1.3% compared with NIS 156 in 2005, despite the reduction in interconnection charges mandated by the Ministry of Communications in March 2006.

Results of Operations for the Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004

Revenues in 2005 were NIS 5,122.9 million, down 0.3% from NIS 5,140.7 million in 2004.

Revenues in 2005 from services were NIS 4,619.9 million, approximately equal to the revenues from services in 2004 of NIS 4,615.8 million. Compared with 2004, total network minutes in 2005 increased by 12.8%, offset by a 12.9% dilution in the average tariff per minute including incoming calls. The increase in total network minutes was driven primarily by an expanding subscriber base which grew by 8.1% from the end of 2004 to the end of 2005. The dilution in the average tariff per minute compared with 2004 was driven primarily by the reduction in interconnection tariffs which went into effect in March 2005, as well as increased competition and the increased weight of business subscribers in our customer base. The average business subscriber generates substantially more minutes of use than post-paid private and prepaid subscribers, whilst their average tariff per minute is materially lower.

Revenues in 2005 from equipment were NIS 503.0 million, a decrease of 4.2% from NIS 525.0 million in 2004. The decrease in 2005, compared with 2004, was driven by a decrease in the average revenue per sale.

Data and content revenues, including SMS messages, in 2005 were NIS 404.2 million, accounting for 7.9% of total revenues or 8.7% of service revenues, up from NIS 351.1 million, or 6.8% of total revenues, 7.6% of service revenues, in 2004, despite the reduction in SMS interconnection tariffs. The increase in 2005, compared with 2004, was driven by data and content non-SMS service revenues which increased by 34.5%. Revenues from SMS services in 2005 decreased by 4.0% compared with 2004, reflecting the reduction in SMS interconnect tariffs from March 2005, as mandated by the Ministry of Communications. In 2005, SMS messages accounted for approximately 42% of data and content revenues, compared with approximately 50% in 2004.

Cost of revenues in 2005 increased by 4.2% to NIS 3,766.4 million from NIS 3,615.0 million in 2004.

Cost of revenues – services in 2005 increased by 4.8% to NIS 3,022.5 million, from NIS 2,885.1 million in 2004. The increase was primarily driven by the increased depreciation and amortization of over NIS 100 million which was recorded following the launch of the 3G network towards the end of 2004 together with the additional network expenses associated with the 3G network.

Cost of revenues – equipment in 2005 increased by 1.9% to NIS 743.9 million from NIS 729.9 million in 2004. The increase was driven primarily by the marketing of more advanced and higher cost handsets and approximately 5% growth in sales transactions to new and upgrading subscribers.

Gross profit for 2005 was NIS 1,356.6 million, the equivalent of 26.5% of revenues, down 11.1% from NIS 1,525.7 million, or 29.7% of revenues, in 2004. The decrease can be primarily attributed to the increased depreciation, amortization and network expenses related to the Company's 3G network.

Selling and marketing expenses in 2005 were NIS 272.9 million, a decrease of 16.1% from NIS 325.2 million in 2004. The decrease was principally due to reductions in distribution and advertising costs.

General and administrative expenses in 2005 were NIS 180.8 million, a decrease of 0.2% from NIS 181.1 million in 2004.The decreases in general and administrative expenses, as with the decreases in selling and marketing expenses, reflect cost-cutting measures the Company put in place as part of its plan to mitigate the effects of the inter-carrier termination rate reductions that were mandated by the Ministry of Communications.

Operating profit for 2005 was NIS 902.9 million, a decrease of 11.4% from NIS 1,019.3 million in 2004. As a percentage of revenues, operating profit decreased from 19.8% in 2004 to 17.6% in 2005. The decrease can be primarily attributed to the impact of the inter-carrier termination rate reductions that were mandated by the Ministry of Communications, as well as the increased depreciation, amortization and network expenses related to the Company's 3G network.

Financial expenses in 2005 were NIS 345.4 million , an increase of 32.6% from NIS 260.5 million in 2004. The increase was primarily driven by a one-off charge in the amount of NIS 63 million related to the redemption of the US$ 175 million 13% Senior Subordinated Notes on August 15, 2005, interest charges related to both the redeemed Notes and the new CPI-linked shekel-denominated Notes and a one-off amortization of capitalized expenses related to the Company's previous bank facility.

Income before taxes for 2005 was NIS 557.5 million down 26.5% compared to NIS 758.8 million in 2004.

Net income in 2005 was NIS 354.6 million or earnings of NIS 2.19 per basic ADS or share (NIS 2.17 per diluted ADS or share), representing a 24.8% decrease from NIS 471.6 million, or earnings of NIS 2.57 per basic ADS or share (NIS 2.56 per diluted ADS or share), in 2004. The decrease in 2005 net income compared with 2004 resulted primarily from the financial expenses related to the restructuring of the Company's debt, the impact of the inter-carrier termination rate reductions that were mandated by the Ministry of Communications, and the increased depreciation, amortization and network expenses related to the Company's 3G network.

During 2005, our net active subscribers increased by 189,000, or 8.1%.

As of December 31, 2005 our net active subscriber base was 2,529,000, accounting for an approximate market share of 32%. The Company's subscriber base at the end of December 2005 included approximately 507,000 business subscribers (20% of the base), approximately 1,268,000 postpaid private subscribers, (50% of the base), and approximately 754,000 prepaid subscribers, (30% of the base). Of the Company's subscriber base, approximately 103,000 were 3G subscribers. Net new active subscribers in the business sector accounted for approximately 39% of net new active subscribers in the year.

The annual churn rate in 2005 increased to 13.6% from 12.0% in 2004. The increase was primarily related to the prepaid sector.

Average monthly usage per subscriber (MOU) for 2005 was 294 minutes, an increase of 2.8% compared with 286 minutes in 2004. In 2005, average monthly revenue per subscriber (ARPU) was NIS 156 (US$ 33.9), a decrease of 8.2% compared with approximately NIS 170 in 2004. The decrease in ARPU is attributed primarily to the reduction in interconnection charges mandated by the Ministry of Communications, despite the increase in MOU.

Trends

In 2007, we expect to continue to grow our subscriber base compared with 2006, despite the highly penetrated telephone mobile market in Israel. We will continue to focus on retention efforts and on growing our 3G subscriber base. We expect strong growth in our 3G subscriber base to bring about growth in our data and content revenues. Despite the further decline in interconnect tariff rates as of March 2007, and despite the decline in revenues resulting from the new regulation regarding short calls to voicemail which went into effect in January 2007, we expect our total revenues to grow in 2007. For more information, see "Regulatory Developments" in "Item 4B. Information on the Company–Business Overview– Regulation."

We also expect that number portability, which is expected to be implemented during the year, will lead to higher retention costs, and a rise in churn rates following its implementation. However, barring any further adverse material regulatory decisions, we expect an increase in annual EBITDA in 2007, though at a lower rate of increase than in 2006.

We are acting to expand our offering of telecommunications services, including data transmission and domestic fixed-line services. In order to expand our offerings, we may consider acquiring businesses and technologies in areas complementary to our existing business. We believe that the Israeli telecommunications market will be characterized increasingly by service providers that can offer the bundling of telecommunications services in packages that are designed to attract and retain subscribers by meeting a wider range of their telecommunications needs.

Impact of Inflation and Exchange Rate Fluctuations

Substantially all of our revenues and a majority of our operating expenses are denominated in shekels. However, through December 31, 2006, a substantial amount of our operating expenses were linked to non-shekel currencies. These expenses related mainly to the acquisition of handsets where the price paid by us is based on various foreign currencies. In addition, most of our capital expenditures which are incurred in, or linked to, non-shekel currencies were denominated in US dollars and require US dollar interest payments. Thus, any devaluation of the shekel against the non-shekel currencies will increase the shekel cost of our non-shekel denominated or linked expenses. Such an increase may have an impact on our results, which may be material. We hedge a portion of our foreign currency commitments.

Although we have the ability to borrow under our bank credit facility in US dollars, our borrowings are in shekels, and most of our shekel bank borrowings and our Notes due 2012 are linked to the CPI. We may not be permitted to raise our tariffs pursuant to our license in a manner that would fully compensate for any increase in the CPI. Therefore, an increase in the rate of inflation may also have a material adverse impact upon us by increasing our financial expenses without an offsetting increase in revenue. We partly hedge the principal amount of our Notes due 2012 against adverse movement in the CPI.

5B. Liquidity and Capital Resources

The mobile telephone business is highly capital intensive, requiring significant capital to acquire a license and to, construct mobile telecommunications networks. The capital requirements of our network are determined by the coverage desired, the expected call traffic and the desired quality and variety of services. Network construction costs are mainly related to the number of cells in the service area, the number of radio channels in the cell and the switching equipment required.

Currently, our main sources of liquidity are:

y our cash on hand;
y our operating cashflows; and
y our senior credit facility.

Our senior credit facility currently consists of a $75 million term loan facility (in addition to an advance of approximately $11 million carried over from our previous facility) and a $75 million revolving loan facility, both maturing on September 1, 2009. Our credit facility is unsecured. Bank Hapoalim B.M., Bank Leumi Le-Israel B.M., Israel Discount Bank Ltd. and Mizrahi Tefahot Bank Ltd. are participating in the facility. At March 31, 2007, the balances available for drawing were approximately $19 million under Facility A, and $75 million under Facility B.

In March 2005, we completed the offering of our Notes due 2012, raising NIS 2.0 billion in a public offering in Israel. Of these, notes having an aggregate principal amount of approximately NIS 36.5 million were purchased by our wholly owned subsidiary Partner Future Communications 2000 Ltd., or PFC. PFC also received an additional allocation of notes having an aggregate principal amount of NIS 500 million. The notes that PFC received pursuant to this additional allocation do not confer the right to receive any payment whatsoever on account of principal or interest until they are sold by PFC to a third party*.* To date, no such notes have been sold to third parties and we are uncertain whether we will sell these notes to third parties at all.

The Notes are due 2012 and principal and interest payments are linked to the CPI. The annual interest on the notes is 4.25% payable quarterly. Quarterly principal repayments will begin in June 2009. The notes were rated AA- by Maalot, and Aa2 by Midroog, two of Israel's rating agencies. We used the net proceeds from the offering to pay down some of our existing credit facility, to repurchase up to 33.3 million shares from our founding Israeli shareholders and to redeem our 13% Senior Subordinated Notes due 2010. These 13% Senior Subordinated Notes due 2010 were originally issued in August 2000.

In April 2005, we repurchased approximately 33.3 million of our shares pursuant to an offer received from our founding Israeli Shareholders in February 2005. These shareholders held together approximately 22.5% of the Company's outstanding shares at the time of the offer. As a result of the repurchase, the collective shareholdings of the founding Israeli shareholders were reduced to approximately 5.4% of our issued and outstanding share capital. The price per share at which these shares were acquired was NIS 32.22 per share. The total consideration paid for the shares was approximately NIS 1,074 million. We cancelled the repurchased shares.

In August 2005, we redeemed the outstanding US $175 million 13% Senior Subordinated Notes due 2010. According to the terms of the notes, the redemption price was 106.5% of the principal amount, or $186.375 million. The redemption, which we financed from our new bank facility and funds generated from current operations, concluded the refinancing of our long term debt into lower cost CPI linked shekel-denominated debt.

In the third quarter of 2005, our board of directors and shareholders approved the distribution of our first cash dividend, in the amount of NIS 0.57 per share, totaling approximately NIS 86.4 million.

During 2006, we distributed cash dividends to our shareholders in the amount of NIS 307 million. In January 2007, the board of directors approved the distribution of a cash dividend in the amount of NIS 1.28 per share (approximately NIS 200 million ($47 million)) to shareholders of record as of February 20, 2007. Cash dividends are paid in Israeli currency. For further information please see "Item 8A Consolidated Financial Statements and other Financial Information – Dividend Distribution Policy".

In July 2006, we completed the acquisition of the transmission business of Med I.C.–1 (1999) Ltd. including its fiber-optic cable infrastructure comprising of a network of approximately 900 kilometers of submerged and terrestrial transmission fiber for approximately NIS 71 million ($16.8 million).

Cash flows generated from operating activities in 2006 (NIS 1,223.5 million or US $289.46 million), net of cash flows from investing activities (NIS 448.7 million or US $106.2 million), were NIS 774.8 million (US $183.4 million), an increase of 68.6%. Cash flows generated from operating activities in 2005 (NIS 1,006.3 million), net of cash flows from investing activities (546.7 million) totaled NIS 459.6 million. The increase was primarily due to an increase in cash flows from operating activities, combined with a decrease in the level of investment in fixed assets.

From January 1, 2004 to December 31, 2006, we made cumulative net capital expenditures of approximately NIS 1,575 million, of which NIS 488 million (US $115 million) was incurred in 2006. We expect that capital expenditures for our network will continue to represent the largest portion of our total capital expenditures over the next few years. We expect capital expenditures, in 2007 to be approximately the same as in 2006.

We believe that funds from our operations, together with funds raised under our credit facility and our cash on hand will provide us with enough liquidity and resources to fund our expected capital expenditure needs, as well as our obligations under our financing agreements, our license payments and our other material commitments, at least for the next 12 months. However, the actual amount and timing of our future requirements may differ materially from our estimates.

5C. Research and Development, Patents and Licenses

We are primarily a user rather than a developer of technology. Accordingly, we did not engage in any significant research and development activities during the past three years.

5D. Trend Information

See "Trends" in Item 5A. Results of Operations for the Year Ended December 31, 2006, Compared to the Year Ended December 31, 2005" above.

5E. Off-Balance Sheet Arrangements

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

5F. Aggregate Contractual Obligations

Set forth below are our contractual obligations and other commercial commitments as of December 31, 2006:

			Payments Due by Period (NIS in thousands)
Contractual Obligations	Total	less than 1 year	1-3 years	3-5 years	more than 5 years

Long-Term Debt*	2,323,985*	35,099	776,610	1,344,244	168,032
Capital Lease Obligations	11,315	5,085	6,230	-	-
Operating Leases	968,626	170,723	274,683	172,886	350,334
Contribution to funds in respect of
Employee rights upon retirements	32,000	32,000	-	-	-
Handsets	164,000	164,000	-	-	-
Fixed Assets	249,000	249,000	-	-	-
Other Long-Term Obligations	-	-	-	-	-
Total Contractual Cash Obligations	3,748,926	655,907	1,057,523	1,517,130	518,366

* This table does not include payments of interest on our Long-Term Debt. Interest on our Notes due 2012, which represents NIS 2,016,378 of our Long-Term Debt is at 4.25% per annum, linked to changes in the CPI. Our remaining Long-Term Debt consists of NIS 181,208 with interest of 5.8%, linked to the CPI, and NIS 126,500 with variable interest based on the Prime Rate minus 0.5%, not linked to the CPI.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6A. Directors and Senior Management

Below is a list of the Directors of the Company as of May 1, 2007:

Directors

Name of Director	Age	Position

Fok Kin-ning, Canning	55	Chairman of the board of directors
Dr. Michael J. Anghel (2)(4)	68	Director
Chan Ting Yu (1)(3)	56	Director
Chow Woo Mo Fong, Susan	53	Director
Uzia Galil	81	Director
Erez Gissin (1)(2)	48	Director
Dennis Pok Man, Lui (1)(3)	56	Director
Pesach Shachar (1)	73	Director
Amikam Shorer	39	Director
Frank John Sixt	55	Director
Moshe Vidman (1)(2)(3)(4)	63	Director

(1) Member of the Executive Committee of the board of directors.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

(4) External Director under the Companies Law.

Fok Kin-ning, Canning has been a director of Partner since May 1998 and the Chairman of its board of directors since that time. Mr. Fok has been an Executive Director of Hutchison Whampoa Limited since 1984 and its Group Managing Director since 1993. He also serves as the Chairman of Hutchison Harbour Ring Limited, Hutchison Telecommunications International Limited, Hutchison Telecommunications (Australia) Limited, and Hongkong Electric Holdings Limited and Ommanney Holdings Limited (formerly Hutchison Telecommunications Limited) (the holding company of the telecommunications interests of Hutchison Whampoa Limited), In addition, Mr. Fok is the Co-Chairman of Husky Energy Inc. and the Deputy Chairman of Cheung Kong Infrastructure Holdings Limited. He is also a Director of Cheung Kong (Holdings) Limited. Mr. Fok holds a Bachelor of Arts degree from St. John's University in Minnesota, United States and a diploma in financial administration from the University of New England in Australia. He is a member of the Australian Institute of Chartered Accountants. Mr. Fok was nominated as a director, and as the Chairman of the board of directors, by Advent Investments Pte Ltd.

Dr. Michael J. Anghel became a director of Partner in March 2006. From 1977 to 1999, he led the Discount Investment Corporation Ltd. (of the IDB Group) activities in the fields of technology and communications. Dr. Anghel was instrumental in founding Tevel, one of the first Israeli cable television operators and later in founding Cellcom – the second Israeli cellular operator. In 1999 he founded CAP Ventures, an advanced technology investment company. From 2004 to 2005, Dr. Anghel served as CEO of DCM, the investment banking arm of the Israel Discount Bank. He has been involved in various technology enterprises and has served on the boards of directors of various major Israeli corporations and financial institutions including Elron, Elbit, Nice, Gilat, American Israeli Paper Mills, Maalot (the Israeli affiliate of Standard and Poor's) and Hapoalim Capital Markets. He currently serves on the boards of directors of Syneron Medical Ltd., ECI Telecom Ltd. and Scopus Ltd. Prior to launching his business career, Dr. Anghel served as a full-time member of the Recanati Graduate School of Business Administration of the Tel Aviv University, where he taught finance and corporate strategy. He currently serves as Chairman of the Tel Aviv University's Executive Program. Dr. Anghel holds a B.A. (Economics) from the Hebrew University in Jerusalem and an M.B.A. and Ph.D. (Finance) from Columbia University in New York.

Chan Ting Yu was a director of Partner from October 1997 to March 2000 and became a director again in May 2001. He is a member of the Executive Committee and the Compensation Committee. Mr. Chan is an Alternate Director of Hutchison Telecommunications International Limited. Since joining the Hutchison Whampoa group, he has been closely involved in the management and development of Hutchison's telecommunications business internationally. Mr. Chan holds a degree in Law and Arts (Maths), as well as a Postgraduate Certificate in Laws. Mr. Chan was nominated as a director, and as a member of the Executive Committee, by Advent Investments Pte Ltd.

Chow Woo Mo Fong, Susan has been a director of Partner since August 1998. Mrs. Chow has been an Executive Director of Hutchison Whampoa Limited since 1993 and its Deputy Group Managing Director since 1998. Mrs. Chow is also an Executive Director of Cheung Kong Infrastructure Holdings Limited, Hutchison Harbour Ring Limited and Hongkong Electric Holdings Limited and a Director of Hutchison Telecommunications (Australia) Limited, and TOM Group Limited and Ommaney Holdings Limited (formerly Hutchison Telecommunications Limited). She is also an alternate director of Hutchison Telecommunications International Limited and TOM Online Inc. She is a solicitor and holds a Bachelor's degree in Business Administration. Mrs. Chow was nominated as a director by Advent Investments Pte Ltd.

Uzia Galil has been a director of Partner since August 1999. Mr. Galil currently serves as Chairman and Chief Executive Officer of Uzia Initiatives and Management Ltd., a company specializing in the promotion and nurturing of new businesses associated with mobile communication, electronic commerce and medical information media, which he founded in November 1999. From 1962 until November 1999, Mr. Galil served as President and Chief Executive Officer of Elron Electronics Industries Ltd., an Israeli high technology holding company, which he founded and of which he also served as Chairman of the board of directors. From January 1981 until leaving Elron, Mr. Galil also served as Chairman of the board of directors of Elbit Ltd., an electronic communication affiliate of Elron, and as a member of the boards of directors of Elbit Systems Ltd., a defense electronics affiliate of Elron, and all other private companies held in the Elron portfolio. Mr. Galil currently serves as a member of the boards of directors of Orbotech Ltd., NetManage Inc., and as Chairman of Zoran Corporation. From 1980 to 1990, Mr. Galil served as Chairman of the International Board of Governors of the Technion. Mr. Galil holds a M.S. in Electrical Engineering from Purdue University and a B.S. from the Technion. Mr. Galil has also been awarded an honorary doctorate in technical sciences by the Technion in recognition of his contribution to the development of science-based industries in Israel, an honorary doctorate in philosophy by the Weitzman Institute of Science, an honorary doctorate in engineering by Polytechnic University, New York, and an honorary doctorate from the Ben-Gurion University of the Negev in Israel and the Solomon Bublick prize laureate from the Hebrew University of Jerusalem. In 1997 he was awarded the prestigious Israel Prize for his contribution to the development of the Israeli hi-tech industry. Until April 20, 2005, Mr. Galil had been a director nominated by Elbit.COM. Since then, Mr. Galil serves as a director on behalf of Advent Investments Pte Ltd.

Erez Gissin has been a director of Partner since August 1998 and is currently a member of the Executive Committee and the Audit Committee. Since April 2005, Mr. Gissin has been a private investor through his management and investment company. For the prior five years, Mr. Gissin has been the CEO of IP Planet Network Ltd., an Israeli telecommunication company providing satellite broadband services. Previously, he was the Vice President of Business Development of the Eurocom Group, an Israeli leader in telecom and internet products and services. Mr. Gissin holds a Bachelor of Science in Industrial Engineering from Tel Aviv University and an MBA degree from Stanford University, California. Until April 20, 2005 Mr. Gissin had been a director nominated by Eurocom. Since then and until September 12, 2005, Mr. Gissin served as a director and member of the Executive Committee, on behalf of Advent Investments Pte Ltd. Since then, Mr. Gissin has been an independent director and serves on the Executive Committee and the Audit Committee of the Company.

Dennis Pok Man Lui has been a director of Partner since April 2004 and is the Chairman of the Executive Committee and the Chairman of the Compensation Committee. Mr. Lui is an Executive Director and the Chief Executive Officer of Hutchison Telecommunications International Limited. He first joined Hutchison Paging International Limited in 1986 and became its managing director in 1993. He was the managing director of Hutchison Telecommunications (Hong Kong) Limited in charge of the mobile telecommunications, fixedline, multi-media, internet and paging businesses in Hong Kong, China, Taiwan and Macau from January 1996 to April 2000. Mr. Lui rejoined the Hutchison Whampoa group in May 2001 as group managing director of HTI (1993) Holdings Limited ("HTI") overseeing all the operations and new business development of the HTI group. He holds a Bachelor of Science Degree from the University of Oregon. Mr. Lui was nominated as a director, and as a member of the Executive Committee, by Advent Investments Pte Ltd.

Pesach Shachar has been a director of Partner since May 1998 and is a member of the Executive Committee. For 21 years he was the General Manager, founder, and a shareholder in Nogay Ltd., a telecommunications consulting firm active in numerous high-tech projects in Israel and overseas. In that capacity, he advised Hutchison on the prospects in the cellular market in Israel, established the Partner shareholder consortium and advised Hutchison on the bidding for the license and launch of operations. Mr. Shachar served 28 years in the Israel Defense Forces Signal Corps and Air Force/Telecommunications, reaching the rank of Colonel. Mr. Shachar was nominated as a director, and as a member of the Executive Committee, by Advent Investments Pte Ltd.

Amikam Shorer has been a director of Partner since June 2005. He was nominated as director by our Israeli founding shareholders. Mr. Shorer has served as executive Vice President of Business Affairs and the General Counsel of Eurocom Group, an Israeli leader in telecom and internet products and services, since 2000. Mr. Shorer also serves as a director in several companies within the Eurocom Group. Mr. Shorer holds an LLB degree from Bar-Ilan University.

Frank John Sixt has been a director of Partner since May 1998. Mr. Sixt has been an Executive Director of Hutchison Whampoa Limited since 1991 and its Group Finance Director since 1998. He is the Chairman of TOM Group Limited and TOM Online Inc. He is also an Executive Director of Cheung Kong Infrastructure Holdings Limited and Hongkong Electric Holdings Limited and a Director of Cheung Kong (Holdings) Limited, Hutchison Telecommunications International Limited, Hutchison Telecommunications (Australia) Limited, and Husky Energy Inc., and Ommaney Holdings Limited (formerly Hutchison Telecommunications Limited). He holds a Bachelor of Arts degree and a Master of Arts degree from McGill University and a Bachelor's degree in Civil Law from the University of Montreal, and is a member of the Bar and of the Law Society of the Provinces of Quebec and Ontario, Canada. Mr. Sixt was nominated as a director by Advent Investments Pte Ltd.

Moshe Vidman has been a director of Partner since October 2003. Mr. Vidman is the Revlon representative in Israel and serves as a director of the following companies: Israel Corporation Ltd., ICL – Israel Chemical Ltd., Rotem Amfert Negev Ltd., Dead Sea Works Ltd., Jafora-Tabori Ltd., Rosebud Medical Ltd., Bank Leumi Le'Israel Ltd., Melisron and Ofer Brothers Properties (1957) Ltd. Since 2000 Mr. Vidman is the Revlon Representative in Israel. Mr. Vidman is also a member of the board of directors and a member of Executive Committee of the Jerusalem Foundation. He also serves as a member of the Board of Governors and the Chairman of the Endowment Fund Committee and Chairman of the assets Company of the Hebrew University. Previously he held various positions at the Ministry of Education and Culture. From 1978 until 1983 Mr. Vidman served as the Deputy Accountant General in the Ministry of Finance. From 1983 until 1990 he served as the President and Chief Financial Officer of Aryt Optronics Ltd., a hi-tech company which developed optics and laser applications for military and medical use. From 1990 until 1999 Mr. Vidman was the Managing Director of Revlon Israel and until March 1999 he served as a director of Koor Industries and Chairman of its Investment Committee. He also served as Chairman of the Executive Committee of Africa-Israel Ltd. and as the Chairman of the board of directors of Africa-Israel Hotels.

Senior Management

Below is a list of the Senior Management of the Company as of May 1, 2007.

Name of Officer	Age	Position

David Avner	55	Chief Executive Officer
Emanuel Avner	47	Chief Financial Officer
Iris Beck	41	Vice President, Marketing
Chaim Beker	62	Vice President, Operations
Alon Berman	46	Vice President, Technologies
Adi Biran	63	Vice President, Regulation and New Business Development
Michal Dana	51	Vice President, Human Resources and Operations
Dan Eldar	53	Vice President, Carrier, International and Investor Relations
Eli Glickman	45	Vice President, Customer and Private Sales Division
Roly Klinger	47	Vice President, Chief Legal Counsel and Joint Company Secretary
Gil Rosenfeld	41	Vice President, Business Division
Edith Shih	54	Joint Company Secretary

David Avner was appointed Chief Executive Officer on January 1, 2007, having served as Deputy CEO since April 2005 and Chief Operating Officer since January 2006. Prior to joining the Company, Mr. Avner served as Senior Vice President of Operations and Member of the executive management at Amdocs Limited. Previously, he served at Amdocs as Group President Europe and LATAM & Member of Management. Prior to that, Mr. Avner served at Strauss Dairy Ltd. for 17 years, the last four as General Manager of the Dairy Division. He was also the General Manager of Strauss Ice Creams Ltd., and Manager of Information Systems at Strauss Dairy Ltd. Mr. Avner also served as Active Director of Yotvata Dairies Subsidiary since 1998. He holds a Bachelor of Arts degree in Mathematics/Computer Sciences and Philosophy from Haifa University in Israel and an MBA degree from the Technion, Israel Institute of Technology. David Avner and Emanuel Avner are not related.

Emanuel Avner was appointed Chief Financial Officer of Partner as of July 2006. Previously he served as Vice President and Chief Financial Officer of Blue Square – Israel Ltd., an Israeli food retailer traded on the New York Stock Exchange, since November 2003. Mr. Avner served from 1999 until October 2003 as Chief Financial Officer of Ericsson Israel. From 1993 to 1999, he served as Corporate Controller and Deputy CFO of Super Sol Ltd. Mr. Avner is a CPA (member of the American and Israeli Institute of Certified Public Accountants) and holds a Masters in Business Administration (1st Class Honors) and a BA in Economics and Accounting from the Hebrew University of Jerusalem. David Avner and Emanuel Avner are not related.

Iris Beck was appointed Vice President, Marketing in December 2002. Prior to joining the Company, she served as General Manager of Lever Israel (local subsidiary of Unilever). Ms. Beck worked at Lever Israel from 1996 and held senior positions such as Marketing Director and Technical Director before her appointment as General Manager. Ms. Beck worked as Brand Manager at Strauss Ice Cream from 1993 to 1996, and as Project Controller at Kulick & Soffa from 1991 to 1993. Ms. Beck holds a Bachelor's degree in Economic Science (with distinction) from Haifa University, and Master of Arts degree in Marketing (with distinction) from Bar-Ilan University. Ms. Beck will conclude her service with the Company at the beginning of 2008.

Chaim Beker was appointed as Vice President Operations in January 2004. Since 1998, Mr. Beker has served in a number of positions at Partner, such as: Administration and Purchasing Manager and Deputy Vice President Operations. From 1974 to 1984 Mr. Beker served as Vice President Administration of ARKIA. From 1984 he served as the CEO of several companies such as: Europcar, HaMashbir Agencies and Clal Israel. Mr. Beker holds a Bachelor's degree in Economics from the Hebrew University.

Alon Berman was appointed Vice President, Technologies in October 2004. Mr. Berman joined Partner as Deputy VP of Engineering in the Technologies division at the end of 2002, after serving 20 years in the Israeli Defense Forces, rising to the rank of Colonel and Head of Technical Department in the Communications Corps. Mr. Berman holds a bachelor degree in Electronic Engineering from the Technion – Israel Institute of Technology (1982), a Master Degree in Electronic Engineering (1991) and MBA (1994) from Tel Aviv University.

Adi Biran joined Partner in October 1997 and in April 1998 became Vice President, Regulation and New Business Development. Mr. Biran came to Partner from Elbit Ltd., where, since 1992, he headed their effort to enter the telecommunications market and in that capacity, guided their participation and managed the bid preparation process that resulted in Partner's mobile radio telephone license. Prior to joining Elbit, he was Managing Director of Efrat Future Technology Ltd., a subsidiary of Comverse Technology Inc. He completed his 20-year career in the Israel Air Force as a colonel and as chief of research and development. Mr. Biran holds a Bachelor's degree in Aeronautical Engineering with distinction from the Israel Institute of Technology (Technion), Haifa, Israel.

Michal Dana serves as Vice President, Human Resources and Operations since May 2006. She worked at Amdocs since 2002, where she served first as the Director of Human Resources for Amdocs' European and Latin American division, and from 2005 as the Vice President of Human Resources, overseeing the worldwide customer business group for all human resource activities in Europe, Asia Pacific, and Latin America. From 2000 to 2002, Ms. Dana served as the Vice President of Human Resources for Bungee Communications, a start-up wireless broadband telecommunications company. Before that, she served from 1999-2000 as the Director of Human Resources for the Carmel Containers Systems Group, from 1996-1999 as the Director of Human Resources for the Caesarea Development Corporation, and from 1980-1996 as the Senior Human Resource Consultant for Pilat international consulting group. She holds a B.A. in Social Science from the Open University in Israel.

Dan Eldar serves as Vice President, Carrier, International and Investor Relations for Partner. He is also responsible for strategic planning. Dr. Eldar joined Partner in April 1998. Since 1989, Dr. Eldar has served as the managing director of an Israeli consulting firm specializing in strategic planning, negotiation and project management. Dr. Eldar has managed many large-scale projects in the telecommunications and semiconductor industries, as well as in other areas. He holds PhD and M.A. degrees from Harvard University and M.A. and B.A. degrees from the Hebrew University, Jerusalem. Dr. Eldar will conclude his service as Vice President with the Company as of December 31, 2007.

Eli Glickman, Vice President, Customer and Private Sales Division**,** joined Partner in 2005. He served as the CEO from 2003 to 2005 of Exel-Multi Purpose Logistics. From 1999 until 2002 Mr. Glickman served as a Naval Attache at the Embassy of Israel in Washington D.C. US**.** Prior to that he served in the Israeli Navy including a position as a commanding officer of the Israel Navy Commandos (SEALS) from 1997-1999, as well as other positions from 1979 until 1999**.** From 2004 until 2006, Mr. Glickman served as a director of Bank Ha'atzmaut. Mr. Glickman holds a Master of Science in Financial Management from the US Naval Postgraduate School and also studied International Executive Business Administration at Georgetown University in Washington, D.C.

Roly Klinger, Vice President, Chief Legal Counsel and Joint Company Secretary, joined Partner in August 1998. From 1993, she served as Legal Advisor and Corporate General Secretary of Keshet Broadcasting Ltd., which holds an operating franchise for Israel's first commercial television channel. Previously, while practicing in the private sector, she lectured on communications law at the College of Management–Academic Studies, Tel-Aviv. Ms. Klinger received an LL.B degree from Tel Aviv University and is admitted to the Israel Bar.

Gil Rosenfeld, Vice President, Business Division, joined Partner in 2006. Previously, he worked for HP Israel and HP Europe 1998-2006 during which he held the positions of Country Managing Director, Personal Systems Sales Director, Personal Systems Group Country Manager and Country Sales Manager. Before that he worked as the General Manager of Compaq Israel from 1996-1998. Before that he held the position of the Enterprise Systems Organizer, Enterprise District Sales Manager and Senior Sales Representative from 1990- 1996 for CMS, the HP distributor in Israel. Mr. Rosenfeld received an Honours Degree in Business Information Systems and before that he received a Bachelor of Commerce degree from the University of Witwatersand, South Africa.

Edith Shih has been the Joint Company Secretary of Partner since July 1998. Ms. Shih has been a senior manager of Hutchison Whampoa Limited since 1991, its Head Group General Counsel since 1993 and its Company Secretary since 1998. She is currently an executive director and the Company Secretary of Hutchison Harbour Ring Limited, an executive director of Hutchison International Limited and director of various Hutchison Whampoa group companies. She is also the Company Secretary of Hutchison Telecommunications International Limited and the Joint Company Secretary of Hutchison Telecommunications (Australia) Limited. She holds a Bachelor of Science and a Master of Arts degree from the University of the Philippines, a Master of Arts and a Master of Education degree from Columbia University, New York. She is qualified to practice law in Hong Kong, England and Wales and Victoria, Australia, and is a fellow of both the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Chartered Secretaries.

Resignations During 2006

Amikam Cohen, our Chief Executive Officer since the Company's commencement of operations, resigned as of December 31, 2006, and was replaced by David Avner, our Deputy CEO and Chief Operating Officer. Alan Gelman, the Company's Chief Financial Officer since January 2001, resigned as of July 2006, and was replaced by Emanuel Avner. Amnon Gideon resigned as Vice President, Human Resources and Operations and was replaced by Michal Dana in May 2006. Zion Ginat resigned as Vice President, Customers as of April 2007 and was replaced by Gil Rosenfeld, who was appointed as Vice President of the Business Division and Eli Glickman, who was appointed as Vice President of the Customer and Private Sales Division.

Dan Eldar will conclude his service as Vice President with the Company as of December 31, 2007 and Iris Beck will conclude her service with the Company at the end of the first quarter of 2008.

None of the above directors or members of senior management has any family relationship with any other director or senior manager of the Company. Senior managers are selected by the CEO with the approval of the board of directors for an indefinite term of office and may be removed by the board of directors at any time.

6B. Compensation

The aggregate compensation paid, and benefits in kind granted to or accrued on behalf of all our directors and senior managers for their services in all capacities during the year ended December 31, 2006 was approximately NIS 28 million ($6.64 million). In 2006 options were granted to our senior management under the 2004 Employee Stock Option Plan to purchase up to 250,000 of our ordinary shares at exercise prices of NIS 32.73 and NIS 33.58 per share. These options will expire by July 2016. For more information, see "Item 6E. Directors, Senior Management and Employees–Share Ownership–2004 Employee Stock Option Plan". Included in the above, the total amount set aside or accrued to provide pension, retirement or similar benefits on behalf of all our directors and senior managers during the year ended December 31, 2006 was approximately NIS 2.1 million ($0.5 million).

6C. Board Practices

References in this annual report to "external directors" are to those directors who meet the definition of external directors under the Companies Law, and references in this annual report to "independent directors" are to those directors who meet the definition of independence under applicable listing requirements of Nasdaq.

Terms of Directors

Directors are elected at the annual shareholders meeting to serve for three years, in the case of external directors under the Companies Law, or until the next annual meeting of the shareholders, in the case of other directors; or until their respective successors are elected and qualified, whichever occurs first, or in the case of Israeli directors, who are appointed by the founding Israeli shareholders upon a written notice signed by at least two of the founding Israeli shareholders who are the record holders of at least 50%of minimum Israeli holding shares, to the Company Secretary of his or her appointment, until their respective successors are elected upon such notice. An extraordinary meeting of the Company may elect any person as a director to fill an office which became vacant, or to serve as an additional member to the then existing board of directors, provided that the maximum number of seventeen directors is not exceeded, or to serve as an external director or an independent director, or if the number of the members of the board of directors is less than the minimum set in the Articles of Association. Any director elected in such manner (excluding an external director) shall serve in office until the coming annual meeting. The Articles of Association also provide that the board of directors, with the approval of 75% of the directors, may appoint an additional director to fill a vacancy or to serve as an additional member to the then existing board of directors provided that the maximum number of seventeen directors is not exceeded. The Company's Articles of Association provide that the board of directors may delegate all of its powers to committees of the board of directors as it deems appropriate, subject to the provisions of the Companies Law. No director has a service contract with the company or its wholly-owned subsidiaries providing for benefits upon termination of employment. Our officers serve at the discretion of the board of directors or until their successors are appointed. See "Item 4. Information on the Company – 4B. Business Overview – Regulation – Our Mobile Telephone License." for description of additional requirements of the composition of our board of directors and the appointment of its members.

Alternate Directors

Our Articles of Association provide that a director may appoint any individual to serve as an alternate director. An alternate director may not serve as such unless such person is qualified to serve as a director. In addition, no person who already serves as a director or alternate director of Partner may serve as the alternate director of another director of Partner. Under the Companies Law, an alternate director shall have all of the rights and obligations of the director appointing him or her, except the power to appoint an alternate. The alternate director may not act at any meeting at which the director appointing him or her is present. Unless the time period or scope of any such appointment is limited by the appointing director, such appointment is effective for all purposes and for an indefinite time, but will expire upon the expiration of the appointing director's term.

External Directors under the Companies Law

The Companies Law requires that Partner have at least two external directors on its board of directors. The election of an external director under the Companies Law must be approved by a general meeting of shareholders provided that either: (a) the majority of shares voted at the meeting, including at least one third of the shares of non-controlling shareholders voted at the meeting, vote in favor of such arrangement or (b) the total number of shares voted against such arrangement does not exceed one percent of the aggregate voting rights in the company.

The Companies Law further requires that at least one external director have financial and accounting expertise, and that the other external director(s) have professional competence, as determined by the company's board of directors. Under recently enacted regulations, a director having financial and accounting expertise is a person who, due to his or her education, experience and talents is highly skilled in respect of, and understands, business-accounting matters and financial reports in a manner that enables him or her to understand in depth the company's financial statements and to stimulate discussion regarding the manner in which the financial data is presented. Under the regulations, a director having professional competence is a person who has an academic degree in either economics, business administration, accounting, law or public administration or an academic degree or has other higher education, all in the main business sector of the company or in a relevant area for the board of directors position, or has at least five years experience in one or more of the following (or a combined five years' experience in at least two or more of the following): a senior position in the business management of a corporation with a substantial scope of business, a senior public officer or a senior position in the public service or a senior position in the field of the company's business.

Dr. Michael Anghel and Moshe Vidman are our external directors under the Companies Law.

Financial Experts under the Companies Law

In accordance with the Companies Law, Partner has determined that the minimum number of directors with "accounting and financial expertise" that Partner believes is appropriate, in light of the particulars of Partner and its activities, is three. Under the Companies Law, only one of such "experts" is required to be an external director. In accordance with its determination, Partner has three directors with "accounting and financial expertise."

Nasdaq Rule Exemptions

Under Nasdaq rules, companies that satisfy the definition of a "Controlled Company" may be exempt from certain regulatory requirements. The regulatory requirements which a "Controlled Company" is exempt from include (i) the requirement that a majority of the board of directors members must be independent; (ii) the requirement that the compensation committee must be comprised solely of independent directors, or that compensation of our senior management must be determined by a majority of the independent directors on the full board of directors; and (iii) the requirement that the nomination committee must be comprised solely of independent directors or that nominations must be made by a majority of the independent directors on the full board of directors.

A "Controlled Company" is defined as a company of which more than 50% of the voting power is held by an individual, group or another company. As Hutchison Telecom owns more than 50% of our outstanding ordinary shares, we fall under the definition of a "Controlled Company" and therefore we rely on the exemptions for a "Controlled Company" as provided under the Nasdaq rules. However, our board of directors may from time to time review this decision.

In addition, in connection with our adoption of our 2004 Employee Share Option Plan, we received an exemption from the Nasdaq requirement that issuers receive shareholder approval when establishing a stock option plan, purchase plan or other equity compensation arrangement pursuant to which stock may be acquired by officers, directors or consultants. In accordance with Israeli law, board of directors approval was obtained in connection with the adoption of the 2004 Employee Share Option Plan, and shareholder approval will be obtained when required under Israeli law, such as when options would be issued under the plan to directors or to office holders who hold a controlling interest in Partner.

In order to comply with the conditions and restrictions imposed on us by the Ministry of Communications, including in our License, in relation to ownership or control over us, under certain events specified in our articles of association, the board of directors may determine that certain ordinary shares are dormant shares. Consequently, we have received an exemption from the requirement set out in Nasdaq's Marketplace Rule 4351 that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the US Securities Exchange Act cannot be disparately reduced or restricted through any corporate action or issuance.

Executive Committee

Our Executive Committee was nominated by the board of directors on July 15, 1998. Our Executive Committee comprises members who are directors appointed by the board of directors from time to time. Subject to the provisions of the Companies Law, the Executive Committee is authorized to make all major decisions relating to the business affairs of Partner. The Executive Committee is authorized by the board of directors to approve contracts, commitments and other transactions up to a value determined by the board of directors from time to time. Ting Chan, Erez Gissin, Dennis Lui, Pesach Shachar, and Moshe Vidman are members of our Executive Committee.

Audit Committee

The Companies Law requires public companies, including Partner, to appoint an audit committee comprised of at least three board members, including all the company's external directors. The chairman of the board of directors, any director employed by the company or granting services to the company on a permanent basis, any controlling shareholder or any relative of a controlling shareholder may not be a member of the audit committee. The responsibilities of our audit committee under the Companies Law include identifying irregularities in the management of the company's business and approving related party transactions as required by law.

Pursuant to the rules of the Securities and Exchange Commission, or SEC, and the listing requirements of the Nasdaq Global Select Market, we are required to establish an audit committee consisting only of members who are independent of management, as defined by SEC rules and Nasdaq listing requirements. In accordance with the SEC and Nasdaq requirements, our audit committee is directly responsible for the appointment, compensation and oversight of our independent auditors.

The board of directors has determined that Moshe Vidman Michael Anghel and are an "audit committee financial experts" as defined by applicable SEC regulations. See "Item 16A. Audit Committee Financial Expert" below.

Our audit committee consists of three board of directors members, Moshe Vidman, Erez Gissin, and Dr. Michael Anghel, all of whom meet Nasdaq's definition of independent directors, and two of whom (Moshe Vidman and Dr. Michael Anghel) meet the Companies Law's definition of external directors. None of them is an affiliated person of Partner or has received any consulting, advisory or other compensatory fee from Partner, other than in their capacity as directors of Partner.

Compensation Committee

Our compensation committee consists of three board of directors members, of which one is an external, independent director. Subject to the requirements of the Companies Law, the compensation committee is responsible for evaluating and recommending to the board of directors (and to the audit committee, if so required under any applicable law) the total compensation package for the Company's Chief Executive Officer and all other officers; reviewing the results and procedures for the evaluation of the performance of other officers by the Company's Chief Executive Officer; making recommendations to the board of directors regarding any long-term incentive compensation or equity plans; and supervising the administration of the plans and periodically reviewing a comprehensive statement of executive compensation policy. Dennis Lui and Moshe Vidman, and Ting Chan are members of the compensation committee.

Security Committee

Pursuant to an amendment to our license from April 2005, a new board committee has been formed to deal with security matters. Only directors with the required clearance and those deemed appropriate by Israel's General Security Service may be members of this committee. The committee must consist of at least four members, who are subject to the clearance required from the Israeli General Security Service and at least one external director. Where any matter requires a board of directors' resolution and it is a security matter, then the committee should be authorized to discuss and to resolve such security matter and the resolution should bind the Company. However, in cases where the security matter concerned is a transaction with a related party, the transaction should be submitted for approval in accordance with the requirements of the applicable U.S law, the Israeli Companies Law and any other applicable laws, provided that, in any case, only directors with security clearance can participate in any forum which will deal with security matters. On April 12, 2005, our board of directors approved the formation of the Security Committee to consist of four Israeli directors, which are subject to Israeli security clearance and security compatibility to be determined by the General Security Service. Michael Anghel, Uzia Galil, Pesach Shachar, and Moshe Vidman are members of the Security Committee, subject to clearance by the Israeli General Security Service.

Internal Auditor

The Companies Law requires the board of directors of a public company to appoint an internal auditor nominated by the audit committee. A person who does not satisfy certain independence requirements may not be appointed as an internal auditor. The role of the internal auditor is to examine, among other things, the compliance of the company's conduct with applicable law and orderly business procedures. Our internal auditor is Mr. Yehuda Motro, formerly the internal auditor of the Tel Aviv Stock Exchange.

Fiduciary Duties of an Office Holder

The Companies Law governs the duty of care and duty of loyalty which an Office Holder has to the company. An "Office Holder" is defined in the Companies Law as a director, general manager, chief executive officer, executive vice president, vice president, or any other person assuming the responsibilities of any of the foregoing positions without regard to such person's title and other managers directly subordinate to the general manager.

The duty of loyalty requires the Office Holder to avoid any conflict of interest between the Office Holder's position in the company and personal affairs, and proscribes any competition with the company or the exploitation of any business opportunity of the company in order to receive personal advantages for him or herself or others. This duty also requires him or her to reveal to the company any information or documents relating to the company's affairs that the Office Holder has received due to his or her position as an Office Holder. The duty of care requires an Office Holder to act in a way that a reasonable Office Holder would act in the same position and under the same circumstances. This includes the duty to utilize reasonable means to obtain information regarding the advisability of a given action submitted for his or her approval or performed by virtue of his or her position and all other relevant information.

Approval of Related Party Transactions

Generally, under the Companies Law the compensation of an Office Holder who is a director, or the compensation of an Office Holder who holds a controlling interest in the company, requires the approval of the audit committee, the board of directors and the general meeting of the shareholders of the company. The Companies Law also requires that a transaction between the company and its Office Holder and also a transaction between the company and another person in which an Office Holder has a personal interest, requires the approval of the board of directors if such transactions are not extraordinary transactions, although, as permitted by law and subject to any relevant stock exchange rule, our Articles of Association allow the audit committee to approve, without the need for approval from the board of directors. If such transactions are extraordinary transactions (that is, a transaction other than in the ordinary course of business, otherwise than on market terms, or is likely to have a material impact on the company's profitability, assets or liabilities), in addition to audit committee approval, the transaction also must be approved by our board of directors, and, in certain circumstances, the shareholders of the company at a general meeting. Under the Companies Law, an extraordinary transaction between a public company and a person having control of the company or an extraordinary transaction between a public company and another person, in which a controlling member has a personal interest (including a private placement), must be approved by the audit committee, the board of directors and a meeting of the shareholders, provided that either: (a) the majority of shares voted at the meeting, including at least one third of the shares voted by shareholders who do not have a personal interest in the matter and who are participating in the voting, are voted in favor of such arrangement (abstentions shall not be included in the total of the votes) or (b) the total number of shares of the shareholders referred to in clause (a) voting against such arrangement does not exceed one percent of the aggregate voting rights of the company.

The Companies Law requires that an Office Holder promptly disclose any direct or indirect personal interest that he or his affiliates may have, and all related material information known to him, in connection with any existing or proposed transaction by the company. If the Office Holder complies with such disclosure requirements, the company may approve the transaction in accordance with the provisions of its articles of association and the Companies Law. Under the Companies Law, if the Office Holder has a personal interest in the transaction, the approval must confirm that the transaction is not adverse to the company's interest.

In most circumstances, the Companies Law restricts Office Holders who have a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee from being present at such meeting, participating in the discussions or voting on any such matter.

For information concerning the direct and indirect personal interests of certain of our Office Holders and principal shareholders in certain transactions, see "Item 7. Major Shareholders and Related Party Transactions."

Duty of a Shareholder

Under the Companies Law, a shareholder has a general duty to act in good faith towards the company and other shareholders and refrain from improperly exploiting his power in the company, particularly when voting in the general meeting of shareholders on (a) any amendment to the articles of association, (b) an increase of the company's authorized share capital, (c) a merger or (d) approval of transactions with affiliates which require shareholder approval. In addition, any controlling shareholder, any shareholder who knows that it possesses power to determine the outcome of a shareholder vote and any shareholder that, pursuant to the provisions of the articles of association, has the power to appoint an office holder in the company, is under a duty to act in fairness towards the company.

Indemnification

Our Articles of Association provide that Partner may indemnify an officer or director of Partner to the fullest extent permitted by the law. Without derogating from the foregoing, our Articles of Association specifically provide that Partner may indemnify an officer or director of Partner for liability or expense he incurs or that is imposed upon him as a result of an action or inaction by him (or together with other officers of Partner) in his capacity as an officer or director of Partner as follows:

(1) any financial liability incurred by, or imposed upon the officer or director in favor of a third party in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by the court; or
(2) reasonable litigation expenses, including legal fees, incurred by the officer or director or which he was ordered to pay by the court:
(a) in the context of proceedings filed against him by Partner or on Partner's behalf or by a third party; or
(b) in a criminal proceeding in which he was acquitted; or
(c) in a criminal proceeding in which he was convicted of a felony which does not require a finding of criminal intent.
(3) reasonable litigation expenses, including legal fees, incurred by the officer or director due to such investigation or proceeding conducted against him by an authority authorized to conduct an investigation or proceeding, relating to an offense which does not require criminal intent, within the meaning of the relevant terms in any law, and which:
- (a) ended without filing of an indictment against him and without the imposition of a financial liability as a substitute for a criminal proceeding; or
(b) ended without filing of an indictment against him but for which he was subject to a financial liability as a substitute for a criminal proceeding; or
(4) any other liability or expense in respect of which it is permitted or will be permitted under applicable law to indemnify an officer of Partner.

Our Articles of Association also permit us to undertake in advance to indemnify an officer or director with respect for items (2) and (3) above, or any other matter permitted by law. Our Articles of Association also permit us to undertake in advance to indemnify an officer with respect to item (1) above, provided however, that the undertaking to indemnify is restricted to events which in the opinion of the board of directors are anticipated in light of Partner's activities at the time of granting the obligation to indemnify, and is limited to a sum or measurement determined by the board of directors to be reasonable in the circumstances. The undertaking to indemnify must specify the events that, in the opinion of the board of directors, are expected in light of the Company's actual activity at the time of grant of the indemnification and the sum or measurement that the board of directors determines to be reasonable in light of the circumstances. Our Articles of Association also permit us to indemnify an officer or director after the fact for all kinds of events, subject to applicable law.

In no event may we indemnify an officer or director for:

(1) a breach of the duty of loyalty toward us, unless the officer or director acted in good faith and had reasonable grounds to assume that the action would not harm us;
(2) a breach of the duty of care if it was made intentionally or recklessly;
(3) an intentional act which was done to unlawfully yield a personal profit; or
(4) criminal fine or penalty imposed on him.

We have undertaken to indemnify our directors and officers, subject to certain conditions for (a) any financial obligation that is incurred by or imposed on such person in accordance with a judgment, including a judgment given in a settlement or judgment of an arbitration approved by the court, provided that such liability pertains to one or more events specified in the letter of indemnification, which in the opinion of the board of directors are anticipated in light of our activities at the time of granting the indemnification undertaking; (b) reasonable litigation expenses, including legal fees, that were incurred by such person or which the court obligates such person to pay in the context of a proceeding against such person that has been filed by us, on our behalf or by a third party, or in a criminal proceeding in which such person is acquitted or convicted, for an offense that does not require a finding of criminal intent; and (c) reasonable litigation expenses, including legal fees that were incurred by such person due to an investigation or proceeding conducted against such person by an authority authorized to conduct such investigation or proceeding and which has ended without the filing of an indictment and without the imposition of a financial liability as a substitute for a criminal proceeding, or which ended without the filing of an indictment but with the imposition of financial liability as a substitute for a criminal proceeding relating to an offense that does not require criminal intent. The aggregate indemnification amount payable by us to all of the officers and directors pursuant to all letters of indemnification issued or that may be issued in the future shall not exceed the higher of (i) 25% of shareholders equity and (ii) 25% of market capitalization, each measured at the time of indemnification.

We participate in a directors' and officers' liability insurance policy procured by our controlling shareholder, Hutchison Telecom, insuring our directors' and officers' liability and our undertaking to indemnify them, in respect of certain matters permitted by the Companies Law. The policy provides for coverage in an aggregate amount for Hutchison Telecom and its participating subsidiaries, including Partner, of up to US $100 million. Our participation in the annual premium for the policy is US $876,960.

Hutchison Telecom and its participating subsidiaries, including us, are also covered by further excess directors' and officers' liability insurance policies of up to a limit of US$100 million for any one claim and in the aggregate for the policy period. These policies are shared with Cheung Kong (Holdings) Ltd, or Cheung Kong, HWL, CK Life Sciences Int'l. (Holdings), Inc. and Hongkong Electric Holdings Limited. and their respective subsidiaries. In the event of the depletion of the insurance coverage underlying the first layers of insurance as the result of payment of loss, these policies shall continue to apply for subsequent losses as excess insurance over the amount of insurance remaining under such first layers of insurances on follow form basis.

6D. Employees

At December 31, 2006, we had 3,714 employees on full time equivalent basis, compared with 3,403 at December 31, 2005 and 3,164 at December 31, 2004. The number of employees for 2006, 2005, and 2004, divided by their activity, was as follows:

		December 31
	2006	2005	2004

Customer service	2,228	1,971	1,634
Engineering	311	442	416
Sales and sales support	452	438	512
Information technology	165	114	113
Marketing and Content	101	103	99
Finance	79	71	71
Human resources	99	89	90
Remaining operations	279	175	229
TOTAL	3,714	3,403	3,164

Substantially all of our employees have entered into employment contracts with us, terminable at will by either party.

Our employees are not covered by any company-specific collective bargaining agreement. However, we are subject to various Israeli labor laws and practices, as well as orders extending certain provisions of collective bargaining agreements between the Histadrut, currently the largest labor organization in Israel, and the Coordinating Bureau of Economic Organizations, the federation of employers' organizations. Such laws, agreements and orders cover a wide range of areas and impose minimum employment standards including, working hours, minimum wages, vacation and severance pay, and special issues, such as equal pay for equal work, equal opportunity in employment, and employment of women, youth, disabled persons and army veterans.

We generally contribute funds on behalf of our employees to a fund known as "Managers' Insurance". This fund provides a combination of provident fund, insurance and severance pay benefits to the employees, giving the employees a lump sum payment upon retirement and securing most of the severance pay, if legally entitled, upon termination of employment. The employer's deposits are the property of the Company until termination of employment. Most employees are entitled to participate in the plan upon the start of employment or after an initial period. A participating employee generally contributes an amount equal to 5% of his salary and we contribute between 5% and 15.8% of such employee's salary.

We also offer to most of our employees the opportunity to participate in a "Continuing Education Fund," which functions also as a savings plan. Each of the participating employees contributes an amount equal to 2.5% of his salary and we contribute between 5% and 7.5% of such employee's salary.

According to the National Insurance Law, Israeli employers and employees are required to pay predetermined sums to the National Insurance Institute. These contributions entitle the employees to health insurance and benefits in periods of unemployment, work injury, maternity leave, disability, reserve military service, and bankruptcy or winding-up of the employer. We have never experienced a strike or work stoppage and no material labor-related claims are pending. We believe that our relations with our employees are good.

Since October 2001, most of our employees participate in a Health Insurance Program which provides additional benefits and coverage which the public health system does not provide. Eligibility to participate in the policy does not depend on seniority or position.

6E. Share Ownership

As of May 1, 2007, our directors and senior managers owned an aggregate of 333,333 ordinary shares, which constitutes less than 1% of our outstanding ordinary shares. Directors and senior managers do not have different voting rights than other shareholders of the Company.

As of May 1, 2007, our senior managers held, in the aggregate, options to purchase up to 1,541,250 of our ordinary shares, of which 387,500 were vested and exercisable as of that date or sixty days thereafter. Subsequent to May 1, 2007, 68,750 of these options have been exercised. No individual senior manager holds options to purchase 1% or more of our outstanding ordinary shares. 18,750 of these options have an exercise price of NIS 20.45 and the remaining 1,522,500 of these options have an exercise price of between NIS 26.74 and NIS 42.10. No options have been granted to our directors. The foregoing does not include shares or options held by senior managers who ended their service during 2006.

Until November 2003, we granted options to our senior managers and other employees pursuant to our 1998 and 2000 Employee Stock Option Plans described below. In November 2003 we amended our stock option plans to conform with recent changes in the Israeli Income Tax Ordinance (New Version), 1961. As a result, any grants of options after November 2003 are subject to the terms of our 2000 Employee Stock Option Plan as so amended, referred to as the 2003 Amended Plan. In addition, in 2004, 2005 and 2006 we granted options to our managers and other employees pursuant to the 2004 Employee Stock Option Plan.

1998 Employee Stock Option Plan

Our board of directors adopted the 1998 Employee Stock Option Plan, or the 1998 Plan, to promote the interests of Partner and its shareholders by providing our senior management and other employees with appropriate incentives and rewards to encourage them to enter into and continue in the employ of Partner and to acquire a proprietary interest in our long-term success.

The 1998 Plan initially authorized the issuance of options to purchase 5,833,333 shares. In 2000, options to purchase 729,166 shares were transferred to the 2000 Plan which left options to purchase 5,104,167 shares remaining in the 1998 plan. As of December 31, 2006, options to purchase 4,886,524 ordinary shares had been exercised under the 1998 Plan, options to purchase 21,893 ordinary shares were outstanding, and options to purchase 195,750 ordinary shares were available for grant. The exercise price of the outstanding options are $0.343 and NIS 20.45 per share. Options that had been forfeited or expired unexercised may be regranted.

The options granted under the 1998 Plan since April 2002 were granted subject to the same terms and conditions as those of the 2000 Plan described below, including determination of exercise price, vesting schedule and expiration period.

Under the 1998 Plan, upon the occurrence of any merger, consolidation, reorganization, recapitalization or similar event, or other substantially similar corporate transaction or event, we are required to make such equitable changes or adjustments necessary to the number of shares subject to each outstanding option in order to prevent dilution or enlargement of the option holders' rights.

The 1998 Plan is administered by an Employee Stock Option Committee of the board of directors. Subject to the restrictions of the Companies Law, the Employee Stock Option Committee is authorized, among other things, to exercise all the powers and authorities, either specifically granted to it under the 1998 Plan or necessary or advisable in the administration of the Plan.

In accordance with Section 102 of the Israeli Income Tax Ordinance (New Version), 1961 and regulations promulgated thereunder, the options and the shares to be issued upon the exercise of options, which were granted prior to December 31, 2002, will be held for the benefit of the option holders by a trustee who will hold the outstanding options and any shares issued upon exercise of the options in trust on behalf of each participant for a period of not less than two years from the date an option is issued to the Trustee on behalf of such employee.

An option shall be exercised upon the instruction of an option holder to the Trustee. Twenty percent of each option shall become vested on each of the first, second, third, fourth and fifth anniversaries of the date the holder of that option has commenced his or her employment with Partner, unless another date for the commencement of the vesting schedule with respect to such option has been set by the Employee Stock Option Committee. The option holder may exercise all or part of his options at any time after the date of vesting but not later than the eighth anniversary date of commencement of the vesting schedule with respect to the option.

If an option holder's employment with Partner is terminated because of his willful and continued failure to perform his duties and obligations to Partner or his willful engaging in misconduct injurious to Partner such that, in each case, the actions or omissions of the participant are sufficient to deny the participant severance payment under the Israeli Severance Payment Law, 1963, his options will expire upon termination of employment. If an option holder's employment with Partner is terminated by Partner for any other reason, he may exercise his vested options during the remainder of their exercise period. If an option holder's employment is voluntarily terminated by the option holder, he may exercise his vested options during the 90 day period following the later of the date of termination and the date upon which the resulting shares may be freely sold. If an option holder's employment with Partner is terminated as a result of the retirement, death or disability of the option holder, he may exercise his vested options and the pro rata portion of options scheduled to vest in the year of termination during the remainder of their exercise period.

The board of directors may, at any time and from time to time, terminate or amend the Plan in any respect, subject to any applicable approvals or consents that may be otherwise required by law, regulation or agreement, and provided that no termination or amendment of the Plan shall adversely affect the terms of any option which has already been granted.

2000 Employee Stock Option Plan

Our board of directors adopted a second employee stock option plan, the 2000 Employee Stock Option Plan, or the 2000 Plan, to promote our interests and those of our shareholders by providing our employees with appropriate incentives and rewards to encourage them to enter into and continue in our employ and to acquire a proprietary interest in our long-term success.

The 2000 Plan authorizes the issuance of options to purchase up to 4,472,222 ordinary shares. In November 2003, 419,930 options under this plan were transferred to the 2003 Amended Plan. As of December 31, 2006, options to purchase 3,219,866 ordinary shares had been exercised, options to purchase 600,106 ordinary shares were outstanding, and options to purchase 232,320 ordinary shares were available for grant. The exercise prices of the outstanding options range from NIS 17.25 – NIS 27.35. Options that had been forfeited or expired unexercised may be regranted.

Upon the occurrence of any merger, consolidation, reorganization or similar event, or other substantially similar corporate transaction or event, we are required to make such equitable changes or adjustments necessary to the number of shares subject to each outstanding option in order to prevent dilution or enlargement of the option holders' rights.

The 2000 Plan is administered by an Employee Stock Option Committee of the board of directors. Subject to the restrictions of the Companies Law, the Employee Stock Option Committee is authorized, among other things, to exercise all the powers and authorities, either specifically granted to it under the 2000 Plan or necessary or advisable for the administration of the 2000 Plan.

In accordance with Section 102 of the Israeli Income Tax Ordinance (New Version), 1961 and the regulations promulgated thereunder, the options and the shares to be issued upon the exercise of options, which were granted prior to December 31, 2002, will be held for the benefit of the option holders by a trustee who will hold the outstanding options and any shares issued upon exercise of the options in trust on behalf of each participant for a period of not less than two years from the date an option is issued to the Trustee on behalf of such employee.

An option shall be exercised upon the instruction of an option holder to the Trustee. Twenty five percent of each option shall become vested on each of the first, second, third and fourth anniversaries of the date the holder of that option commenced his or her employment with us, unless another date for the commencement of the vesting schedule with respect to such option has been set by the Employee Stock Option Committee The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will be fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant.

If an option holder's employment with us is terminated because of his willful and continued failure to perform his duties and obligations to us or his willful engaging in misconduct injurious to us such that, in each case, the actions or omissions of the participant are sufficient to deny the participant a severance payment under the Israeli Severance Payment Law, 1963, his options will expire upon termination of employment. If an option holder's employment with us is terminated by us for any other reason, he may exercise his vested options during the remainder of their exercise period. If an option holder's employment is voluntarily terminated by the option holder, he may exercise his vested options during the 90 day period following the later of the date of termination and the date upon which the resulting shares may be freely sold. If an option holder's employment with us is terminated as a result of the retirement, death or disability of the option holder, he may exercise his vested options and the pro rata portion of options scheduled to vest in the year of termination during the remainder of their exercise period.

The board of directors may, at any time and from time to time, terminate or amend the 2000 Plan in any respect, subject to any applicable approvals or consents that may be otherwise required by law, regulation or agreement, and provided that no termination or amendment of the 2000 Plan shall adversely affect the terms of any option which has already been granted.

2003 Amended Plan

In November 2003 we amended our stock option plans to conform with recent changes in the Israeli Income Tax Ordinance (New Version), 1961. The principal consequence of the amendment was our election to adopt the capital gains track under the new section 102 of the Income Tax Ordinance for all new options granted under the 2003 Amended Plan. This provides capital gains treatment for taxable income of employees from exercise of options and sale of ordinary shares, subject to certain conditions. The terms of the 2003 Amended Plan remain substantially the same as in the 2000 Plan.

In connection with the adoption of the 2003 Amended Plan, we received an exemption from the requirement set out in Nasdaq's Marketplace Rule 4350(i)(1)(A) that listed companies receive shareholder approval when certain stock option or purchase plans are to be established or materially amended, or certain other equity compensation arrangement made or materially amended. This exemption was granted based on the fact that the Nasdaq requirement is inconsistent with applicable Israeli legal requirements, which require approval from a company's board of directors upon the establishment or amendment of such a plan unless directors or controlling shareholders participate in the plan in which case approval of the shareholders meeting would be required upon the grant of options to such directors or controlling shareholders.

In November 2003, we offered to employees who had previously been granted options under our stock option plans the right to exchange their unvested options for options with identical terms under the 2003 Amended Plan. Employees holding options to purchase 962,104 ordinary shares accepted this offer.

On November 2003, 419,930 options under the 2000 Plan were transferred to the 2003 Amended Plan. Of these options, options to purchase 132,500 ordinary shares have been exercised, and options to purchase 62,500 ordinary shares at an exercise price of NIS 20.45 per share were outstanding. Options to purchase 224,930 ordinary shares remain available for grant. Options that had been forfeited or expired unexercised may be regranted.

In December 2002, we entered into an agreement with the Israeli tax authorities reducing the individual tax rate applicable to the taxable income of employees from the receipt and exercise of their options. In exchange, we agreed to defer the deduction of the expense corresponding to such taxable income for a period of four years from the date on which we commence paying income taxes. The agreement applies to employees who received options under the 1998 Plan and joined the agreement, and relates to (1) options that are exercised by December 31, 2002 and (2) options that vest by December 31, 2003 and are exercised by May 31, 2004. In each case, the trustee must have held the options for a period of 24 months from the date on which they were granted. See Note 8(f) to our consolidated financial statements.

In December 2003, we entered into an agreement with the Israeli tax authorities under which the terms of the above-mentioned agreement in December 2002 apply also to employees who received options under the 2000 Plan.

2004 Employee Stock Option Plan

Under the 2004 Share Option Plan, as amended to date, 5,775,000 ordinary shares are reserved for issuance upon the exercise of 5,775,000 options to be granted without consideration. The options will be granted to employees under the provisions of the capital gain's tax route provided for in Section 102 of the Israeli Income Tax Ordinance. The options vest in four equal annual batches, provided the employee is still in the Company's employ. The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will be fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant.

In connection with the adoption of the 2004 Share Option Plan, we received an exemption from the requirement set out in Nasdaq's Marketplace Rule 4350(i)(1)(A) that listed companies receive shareholder approval when certain stock option or purchase plans are to be established or materially amended, or certain other equity compensation arrangement made or materially amended. This exemption was granted based on the fact that the Nasdaq requirement is inconsistent with applicable Israeli legal requirements, which require approval from a company's board of directors upon the establishment or amendment of such a plan unless directors or controlling partners participate in the plan in which case approval of the shareholders meeting would be required upon the grant of options to such directors or controlling partners.

The 2004 Plan is administered by the Compensation Committee of the board of directors. Subject to the restrictions of the Companies Law, the Compensation Committee is authorized, among other things, to exercise all the powers and authorities, either specifically granted to it under the 2004 Plan or necessary or advisable for the administration of the 2004 Plan.

If an option holder's employment with us is terminated because of his willful and continued failure to perform his duties and obligations to us or his willful engaging in misconduct injurious to us such that, in each case, the actions or omissions of the participant are sufficient to deny the participant a severance payment under the Israeli Severance Payment Law, 1963, his options will expire upon termination of employment. If an option holder's employment with us is terminated by us for any other reason, he may exercise his vested options during the remainder of their exercise period. If an option holder's employment is voluntarily terminated by the option holder (other than by reason of retirement, death or disability), he may exercise his vested options during the 90-day period following the later of the date of termination and the date upon which the resulting shares may be freely sold. If an option holder's employment with us is terminated as a result of the retirement, death or disability of the option holder, he may exercise his vested options and the pro rata portion of options scheduled to vest in the year of termination during the remainder of their exercise period.

The board of directors may amend the 2004 Plan, subject to other sections of the Plan and the rules and/or regulations of any stock exchange applicable from time to time to the Company, by reason of their applicability to its shareholders or otherwise; provided, that the shareholders of the Company must approve (i) provisions of the plan relating to the matters set out in Rule 17.03 of Chapter 17 of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Ltd , as amended from time to time, that are altered to the advantage of Participants, (ii) any alterations to the terms and conditions of the Plan which are of a material nature or to the Options granted (except where the alterations take effect automatically under the existing terms of the Plan); and (iii) any change to the authority of the board of directors of the Company or the Compensation Committee in relation to any alteration to the terms of the Plan.

The board of directors may, at any time and from time to time, terminate the 2004 Plan in any respect, subject to any applicable approvals or consents that may be otherwise required by law, regulation or agreement, including by reason of their applicability to the shareholders or otherwise, and provided that no termination of the 2004 Plan shall adversely affect the terms of any option which has already been granted.

As of December 31, 2006, options to purchase 706,375 ordinary shares had been exercised, options to purchase 4,388,375 shares were outstanding and options to purchase 680,250 ordinary shares were available for grant under the 2004 Plan. The exercise prices of outstanding options range from NIS 26.74 to NIS 42.1. Options that had been forfeited or expired unexercised may be regranted.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7A. Major Shareholders

The following table sets forth certain information with respect to the beneficial ownership of our ordinary shares as of May 1, 2007 with respect to each person who we believe to be the beneficial owner of 5% or more of our ordinary shares. Except where otherwise indicated, we believe, based on information furnished to us by the principal shareholders, that the beneficial owners of the ordinary shares listed below have sole investment and voting power with respect to such ordinary shares. None of our major shareholders has any different voting rights than any other shareholder.

	Number ofOrdinary Shares	Percent of OutstandingOrdinary Shares
Name and Address	Beneficially Owned	Beneficially Owned

Hutchison Telecommunications
International Limited (1)
20/F Hutchison Telecom Tower
99 Cheung Fai Rd.
Tsing Yi
Hong Kong	78,940,104	50.5%
Hutchison Whampoa Limited(2)
22/F Hutchison House
10 Harcourt Road
Central Hong Kong	78,940,104	50.5%
Cheung Kong (Holdings) Limited (3)
7/F Cheung Kong Center
2 Queen's Road Central
Hong Kong	78,940,104	50.5%

62

(1) Based on publicly available SEC filings by Hutchison Telecom, Advent Investments Pte Ltd., or Advent, Hutchison Telecommunications International (Netherlands) B.V., or Hutchison (Netherlands), HWL and Cheung Kong . Hutchison Telecom, a company whose ordinary shares are listed on the Hong Kong Stock Exchange and ADSs are listed on the New York Stock Exchange, Inc. owns Partner shares through two indirect subsidiaries, Advent and Hutchison (Netherlands), which own 62,621,184 and 16,318,920 ordinary shares of Partner, respectively. Advent, incorporated in Singapore, is an indirect wholly-owned subsidiary of Hutchison Telecom, owned through a chain of whollyowned subsidiaries as follows: Advent is owned by Amber International Holdings Inc., which is owned by Hutchison Telecommunications International (Cayman) Holdings Limited, which is owned by Hutchison Telecom. Hutchison (Netherlands) is also an indirect wholly-owned subsidiary of Hutchison Telecom, owned through a chain of wholly-owned subsidiaries as follows: Hutchison (Netherlands) is owned by Hutchison Telecommunications (Cyprus) Limited, which is owned by Amber International Holdings Inc., which is owned by Hutchison Telecommunications International (Cayman) Holdings Limited, which is owned by Hutchison Telecom.
(2) Based on publicly available SEC filings by Hutchison Telecom, Advent, Hutchison (Netherlands), HWL and Cheung Kong, HWL, a company listed and traded on the Hong Kong Stock Exchange, owns Partner shares through its direct wholly owned subsidiary Hutchison International Limited, which in turn directly holds 100% of Ommaney Holdings Limited (formerly Hutchison Telecommunications Limited), which in turn directly holds 100% of Hutchison Telecommunications Investment Holdings Limited, or HTIHL, which in turn directly holds approximately 45.63% and also through its wholly owned subsidiary, New Brilliant Holdings Limited., indirectly holds approximately 4.12% of the total outstanding ordinary shares of Hutchison Telecom, which indirectly owns 78,940,104 of the ordinary shares of Partner. Based on publicly available SEC filings by Orascom Telecom Holding S.A.E., an Egyptian company ("Orascom Telecom") and through its direct wholly owned subsidiary, Orascom Telecom Eurasia Limited ("Orascom Eurasia"), a BVI company, holds approximately 19.22% of Hutchison Telecom's total outstanding share capital. HTIHL, HWL, Orascom Telecom, and Orascom Eurasia are parties to a shareholders agreement relating to, among other things, the nomination of certain members of the board of directors of Hutchison Telecom.
(3) Based on publicly available SEC filings by Hutchison Telecom, Advent, Hutchison (Netherlands), and Cheung Kong, Cheung Kong, through its indirect ownership of approximately 49.97% of the issued shares of HWL and its indirect ownership of 52,092,587 ordinary shares of Hutchison Telecom, may be deemed to have sole voting and dispositive power over the ordinary shares of Partner beneficially owned by HWL and Hutchison Telecom. However, as stated in its Schedule 13D, pursuant to Rule 13d-4 under the Exchange Act, Cheung Kong expressly disclaims beneficial ownership of such ordinary shares of Partner.

Controlling Shareholders

Partner is controlled by Hutchison Telecom. For more information about the form of its holdings and the main shareholder in Hutchison Telecom, see the shareholder ownership table above and the corresponding footnotes. See also "-Relationship Agreement" below for a description of the Restatement of the Relationship Agreement among Hutchison and the founding Israeli shareholders.

Significant Changes in Holdings of Major Shareholders During the Past Three Years

The following is a description of the significant changes during the last three years in the percentage ownership held by our major shareholders:

y On September 17, 2004, Hutchison Telecommunications (Amsterdam) BV transferred 16,318,920 shares of Partner to Advent, which transferred them to Hutchison (Netherlands).
y On April 20, 2005, we repurchased approximately 33.3 million shares from our Israeli founding shareholders, as follows: 12,765,190 shares from Elbit, 9,359,915 shares from Eurocom, 7,783,444 shares from Matav Investments and 3,409,384 shares from Polar Communications Ltd. as described in "Item 7B. Related Party Transactions –Repurchase of Shares from Founding Israeli Shareholders". As a result the shareholdings of Hutchison Telecom increased to 52.15% at completion of the transactions.

In 2006, our founding Israeli shareholders, Elron Electronics Industries Ltd., Elbit Ltd. and Polar sold all of their shares in Partner and Eurocom sold approximately 50% of its shares in Partner. Together the shares sold constituted approximately 3.3% of our outstanding shares.

Other

On May 1, 2007, 17,300,331 ADSs (equivalent to 17,300,331 ordinary shares or approximately 10.03%) of our total outstanding ordinary shares were outstanding and held of record by 29 registered holders in the United States. Additionally, on May 1, 2007, there were approximately fifty holders of record of our ordinary shares. Of these holders, none had a registered address in the United States, although certain accounts of record with registered addresses other than in the United States may hold our ordinary shares, in whole or in part, beneficially for United States persons. We are aware that many ADSs and ordinary shares are held of record by brokers and other nominees and accordingly the above numbers are not necessarily representative of the actual number of persons who are beneficial holders of ADSs and ordinary shares, or the number of ADSs and ordinary shares beneficially held by such persons.

As described above, we are controlled by Hutchison Telecom. As far as we know, there are no arrangements that might result in a change in control of our Company.

7B. Related Party Transactions

Relationship Agreement

Our founding Israeli shareholders are parties to a Relationship Agreement with the Hutchison Telecom subsidiaries which are direct shareholders in the Company, in relation to their direct and indirect holdings of our shares and the rights associated with such holdings.

License/Required Israeli and Founding Shareholder Percentages

The parties to the Relationship Agreement have agreed that they shall at all times comply with the terms of our license requiring that our founding shareholders or their approved substitutes hold in aggregate at least 26% of our means of control, and that our Israeli founding shareholders or their approved substitutes (from among the founding shareholders and their approved substitutes) hold at least 5% of our means of control. See "Item 4B. Information on the Company–Business Overview–Regulation–Our Mobile Telephone License– License Conditions."

Foreign Mobile Radio Telephone Operator

The parties to the Relationship Agreement have agreed that a parent of Advent will continue to be a controlling corporation of a foreign mobile radio telephone operator as required by our license, for so long as this is required by our license. See also "Item 4B. Information on the Company–Business Overview–Regulation–Our Mobile Telephone License."

Compulsory Transfer in the Event of Default

If a party to the Relationship Agreement commits certain events of default described in the agreement, it may be required to offer its shares to the other parties on a pre-emptive basis. Events of default for this purpose include a breach of the Relationship Agreement which has a material adverse effect on Partner, and in the case of such breach, the purchase price at which the shares are to be sold will be market value less a 17.5% discount.

Term and Termination

The Agreement continues in full force and effect until we are wound up or cease to exist unless terminated earlier by the parties. The Agreement will terminate in relation to any individual party after it ceases to hold any share beneficially if it is required to comply with the minimum holding requirements for founding shareholders or Israeli founding shareholders, as applicable, and the transfer of the shares was not made in breach of the Relationship Agreement.

Transactions with Affiliates

Agreements with affiliates of Hutchison Telecom

We have a strong relationship with Hutchison Telecom, previously one of our principal shareholders and now our majority shareholder, and HWL, Hutchison Telecom's largest shareholder, and are working with them in connection with the development of products and services for UMTS third generation mobile communications. Hutchison Telecom and HWL are global leaders in UMTS third generation mobile telecommunications and, in particular the deployment and development of third generation cellular networks and products and services worldwide.

We are participating in a directors' and officers' liability insurance policy procured by Hutchison Telecom, insuring our directors' and officers' liability and our undertaking to indemnify them, in respect of certain matters permitted by the Companies Law. The policy provides for coverage in an aggregate amount for Hutchison Telecom and its participating subsidiaries, including Partner, of up to US$100 million. We also participate in further excess directors' and officers' liability insurance policies of up to $100 million together with Hutchison Telecom and its participating subsidiaries, which provide coverage in the event of depletion of insurance coverage under the first layers of insurance as the result of payment of loss. See "Item 6C. Board Practices – Indemnification."

In August 2002, we signed a Cost-Sharing Agreement, or the CSA, with certain members of the HWL group of companies for the joint acquisition and development of information technology platforms and software solutions, hardware, content and other services, in connection with the UMTS third generation business. The CSA allows us to participate in acquisition and development projects with other UMTS third generation companies within the HWL and Hutchison Telecom groups, and to benefit from the combined purchasing power and resources of the groups which include companies in Austria, Australia, Denmark, Hong Kong, Ireland, Italy, Sweden and the United Kingdom. As of December 31, 2006, we had given notice of our participation in seven joint contracts. We expect that our share in these contracts in financial terms (including our share of joint expenses and liabilities) is not material. We believe that the CSA gives us an advantage unavailable to our competitors. The CSA gives us an opportunity to maximize economies of scale and operational efficiencies for development and procurement activities associated with our 3G business. See Note 13(c) to our consolidated financial statements.

We have roaming agreements with certain members of the Hutchison Telecom and HWL group of companies. The agreements which are with GSM, GPRS and 3GSM operators worldwide, enable our subscribers to roam abroad and enable other operator's subscribers to roam on our network. These agreements are in the ordinary course of business and are on market terms.

In 2005 and 2006, we entered into agreements with H3G Procurement Services S.àr.l., a subsidiary of HWL, or H3G, for the purchase of UMTS handsets.

In March 2007 we entered into a supply agreement with H3G for the future purchase of UMTS handsets. The supply agreement allows us to purchase handsets by delivering purchase forecasts to H3G according to a set price list. We are not obligated to make any minimum purchase amounts under the agreement.

Agreements with affiliates of Eurocom

Eurocom Communications Ltd., or Eurocom, one of our former principal shareholders, sells our services or distributes handsets in connection with their sale of Nokia handsets to private customers and small business customers. Eurocom receives a commission for the activation of each handset that it sells to customers as one of our distributors and for the logistical support related to the supply of handsets.

We currently purchase a portion of our Nokia handsets from Eurocom. In the year ended December 31, 2006, purchases from Eurocom constituted approximately 40% of all of our handset purchases.

We believe that our distribution arrangement and handset purchases from Eurocom are on commercial, arms-length terms.

Other Agreements

On September 1, 2003, we entered into a supply agreement with Elron Telesoft Ltd., a wholly-owned subsidiary of Elron Electronics Industries Ltd., a former significant shareholder of Partner, for the purchase of Agilents' Signaling Monitoring System, as well as for the purchase of support and maintenance services. The purpose of the system is to monitor our network in order to improve network performance levels and maintenance response times. In addition, in 2004, we entered into another agreement with Elron Telesoft Ltd. for the purchase of a CDR Verification System.

In March 2005, we entered into an agreement with Cellular Center for Vehicles Ltd., a company wholly owned by Mr. Talmai Cohen, the brother of our former Chief Executive Officer, Amikam Cohen, for the sale, installation and maintenance of car kits in approximately 35 locations.

In April 2005, we entered into a new bank credit facility, replacing our previous bank facility. Bank Hapoalim B.M., Bank Leumi Le-Israel B.M., Israel Discount Bank Ltd. and United Mizrahi Bank Ltd. are participating in the facility, with Bank Hapoalim B.M. serving as facility agent and Bank Leumi Le-Israel B.M. serving as coordinating agent. During 2004, two of our directors served also as directors in banks that are parties to the new credit facility – Mr. Mordechai Keret in Bank Hapoalim B.M. and Mr. Moshe Vidman in Bank Leumi Le-Israel B.M. See "Item 5. Operating and Financial Review and Prospects–Liquidity and Capital Resources."

Registration Rights

We have entered into a registration rights agreement with our principal founding shareholders in which we granted our principal shareholders the right to require us to register ordinary shares held by them under the US Securities Act. We have agreed that, upon request from any of our principal shareholders, we will file a registration statement under the US Securities Act to register ordinary shares held by them, subject to a maximum of one request in any 6-month period. There is no limit to the number of registrations that can be requested under the agreement. The minimum amount of shares that must be included in any registration requested under this agreement is 2.65% of our outstanding shares. We have also granted each of the principal shareholders the right to include their ordinary shares in any registration statement covering offerings of ordinary shares by us. The registration rights agreement will terminate with respect to each holder upon the earlier of October 26, 2009 and such time as the holder can sell its ordinary shares into the United States public market pursuant to an exemption from the registration requirements of the Securities Act without regard to holding period, volume or manner-of-sale limitations.

7C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

8A. Consolidated Financial Statements and Other Financial Information

Audited financial statements for the three fiscal years ended December 31, 2006 are included under "Item 18. Financial Statements."

Legal and Administrative Proceedings

In addition to the legal proceedings discussed below, we are party to a number of legal and administrative proceedings arising in the ordinary course of our business. We do not expect the outcome of such matters in the aggregate to have a material adverse effect upon our business and financial condition, results of operations and cash flows.

We have experienced difficulties in obtaining building permits from local authorities for the erection of antennas. As a result, we, like other mobile telephone operators in Israel, have erected antenna sites without the issuance of a building permit from the relevant local or regional authority. As of December 31, 2006, approximately 20% of our antenna sites were operating without local building permits or applicable exemptions. A substantial portion of these are microsites. We believe that a portion of the sites operating without permits from local authorities do not require building permits under the Planning and Building Law. The erection of an antenna site without a required local building permit is a violation of the Planning and Building Law and, in some cases, has resulted in a demolition order being imposed on us and in the filing of criminal charges and civil proceedings by Israeli municipalities against us and our officers and directors.

During 2006, 17 criminal proceedings were brought against us concerning the erection of antenna sites without building permits, of which eight were also brought against our officers and directors. As of December 31, 2006, 20 criminal proceedings were pending against us concerning the erection of antenna sites without building permits, of which eight were also pending against our officers and directors. We are currently negotiating with the relevant local authority to reach a settlement regarding the relocation of affected sites or obtaining building permits for those sites. The total amount of fines paid in 2006 was approximately NIS 0.5 million. Settlements of previous criminal proceedings brought against us resulted in Partner, but not its officers or directors, admitting guilt and paying a fine, and also resulted in the imposition of demolition orders for the relevant sites, the execution of which have been stayed for a period of time to allow us to obtain the necessary permits or to relocate the relevant antenna site.

There can be no assurance that we will continue to be successful in settling legal proceedings brought against us and our officers and directors or that we will not be faced with demolition orders and criminal charges, including against our officers and directors. See "Item 3D. Key Information–Risk Factors–We have had difficulties obtaining some of the permits for which we have applied and have not yet applied for other permits that are required for the erection of our antenna sites. These difficulties could continue and therefore affect our ability to erect or maintain antenna sites. This could have an adverse effect on the extent, quality and capacity of our network coverage and may result in criminal or civil liability to us or to our officers and directors."

In April 2002, a claim was filed against us, together with a motion requesting certification as a class action, alleging a variety of consumer complaints. The amount of the claim against us was estimated at approximately NIS 545 million plus additional significant amounts related to other alleged damages. In March 2007, this claim was dismissed.

In April 2003, a claim was filed against us and other cellular telecommunication companies, together with a request for certification as a class action, for alleged violation of antitrust law, alleging that no fee should have been collected for incoming SMS messages or alternatively, that the fee collected is excessive and that it is a result of illegal co-operation between the defendants. The amount of the claim against all the defendants is estimated at approximately NIS 90 million (if the court rules that the fees are excessive) or NIS 120 million (if the court rules that no fee should have been collected). A preliminary hearing took place in April 2006. Unless and until the claim is recognized as a class action, we and our legal counsel are unable to evaluate the probability of success of such claim, or the range of a potential loss with any degree of certainty and therefore no provision has been made. However, we deny any and all liability and intend to vigorously defend against the claim. See Note 7b(2) to our consolidated financial statements.

During 2006, two combined claims were filed against us and other cellular telecommunication companies and in one of those claims, also against fixed-line telecommunications companies, together with a request to recognize these claims as a class action for alleged collection of undue payment from calls to the land line companies. The plaintiffs maintain that we should stop charging our subscribers when the land line operator subscriber hangs up, while in fact we continue to charge until the initiator of the call (our subscriber) hangs up. The amount of the claims against all defendants is estimated, in one of the claims, at approximately NIS 100 million for the seven year period leading up to the filing of the claim, and in another claim approximately NIS 53 million. At this stage, and until the claims are recognized as class actions, we and our legal counsel are unable to evaluate the probability of success of such claims, or the range of a potential loss with any degree of certainty and therefore no provision has been made for the claims in our financial statements. However, we deny any and all liability and intend to vigorously defend against the claim.

In April 2006, a claim was filed against us, together with a motion requesting certification as a class action, alleging a variety of customer complaints relating primarily to our alleged breach of one of our tariff plans and the termination of such plan as well as the amendment of the terms of other tariff plans. The amount of the claim against us, should the claim be certified as a class action, is approximately NIS 18.9 million for all customers subscribed to six tariff plans which Partner allegedly changed during the last seven years. At this stage, no hearings have taken place, and unless and until the claim is recognized as a class action, we and our legal counsel are unable to evaluate the probability of success of such claim, or the range of a potential loss with any degree of certainty and therefore no provision has been made. However, we deny any and all liability and intend to vigorously defend against the claim.

In November 2006 a claim was filed against us and three other defendants, along with a motion to recognize the claim as a class action. The applicants contend that a cellular service provided by the other defendants that are service providers and its managers fraudulently charged the defendants and other cellular consumers for services that the consumers never requested or consented to receive. The sum of the claim was assessed by the applicants at NIS 28 million. A similar claim and motion to certify the claim as a class action was filed against Cellcom. We have submitted our responses to the motion to certify the claim as a class action. A preliminary hearing on the claim is set for June 2007.

A separate claim and motion to certify as a class action regarding the same matter was filed against us and others in December 2006. The sum of the claim was assessed by the applicants to be NIS 28 million. We filed a motion to join both claims and the date to file our response to the second claim has been postponed until a decision is reached regarding our motion. At this stage, and until the claims are recognized as class actions, we and our legal counsel are unable to evaluate the probability of success of such claims or the range of a potential loss with any degree of certainty and therefore no provision has been made for such claims in our financial statements. However, we deny any and all liability and intend to vigorously defend against the claim.

In November 2006 a claim was filed against us, together with a motion to certify the claim as a class action. The applicant contends that we illegally tied the purchase of 3G handsets to the purchase of internet bundles. In addition, the claim states causes of action based on the violation of consumer protection laws and violation of uniform contracts law. The amount of the claim was stated by plaintiff as NIS 35 million. We have filed our response to the claim and no hearing has yet been set. At this stage, and until the claim is recognized as class actions, we and our legal counsel are unable to evaluate the probability of success of the claim or the range of potential loss with degree of certainty and therefore no provision has been made for the claim in our financial statements. However, we deny any and all liability and intend to vigorously defend against the claim.

In January 2007, a purported class action lawsuit was filed against us and against two other cellular operators and two landline operators in connection with an alleged violation of statutory requirements to implement number portability. The claimants demand NIS 1,000 for each of our 2,626,000 subscribers for a total demand of approximately NIS 2,600 million. We are evaluating the class action complaint and at this preliminary stage of the proceedings we are unable to determine the outcome of this litigation or the range of a potential loss with any degree of certainty. We have denied, however, any and all liability and we intend to vigorously defend against these charges.

In February 2007, a claim was filed against us in the amount of NIS 33 million together with a motion to certify the claim as a class action for allegedly collecting Value Added Tax illegally for services rendered to residents of Eilat, Israel. In May 2007, the claim was dismissed.

In February 2007, a claim was filed against us and two other cellular telecommunication companies together with a request to recognize to certify the claim as a class action. The claim is for sums that were allegedly overcharged in breach of our licenses, based on intervals larger than the intervals the defendants were allegedly authorized to charge under their licenses, for calls initiated or received by the subscribers while abroad. If the lawsuit is classified as a class action, the total amount claimed from the defendants is estimated by the plaintiffs to be approximately NIS 449 million, of which, approximately NIS 88 million, is attributed to us. At this stage, and until the claim is recognized as a class action, we and our legal counsel are unable to evaluate the probability of success of such claim, or the range of a potential loss with any degree of certainty and therefore no provision has been made. However, we deny any and all liability and intend to vigorously defend against the claim.

In May 2007, a claim was filed against us and another Israeli cellular company together with a request to recognize the claim as a class action. The claim alleges that the defendants charged their subscribers undue roaming rates, while their cellular phones were located in Israel and randomly roamed over foreign networks of neighboring countries. If the claim is certified as a class action, the total amount claimed against us is estimated by the plaintiffs to be at least NIS 21.3 million. At this stage, and until the claim is certified as a class action, we and our legal counsel are unable to evaluate the probability of success of such claim and therefore no provision has been made for the claim in our financial statements.

Dividend Distribution Policy

Our Articles of Association allows for our board of directors to approve all future dividend distributions, without the need for shareholder approval, subject to the provisions governing dividends under the Companies Law. We first paid a dividend to our Shareholders in 2005. In addition, the terms of our credit facility restrict the amount of dividends we may pay to our shareholders. See "Item 5. Operation and Financial Review and Prospects–Liquidity and Capital Resources–Liquidity.

We intend to pay any dividends in shekels. Under current Israeli regulations, any dividends or other distributions paid in respect of ordinary shares may be freely repatriated in non-Israeli currencies at the rate of exchange prevailing at the time of conversion, provided that Israeli income tax has been paid on or withheld from such dividends. Because exchange rates between the shekel and the US dollar fluctuate continuously, a holder of ADSs will be subject to currency fluctuation generally and, particularly, between the date when dividends are declared and the date dividends are paid.

8B. Significant Changes

No significant change has occurred since the date of our financial statements.

ITEM 9. THE OFFER AND LISTING

9A. Offer and Listing Details

Our capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange under the symbol "PTNR". American Depositary Shares, or ADSs, each representing one of the Company's ordinary shares are quoted on the Nasdaq National Market under the symbol "PTNR" and are traded on the London Stock Exchange under the symbol "PCCD". The ADSs are evidenced by American Depositary Receipts, or ADRs, originally issued by JPMorgan Chase, as depositary under a Deposit Agreement, dated as of November 1, 1999, among the Company, JPMorgan Chase and registered holders from time to time of ADRs. ADSs were first issued in October 1999. Since March 2006, the Bank of New York has served as our depository.

The table below sets forth, for the periods indicated, the reported high and low closing quotations, not adjusted for dividends or splits, based on the Daily Official List of the London Stock Exchange, information supplied by the National Association of Securities Dealers, Inc., and information supplied by the Tel Aviv Stock Exchange.

	Nasdaq		London Stock Exchange		Tel Aviv Stock Exchange
	($ per ADS)		($ per ADS)*		(NIS per ordinary share)
	High	Low	High	Low	High	Low
2002	7.55	3.55	7.38	3.78	33.92	17.26
First Quarter	7.55	4.70	7.38	4.70	33.92	21.29
Second Quarter	5.00	4.00	4.93	4.05	24.04	19.19
Third Quarter	4.77	3.86	4.68	3.88	22.53	18.51
Fourth Quarter	4.50	3.55	4.53	3.78	21.67	17.26
2003
First Quarter	3.70	2.56	3.58	2.68	17.03	12.45
Second Quarter	4.91	3.45	4.90	3.55	21.91	16.21
Third Quarter	6.11	4.90	5.95	4.85	27.25	20.96
Fourth Quarter	7.84	5.92	7.70	5.40	34.46	26.54
2004
First Quarter	8.49	7.41	8.20	7.58	37.99	33.44
Second Quarter	8.55	6.91	8.33	7.08	38.40	32.37
Third Quarter	7.77	6.36	7.88	6.50	34.96	29.11
Fourth Quarter	8.59	6.52	8.66	6.50	37.35	28.93
2005
First Quarter	9.60	8.05	-	-	41.82	35.28
Second Quarter	9.26	7.16	-	-	39.73	33.04
Third Quarter	9.00	7.13	-	-	39.74	32.70
Fourth Quarter	8.84	7.67	-	-	40.33	36.30
2006
First Quarter	8.58	7.20	-	-	38.95	33.85
Second Quarter	9.49	7.67	-	-	42.98	35.63
Third Quarter	9.94	8.02	-	-	42.65	36.53
Fourth Quarter	12.52	9.91	-	-	51.92	43.71

* The data for the fourth quarter of 2004 is based on last trade reported to the London Stock Exchange. From January 1, 2005 through May 31, 2007, there were no trades of our ADS executed on the London Stock Exchange trading system.

	Nasdaq		London Stock Exchange		Tel Aviv Stock Exchange
	($ per ADS)		($ per ADS)*		(NIS per ordinary share)
	High	Low	High	Low	High	Low

December 2006	12.52	11.34	-	-	51.92	47.87
January 2007	12.46	11.50	-	-	52.62	48.42
February 2007	14.89	13.12	-	-	61.30	53.89
March 2007	14.80	13.14	-	-	61.11	55.33
April 2007	17.10	15.20	-	-	66.88	61.76
May 2007	18.81	16.27			73.19	65.21

* As indicated above, from January 1, 2005 through May 31, 2007, there were no trades of our ADS executed on the London Stock Exchange trading system.

9B. Plan of Distribution

Not applicable.

9C. Markets

Our ADSs are quoted on the Nasdaq National Market under the symbol "PTNR" and are traded on the London Stock Exchange under the symbol "PCCD". Our ordinary shares are traded on the Tel Aviv Stock Exchange under the symbol "PTNR".

9D. Selling Shareholders

Not applicable.

9E. Dilution

Not applicable.

9F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

10A. Share Capital

Not applicable.

10B. Memorandum and Articles of Association

Purposes and Objects of the Company

We are a public company registered under the Israeli Companies Law as Partner Communications Company Ltd., registration number 52-004431-4.

Pursuant to our memorandum of association, we were formed for the purpose of participating in the auction for the granting of a license to operate mobile radio telephone services in Israel, to provide such services, and without derogating from the above, we are also empowered to hold any right, obligation or legal action and to operate in any business or matter approved by the Company.

Pursuant to section three of our articles of association, our purpose is to operate in accordance with business considerations to generate profits; provided, however, that the board of directors is entitled to donate reasonable amounts to worthy causes, even if such donation is not within the frame of these business considerations.

Pursuant to section four of our articles of association, our objective is to engage in any legal business.

The Powers of the Directors

The power of our directors to vote on a proposal, arrangement or contract in which the director is materially interested is limited by the relevant provisions of the Companies Law. In addition, the power of our directors to vote compensation to themselves or any members of their body, requires the approval of the audit committee and the shareholders at a general meeting. The Annual Meeting of the Shareholders must be convened to appoint and terminate directors or their term of service.

See "Item 6C. Board Practices–Approval of Related Party Transactions."

Rights Attached to Shares

Our registered share capital consists of a single class of 235 million ordinary shares, par value NIS 0.01 per share, of which 154,516,217 ordinary shares were issued and outstanding as of December 31, 2006, and 156,208,427 shares were issued and outstanding as of May 1, 2007. All outstanding ordinary shares are validly issued. On April 20, 2005, we repurchased 33,317,933 million ordinary shares from certain of our founding Israeli shareholders, as described above under "Item 7B. Related Party Transactions–Repurchase of Shares from Founding Israeli Shareholders". These shares were cancelled. The rights attached to our ordinary shares are as follows:

Dividend Rights

Holders of ordinary shares are entitled to the full amount of any cash or share dividend subsequently declared. The board of directors may propose and approve distribution of a dividend with respect to any fiscal year only out of profits, in accordance with the provisions of the Companies Law. See "Item 10E. Additional Information–Taxation."

Shares which are treated as dormant under our Articles of Association retain the rights to receive dividends or other distributions to shareholders, and to participate in rights offerings, but no other rights.

One year after a dividend has been declared and is still unclaimed, the board of directors is entitled to invest or utilize the unclaimed amount of dividend in any manner to the benefit of the Company until it is claimed. We are not obligated to pay interest or linkage on an unclaimed dividend.

Voting Rights

Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. In the event that a quorum is not present within thirty minutes of the scheduled time, the shareholders' meeting will be adjourned to the same day of the following week, or the next business day thereafter, at the same time and place, or such time and place as the board of directors may determine. If at such reconvened meeting a quorum is not present at the time appointed for holding the meeting, one or more shareholders present in person or by proxy holding or representing in the aggregate at least 10% of the voting rights in us will constitute a quorum.

Any shareholder seeking to vote at a general meeting of our shareholders must first notify us if any of the shareholder's holdings in us requires the consent of the Minister of Communications. The instructions of a shareholder will not be valid unless accompanied by a certification by the shareholder as to whether or not the shareholder's holdings in us or the shareholder's vote requires the consent of the Ministry of Communications due to a breach by the shareholder of the restrictions on transfer or acquisition of means of control, or provisions regarding cross-ownership with other mobile telephone operators or shareholdings or agreements which may reduce or harm competition. If the shareholder does not provide such certification, his instructions will be invalid and his vote not counted.

An ordinary resolution, such as a resolution for the election of directors, or the appointment of auditors, requires approval by the holders of a majority of the voting rights represented at the meeting, in person or by proxy, and voting thereon. Under our articles of association, resolutions such as a resolution amending our memorandum or articles of association or approving any change in capitalization, liquidation, changes in the objectives of the company, or the name of the company, or other changes as specified in our articles of association, requires approval of a special majority, representing the holders of no less than 75% of the voting rights represented at the meeting, in person or by proxy, and voting thereon.

Under our articles of association our directors are elected by an ordinary majority of the shareholders at each duly convened annual meeting, and they serve until the next annual meeting, provided that external directors shall be elected in accordance with applicable law and/or relevant stock exchange rules applicable to us; or until their respective successors are elected and qualified, whichever occurs first, or in the case of Israeli directors who are appointed by the founding Israeli shareholders, upon a written notice signed by at least two of the founding Israeli shareholders who are the record holders of at least 50%of minimum Israeli holding shares, to the Company Secretary of his or her appointment, until their respective successors are elected upon such notice. In each annual meeting the directors that were elected at the previous annual meeting are deemed to have resigned from their office, excluding an external director, who according to the Companies Law, is elected for a period of three years and the Israeli director whose appointment is terminated by a written notice by himself or by the founding Israeli shareholders. A resigning director may be reelected. Each ordinary share represents one vote. No director may be elected or removed on the basis of a vote by dormant shares. The ordinary shares do not have cumulative voting rights in the election of directors.

Directors may be appointed also in certain circumstances by an extraordinary general meeting and by the board of directors upon approval of 75% of the directors. Such director, excluding an external director, shall serve for a term ending at the next annual general meeting.

Rights in the Company's Profits

Our shareholders have the rights to share in our profits distributed as a dividend and any other permitted distribution. See "Item 10B. Rights Attached to Shares–Dividend Rights."

Rights in the Event of Liquidation

All of our ordinary shares confer equal rights among them with respect to amounts distributed to shareholders in case of liquidation.

Limitations on Ownership and Control

Ownership and control of our ordinary shares are limited by the terms of our license and our articles of association. See "Item 4B. Information on the Company–Business Overview–Our Mobile Telephone License –License Conditions."

In order to comply with the conditions and restrictions imposed on us by the Ministry of Communications or under our License in relation to ownership or control over us, under certain events specified in our articles of association, the board of directors may determine that certain ordinary shares are dormant shares. According to our articles of association, dormant shares bear no rights as long as they are dormant shares, except for the right to receive dividends and other distributions to shareholders. Consequently, we have received an exemption from the requirement set out in Nasdaq's Marketplace Rule 4351 that voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the US Securities Exchange Act cannot be disparately reduced or restricted through any corporate action or issuance.

Changing Rights Attached to Shares

According to our articles of association, in order to change the rights attached to any class of shares, the general meeting of the shareholders must adopt a resolution to change such rights by a special majority, representing at least 75% of the votes of shareholders participating and voting in the general meeting, and in case of changing the rights attached to certain class of shares, the approval by special majority of each class meeting, is required.

Annual and Extraordinary Meetings

The board of directors must convene an annual meeting of shareholders at least once every calendar year, within fifteen months of the last annual meeting. Notice of a general meeting must be sent to each registered shareholder within five days after the record date set by the board of directors for that meeting, unless a different notice time is required under applicable law or unless all shareholders who qualify to vote at the time approve in writing of a shorter notice period. An extraordinary meeting may be convened by the board of directors, as it decides or upon a demand of any two directors or 25% of the directors, whichever is lower, or of one or more shareholders holding in the aggregate at least 4.99% of our issued capital. An extraordinary meeting must be held not more than thirty-five days from the publication date of the announcement of the meeting. See "Item 10B. Rights Attached to Shares–Voting Rights."

Limitations on the Rights to Own Our Securities

For limitations on the rights to own our securities see "Item 4B. Information on the Company – Business Overview – Our Mobile Telephone License – License Conditions," " – Our Permit Regarding Cross Ownership" and "Item 10B. Rights Attached to Shares –Limitations on ownership and control."

Limitations on Change in Control and Disclosure Duties

For limitations on change in control, see "Item 4B. Information on the Company – Business Overview – Our Mobile Telephone License – License Conditions," "Item 4B. Information on the Company – Business Overview – Our Mobile Telephone License – Our Permit Regarding Cross Ownership" and "Item 10B. Rights Attached to Shares – Limitations on ownership and control."

Changes in our Capital

Changes in our capital are subject to the approval of the shareholders at a general meeting by a special majority of 75% of the votes of shareholders participating and voting in the general meeting.

10C. Material Contracts

In January 2006, we signed an agreement with Med I.C.–1 (1999) Ltd. to purchase its fiber-optic cable infrastructure comprising of a network of approximately 900 kilometers of submerged and terrestrial transmission fiber in Israel. We entered into this agreement in order to enable us to reduce our transmission costs as well as to provide our business customers with bundled services of transmission of data and voice. In July 2006, we completed this transaction for a final purchase price of approximately NIS 71 million ($16.8 million).

In January 2007, we signed a two-year contract with the international long-distance provider "Golden Lines" (012), to carry all of our international call traffic. The agreement provides that Partner will route calls to its customers that are roaming abroad via Golden Lines (012). In addition, Partner will route outgoing international calls from foreign roamers hosted on Partner's network in Israel. Under the agreement, all international signaling traffic related to Partner's roamers abroad and foreign roamers hosted on Partner's network while visiting Israel will be also be routed through Golden Lines (012). We expect that the costs related to these services provide by Golden Lines (012) will exceed US $10 million over a two-year period.

For information on our share repurchase, see "Item 7B. Related Party Transactions – Repurchase of Shares from Founding Israeli Shareholders." For information on our redemption of the Notes due 2010, see "Item 5.Liquidity and Capital Resources."

10D. Exchange Controls

There are no Israeli government laws, decrees or regulations that restrict or that affect our export or import of capital or the remittance of dividends, interest or other payments to non-resident holders of our securities, including the availability of cash and cash equivalents for use by us and our wholly-owned subsidiaries, Partner Future Communications 2000 Ltd. and Partner Land-Line Communications Solutions (of which Partner Future Communications 2000 Ltd. serves as the general partner and the Company serves as the limited partner), except or otherwise as set forth under "Item 10E. Additional Information – Taxation."

Under Israeli law (and our memorandum and articles of association), persons who are neither residents nor nationals of Israel may freely hold, vote and transfer ordinary shares in the same manner as Israeli residents or nationals.

10E. Taxation

Israeli Tax Considerations

The following is a summary of the current tax laws of the State of Israel as they relate to us and to our shareholders and also includes a discussion of the material Israeli tax consequences for persons purchasing our ordinary shares or ADSs, both referred to below as the "Shares". To the extent that the discussion is based on legislation yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord with any such interpretation in the future. This discussion is not intended and should not be construed as legal or professional tax advice and does not cover all possible tax considerations.

Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of our ordinary shares, including, in particular, the effect of any foreign, state or local taxes.

Israeli Tax Reforms

On July 24, 2002, the Israeli Knesset enacted income tax reform legislation, commonly referred to as the "2003 Tax Reform". The 2003 Tax Reform has introduced fundamental and comprehensive changes into Israeli tax laws. Most of the legislative changes took effect on January 1, 2003. The 2003 Tax Reform has introduced a transition from a primarily territorial-based tax system to a personal-based system of taxation with respect to Israeli residents. The 2003 Tax Reform has also resulted in significant amendment of the international taxation provisions, and new provisions concerning the taxation of capital markets including the abolishment of currently "exempt investment routes" (e.g., capital gains generated by Israeli individuals from the sale of securities traded on the Tel-Aviv Stock Exchange). Under the 2003 Tax Reform legislation the Shares are no longer regarded and defined as "foreign traded securities" and thus certain associated Israeli tax aspects will accordingly be subject to change as discussed below.

A relatively short time after the 2003 Tax Reform, the Israeli Parliament approved on July 25, 2005 an additional income tax reform legislation (the "2006 Tax Reform") pursuant to the recommendations of a committee appointed by the Israeli Minister of Finance, which incorporated additional fundamental changes to Israeli tax law. The 2006 Tax Reform, inter alia, includes a gradual reduction of income tax rates for both individuals and corporations through 2010, and outlines a path towards uniformity in the taxation of interest, dividend and capital gains derived from securities. Most of the amendments to the tax law are effective as of January 1, 2006, subject to certain exceptions. Transition rules apply in certain circumstances.

Various issues related to the 2003 Tax Reform and the 2006 Tax Reform remain unclear in view of the legislative language utilized and the lack of authoritative interpretations at this stage. The analysis below is therefore based on our current understanding of the new legislation.

General Corporate Tax Structure

The corporate tax rate applicable in 2006 is 31% and had been scheduled to be reduced to 29% in 2007, 27% in 2008, 26% in 2009 and 25% in 2010 and beyond.

Special Provisions Relating to Taxation under Inflationary Conditions

Our taxable income is determined under the Income Tax (Inflationary Adjustment) Law 1985, or the "Inflationary Adjustments Law", which attempts to overcome some of the problems presented to a traditional tax system by rapid inflation. Generally, the Inflationary Adjustments Law provides tax deductions and adjustments to depreciation deductions and tax loss carry forwards to mitigate the effects resulting from an inflationary economy.

The Inflationary Adjustments Law is highly complex. Its principal features can be described as follows:

y Where a company's equity, as calculated under the Inflationary Adjustments Law, exceeds its fixed assets (as defined in the Inflationary Adjustments Law), a deduction from taxable income is permitted equal to the excess multiplied by the applicable annual rate of inflation. The maximum deduction permitted in any single tax year is 70% of taxable income, with the unused portion permitted to be carried forward, and linked to the Israeli consumer price index. The unused portion that was carried forward may be deductible in full in the following year.
y Where a company's fixed assets exceeds its equity, then the excess multiplied by the applicable annual rate of inflation is added to taxable corporate business income but not to other income, such as capital gains.
y Subject to specified limitation, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the change in the consumer price index.

The Israeli Income Tax Ordinance and regulations promulgated there under allow Foreign-Invested Companies, to adjust their tax returns based on exchange rate fluctuations of the shekel against the US Dollar rather than changes in the CPI, in lieu of the principles set forth by the Inflationary Adjustments Law. For these purposes, a Foreign-Invested Company is a company in which more than 25% of the share capital in terms of rights to distributions, voting and appointment of directors, and of the combined share capital, including shareholder loans and capital notes, is held by persons who are not residents of Israel. A company that elects to measure its results for tax purposes based on the US Dollar exchange rate cannot change that election for a period of three years following the election. We adjust our tax returns based on the changes in the CPI. Because we qualify as a Foreign-Invested Company, we are entitled to elect measurement of our results for tax purposes on the basis of changes in the exchange rate of the US Dollar in future tax years.

Tax on Capital Gains of Shareholders

y General. Israeli law imposes a capital gains tax on the sale of capital assets by an Israeli resident and on the sale of capital assets located in Israel or the sale of direct or indirect rights to assets located in Israel, including on the sale of our Shares by some of our shareholders (see discussion below). The Israeli Tax Ordinance distinguishes between "Real Gain" and "Inflationary Surplus". Real Gain is the excess of the total capital gain over Inflationary Surplus computed on the basis of the increase in the CPI between the date of purchase and the date of sale. In 2006, the Real Gain accrued at the sale of an asset that is purchased on or after January 1, 2003 is taxed at a 25% rate for corporations, and 20% rate for individuals. Additionally, if such shareholder is considered a "Significant Shareholder" at any time during the 12-month period preceding such sale (i.e. if such shareholder holds directly or indirectly, including along with others, at least 10% of any means of control in the company), the tax rate will be 25%. However, the foregoing tax rates will not apply to (i) dealers in securities; and (ii) shareholders who have acquired their shares prior to an initial public offering (that may be subject to a different tax arrangement). Inflationary surplus that accrued after December 31, 1993, is exempt from tax.

Real Gains derived from the disposal after January 1, 2003 of an asset purchased prior to this date will be subject to capital gains tax at a blended rate. The regular corporate tax rate of 29% (for 2007) and a marginal tax rate of up to 48% for individuals will be applied to the gain amount which bears the same ratio to the total gain realized as the ratio which the holding period commencing at the acquisition date and terminating on January 1, 2003 bears to the total holding period. The remainder of the gain realized will be subject to capital gains tax at a 25% rate for corporations and 20% for individuals (25% for an individual who was a "Significant Shareholder" at any time during the 12-month period preceding such sale).

Generally, within 30 days of a transaction a detailed return, including a computation of the tax due should be submitted to the Israeli Tax Authorities and a tax advance amounting to the tax liability arising from the capital gain is payable. At the sale of traded securities, the aforementioned detailed return may not be submitted and the tax advance should not be paid, if all tax due was withheld at the source according to applicable provisions of the Israeli Tax Ordinance and regulations promulgated thereunder. Capital gains are also reportable on annual income tax returns.

y Taxation of Israeli Residents. In July 2001 our ordinary shares were listed for trading on the Tel Aviv Stock Exchange. As a result of our dual listing and due to the 2003 Tax Reform (inclusion of new provisions concerning the taxation of capital markets) and that since our ordinary shares are no longer considered "foreign traded securities", the tax treatment of our shareholders under Israeli law has changed.

The following is a summary of the most significant Israeli capital gains tax implications arising with respect to the sale of our Shares by shareholders who are not engaged in the business of trading securities. As demonstrated below, the timing of the shareholder's purchase of the shares will determine the tax outcomes in this regard.

Sale of shares purchased after January 1, 2003

Individuals

A shareholder will generally be subject to tax at 20% rate on realized real capital gain. To the extent that the shareholder claims a deduction of financing expenses, the gain will be subject to tax at a rate of 25% (until otherwise stipulated in bylaws that may be published in the future).

Corporations

Corporations that are subject to the Inflationary Adjustments Law

The shareholder will be subject to tax at the corporate rate on the realized capital gain (currently 29% for 2007).

Corporations that are not subject to the Inflationary Adjustments Law

Generally, the shareholder will be subject to tax at the corporate tax rate of 25% on realized real capital gains.

Different taxation rules may apply to shareholders who purchased their shares prior to the listing on the Tel Aviv Stock Exchange. They should consult with their tax advisors for the precise treatment upon sale.

y Taxation of Non-Israeli Residents. As mentioned above, Israeli law generally imposes a capital gains tax on sales of capital assets, including securities and any other direct or indirect rights to capital assets located in Israel. This tax is also applicable to nonresidents of Israel as follows:

Foreign investors (individuals and corporations) that are not engaged in the business of trading securities through a permanent establishment in Israel, who purchased the shares after the listing on the Tel Aviv Stock Exchange will be exempt from tax on capital gains derived from the sale of the shares. Foreign corporations will not be entitled to such exemption if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such foreign corporation, whether directly or indirectly.

y Taxation of Investors Engaged in a Business of Trading Securities. Individual and corporate dealers in securities in Israel are taxed at tax rates applicable to business income.
y Withholding at Source from Capital Gains from Traded Securities. Under the 2006 Tax Reform, Israeli stockbrokers have a duty to withhold tax upon the sale of traded securities. The applicable withholding tax rate is generally 20% from the real gain.

Dividends

The following Israeli tax consequences shall apply in the event of actual payment of any dividends on ordinary shares or ADSs.

Income from dividends in 2006 and thereafter, other than bonus shares (stock dividends), to Israeli residents who purchased our Shares will generally be subject to income tax at a rate of 20% for individuals, or 25% if the dividends receipt is a Significant Shareholder (as defined above) at any time during the 12-month period preceding such distribution and will be exempt from income tax for Israeli corporations.

Non-residents of Israel (both individuals and corporations) are subject to income tax on income accrued or derived from sources in Israel, including dividends from Israeli corporations. The distribution of dividend income, other than bonus shares (stock dividends), to non-residents of Israel will generally be subject to income tax at a rate of 20% (or 25% for a shareholder that is considered a Significant Shareholder (as defined above) at any time during the 12-month period preceding such distribution), unless a lower rate is stipulated by a treaty between Israel and the shareholder's country of residence.

In the event of actual payment of any dividends on our ordinary shares or ADSs the following withholding rates will be applied: (i) Israeli resident corporation – 0%, (ii) Israeli resident individual – 20% (iii) non-Israeli resident – 20%, subject to a reduced tax rate under an applicable double tax treaty.

Taxation of Residents of the United States under the US Treaty

Residents of the United States will generally be subject to withholding tax in Israel on dividends paid, if any, on Shares (including ADSs). Generally, under the Convention Between the Government of the United States of America and the Government of the State of Israel with Respect to Taxes on Income (the "US Treaty"), the maximum rate of withholding tax on dividends paid to a holder of Shares (including ADSs) who is a resident of the United States (as defined in the US Treaty) will be 25%. Since the tax rate of 25% is generally higher than the maximum Israeli tax rate on dividends pursuant to the 2006 Tax Reform, the maximum tax rate should be 20%. The maximum rate of withholding tax on dividends paid by Israeli corporation to a US corporation generally will be 12.5% if, inter alia, during the part of the Israeli corporation's taxable year which precedes the date of payment and during the whole of its prior taxable year, at least 10% of the outstanding shares of the voting stock of the Israeli corporation was owned by the US corporation.

The US Treaty exempts from taxation in Israel any capital gain realized on the sale, exchange or other disposition of Shares (including ADSs) provided the following conditions are met (a) the seller is a resident of the United States for purposes of the US Treaty, and (b) the seller owns directly or indirectly, less than 10% of our voting stock at all times during the 12-month period preceding such sale, exchange or other disposition (c) the seller, being an individual, is present in Israel for a period or periods of less than 183 days at the taxable year; and (d) the capital gain from the sale was not derived through a permanent establishment of the seller in Israel.

Purchasers of Shares (including ADSs), who are residents of the United States and who hold 10% or more of the outstanding ordinary shares at any time during such 12-month period will be subject to Israeli capital gains tax. However, under the US Treaty, residents of the United States (as defined in the US Treaty) generally would be permitted to claim a credit for this tax against US federal income tax imposed on the sale, exchange or other disposition, subject to the limitations in US laws applicable to the utilization of foreign tax credits generally.

The application of the US Treaty provisions to dividends and capital gains described above is conditioned upon the fact that such income is not effectively connected with a permanent establishment (as defined in the US Treaty) maintained by the non-Israeli resident in Israel.

A non-resident of Israel that has dividend income derived from or accrued in Israel, from which tax was withheld at the source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income was not connected to or derived from a trade or business conducted in Israel by the tax payer.

Repatriation

Non-residents of Israel who acquire any of the Shares (including ADSs) of the Company will be able to repatriate dividends, liquidation distributions and the proceeds from the sale of such ADSs or ordinary shares, in non-Israeli currencies at the rate of exchange prevailing at the time of repatriation provided that any applicable Israel income tax has been paid, or withheld, on such amounts. US holders should refer to the "United States Federal Income Taxation – Dividends" section below with respect to the US federal tax treatment of foreign currency gain or loss.

United States Federal Income Tax Considerations

The following discussion is a summary of certain material US federal income tax considerations applicable to a US holder (as defined below) regarding the acquisition, ownership and disposition of ordinary shares or ADSs. This summary is based on provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed US Treasury regulations, administrative pronouncements, rulings and judicial decisions in effect as of the date of this Annual Report. All of these authorities are subject to change, possibly with retroactive effect, and to change or changes in interpretation. In addition, this summary does not discuss all aspects of US federal income taxation that may be applicable to investors in light of their particular circumstances or to investors who are subject to special treatment under US federal income tax law, including US expatriates, insurance companies, banks, regulated investment companies, securities broker-dealers, financial institutions, tax-exempt organizations, persons holding ordinary shares or ADSs as part of a straddle, hedging or conversion transaction, persons subject to the alternative minimum tax, persons who acquired their ordinary shares or ADSs pursuant to the exercise of employee stock options or otherwise as compensation, persons having a functional currency other than the US dollar, persons owning (directly, indirectly or by attribution) 10% or more of our outstanding share capital or voting stock, and persons not holding the ordinary shares or ADSs as capital assets.

As used herein, the term "US holder" means a beneficial owner of an ordinary share or an ADS who is eligible for benefits as a US resident under the limitation on benefits article of the US Treaty (as defined above in "–Taxation of residents of the United States under the US Treaty"), and is:

y a citizen or individual resident of the United States for US federal income tax purposes;
y a corporation (or an entity taxable as a corporation for US federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof (including the District of Columbia);
y an estate whose income is subject to US federal income taxation regardless of its source; or
y a trust if (A) a US court is able to exercise primary supervision over the trust's administration and (B) one or more US persons have the authority to control all of the trust's substantial decisions.

If a partnership, or other entity treated as a partnership for US federal income tax purposes, holds ordinary shares or ADSs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner in a partnership that holds ordinary shares or ADSs is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of ordinary shares or ADSs.

For US federal income tax purposes, US holders of ADRs will be treated as owners of the ADSs evidenced by the ADRs and the ordinary shares represented by the ADSs. Furthermore, deposits or withdrawals by a US holder of ordinary shares for ADSs, or of ADSs for ordinary shares, will not be subject to US federal income tax or Israeli income tax. The statements of US federal income tax laws set forth assume that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.

US holders should review the summary above under "Israeli Taxation" and "Israeli Taxation–Taxation of residents of the United States under the US Treaty" for a discussion of the Israeli taxes which may be applicable to them.

Holders of ordinary shares or ADSs should consult their own tax advisors concerning the specific Israeli, US federal, state and local tax consequences of the ownership and disposition of the ordinary shares or ADSs in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction. In particular, US holders are urged to consult their own tax advisors concerning whether they will be eligible for benefits under the US Treaty.

Dividends

A US holder generally will be required to include in gross income as ordinary dividend income the amount of any distributions paid on the ordinary shares and ADSs, including the amount of any Israeli taxes withheld in respect of such dividend. Dividends paid by us will not qualify for the dividends-received deduction applicable in certain cases to US corporations.

The amount of any distribution paid in NIS, including the amount of any Israeli withholding tax thereon, will be included in the gross income of a US holder of ordinary shares in an amount equal to the US dollar value of the NIS calculated by reference to the spot rate of exchange in effect on the date the distribution is received by the US holder or, in the case of ADSs, by the Depositary. If a US holder converts dividends paid in NIS into US dollars on the day such dividends are received, the US holder generally should not be required to recognize foreign currency gain or loss with respect to such conversion. If the NIS received in the distribution are not converted into US dollars on the date of receipt, any foreign currency gain or loss recognized upon a subsequent conversion or other disposition of the NIS will be treated as US source ordinary income or loss. Special rules govern and special elections are available to accrual method taxpayers to determine the US dollar amount includible in income in the case of taxes withheld in a foreign currency. Accrual basis taxpayers are urged to consult their own tax advisors regarding the requirements and the elections applicable in this regard.

Any dividends paid by us to a US holder on the ordinary shares or ADSs will be treated as foreign source income and will be categorized as "passive income" or, in the case of certain US holders, "financial services income" for US foreign tax credit purposes. For taxable years beginning after December 31, 2006, dividend income generally will constitute "passive category income" or, in the case of certain US holders, "general category income". Subject to the limitations in the Code, as modified by the US Treaty, a US holder may elect to claim a foreign tax credit against its US federal income tax liability for Israeli income tax withheld from dividends received in respect of ordinary shares or ADSs. US holders who do not elect to claim the foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only for a year in which the US holder elects to do so with respect to all foreign income taxes. A deduction does not reduce US tax on a dollar-for-dollar basis like a tax credit. The deduction, however, is not subject to the limitations applicable to foreign tax credits. The rules relating to the determination of the foreign tax credit are complex. Accordingly, if you are a US holder of ordinary shares or ADSs, you should consult your own tax advisor to determine whether and to what extent you would be entitled to the credit.

Certain US holders (including individuals) are eligible for reduced rates of US federal income tax (at a maximum rate of 15%) in respect of "qualified dividend income" received in taxable years beginning before January 1, 2011. For this purpose, qualified dividend income generally includes dividends paid by a non-US corporation if, among other things, the US holders meet certain minimum holding periods and the non-US corporation satisfies certain requirements, including that either (i) the shares (or ADSs) with respect to which the dividend has been paid are readily tradable on an established securities market in the United States, or (ii) the non-US corporation is eligible for the benefits of a comprehensive US income tax treaty (such as the US Treaty) which provides for the exchange of information. We currently believe that dividends paid with respect to our ordinary shares and ADSs, should constitute qualified dividend income for US federal income tax purposes. We anticipate that our dividends will be reported as qualified dividends on Forms 1099-DIV delivered to US holders. Each individual US holder of ordinary shares or ADSs is urged to consult his own tax advisor regarding the availability to him of the reduced dividend tax rate in light of his own particular situation and regarding the computations of his foreign tax credit limitation with respect to any qualified dividend income paid by us, as applicable.

The US Treasury has expressed concern that parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax credits or reduced rates in respect of qualified dividends by US holders of ADSs. Accordingly, the discussion above regarding the creditability of Israeli withholding tax or the availability of qualified dividend treatment could be affected by future actions that may be taken by the US Treasury with respect to ADSs.

Sale, Exchange or Other Disposition

Upon the sale, exchange or other disposition of ordinary shares or ADSs, a US holder generally will recognize capital gain or loss equal to the difference between the US dollar value of the amount realized on the sale, exchange or other disposition and the US holder's adjusted tax basis, determined in US dollars, in the ordinary shares or ADSs. Any gain or loss recognized upon the sale, exchange or other disposition of the ordinary shares or ADSs will be treated as long-term capital gain or loss if, at the time of the sale, exchange or other disposition, the holding period of the ordinary shares or ADSs exceeds one year. In the case of individual US holders, capital gains generally are subject to US federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses by a US holder is subject to significant limitations. US holders should consult their own tax advisors in this regard.

In general, gain or loss recognized by a US holder on the sale, exchange or other disposition of ordinary shares or ADSs will be US source income or loss for US foreign tax credit purposes. Pursuant to the US Treaty, however, gain from the sale or other disposition of ordinary shares or ADSs by a holder who is a US resident, for US Treaty purposes, and who sells the ordinary shares or ADSs within Israel may be treated as foreign source income for US foreign tax credit purposes.

US holders who hold ordinary shares or ADSs through an Israeli stockbroker or other Israeli intermediary may be subject to an Israeli withholding tax on any capital gains recognized if the US holder does not obtain approval of an exemption from the Israeli Tax Authorities. US holders are advised that any Israeli tax paid under circumstances in which an exemption from such tax was available will not give rise to a deduction or credit for foreign taxes paid for US federal income tax purposes. US holders are advised to consult their Israeli stockbroker or intermediary regarding the procedures for obtaining an exemption.

If a US holder receives NIS upon the sale of ordinary shares, that US holder may recognize ordinary income or loss as a result of currency fluctuations between the date of the sale of the ordinary shares and the date the sales proceeds are converted into US dollars.

Passive Foreign Investment Company Rules

A non-US corporation will be classified as a Passive Foreign Investment Company (a "PFIC") for any taxable year if at least 75% of its gross income consists of passive income (such as dividends, interest, rents, royalties (other than rents or royalties derived in the active conduct of a trade or business and received from an unrelated person), or gains on the disposition or certain minority interests), or at least 50% of the average value of its assets consist of assets that produce, or are held for the production of, passive income. We currently believe that we were not a PFIC for the year ended December 31, 2006. However, this conclusion is a factual determination that must be made at the close of each year and is based on, among other things, a valuation of our ordinary shares, ADSs and assets, which will likely change from time to time. If we were characterized as a PFIC for any taxable year, a US holder would suffer adverse tax consequences. These consequences may include having gains realized on the disposition of ordinary shares or ADSs treated as ordinary income rather than capital gains and being subject to punitive interest charges on certain dividends and on the proceeds of the sale or other disposition of the ordinary shares or ADSs. Furthermore, dividends paid by a PFIC are not eligible to be treated as "qualified dividend income" (as discussed above).

Application of the PFIC rules is complex. US holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership of our ordinary shares or ADSs.

Information Reporting and Backup Withholding

Dividend payments with respect to ordinary shares or ADSs and proceeds from the sale, exchange or other disposition of ordinary shares or ADSs may be subject to information reporting to the Internal Revenue Service (the "IRS") and possible US backup withholding at a current rate of 28%. Backup withholding will not apply, however, to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification or who is otherwise exempt from backup withholding. US persons who are required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-US holders generally will not be subject to US information reporting or backup withholding. However, such holders may be required to provide certification of non-US status (generally on IRS Form W-8BEN) in connection with payments received in the United States or through certain US-related financial intermediaries.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder's US federal income tax liability, and a holder may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information.

10F. Dividends and Paying Agents

Not applicable.

10G. Statement By Experts

Not applicable.

10H. Documents on Display

Reports and other information of Partner filed electronically with the US Securities and Exchange Commission may be found at www.sec.gov. They can also be inspected without charge and copied at prescribed rates at the public reference facilities maintained by the SEC in Room 1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549 and, as long as our notes are listed on the Luxembourg Stock Exchange, at the office of the paying agent in Luxembourg.

10I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

We are exposed to market risk, including movements in foreign currency exchange rates. Where appropriate, we enter into derivative transactions to hedge underlying exposure foreign currencies and inflation (CPI). As a matter of policy we do not enter into transactions of a speculative or trading nature. Interest rate and foreign exchange exposures are monitored by tracking actual and projected commitments and through the use of sensitivity analysis.

We have borrowings in shekels linked to the CPI and unlinked shekels. The following table provides information derived from the financial statements about these borrowings, as of December 31, 2006.

Non-Derivative Instruments

	Book Value(NIS equivalentin millions,except percentages)

NIS linked to the CPI (1)	2,016
Long-term fixed Notes due 2012	4.25%
NIS linked to the CPI (1)
Long-term - fixed bank debt	181
Weighted average interest rate payable on fixed rate debt	5.78%
Unlinked NIS (1)
Long-term - floating	127
Weighted average interest rate payable on floating rate debt	5.49%
Total	2,324

(1) Book value approximates fair value at December 31, 2006.

Expected Maturity Dates:

We have a senior credit facility with Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel Discount Bank Ltd., in which United Mizrahi Bank Ltd. also participates. The facility is divided into two tranches: a $161 million term loan facility ("Facility A") and a $100 million revolving loan facility ("Facility B") both expiring September 1, 2009. Facility A must be reduced to $50 million by August 31, 2008. Until February 19, 2007, the facilities were secured by a first ranking floating charge on our assets. With effect March 1, 2007, we have reduced Facility A to $75 million (in addition to an advance of approximately $25 million carried over from our previous facility, which on balance sheet date, was reduced to $11 million) and Facility B to $75 million. As a result, the total maximum availability under the facility is currently approximately $161 million.

Foreign Exchange and Inflation

Substantially all of our revenues and a majority of our operating expenses are denominated in shekels. However, through December 31, 2006, a material amount of our operating expenses were linked to non-shekel currencies. These expenses related mainly to the acquisition of handsets where the price paid by us is based on various foreign currencies. In addition, most of our capital expenditures are incurred in, or linked to, non-shekel currencies. Thus, devaluation of the shekel against the dollar (or other foreign currencies), increases the shekel cost of our non-shekel denominated or linked expenses. Such an increase may have an adverse impact on our results, which may be material. We hedge some of our foreign currency commitments.

Our hedging strategy is to neutralize and mitigate our currency exposures by entering into hedging transactions which convert into shekels the liabilities not denominated in shekels. We do not hold or issue derivative financial instruments for trading purposes.

Our bank credit facility borrowings and Notes due 2012 are currently in shekels, some of which are linked to the CPI. We may not be permitted to raise our tariffs pursuant to our license in a manner that would fully compensate for any increase in the CPI. Therefore, an increase in the rate of inflation may also have a material adverse impact upon us by increasing our financial expenses without an offsetting increase in revenue. We enter into derivative transactions in order to protect ourselves from an increase in the CPI in respect of the principal of the CPI – linked Notes.

The transactions are mainly designated to hedge the cash flows related to payments in respect of purchases of handsets and capital expenditures in foreign currency. However, these contracts do not qualify for hedge accounting under FAS 133.

The notional amount does not necessarily represent amounts exchanged by the parties and, therefore, is not a direct measure of our exposure.

The following table provides information derived from the financial statements about our outstanding foreign exchange instruments.

Derivative Instruments

	As ofDecember31, 2006	Maturing in2007	Fair Value atDecember 31,2006
		(NIS equivalent in millions)
Forward transactions - for the exchange of:Dollars into NIS	351	351	(4)
Embedded derivatives - Dollars into NIS	153	153	7
Forward transactions - for the changes in the Israeli CPI	1,100	1,100	(17)

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. Our management, including our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2006. Disclosure controls and procedures means controls and other procedures designed to ensure that information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Nevertheless, our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures in place as of December 31, 2006 were effective at such reasonable assurance level.

(b) Management's Annual Report on Internal Control over Financial Reporting. Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended. The 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. Internal control over financial reporting includes policies and procedures that:

y pertain to the maintenance of our records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;
y provide reasonable assurance that our transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles;
y provide reasonable assurance that our receipts and expenditures are made only in accordance with authorizations of our management and board of directors (as appropriate); and
y provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, 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, including our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2006 based on the framework for Internal Control-Integrated Framework set forth by The Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2006.

Our auditors, Kesselman & Kesselman, a member of PricewaterhouseCoopers International Limited, and an independent registered public accounting firm, has issued their attestation report on management's assessment of internal control over financial reporting. Their report is included in Item 18.

(c) Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The board of directors has determined that Moshe Vidman and Dr. Michael Anghel are "audit committee financial experts" as defined in Item 16A of Form 20-F. All the members of the Audit Committee are "independent directors" as defined in the Nasdaq listing standards applicable to us.

ITEM 16B. CODE OF ETHICS

We have adopted a code of ethics that applies to our directors, officers and employees. We undertake to provide to any person without charge, upon request, a copy of our code of ethics, which you may request from Partner's legal department, tel.: +972-54-4814191.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Kesselman & Kesselman, independent certified public accountants in Israel and a member of Pricewaterhouse Coopers International Limited ("PwC") have served as our independent public accountants for each of the fiscal years in the three-year period ended December 31, 2006, for which audited financial statements appear in this annual report on Form 20-F.

The following table presents the aggregate fees for professional services rendered by PwC to Partner in 2005 and 2006.

	2005 (NIS thousands)	2006 (NIS thousands)

Audit Fees (1)	2,073	4,606
Audit-related Fees (2)	788	147
Tax Fees (3)	258	248
All other fees	-	-
TOTAL	3,119	5,001

(1) Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and include the group audit; statutory audits; comfort letters and consents; and assistance with and review of documents filed with the SEC.

(2) Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards and internal control reviews. The audited related fees in 2005 include also fees in respect of the issuance of the Notes and expenses related to the Sarbanes Oxley Act.
(3) Tax Fees include fees billed for tax compliance services, including the preparation of tax returns and claims for tax refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, and requests for rulings or technical advice from taxing authority.

Audit Committee Pre-approval Policies and Procedures

Our Audit Committee's specific responsibilities in carrying out its oversight of the quality and integrity of the accounting, auditing and reporting practices of the Company include the approval of audit and non-audit services to be provided by the external auditor. The Audit Committee approves in advance the particular services or categories of services to be provided to the Company during the following yearly period and also sets forth a specific budget for such audit and non-audit services. Additional non-audit services may be preapproved by the Audit Committee.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES

Neither we nor any "affiliated purchasers", as defined in Rule 10b – 18(a)(3) under the US Securities Exchange Act of 1934, purchased any of our shares during 2006.

ITEM 17. FINANCIAL STATEMENTS

The company has responded to "Item 18. Financial Statements" in lieu of responding to this item.

ITEM 18. FINANCIAL STATEMENTS

The following financial statements are filed as part of this annual report.

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F - 3 - F - 4
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of December 31, 2005 and 2006	F - 5 - F - 6
Statements of operations for the years ended December 31, 2004, 2005 and 2006	F - 7
Statements of changes in shareholders' equity for the years ended December 31, 2004, 2005 and 2006	F - 8
Statements of cash flows for the years ended December 31, 2004, 2005 and 2006	F - 9 - F - 10
Notes to financial statements	F - 11 - F -48

ITEM 19. EXHIBITS

Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed certain agreements as exhibits to this Annual Report on Form 20-F. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should not be relied upon.

Exhibit No.	Description

1.1	Partner's Amended and Restated Articles of Association
*1.2	Partner's Certificate of Incorporation
*1.3	Partner's Memorandum of Association
**2.(a).1	Form of Share Certificate
^^2.(a).2	Amended and Restated Deposit Agreement Between Partner and the Bank of New York
^2.(b)	Form of Indenture between Partner and the Trust Company of Union Bank Ltd.
^4.(a).1	Restatement of the Relationship Agreement dated April 20, 2005
**4.(a).2	License from the Israeli Ministry of Communications issued April 8, 1998
**4.(a).4	License Agreement for use of the Orange Brand in Israel dated September 14, 1998
**4.(a).5	Brand Support/Technology Transfer Agreement dated July 18, 1999
**4.(a).6	Agreement with Ericsson Radio Systems AB dated May 28, 1998
#++4.(a).7	Agreement with LM Ericsson Israel Ltd. dated November 25, 2002
^#4.(a).8	Dealer Agreement with Super-Pharm dated February 12, 2004
**4.(a).9	Lease Agreement with Mivnei Taasia dated July 2, 1998
^^^4.(a).13	Asset Purchase Agreement with Med-1 dated as of January 22, 2006
#***4.(a).14	Amendment No. 1 to License from the Israeli Ministry of Communications issued May 11, 1999
***4.(a).15	Amendment No. 2 to License from the Israeli Ministry of Communications issued September 29, 1999
***4.(a).16	Amendment No. 3 to License from the Israeli Ministry of Communications issued October 3, 1999
***4.(a).17	Amendment No. 4 to License from the Israeli Ministry of Communications issued June 28, 2000
***4.(a).18	Amendment No. 5 to License from the Israeli Ministry of Communications issued September 10, 2000
***4.(a).19	Amendment No. 6 to License from the Israeli Ministry of Communications issued March 19, 2001
+4.(a).20	Amendment No. 7 to License from the Israeli Ministry of Communications issued September 23, 2001
+4.(a).21	Amendment No. 8 to License from the Israeli Ministry of Communications issued December 27, 2001
+4.(a).22	Amendment No. 9 to License from the Israeli Ministry of Communications issued March 13, 2002
+4.(a).23	Amendment No. 10 to License from the Israeli Ministry of Communications issued April 14, 2002
+4.(a).24	Amendment No. 11 to License from the Israeli Ministry of Communications issued April 25, 2002
++4.(a).25	Amendment No. 12 to License from the Israeli Ministry of Communications issued June 26, 2002
++4.(a).26	Amendment No. 13 to License from the Israeli Ministry of Communications issued June 30, 2002
++4.(a).27	Amendment No. 14 to License from the Israeli Ministry of Communications issued September 11, 2002
++4.(a).28	Amendment No. 15 to License from the Israeli Ministry of Communications issued October 24, 2002
++4.(a).29	Amendment No. 16 to License from the Israeli Ministry of Communications issued November 26, 2002
++4.(a).30	Amendment No. 17 to License from the Israeli Ministry of Communications issued February 2, 2003
+++4.(a).31	Amendment No. 18 to License from the Israeli Ministry of Communications issued May 29, 2003
+++4.(a).32	Amendment No. 19 to License from the Israeli Ministry of Communications issued July 31, 2003
+++4.(a).33	Amendment No. 20 to License from the Israeli Ministry of Communications issued October 8, 2003
+++4.(a).34	Amendment No. 21 to License from the Israeli Ministry of Communications issued October 9, 2003
+++4.(a).35	Amendment No. 22 to License from the Israeli Ministry of Communications issued March 16, 2004
+++4.(a).36	Amendment No. 23 to License from the Israeli Ministry of Communications issued March 21, 2004
^4.(a).37	Amendment No. 24 to License from the Israeli Ministry of Communications issued May 9, 2004
^4.(a).38	Amendment No. 25 to License from the Israeli Ministry of Communications issued July 4, 2004
^4.(a).39	Amendment No. 26 to License from the Israeli Ministry of Communications issued July 11, 2004
^4.(a).40	Amendment No. 27 to License from the Israeli Ministry of Communications issued August 8, 2004
^4.(a).41	Amendment No. 28 to License from the Israeli Ministry of Communications issued November 30, 2004
^4.(a).42	Amendment No. 29 to License from the Israeli Ministry of Communications issued December 16, 2004
^4.(a).43	Amendment No. 30 to License from the Israeli Ministry of Communications issued December 23, 2004
^4.(a).44	Amendment No. 31 to License from the Israeli Ministry of Communications issued March 9, 2005.
^^^4. (a). 45	Amendment No. 32 to License from the Israeli Ministry of Communications issued May 10,2005.
^^^4. (a). 46	Amendment No. 33 to License from the Israeli Ministry of Communications issued July 14, 2005.

4. (a). 48Amendment No. 35 to License from the Israeli Ministry of Communications issued July 25, 20064. (a). 49Amendment No. 36 to License from the Israeli Ministry of Communications issued July 26, 20064. (a). 50Amendment No. 37 to License from the Israeli Ministry of Communications issued October 29, 20064. (a). 51Amendment No. 38 to License from the Israeli Ministry of Communications issued November 5, 20064. (a). 52Amendment No. 39 to License from the Israeli Ministry of Communications issued November 6, 20064. (a). 53Amendment No. 40 to License from the Israeli Ministry of Communications issued January 8, 20074. (a). 54Amendment No. 41 to License from the Israeli Ministry of Communications issued February 11, 20074. (a). 55Amendment No. 42 to License from the Israeli Ministry of Communications issued January 14, 20074. (a). 56Amendment No. 43 to License from the Israeli Ministry of Communications issued February 19, 20074. (a). 57Amendment No. 44 to License from the Israeli Ministry of Communications issued April 25, 20074. (a). 58Special License from the Israeli Ministry of Communications for the Provision of Fixed-Line Domestic Transmission and Data Communication Servicesissued August 14, 2006.4. (a). 59Amendment No. 1 to Special License for the Provision of Fixed-Line Domestic Transmission and Data Communication Services issued September 10,2006.4. (a). 60Exclusive General License from the Israeli Ministry of Communications for the Provision of Domestic Transmission and Data Communication Servicesissued January, 15 2007.4. (a). 61Amendment No. 1 to Fixed-Line License from the Israeli Ministry of Communications issued January 14, 20074. (a). 62Amendment No. 2 to Fixed-Line License from the Israeli Ministry of Communications issued January 31, 20074. (a). 63Amendment No. 3 to Fixed-Line License from the Israeli Ministry of Communications issued February 19, 2007^4.(a).64Facility Agreement dated April 14, 2005#+++4.(a).65Purchase Agreement with Nortel Networks Israel (Sales and Marketing) Ltd. dated November 12, 2003.^4.(a).66Share Buy Back Agreement dated February 7, 20056.See Note 1q to our financial statements for information explaining how earnings (loss) per share information was calculated.8.List of Subsidiaries12.(a).1Certification by CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes Oxley Act of 2002.12.(a).2Certification by CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes Oxley Act of 2002.13.(a).1Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200214.(a).1Consent of Kesselman & Kesselman	^^^4. (a). 47	Amendment No. 34 to License from the Israeli Ministry of Communications issued March 2, 2006

* Incorporated by reference to our registration statement on Form F-1 (No. 333-12340).

*** Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2000.

Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2001.

++ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2002.

+++ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2003.

^ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2004.

^^ Incorporated by reference to our registration statement on Form F-6 (No. 333-132680).
^^^ Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2005.

Confidential treatment requested.

Confidential material has been redacted and has been separately filed with the Securities and Exchange Commission.

** Incorporated by reference to our registration statement on Form F-1 (No. 333-10992).

GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS

The following explanations are not intended as technical definitions, but to assist the reader in understanding certain terms as used in this annual report.

AMPS	Advanced Mobile Phone System; the analogue cellular telephone technology adopted in the United States. Also N-AMPS(Narrowband AMPS), a more frequency-efficient variant of AMPS.
Analog Technology	A technology in which some property of an electrical signal is varied proportionally to the input signal being transmitted, storedor processed. Fixed transmitter/receiver equipment in each cell of a mobile
Base Transceiver Station ("BTS")	telecommunications network that communicates by radio with all mobile telephones in that cell.
Base Station Controller ("BSC")	Monitors and controls one or more base stations in order to exchange messages, handover mobile units from cell to cell andperform other system administrative tasks.
Blocked call	Where a mobile phone call fails because no channels are available in the cell in which the user is located.
CDMA	Code Division Multiple Access; a method by which many users sharing the same radio channel can be distinguished by uniquecode numbers.
Cell	In a cellular telephone system, the coverage area of a single base transceiver station or one sector therein.
Channel	A frequency or time slot in a telecommunications system over which distinct messages can be conveyed.
Churn	The number of customers who are disconnected from a network, either involuntarily, due to payment delinquency or suspectedfraudulent use, or voluntarily, as customers switch to competing networks, relocate outside the network's service area, or ceaseusing mobile telephones permanently or temporarily.
D-AMPS	Digital Advanced Mobile Phone System; a digital cellular system first implemented in the United States and intended initially topermit gradual upgrading of AMPS networks.
Dropped call	When a mobile phone call is involuntarily terminated.
GPRS	General Packet Radio Services (GPRS) is a packet-based wireless communication service that enables data rates from 56 up to114 Kbps and continuous connection to the Internet for mobile phone and computer users. GPRS is based on Global System forMobile (GSM) communication.
GSM	The Global System for Mobile Communications, a comprehensive digital standard for the operation of all elements of a cellulartelephone system. GSM originated in Europe, but is now the most popular digital mobile telephone standard worldwide.
GSM 900	GSM operation in the 900 MHz frequency band; the original frequency band allocated to GSM, later extended by 10 MHz(EGSM).
GSM 1800	GSM operation in the 1800 MHz frequency band; formerly known as DCS 1800 or PCN, first allocated for the expansion ofmobile network competition in Europe, now used for the same purpose in many other areas.
GSM 1900	GSM operation in the 1900 MHz band; primarily used in North and South America

GSM Association	Formerly known as the GSM Memorandum of Understanding Association (GSM MoU), an organization of operators,government administrations, and equipment and service suppliers that promotes the development and promulgation of the GSMstandard and relations between GSM operators.
HSCSD	High Speed Circuit Switched Data is an infrastructure development which enables the transmission of data at higher speeds thanthe 9600 Bps speed previously available on GSM networks.
Intelligent Network ("IN")	Network architecture that centralizes the processing of calls and billing information of calls.
Mobile Switching Center ("MSC")	A large, computer-based device used to connect calls within a mobile network and as the interface of the cellular network toother networks.
SMS	Short message service, a service which enables mobile telephone users to send and receive written messages on their handsets.
UMTS	Universal Mobile Telecommunications System, the "third generation" of mobile telecommunications standard also referred to as3G.
Virtual Private Network ("VPN")	A private network provided by means of the facilities of a public telephone network but which operates by logic as a closed usergroup thereby providing the convenience of a private network with the economy of scale of a public network.
WAP	Wireless Application Protocol, a language specifically developed for mobile telephones that facilitates internet usage.
	85

PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)

2006 ANNUAL REPORT

TABLE OF CONTENTS

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-3-F-4
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of December 31, 2005 and 2006	F-5-F-6
Statements of operations for the years ended December 31, 2004, 2005 and 2006	F-7
Statements of changes in shareholders' equity for the years ended December 31, 2004, 2005 and 2006	F-8
Statements of cash flows for the years ended December 31, 2004, 2005 and 2006	F-9-F-10
Notes to financial statements	F-11-F-48

The amounts are stated in New Israeli Shekels (NIS) in thousands.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of

PARTNER COMMUNICATIONS COMPANY LTD.

We have completed an integrated audit of the 2006 consolidated financial statements of Partner Communications Company Ltd. and its subsidiary (collectively – "the Company") and of its internal control over financial reporting as of December 31, 2006 and audits of its 2005 and 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

We have audited the consolidated balance sheets of Partner Communications Company Ltd. and its subsidiary as of December 31, 2006 and 2005 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company's Board of Directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company's Board of Directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Partner Communications Company Ltd. and its subsidiary at December 31, 2006 and 2005, and the consolidated results of their operations, changes in shareholders' equity and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in Report of Partner Management on Internal Control Over Financial Reporting appearing under item 15, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides 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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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.

Tel-Aviv, Israel /s/ Kesselman & Kesselman June 6, 2007 Certified Public Accountants (Israel)

PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) CONSOLIDATED BALANCE SHEETS

	December 31
2006	2006	2005
ConveniencetranslationintoU.S. dollars(note 1a)		New Israeli shekels
	In thousands

A s s e t s
CURRENT ASSETS:
Cash and cash equivalents	4,008	77,547	18,354
Accounts receivable (note 12):
Trade	795,156	964,309	228,239
Other	97,128	65,533	15,511
Inventories	209,323	126,466	29,933
Deferred income taxes (note 9)	65,361	40,495	9,584
T o t a l current assets	1,170,976	1,274,350	301,621
INVESTMENTS AND LONG-TERM RECEIVABLES:
Accounts receivable - trade (note 12)	189,013	274,608	64,996
Funds in respect of employee rights upon retirement (note 6)	75,443	80,881	19,143
	264,456	355,489	84,139

FIXED ASSETS, net of accumulated depreciation andamortization (note 2)	1,768,895	1,747,459	413,600
LICENSE, DEFERRED CHARGES AND OTHERINTANGIBLE ASSETS, net of accumulated
amortization (note 3)	1,321,167	1,247,084	295,168
DEFERRED INCOME TAXES (note 9)	86,505	76,139	18,021
T o t a l assets	4,611,999	4,700,521	1,112,549

Date of approval of the financial statements: June 6, 2007

—————————————— David Avner Chief Executive Officer

—————————————— Emanuel Avner Chief Financial Officer

—————————————— Moshe Vidman Director

PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) CONSOLIDATED BALANCE SHEETS

		December 31
	2005	2006	2006
		New Israeli shekels	ConveniencetranslationintoU.S. dollars(note 1a)
		In thousands
Liabilities and shareholders' equity
CURRENT LIABILITIES:
Current maturities of long-term liabilities (notes 4, 12e)	34,464	40,184	9,511
Accounts payable and accruals:
Trade	665,542	690,424	163,414
Other (note 12c)	231,480	281,403	66,604
Parent group - trade	10,513	15,830	3,747
Dividend payable	44,996	-	-
T o t a l current liabilities	986,995	1,027,841	243,276

LONG-TERM LIABILITIES:
Bank loans, net of current maturities (note 4)	665,974	272,508	64,499
Notes payable (note 5)	2,022,257	2,016,378	477,249
Liability for employee rights upon retirement (note 6)	102,238	113,380	26,836
Other liabilities (note 12e)	19,184	15,947	3,774
T o t a l long-term liabilities	2,809,653	2,418,213	572,358
COMMITMENTS AND CONTINGENT LIABILITIES (note 7)
T o t a l liabilities	3,796,648	3,446,054	815,634

SHAREHOLDERS' EQUITY (note 8):
Share capital - ordinary shares of NIS 0.01 par
value: authorized - December 31, 2005 and 2006 - 235,000,000 shares;
issued and outstanding -
December 31, 2005 - 152,528,288 shares and
December 31, 2006 - 154,516,217 shares	1,525	1,545	366
Capital surplus	2,388,425	2,452,682	580,516
Accumulated deficit	(1,574,599)	(1,199,760)	(283,967)
T o t a l shareholders' equity	815,351	1,254,467	296,915
	4,611,999	4,700,521	1,112,549

The accompanying notes are an integral part of the financial statements.

PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) CONSOLIDATED STATEMENTS OF OPERATIONS

		Year ended December 31
	2004	2005	2006	2006
		New Israeli shekels		ConveniencetranslationintoU.S. dollars(note 1a)
			In thousands (except per share data)
REVENUES - net:
Services	4,615,781	4,619,932	5,027,310	1,189,896
Equipment	524,956	503,007	579,401	137,136
	5,140,737	5,122,939	5,606,711	1,327,032
COST OF REVENUES:
Services	2,885,077	3,022,480	3,085,507	730,297
Equipment	729,937	743,872	811,760	192,133
	3,615,014	3,766,352	3,897,267	922,430

GROSS PROFITSELLING AND MARKETING EXPENSES	1,525,723325,244	1,356,587272,900	1,709,444307,592	404,60272,803
GENERAL AND ADMINISTRATIVE EXPENSES	181,133	180,781	183,460	43,422

OPERATING PROFIT	1,019,346	902,906	1,218,392	288,377
FINANCIAL EXPENSES, net (note 12f)	260,545	345,448	166,442	39,395
INCOME BEFORE TAXES ON INCOME	758,801	557,458	1,051,950	248,982
TAXES ON INCOME (note 9)	287,248	202,898	370,675	87,734
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGEIN ACCOUNTING PRINCIPLES	471,553	354,560	681,275	161,248
CUMULATIVE EFFECT, AT BEGINNING OF YEAR,OF A CHANGE IN ACCOUNTING PRINCIPLES, net of tax			1,012	240
NET INCOME FOR THE YEAR	471,553	354,560	682,287	161,488
EARNINGS PER SHARE ("EPS"):
Basic:
Before cumulative effect	2.57	2.19	4.43	1.05
Cumulative effect	-	-	0.01	-
	2.57	2.19	4.44	1.05

Diluted:
Before cumulative effectCumulative effect	2.56-	2.17-	4.400.01	1.04-

	2.56	2.17	4.41	1.04
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic	183,389,383	161,711,125	153,633,758	153,633,758
Diluted	184,108,917	163,617,272	154,677,685	154,677,685

The accompanying notes are an integral part of the financial statements.

PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

	Share capital
	Number ofshares	Amount	Receivables inrespect ofshares issued	Capitalsurplus	Accumulateddeficit	Total
			( I n t h o u s a n d s )

New Israeli Shekels:
BALANCE AT DECEMBER 31, 2003	182,695,574	1,827	(4,374)	2,300,546	(1,222,435)	1,075,564
CHANGES DURING THE YEAR
ENDED DECEMBER 31, 2004:
Exercise of options granted to employeesIncome tax benefit in respect of exercise of options	1,341,647	13	2,114	23,671		25,798
granted to employees				3,440		3,440
Employee share-based option compensation expenses				10,720		10,720
Net income					471,553	471,553

BALANCE AT DECEMBER 31, 2004	184,037,221	1,840	(2,260)	2,338,377	(750,882)	1,587,075
CHANGES DURING THE YEARENDED DECEMBER 31, 2005:
Repurchase of Company's shares (including purchase
cost of NIS 17,591,000)	(33,317,933)	(333)			(1,091,508)	(1,091,841)
Exercise of options granted to employees	1,809,000	18	2,260	34,875		37,153
Income tax benefit in respect of exercise of options
granted to employees				4,820		4,820
Employee share-based option compensation expenses				10,353		10,353
Dividend					(86,769)	(86,769)
Net income					354,560	354,560
BALANCE AT DECEMBER 31, 2005	152,528,288	1,525	-	2,388,425	(1,574,599)	815,351
CHANGES DURING THE YEAR
ENDED DECEMBER 31, 2006:
Exercise of options granted to employees	1,987,929	20		44,312		44,332
Cumulative effect, at beginning of year, of a change in
accounting principles				(1,012)		(1,012)
Employee share-based option compensation expenses				20,957		20,957
Dividend					(307,448)	(307,448)
Net income					682,287	682,287

BALANCE AT DECEMBER 31, 2006	154,516,217	1,545	-	2,452,682	(1,199,760)	1,254,467
Convenience translation into u.s. dollars (note 1a):
BALANCE AT JANUARY 1, 2006	152,528,288	361		565,308	(372,686)	192,983
CHANGES DURING THE YEARENDED DECEMBER 31, 2006:
Exercise of options granted to employees	1,987,929	5		10,488		10,493
Cumulative effect, at beginning of year, of a
change in accounting principles				(240)		(240)
Employee share-based option compensation expenses				4,960		4,960
Dividend					(72,769)	(72,769)
Net income					161,488	161,488
BALANCE AT DECEMBER 31, 2006	154,516,217	366	-	580,516	(283,967)	296,915

The accompanying notes are an integral part of the financial statements.

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended December 31
	2004	2005	2006	2006
		New Israeli shekels		Conveniencetranslationinto U.S.dollars(note 1a)
		In thousands

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year	471,553	354,560	682,287	161,488
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortizationEmployee share-based option compensation expenses	558,22210,720	683,50310,353	622,43420,957	147,3224,960
Liability for employee rights upon retirement	16,302	9,430	11,142	2,637
Deferred income taxes	283,807	198,079	35,231	8,339
Income tax benefit in respect of exercise of options
granted to employees	3,440	4,820
Accrued interest, exchange and linkage
differences on (erosion of) long-term liabilities	(10,258)	108,411	(4,646)	(1,100)
Amount carried to deferred charges		(13,820)
Capital loss (gain) on sale of fixed assets	(391)	493	274	65
Cumulative effect, at beginning of year, of a change
in accounting principles			(1,012)	(240)
Changes in operating asset and liability items:
Decrease (increase) in accounts receivable:
Trade	(225,860)	(262,262)	(254,748)	(60,295)
Other	(13,615)	(26,970)	30,952	7,326
Increase (decrease) in accounts payable and accruals:
Trade	135,600	112,857	(58,568)	(13,862)
Other	41,613	(75,884)	49,923	11,816
Parent group - trade		10,513	5,317	1,258
Increase (decrease) in asset retirement obligations	464	(92)	1,069	253
Decrease (increase) in inventories	1,205	(107,667)	82,857	19,611
Net cash provided by operating activities	1,272,802	1,006,324	1,223,469	289,578
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets	(609,795)	(498,851)	(344,206)	(81,469)
Acquisition of optic fibers activity			(71,125)	(16,834)
Proceeds from sale of fixed assets	552	16	73	17
Purchase of additional spectrum	(53,969)	(41,542)	(27,690)	(6,554)
Payment in respect of transmission services license			(300)	(71)
Funds in respect of employee rights upon retirement	(10,404)	(6,315)	(5,438)	(1,287)
Net cash used in investing activities	(673,616)	(546,692)	(448,686)	(106,198)

PARTNER COMMUNICATIONS COMPANY LTD.

(An Israeli Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended December 31
	2004	2005	2006	2006
		New Israeli shekels		Conveniencetranslationinto U.S.Dollars(note 1a)
		In thousands

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital leaseRepurchase of company's shares (including purchase		(1,893)	(3,620)	(857)
cost of NIS 17,591,000)Issuance of notes payable under a prospectus, net of		(1,091,841)
issuance costs		1,929,223
Redemption of notes payable		(793,100)
Proceeds from exercise of stock options granted to
employees	25,798	37,153	44,332	10,493
Windfall tax benefit in respect of exercise of options
granted to employees			643	152
Dividend paid		(41,773)	(352,444)	(83,419)
Long-term bank loans received		359,000
Repayment of long-term bank loans	(624,147)	(857,004)	(390,155)	(92,344)

Net cash used in financing activities	(598,349)	(460,235)	(701,244)	(165,975)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS	837	(603)	73,539	17,405
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR	3,774	4,611	4,008	949

CASH AND CASH EQUIVALENTS AT
END OF YEAR	4,611	4,008	77,547	18,354

SUPPLEMENTARY DISCLOSURE OF CASH
FLOW INFORMATION - cash paid during the year:
Interest	179,205	235,854	149,728	35,438

Advances to income tax authorities	4,900	30,840	317,099	75,053

Supplementary information on investing and financing activities not involving cash flows

At December 31, 2004, 2005 and 2006, trade payables include NIS 103.8 million, NIS 90.3 million and NIS 201.8 million ($ 47.7 million), respectively, in respect of acquisition of fixed assets. In addition, at December 31, 2004 and 2005 trade payables included NIS 13.8 million and NIS 27.7 million in respect of acquisition of additional spectrum, respectively.

At December 31, 2005, dividend payable of approximately NIS 45 million was outstanding.

During 2005, the Company has undertaken a capital lease with respect to fixed assets in the amount of NIS 15.8 million.

These balances are recognized in the cash flow statements upon payment.

The accompanying notes are an integral part of the financial statements.

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES:

a. General:

Nature of operations:

1. Partner Communications Company Ltd. ("the Company") operates a mobile telecommunications network in Israel. The Company launched its 3G network on December 1, 2004. As of April 20, 2005, the Company is a subsidiary of Hutchison Telecommunications International Limited ("HTIL").
1. The Company was incorporated on September 29, 1997, and operates under a license granted by the Ministry of Communications to operate a cellular telephone network for a period of 10 years beginning April 7, 1998. The Company commenced full commercial operations on January 1, 1999.

The Company paid a "one-time" license fee of approximately new Israeli shekels (NIS) 1.6 billion which is presented under "license, deferred charges and other intangible assets". The Company is entitled to request an extension of the license for an additional period of six years and then renewal for one or more additional six year periods. Should the license not be renewed, the new license-holder is obliged to purchase the communications network and all the rights and obligations of the subscribers for a fair price, as agreed between the parties or as determined by an arbitrator.

In December 2001, the Company was awarded additional spectrum (2G band (1800MHz) and third generation (3G) UMTS band (1900MHz and 2100MHz)). Following the award of the above spectrum, the Company's license was amended and extended through 2022.

In consideration for the above additional spectrum the Company paid NIS 180 million for the 2G spectrum, and NIS 220 million for the 3G spectrum.

Under the terms of the amended license, the Company provided a guarantee in NIS equivalent of $ 10 million to the State of Israel to secure the Company's adherence to the terms of the license.

On August 14, 2006 the Company was awarded a temporary license from the Ministry of Communications for the offering of transmission services. The validity of the temporary license is the later of July 31, 2007 and the awarding of a special general license for domestic fixed services to a corporation under the Company's control.

During the year the Company paid a total amount of NIS 300,000 in respect of this license. On January 15, 2007 the license was awarded to Partner Land-Line Communication Solutions – a limited Partnership under the Company's control. An additional NIS 700,000 was paid upon the Company's receipt of the license. The temporary transmission services license will be converted into the special general license for domestic fixed services by July 2007. The license is for a period of 20 years.

On July 3, 2006 the Company acquired MED I.C-1 (1999) Ltd. ("Med 1") transmission activity including 900 kilometers of transmission fiber for approximately NIS 71 million ($ 16.8 million) in cash. The Company purchased Med-1 transmission network to lower it's transmission expenses and to have the ability to provide its customers with additional services. As of July 3, 2006 the transmission activity has been included in the financial results.

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

The Company has adopted Financial Accounting Standards "SFAS" No. 141, Business Combinations. In accordance with the FAS when a corporation and one or more incorporated or unincorporated businesses are combined into one entity, the purchase price paid by an acquiring entity should be allocated to the identifiable individual assets acquired and liabilities assumed based on their fair values, with the remaining unallocated purchase price recorded as goodwill.

The fair value of the acquisition was NIS 106 million. In accordance with SFAS 141, since the fair value exceeds the purchase price, the excess of fair value over the purchase price was allocated pro-rata between the acquired tangible and intangible assets.

The Company allocated the purchase price paid for Med 1's transmission activity as follows (see also note 1: e, f):

	NIS inthousands	Estimated RemainingUseful Life
Fixed assets	52,632	10 years
Customer Relationshipswith Carriers	10,669	7 years
Customer Relationshipswith Business Customers	7,824	5 years
	71,125

Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting years. Actual results could differ from those estimates.

Functional currency and reporting currency

The functional currency of the Company and its subsidiary is the local currency New Israeli Shekels – NIS. The consolidated financial statements have been drawn up on the basis of the historical cost of Israeli currency and are presented in NIS.

Convenience translation into U.S. dollars ("dollars" or "$")

The NIS figures at December 31, 2006 and for the period then ended have been translated into dollars using the representative exchange rate of the dollar at December 31, 2006 ($1 = NIS 4.225). The translation was made solely for convenience. The translated dollar figures should not be construed as a representation that the Israeli currency amounts actually represent, or could be converted into, dollars.

Accounting principles

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

b. Principles of consolidation:

1. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary (together the Group).
1. Intercompany balances between the Company and its subsidiary have been eliminated.

c. Inventories

Inventories of cellular telephones (handsets) and accessories are stated at the lower of cost or estimated net realizable value. Cost is determined on the "first-in, firstout"basis.

The Company determines its allowance for inventory obsolescence and slow moving inventory, based upon expected inventory turnover, inventory aging and current and future expectations with respect to product offerings.

d. Non-marketable securities

These investments are stated at cost, less provision for impairment losses. The balance of these investments are fully impaired.

e. Fixed assets:

1. These assets are stated at cost.
1. Direct consultation and supervision costs and other direct costs relating to setting up the Company's communications network and information systems for recording and billing calls are capitalized to cost of the assets.
1. Interest costs in respect of loans and credit which served to finance the construction or acquisition of fixed assets incurred until installations of the fixed assets are completed – are capitalized to cost of such assets.
1. Assets are depreciated by the straight-line method, on basis of their estimated useful life.

Annual rates of depreciation are as follows:

Communications network	10 - 20 (mainly 15)
Computers, hardware and software for information systems	15-33
Office furniture and equipment	7-15
Optic fibers (see note 1a(3))	6-10

Leasehold improvements are amortized by the straight-line method over the term of the lease (including reasonably assured option periods), or the estimated useful life (5-10 years) of the improvements, whichever is shorter.

Fixed assets leased by the Company under capital leases are classified as the Company's assets and are recorded, at the inception of the lease, at the lower of the asset's fair value or the present value of the minimum lease payments.

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

e. Fixed assets (continued):

6) Computer Software Costs

The cost of internal-use software is capitalized in accordance with Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred. Capitalized computer software costs are amortized using the straight-line method over a period of 3 to 7 years.

f. License, deferred charges and other intangible assets:

License:

The license (see also 1a(2) above) is stated at cost and is amortized by the straight-line method over the utilization period of the license starting January 1, 1999.

Following the extensions of the license (as described in note 1a(2) above) the unamortized balance of the Company's existing license as well as the cost of the additional spectrum put into service are amortized on a straight-line basis – over the period ending in 2022.

The costs relating to the 3G band are amortized as of December 1, 2004, by the straight-line method over the period ending in 2022.

Interest expenses which served to finance the license fee – incurred until the commencement of utilization of the license – were capitalized to cost of the license. During the year 2004 – NIS 8 million interest costs were capitalized to the cost of the license.

1. Customer relationships relating to Med-1 fiber optic acquisition are amortized using the estimated useful life which is 5-7 years.
1. Deferred charges:
a) Costs relating to the obtaining of long-term credit lines are deferred and amortized using the effective interest rate determined for the borrowing transactions over the life of line of credit.
- b) Issuance costs relating to Notes payable (see note 5) are amortized using the effective interest rate stipulated for the Notes.

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

g. Impairment of long-lived assets

The Company has adopted Statement of Financial Accounting Standards No. 144 (FAS 144), "Accounting for the Impairment or Disposal of Long-Lived Assets". FAS 144 requires that long-lived assets, including certain intangible assets, to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Under FAS 144, if the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment loss would be recognized, and the assets written down to their estimated fair values.

h. Cash equivalents

The Company considers all highly liquid investments, which include short-term bank deposits (up to 3 months from date of deposit) that are not restricted as to withdrawal or use, to be cash equivalents.

i. Comprehensive income

The Company has no comprehensive income components other than net income.

j. Revenue recognition

Revenues from services primarily consist of charges for airtime, roaming and value added services provided to the Company's customers, are recognized upon performance of the services, net of credits and adjustments for services discounts. Revenues from pre-paid calling cards are recognized upon customer's usage of the cards. Revenues from sale of handsets and accessories are recognized upon delivery and the transfer of ownership to the subscriber.

Revenues from long-term credit arrangements (longer than one year) are recognized on the basis of the present value of future cash flows, discounted according to 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.

Emerging Issues Task Force ("EITF") Issue 00-21, "Revenue Arrangements with Multiple Deliverables" addresses the accounting, by a vendor, for contractual arrangements in which multiple revenue-generating activities will be performed by the vendor. EITF Issue 00-21 addresses when and, if so, how an arrangement involving multiple deliverables should be divided into separate units of accounting. Based on EITF 00-21, the Company determined that the sale of handsets with accompanying services constitutes a revenue arrangement with multiple deliverables. Accordingly consideration received for handsets, up to their fair value, that is not contingent upon the delivery of additional items (such as the services), is recognized as equipment revenues, when revenue recognition criteria for the equipment as stated above are met. Consideration for services is recognized as services revenues, when earned.

$$ F-15 $$

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

k. Concentration of credit risks – allowance for doubtful accounts

The Company's revenues are derived from a large number of customers. Accordingly, the Company's trade balances do not represent a substantial concentration of credit risk.

An appropriate provision for doubtful accounts is included in the accounts of the Company. The allowance charged to expenses (including bad debts), determined as a percentage of specific debts doubtful of collection, based upon historical experience, for the years ended December 31, 2004, 2005 and 2006 totaled NIS 21,256,000, NIS 28,739,000 and NIS 26,470,000 ($ 6,265,000) (see note 12a), respectively.

The cash and cash equivalents as of December 31, 2006 are deposited mainly with leading Israeli banks. Therefore, in the opinion of the Company, the credit risk inherent in these balances is remote.

During 2004, the Company factored most of its long-term trade receivables resulting from sales of handsets. The factoring was made through clearing companies, on a non-recourse basis. The sale of accounts receivable was recorded by the Company as a sales transaction under the provisions of Statement of Financial Accounting standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". The resulting costs were charged to "financial expenses-net", as incurred. During the years ended December 31, 2004 and 2005, the Company factored NIS 331,611,000 and NIS 7,834,000, respectively, from long-term trade receivables.

l. Handsets warranty obligations

The provision for handsets warranty obligations is calculated at the rate of 1.0%-3.5% of the cost of the handsets sold, see note 12c. The Company has entered into several agreements under which the supplier does not provide any warranty but rather provides additional handsets to satisfy its warranty obligation. In these cases, the Company provides for warranty costs at the same time as the revenues are recognized.

m. Advertising expenses

Advertising expenses are charged to the statement of operations as incurred. Advertising expenses for the years ended December 31, 2004, 2005 and 2006 totaled NIS 115,909,000, NIS 97,651,000 and NIS 105,035,000 ($ 24,860,000), respectively.

n. Deferred income taxes

Deferred taxes are determined utilizing the asset and liability method, based on the differences between the amounts presented in these financial statements and those taken into account for tax purposes, in accordance with the applicable tax laws. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized (see note 9d).

Deferred tax assets and liabilities are presented as current or long-term items in accordance with the nature of assets or liabilities to which they relate.

Deferred tax assets in respect of carryforward tax losses are presented as current or long-term assets, according to their expected utilization date.

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

o. Foreign currency transactions and balances

Balances in, or linked to, foreign currency are stated on the basis of the exchange rates prevailing at balance sheet dates. For foreign currency transactions included in the statements of operations, the exchange rates at transaction dates are used. Transaction gains or losses arising from changes in the exchange rates used in the translation of such balances are carried to financial income or expenses.

p. Derivative financial instruments ("derivatives")

The Company has adopted FAS 133, as amended, which establishes accounting and reporting standards for derivatives, including certain derivatives embedded in other contracts, and for hedging activities. Under FAS 133, all derivatives are recognized on the balance sheet at their fair value. On the date that the Company enters into a derivative contract, it designates the derivative, for accounting purposes, as: (1) hedging instrument, or (2) non-hedging instrument. Any changes in fair value are to be reflected as current gains or losses or other comprehensive gains or losses, depending upon whether the derivative is designated as a hedge and what type of hedging relationship exists. Changes in fair value of non-hedging instruments are carried to "financial expenses-net" on a current basis. To date, the Company did not have any contracts that qualify for hedge accounting under FAS 133.

The Company occasionally enters into commercial (foreign currency) contracts in which a derivative instrument is "embedded". This embedded derivative is separated from the host contract and carried at fair value when (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument (see note 11).

q. Earning Per Share (EPS)

Basic EPS is computed by dividing net income by the weighted average number of shares outstanding during the years.

Diluted EPS reflects the increase in the weighted average number of shares outstanding that would result from the assumed exercise of employee stock options, calculated using the treasury-stock-method.

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

r. Stock based compensation

Prior to January 1, 2006 the Company accounted for employee stock based compensation under the intrinsic value model in accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations. In accordance with FAS 123 – "Accounting for Stock-Based Compensation" ("FAS 123"), the Company disclosed pro forma data assuming the Company had accounted for employee stock option grants using the fair value-based method defined in FAS 123.

In December 2004, the Financial Accounting Standards Board ("FASB") issued the revised Statement of Financial Accounting Standards ("FAS") No. 123, Share-Based Payment ("FAS 123R"), which addresses the accounting for share-based payment transactions in which the company obtains employee services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company's equity instruments or that may be settled by the issuance of such equity instruments .In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the SEC's interpretation of FAS 123R.

FAS 123R eliminates the ability to account for employee share-based payment transactions using APB Opinion No. 25 – "Accounting for Stock Issued to Employees", and requires instead that such transactions be accounted for using the grant-date fair value based method. This Statement applies to all awards granted or modified after the Statement's effective date. In addition, compensation cost for the unvested portion of previously granted awards that remain outstanding on the Statement's effective date shall be recognized on or after the effective date, as the related services are rendered, based on the awards' grant-date fair value as previously calculated for the pro-forma disclosure under FAS 123.

Compensation expense for outstanding awards for which the requisite service had not been rendered as of the effective date will be recognized over the remaining service period using the compensation cost calculated for pro-forma disclosure purposes under FAS 123.

The Company adopted FAS 123R, as of January 1, 2006, using the modified prospective application transition method, as permitted by FAS 123R. Under such transition method, the Company's financial statements for periods prior to the effective date of FAS 123R (January 1, 2006) have not been restated. The adoption of FAS 123R resulted in a net gain representing the cumulative effect of a change in accounting principle in an amount of approximately NIS 1 million, which reflects the net cumulative impact of estimating future forfeiture in the determination of period expense, rather that recording forfeitures when they occur as previously required.

The fair value of stock options granted with service conditions, was determined using the Black & Scholes valuation model, which is consistent with the Company's valuation techniques previously utilized for options in footnote disclosures required under FAS 123, as amended by FAS No. 148, "Accounting for Stock-Based Compensation – Transition and Disclosure." Such value is recognized as an expense over the service period, net of estimated forfeitures, using the accelerated method of amortization under FAS 123R.

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

r. Stock based compensation (continued)

The estimation of stock awards that will ultimately vest requires significant judgment, and to the extent actual results or updated estimates differ from the Company's current estimates, such amounts will be recorded as a cumulative adjustment in the period those estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from the Company's current estimates.

The following table illustrates the effect on net income and EPS assuming the Company had applied the fair value recognition provisions of FAS 123 to its stock based employee compensation for the years presented prior to the adoption of FAS 123R:

		Year ended December 31,
	2004	2005
		NIS
		In thousands, except per share data
Net income, as reported	471,553	354,560
Add: stock based employeecompensation expense-net,included in reported net
income - net of income taxesDeduct: stock based employee	10,122	8,023
compensation expense-net,determined under fair valuemethod for all awards - net of income
taxes	(29,879)	(30,978)
Pro-forma net income	451,796	331,605
Earning per share:
Basic - as reported	2.57	2.19
Basic - pro forma	2.46	2.05
Diluted - as reported	2.56	2.17
Diluted - pro-forma	2.46	2.03

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

s. Asset retirement obligations

FAS 143 "Accounting for Asset Retirement Obligations" ("FAS 143") requires that an asset retirement obligation (ARO) associated with the retirement of a tangible long lived asset be recognized as a liability in the period in which it is incurred and becomes determinable (as defined by the standard), with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depreciated such that the cost of the ARO is recognized over the useful life of the asset.

The ARO is recorded at fair value, and the accretion expense will be recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash out flows discounted at the Company's credit-adjusted risk-free interest rate.

The Company is subject to asset retirement obligations associated with its cell sites operating leases. These lease agreements contain clauses requiring restoration of the leased site at the end of the lease term, creating asset retirement obligations, see also note 12d.

t. Recently issued accounting pronouncements:

1. In February 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments ("SFAS No. 155"), which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133") and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS No. 140"). SFAS No. 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring in fiscal years beginning after September 15, 2006. Earlier adoption is permitted, provided the Company has not yet issued financial statements, including for interim periods, for that fiscal year. The Company does not expect that the adoption of SFAS No. 155 will have a material impact on the Company's results of operations and financial condition.
1. In June 2006, the FASB ratified EITF Issue No. 06-03 How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation) ("Issue No. 06-03"). Under Issue No. 06-03, a company must disclose its accounting policy regarding the gross or net presentation of certain taxes. If taxes included in gross revenues are significant, a company must disclose the amount of such taxes for each period for which an income statement is presented (i.e., both interim and annual periods). Taxes within the scope of this Issue are those that are imposed on and concurrent with a specific revenue-producing transaction. Issue No. 06-03 is effective for the first annual or interim reporting period beginning after December 15, 2006 (as of January 1, 2007 for the Company). The Company's current policy is to recognize revenue net of VAT, accordingly the Company does not expect this new accounting pronouncement to materially effect the Company's results of operations and financial condition and disclosure.

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued):

1. In July 2006, the FASB issued Interpretation No. 48 ("FIN No. 48"), Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes." FIN No. 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon examination. If the tax position is deemed "more-likely-than-not" to be sustained, the tax position is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN No. 48 also provides guidance on various related matters such as derecognition, interest and penalties and disclosure. FIN No. 48 is effective for fiscal years beginning after December 15, 2006 (as of January 1, 2007 for the Company). The Company does not expect the adoption of FIN No. 48 to have material impact on the Company's results of operations and financial condition and disclosure.
1. In September 2006 the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"), which provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors' requests for more information about (1) the extent to which companies measure assets and liabilities at fair value, (2) the information used to measure fair value, and (3) the effect that fair-value measurements have on earnings. SFAS No. 157 will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value to any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years (as of January 1, 2008 for the Company).

The Company is currently evaluating the impact of SFAS No. 157 on the Company's results of operations and financial condition.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB No. 108"). SAB No. 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 establishes an approach that requires quantification of financial statement errors based on the effects of each of the company's balance sheet and statement of operations and the related financial statement disclosures. SAB No. 108 permits existing public companies to record the cumulative effect of initially applying this approach in the first year ending after November 15, 2006 by recording the necessary correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. Additionally, the use of the cumulative effect transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. The Company has adopted SAB No. 108. The adoption of SAB No. 108 did not result in corrections of the Company's financial statements.

u. Reclassifications

Certain comparative figures have been reclassified to conform to the current year presentation.

$$ F-21 $$

NOTE 2 – FIXED ASSETS:

a. Composition of fixed assets – net, is as follows:

		December 31
	2005	2006	2006
		NIS	Conveniencetranslationinto dollars
		In thousands
Communications network	3,428,612	3,730,768	883,022
Computers, hardware and software forinformation systems	707,776	816,027	193,143
Office furniture and equipment	38,126	38,904	9,208
Leasehold improvementsCellular telephones - base stock	212,1026,309	228,2726,309	54,0291,493
Optic fibers		60,591	14,341
	4,392,925	4,880,871	1,155,236
Less - accumulated depreciation and amortization	2,624,030	3,133,412	741,636
	1,768,895	1,747,459	413,600

The cost of communication network in the amount of approximately NIS 1,258 million is fully depreciated and still in use.

Depreciation and amortization in respect of fixed assets totaled NIS 482,390,000, NIS 575,606,000 and NIS 529,560,000 ($ 125,340,000) for the periods ended December 31, 2004, 2005 and 2006, respectively.

b. Fixed assets include interest expenses, direct consultation and supervision costs and other direct costs of establishing the cellular communications network and information systems, which were capitalized (before commencing full commercial operations or utilization of the related fixed assets) in respect of:

		December 31
	2005	2006	2006
		NIS	Conveniencetranslationintodollars
		In thousands

Communications network	96,939	96,939	22,944
Computers, hardware and software for information systems	15,920	15,920	3,768
	112,859	112,859	26,712
L e s s - accumulated depreciation	83,096	87,652	20,746
Depreciated balance	29,763	25,207	5,966

c. As to pledges on the fixed assets – see note 10.

NOTE 3 – LICENSE, DEFERRED CHARGES AND OTHER INTANGIBLE ASSETS:

		December 31
	2005	2006	2006
		NIS	Conveniencetranslation intoDollars
		In thousands
License (note 1a(2))	2,047,843	2,048,143	484,768
Less - accumulated amortization	773,079	852,474	201,769
	1,274,764	1,195,669	282,999
Customers relationship	-	18,493	4,377
Less - accumulated amortization	-	1,529	362
	-	16,964	4,015
Deferred charges - in respect of obtaining:
Long-term credit lines	69,816	69,816	16,524
Notes payable	34,265	34,265	8,110
	104,081	104,081	24,634
Less - accumulated amortization	57,678	69,630	16,480
	46,403	34,451	8,154
	1,321,167	1,247,084	295,168

License amortization expenses for the years ended December 31, 2004, 2005 and 2006 totaled NIS 63,931,000, NIS 79,255,000 and NIS 79,395,000 ($ 18,792,000), respectively.

Amortization expenses on deferred charges for the years ended December 31, 2004, 2005 and 2006 totaled NIS 11,901,000, NIS 28,642,000 and NIS 11,950,000 ($ 2,828,000), respectively – 2005 – includes NIS 11,064,000 in respect of the redemption of the Notes, see also note 5b.

Amortization expenses on customers relationship for the year ended December 31, 2006 totaled NIS 1,529,000 ($ 362,000).

PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 3 – LICENSE, DEFERRED CHARGES AND OTHER INTANGIBLE ASSETS (continued):

The expected amortization expenses of the license and customers relationship for the next five years are as follows:

	NIS	Conveniencetranslation intodollars
		In thousands
Year ended December 31:
2007	82,505	19,527
2008	82,505	19,527
2009	82,505	19,527
2010	82,505	19,527
2011	81,731	19,344

NOTE 4 – LONG-TERM BANK LOANS

The Company has a senior credit facility with Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel Discount Bank Ltd., in which United Mizrahi Bank Ltd. also participates. The facility is divided into two tranches: a $150 million term loan facility ("Facility A") and a $100 million revolving loan facility ("Facility B"), both expiring on September 1, 2009. Facility A must be reduced to $50 million by August 31, 2008. Until February 19, 2007, the facilities were secured by a first ranking floating charge on the Company's assets.

With effect March 1, 2007, the Company reduced Facility A to $75 million (in addition to an advance of approximately $25 million carried over from the Company's previous facility, which on balance sheet date, was reduced to $11 million), and Facility B to $75 million. As a result, the total maximum availability under the facility is currently approximately $161 million.

The credit facility is a US dollar denominated facility, and advances may be drawn in US dollars and New Israeli Shekels, as set forth in c below.

NOTE 4 – LONG-TERM BANK LOANS (continued)

a. Status of the credit facility at December 31, 2006 is as follows:

	Totalavailability	Amountsdrawn	Amountsavailable fordrawing
		US Dollars in millions

Facility A	161	67	94
Facility B	100	0	100

	261	*67	194

b. The amounts outstanding, classified by linkage terms and interest rates, are as follows:

				December 31
		2006	2005		2006
		Weightedaverageinterest rates		Amount
		%		NIS	Conveniencetranslationinto dollars
				In thousands

In NIS - linked to the Israeliconsumer price index (CPI) (1)	5.8		337,283	181,107	42,866
In NIS - unlinked (2)	5.5		359,000	126,500	29,940
			696,283	307,607	*72,806
Less - current maturities			30,309	35,099	8,307
			665,974	272,508	64,499

(1) Linkage terms apply both to principal and interest.

(2) The loans bear interest at the "on-call" rate (a varying inter-bank rate in Israel), prime rate or fixed unlinked rate.

* The difference between the amounts displayed is the difference in exchange rates between the date the amounts were drawn and that at the balance sheet date.
- c. Facilities A and B, may be drawn in NIS or US dollars, provided that the amount of principal outstanding in US dollars under the credit facility with respect to each participating lender shall not exceed 10% of that lender's total commitment unless otherwise agreed in advance.
- d. There is a range of options as to how interest is calculated on borrowings under the credit facility. These options include fixed and variable rates, based upon the lending rates of each participating banks with a margin of 0.85%.

NOTE 4 – LONG-TERM BANK LOANS (continued):

e. Under the credit facility the Company is required, inter alia, to fulfill certain operational conditions and to maintain certain financial ratios. If the Company defaults on the covenants, the banks are entitled to demand early repayment of the credit facility – in whole or in part. Under the credit facility, the Company has undertaken not to make distributions to its shareholders, including dividends, unless it complies with certain financial ratios specified in the Agreement or as otherwise agreed by the banks. The Company believes that it is in compliance with all covenants stipulated in the credit facility.
f. As to pledges to secure loans and liabilities and other restrictions placed with respect thereto, see note 10.

NOTE 5 – NOTES PAYABLE:

a. On March 31, 2005, the Company completed an offering of NIS 2,000 million of unsecured notes, which were issued at their NIS par value. The notes have been registered in Israel and are traded on the Tel-Aviv Stock Exchange (TASE). Of these notes approximately NIS 36.5 million were purchased by Partner Future Communications 2000 Ltd., ("PFC") a wholly owned subsidiary of the Company. PFC also received an additional allocation of notes having an aggregate principal amount of NIS 500 million. This notes that PFC received pursuant to this additional allocation do not confer the right to receive any payment whatsoever on account of principal or interest until they are sold by PFC to a third party.

The net proceeds from the offering were approximately NIS 1,929 million after deducting the notes purchased by PFC, commissions and offering expenses.

The principal amount of the Notes is payable in 12 equal quarterly installments, beginning June 30, 2009 until March 31, 2012.

The Notes bear NIS interest at the rate of 4.25% per annum, linked to the Israeli Consumer Price Index, which is payable quarterly on the last day of each quarter, commencing June 30, 2005.

On December 31, 2006, the Notes closing price was 102.42 points par value.

Commission fees and offering expenses in respect of the offering of the Notes totaled approximately NIS 34 million. These expenses are presented as deferred charges and the amortization in respect thereof is included in "financial expenses, net".

NOTE 5 – NOTES PAYABLE (continued)

b. On August 10, 2000, the Company completed an offering of $ 175 million of unsecured 13% Senior Subordinated Notes due 2010, which were issued at their dollar par value. The notes were registered under the U.S. Securities Act of 1933.

On August 15, 2005, the Company exercised it right to redeem the notes at a redemption price of 106.5% of their dollar par value – according to the option stipulated in the Notes document. As a result of the redemption of the Notes the Company has recognized as financial expenses an amount of approximately NIS 63 million, which after tax resulted in a decrease of the Company's net income of NIS 42 million.

NOTE 6 – LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT:

a. Israeli labor laws and agreements require payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The Company's severance pay liability to its employees, mainly based upon length of service and the latest monthly salary (one month's salary for each year worked), is reflected by the balance sheet accrual under the "liability for employee rights upon retirement". The Company records the liability as if it was payable at each balance sheet date on an undiscounted basis. The liability is partly funded by purchase of insurance policies and the amounts funded are included in the balance sheet under investments and long-term receivables, as "funds in respect of employee rights upon retirement". The policies are the Company's assets and under labor agreements, subject to certain limitations, they may be transferred to the ownership of the beneficiary employees.
b. The severance pay expenses for the years ended December 31, 2004, 2005 and 2006 were approximately NIS 27 million, NIS 24 million and NIS 28 million (approximately $ 6.6 million), respectively.
c. Cash flows information regarding the company's liability for employee rights upon retirement:
1. The Company expects to contribute NIS 22 million ($ 5 million) in respect of severance pay in 2007.
1. Due to the relatively young age of the Company's employees, benefit payments to employees reaching retirement age in the next 10 years, are not material. The amounts were determined based on the employees' current salary rates and the number of service years that will accumulate upon their retirement date. These amounts do not include amounts that might be paid to employees who will cease working for the Company before their normal retirement age.

NOTE 7 – COMMITMENTS AND CONTINGENT LIABILITIES:

a. Commitments:

Royalty Commitments

The Company is committed to pay royalties to the Government of Israel on its "income from cellular services" as defined in the "Telecommunications (Royalties) Regulations, 2001" (hereafter – the Regulations), which includes all kinds of income of the Company from the granting of Bezeq services under the license –including airtime, roaming services and non-recurring connection fees, but excluding income transferred to another holder of a communications license and deducting bad debts, payments to another communication licensee in respect of interconnection, payments for roaming services to foreign operators and expenses related to the sale of equipment.

On June 18, 2001, the Knesset's Finance Committee approved the "Telecommunications (Royalties) Regulations, 2001" (hereafter – the Regulations). During 2004, a reduction in the percentage of royalties was approved; accordingly, the rate of royalty payments (3.5%) paid by cellular operators reduced annually by 0.5%, starting January 1st 2006, to a level of 1% at 2010.

The royalty expenses for the periods ended December 31, 2004, 2005 and 2006 were approximately NIS 120,131,000, NIS 122,599,000 and NIS 114,462,000 ($ 26,900,000), respectively, and are included under "cost of services revenues".

1. Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. The Company paid a total amount of approximately NIS 31 million, NIS 47 million and NIS 55 million ($ 13 million), for the year 2004, 2005 and 2006, respectively. Under the above Regulations should the Company choose to return a frequency such payment is no longer due.
1. Operating leases

The Company has entered into operating lease agreements as follows:

a) Lease agreements for its headquarters facility in Rosh Ha'ayin for a fifteen-year period (until 2018). The Company has an option to shorten the lease periods by 3.5 to 8.5 years. The rental payments are linked to the Israeli CPI.
b) Lease agreements for service centers and retail stores for a period of two to five years. The Company has an option to extend the lease periods for up to twenty additional years (including the original lease periods). The rental payments are linked partly to the dollar and partly to the Israeli CPI. Some of the extension options include an increase of the lease payment in a range of 2%-10%.
c) Lease agreements in respect of cell sites throughout Israel are for periods of two to three years. The Company has an option to extend the lease periods up to ten years (including the original lease periods). The rental payments fees are partly linked to the dollar and are partly linked to the Israeli CPI. Some of the extension options include an increase of the lease payment in a range of 2%-10%.

PARTNER COMMUNICATIONS COMPANY LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – COMMITMENTS AND CONTINGENT LIABILITIES (continued):

d) Operating lease agreements in respect of vehicles are for periods of three years. The rental payments are linked to the Israeli CPI.
e) The minimum projected rental payments (including the payments in the periods of the reasonably assured option terms) for the next five years, at rates in effect at December 31, 2006, are as follows:

	ConveniencetranslationNISinto dollars
	I n t h o u s a n d s
Year ended December 31:
2007	170,723	40,408
2008	154,220	36,502
2009	120,463	28,512
2010	94,343	22,330
2011	78,543	18,590
2012 and thereafter	350,334	82,919
	968,626	229,261

f) The rental expenses for the years ended December 31, 2004, 2005 and 2006 were approximately NIS 176 million, NIS 185 million, and NIS 198 million ($ 47 million), respectively.
1. At December 31, 2006, the Company is committed to acquire fixed assets, for approximately NIS 249 million (approximately $ 59 million).
1. At December 31, 2006, the Company is committed to acquire handsets for approximately NIS 164 million (approximately $ 39 million).
1. As to cost sharing agreement with Hutchison Telecommunications Limited, see note 13c.

b. Contingent Liabilities:

On April 8, 2002, a claim was filed against the Company, together with a motion to certify this claim as a class action, alleging a variety of consumer complaints. The amount of the claim against the Company is estimated at approximately NIS 545 million plus additional significant amounts relating to other alleged damages. On March 14, 2007, the court rejected the class action and negated the claim.

NOTE 7 – COMMITMENTS AND CONTINGENCIES (continued):

On April 13, 2003, a claim was filed against the Company and other cellular telecommunication companies, together with a request to recognize this claim as a class action, for alleged violation of antitrust law, alleging that no fee should have been collected for incoming SMS messages or alternatively, that the fee collected is excessive and that it is a result of illegal co-operation between the defendants. The amount of the claim against all the defendants is estimated at approximately NIS 90 million (or according to the claimant's response – NIS 100 million per year until 1.3.2005). The Company filed its response on October 1, 2003. The claimants have filed their response to the Company's response on July 12, 2005. One of the respondents to the certification motion filed a motion to dismiss the documents attached to the plaintiff's response from the court's file (to which motion the Company concurred) and the Court granted this motion. The plaintiffs have filed a motion to grant leave to appeal this decision, which is now pending before the Supreme Court.

At this stage, and unless and until the claim is recognized as a class action, the Company and its legal council are unable to evaluate the probability of success of such claim, and therefore no provision has been made.

1. During the year 2006, claims were filed against the Company and other cellular telecommunication companies and, in one of the claims, also against land line telecommunication companies, together with a request to recognize these claims as a class action for collection of undue payment from its customers on calls to land line companies when the receiver of the call hangs up first. The plaintiffs maintain that the Company should stop charging its customers when the land line operator subscriber hangs up, while in fact the cellular company continues to charge until the initiator of the call (the Company subscriber) hangs up. The amount of the claims against all the defendants is estimated, in one of the claims at approximately NIS 100 million for the seven year period leading up to the filing of the claim; and in the other claim the amount of the claim against the Company together with land line companies at approximately NIS 53 million. At this stage, and until the claims are recognized as class actions, the Company and its legal council are unable to evaluate the probability of success of such claims and therefore no provision has been made.
1. In August 2006 the Company, together with the other cellular operators (hereinafter together the petitioners), submitted a request to hold an urgent hearing, and a motion for an order nisi against the Government of Israel and the Minister of Communications to explain why they do not act immediately to postpone the date for implementing and activating the number portability plan from September 1, 2006, as provided in the Communications law (Bezeq and Broadcasts) – 1982 ("the Communications Law").

In the motion it is contended that none of the relevant holders of Communication licenses in Israel can meet the time schedules provided in the Communications Law, so that all the holders of these licenses in Israel, including the petitioners, might as from September 1, 2006 unwillingly face claims of violation of the Communications Law and the license. In May 2007 the Ministry of Communications announced that the latest implementation date for number portability is December 1, 2007. However, they are considering imposing substantial monetary sanctions on relevant telecommunication license holders, including the Company, in accordance with the Telecommunications Law for alleged violation of the obligation to implement number portability by September 2006. We can submit our position to the Ministry of Communications until June 24, 2007.

NOTE 7 – COMMITMENTS AND CONTINGENCIES (continued):

On January 25, 2007 a claim of NIS 10.61 billion, together with a request for a certification as a class action, were filed against the Company and against Bezeq – The Israeli Telecommunication Co. Ltd., Hot Cable Systems Media Ltd., Cellcom Israel Ltd., Pelephone Communications Ltd.

The claim is that the defendants have not implemented number portability and are in violation of the Communication Law, mandating the implementation of telephone number portability on September 1, 2006. It is claimed that the defendants are thus harming the claimants and consumers of telephone services in general.

The claimants are demanding NIS 1,000 for each customer and relate to the Company (a total of 2,626,000 customers). The claimants reserve their right to increase the amount of the lawsuit as long as the claimed violation continues.

At this stage, and unless and until the claim is recognized as a class action, the Company and its legal council are unable to evaluate the probability of success of such claim, and therefore no provision has been made.

On February 27, 2007, a claim was filed against the Company and two other cellular telecommunication companies together with a request to recognize this claim as a class action. The claim is for sums that were allegedly overcharged in breach of the Company licenses, based on intervals larger than the intervals the defendants were allegedly authorized to charge under their licenses, for calls initiated or received by the subscribers while abroad. If the lawsuit is classified as a class action, the total amount claimed from the defendants is estimated by the plaintiffs to be approximately NIS 449 million, of which, approximately NIS 88 million, is attributed to the Company.

At this stage, and until the claim is recognized as a class action, the Company and its legal council are unable to evaluate the probability of success of such claim, and therefore no provision has been made.

On May 24 2007, a claim was filed against the Company and another Israeli cellular company together with a request to recognize this claim as a class action.

The claim alleges that the defendants charged their subscribers undue roaming rates, while their cellular phones were located in Israel and randomly roamed over foreign networks of neighboring countries. If the claim is certified as a class action, the total amount claimed against the Company is estimated by the plaintiffs to be at least NIS 21.3 million.

At this stage, and until the claim is recognize as a class action, the Company and its legal council are unable to evaluate the probability of success of such claim and therefore no provision has been made.

During the year 2006 and until the balance sheet date some more claims were filed against the Company in various subjects, together with a request to recognize these claims as class actions. The total amount of the claims against the Company is estimated at approximately NIS 143 million.

At this stage, and until the claims are recognized as a class action, the Company and its legal council are unable to evaluate the probability of success of such claims and therefore no provision has been made.

NOTE 7 – COMMITMENTS AND CONTINGENCIES (continued):

The Company does not have building permits for many of its cell sites and as a result is involved in numerous legal actions (including criminal proceedings against officers and directors) relating to this issue.

Most of these proceedings have been settled under plea bargain arrangements, whereby the Company has paid fines of insignificant amounts.

Management, based upon current experience and the opinion of legal counsel, does not believe that these legal actions will result in significant costs to the Company. The accounts do not include a provision in respect thereof.

Section 197 of the Building and Planning Law states that a property owner has the right to be compensated by a local planning committee for reductions in property value as a result of a new building plan.

In January 2006, the Non-ionizing Radiation Law was published, amending the Planning and Building Law so that local Planning and Building committees must require indemnification letters against reduction in property value from the cellular operators requesting building permits.

Accordingly, on January 3, 2006, the National Council for Planning and Building published an interim decision conditioning the issuance of building permits for cell site permits by local planning and building councils upon provision of a 100% indemnification undertaking by the cellular operators.

This decision shall remain in effect until it is replaced with an amendment to the National Zoning Plan 36.

Since January 3, 2006 the Company has provided the local authorities with approximately 100 indemnification letters as a pre-condition for obtaining building permits, while prior to January 2006, the Company has provided the local authorities with 22 undertakings to provide such letter of indemnification.

Due to the fact that an enactment of law regarding this matter is not yet in place, at this stage the extent of the Company's exposure from granting indemnification letters can not be evaluated accurately.

However, if the Company shall be required to make substantial payments under the indemnity letters, it could have an adverse effect on the Company's financial results.

We assume, that the requirement to provide indemnification letters might require us to change locations of sites to different, less suitable locations and to dismantle some of our sites. These changes in the deployment of the sites might have an adverse effect on the extent, quality and capacity of our network coverage.

1. The Company is a party to various claims arising in the ordinary course of its operations. Management, based upon the opinion of its legal counsel, is of the opinion that the ultimate resolution of these claims will not have a material effect on the financial position of the Company, its result of operations and cash flows. The accounts do not include a provision in respect thereof.
1. As to contingency in respect of income tax, see note 9e.

NOTE 8 – SHAREHOLDERS' EQUITY:

a. Share capital:

The Company's shares are traded on the Tel-Aviv stock exchange (TASE), on the London Stock Exchange ("LSE") and, in the form of American Depository Receipts ("ADRs"), each represent one ordinary share, on the NASDAQ National Market ("Nasdaq – NM"). During 2001, the Company listed its shares in the TASE according to the dual listing regulations. On December 31, 2006, the closing price per ADR on the Nasdaq – NM was $ 11.43; the Company's shares were quoted on that date on the TASE at NIS 48.28 ($ 11.43).

Under the provisions of the license granted to the Company (note 1a(2)), restrictions are placed on transfer of Company shares and placing liens thereon. The restrictions include the requirement that the advance written consent of the Minister of Communications be received prior to transfer of 10% or more of the Company's shares to a third party.

On December 26, 2001, the Company filed a shelf registration statement on Form F-3 with the United States Securities and Exchange Commission for future offerings of its securities. Under the shelf registration, the Company can raise up to $400 million from the issue of ordinary shares and debt securities.

On April 20, 2005, the Company repurchased approximately 33.3 million of its shares pursuant to an offer received from its founding Israeli Shareholders in February 2005. These shareholders held together approximately 22.5% of the Company's outstanding shares at the time of the offer. As a result of the repurchase, the collective shareholdings of the founding Israeli shareholders was reduced to approximately 5.4% of the Company's issued and outstanding share capital. The price per share at which these shares were acquired was NIS 32.2216 per share. The shares were cancelled pursuant to the repurchase. The excess of cost over its par value was charged to accumulated deficit.

b. Employee's stock option plans:

a. On March 3, 1999, the Company's Board of Directors approved an employee stock option plan (hereafter – the "1998 Plan"), pursuant to which 5,833,333 ordinary shares were reserved for issuance upon the exercise of 5,833,333 options to be granted to key employees without consideration, of which 729,166 options were later cancelled. Through December 31, 2006 – 5,505,557 options have been granted pursuant to the 1998 Plan, of which 4,886,524 options have been exercised and 597,139 options were forfeited and 1 expired (options forfeited and expired were available for subsequent grants).

The options vest in five equal annual batches over a period of five years from the beginning of employment of each employee, unless otherwise provided in the grant instrument, provided the employee is still in the Company's employ. An option not exercised within 8 years from the date of its allotment shall expire. The exercise price per share of the options granted through December 31, 2000, which is denominated in dollars, is $ 0.343. During 2002, the Company granted options under the 1998 Plan in accordance with the terms of the 2000 plan, including the exercise price, vesting schedule and expiration date (see b. below).

As of December 31, 2006 – 195,750 options of the 1998 Plan remain ungranted.

NOTE 8 – SHAREHOLDERS' EQUITY (continued):

b. In October 2000, the Company's Board of Directors approved an employee stock option plan (hereafter – the "2000 Plan"), pursuant to which 4,472,222 ordinary shares were reserved for issuance upon the exercise of 4,472,222 options to be granted to employees without consideration. The options vest in four equal annual batches over a period of four years from the date of grant of the option, provided the employee is still in the Company's employ. The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant.

The NIS denominated exercise price per share of the options, is equal to the market price of the Company's shares on the date on which the options are granted.

During November 2003, 419,930 options of this plan were transferred to options under the 2003 amendment Plan (see c. below).

Through December 31, 2006 – 5,317,555 options were granted pursuant to the 2000 Plan, of which 3,219,866 options have been exercised, 1,395,333 options were forfeited and 102,250 expired (options forfeited and expired were available for subsequent grants). As of December 31, 2006 – 232,320 options of the 2000 Plan remain ungranted.

c. On November 13, 2003, the Company's Board of Directors approved an amendment to the terms and provision of the 2000 Plan, in order to adjust the terms of the 2000 Plan to comply with new tax legislation that came into force in January 2003. On December 2003, the Company offered the employees, who received options under the 2000 plan, to exchange their unvested options, with the same amount of identical options, under the amended plan and to benefit from the capital gain's tax route pursuant to Section 102(b)(2) of the Israeli Income Tax Ordinance. Employees holding options to purchase 962,104 ordinary shares accepted this offer.

On December 30, 2003, the Company's Board of Directors approved the grant of 195,000 options (out of the 419,930 options that were transferred from the 2000 Plan) under the 2003 amended Plan with an exercise price of NIS 20.45 – which was less than the market price on the date of grant. Through December 31, 2006 132,500 options have been exercised. As of December 31, 2006 – 224,930 options of the 2003 amended Plan remain ungranted.

The options vest in four equal annual batches over a period of four years from the date of grant of the option, provided the employee is still in the Company's employ.

d. In July 2004, the Company's Board of Directors approved a stock option plan (hereafter – the "2004 Plan"), pursuant to which 5,775,000 ordinary shares were reserved for issuance upon the exercise of 5,775,000 options to be granted without consideration. The options vest in four equal annual batches, provided the employee is still in the Company's employ. The option holder may exercise all or part of his options at any time after the date of vesting but no later than the expiration of the exercise period, which will fixed by the Employee Stock Option Committee and will not exceed ten years from the date of option grant.

NOTE 8 – SHAREHOLDERS' EQUITY (continued):

Through December 31, 2006 – 6,210,000 options have been granted to Company's employees pursuant to the 2004 Plan, of which 706,375 options have been exercised, 1,112,125 options were forfeited and 3,125 options expired (options forfeited and expired are available for subsequent grants).

As of December 31, 2006 – 680,250 of the 2004 Plan remain ungranted.

After balance sheet date 300,000 options were granted to employees.

The NIS denominated exercise price per share of the options, is equal to the average market price of the Company's shares for the 30 trading days preceding the day on which the options are granted, less 15%.

e. The ordinary shares derived from the exercise of the options confer the same rights as the other ordinary shares of the Company.
f. The plans are subject to the terms stipulated by Section 102 of the Israeli Income Tax Ordinance. Inter alia, these terms provide that the Company will be allowed to claim, as an expense for tax purposes, the amounts credited to the employees as a benefit in respect of shares or options granted under the plans, as follows:

Through December 31, 2003, the amount that the Company will be allowed to claim as an expense for tax purposes will be the amount of the benefit taxable in the hands of the employee.

From January 1, 2004, the amount that the Company will be allowed to claim as an expense for tax purposes, will be the amount of the benefit taxable as work income in the hands of the employee, while that part of the benefit that is taxable as capital gains in the hands of the employee shall not be allowable. All the above is subject to the restrictions specified in Section 102 of the Income Tax Ordinance.

The aforementioned expense for tax purposes will be recognized in the tax year that the employee is taxed, except as described below.

In December 2002, the Company signed an agreement with the tax authorities concerning the tax liabilities of its employees regarding the benefit arising from the options granted to them. According to the agreement, the individual tax rate on the taxable income received by the employees in connection with the benefit arising from the options will be reduced; in return, the Company will defer the deduction of such an expense, for a period of 4 years from the date it commences paying income taxes.

The agreement applies only to employees who have agreed to participate in the arrangement, and relates to (1) options that were exercised by December 31, 2002; and/or (2) options that vest by December 31, 2003 and were exercised by March 31, 2004. In each case, the Section 102 trustee must have held the options for a period of 24 months from the date on which they were granted.

NOTE 8 – SHAREHOLDERS' EQUITY (continued):

Following is a summary of the status of the plans as of December 31, 2004, 2005 and 2006 and the changes therein during the years ended on those dates:

	Year ended December 31
	2004		2005		2006
	Number	Weightedaverageexerciseprice*	Number	Weightedaverageexerciseprice*	Number	Weightedaverageexerciseprice*
		NIS		NIS		NIS
Balance outstanding at beginning
of year	5,340,970	19.95	8,911,305	24.12	7,066,805	25.85
Changes during the year:
Granted**	5,095,500	26.74	518,500	32.75	596,000	33.18
Exercised	(1,341,647)	17.67	(1,809,000)	19.21	(1,987,930)	22.72
Forfeited	(169,768)	21.86	(525,750)	26.44	(598,875)	27.14
Expired	(13,750)	27.35	(28,250)	21.49	(3,126)	26.73
Balance outstanding at end of year	8,911,305	24.12	7,066,805	25.85	5,072,874	27.78
Balance exercisable at end of year	3,424,675	21.29	2,838,928	23.83	2,377,249	26.57

* Includes options under the 1998 Plan, the exercise price of which is weighted based on the applicable date's NIS – dollar exchange rate.

** Below market price.

*** The total intrinsic value of options exercised during 2004, 2005 and 2006 is NIS 23.0 million, NIS 35.5 million and NIS 36.8 million, respectively.

The weighted average fair value of options granted using the Black & Scholes option-pricing model during 2004, 2005 and 2006 is NIS 18.98, NIS 21.36 and NIS 10.82 ($ 2.56), respectively. The fair value of each option granted is estimated on the date of grant based on the following weighted average assumptions: weighted average dividend yield of 2004-2005 0% and 2006 – 6.14%; expected volatility of 55%, 58% and 39%, respectively; risk-free interest rate: 2004 – 4%, 2005 – 3.5%, 2006 – 5.5%; weighted average expected life: 5 years. The expected volatility is based on a historical volatility, by statistical analysis of the daily share price for periods corresponding the option's expected term. The expected term is expected length of time until expected date of exercising the options, based on historical data on employees' exercise behavior.

As of December 31, 2006, there was NIS 20.4 million of total unrecognized compensation cost (net of forfeitures) related to nonvested share-based compensation arrangements granted under the plans.

NOTE 8 – SHAREHOLDERS' EQUITY (continued):

The following table summarizes information about options outstanding at December 31, 2006:

	Options outstanding
Range of exerciseprices	Numberoutstanding atDecember 31, 2006	Weightedaverage ofexercise price	Weightedaverageremainingcontractuallife	Aggregateintrinsicvalue
				NIS in
NIS		NIS	Years	thousands

1.45	21,893	1.45	1.2	1,025
17.25-21.72	173,000	19.63	4.4	4,957
26.74	3,319,000	26.74	7.9	71,491
27.35	489,606	27.35	2.8	10,248
30.73-34.63	1,069,375	33.07	9.2	16,268
	5,072,874	27.78	7.5	103,989
	Options exercisable
Range of exercise	Numberexercisable at	Weightedaverage of	Weightedaverageremainingcontractual	Aggregateintrinsic
prices	December 31, 2006	exercise price	life	value
				NIS in
NIS		NIS	Years	thousands

1.45	21,893	1.45	1.2	1,025
17.25-21.72	173,000	19.63	4.4	4,957
26.74	1,502,500	26.74	7.9	32,364
27.35	489,606	27.35	2.8	10,248
30.73-34.63	190,250	32.48	9.0	3,006
	2,377,249	26.57	6.6	51,600

c. Dividends

During the year 2006 the Company distributed to its shareholders a cash dividend in the amount of NIS 307 million.

On January 31, 2007, the Company's Board of Directors resolved and recommended the distribution of a cash dividend in the amount of NIS 1.28 per share (approximately NIS 201 million ($48 million)) to shareholders of record on February 20, 2007. Cash dividends are paid in Israeli currency.

NOTE 9 – TAXES ON INCOME:

a. Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985

Under this law, results for tax purposes are measured in real terms, having regard to the changes in the Israeli CPI. The Company and its subsidiary are taxed under this law.

b. Tax rates applicable to income of the Company and its subsidiary

The income of the company and its Israeli subsidiaries is taxed at the regular rate. Through December 31, 2003, the corporate tax was 36%. In July 2004, Amendment No. 140 to the Income Tax Ordinance was enacted. One of the provisions of this amendment is that the corporate tax rate is to be gradually reduced from 36% to 30%. In August 2005, a further amendment (No. 147) was published, which makes a further revision to the corporate tax rates prescribed by Amendment No. 140. As a result of the aforementioned amendments, the corporate tax rates for 2004 and thereafter are as follows: 2004 – 35%, 2005 –34%, 2006 – 31%, 2007 – 29%, 2008 – 27%, 2009 – 26% and for 2010 and thereafter – 25%.

As a result of the changes in the tax rates, the company adjusted – in each of the years 2004 and 2005 – at the time the aforementioned amendments were made, its deferred tax balances, in accordance with the tax rates expected to be in effect in the coming years; the effect of the change has been carried to income on a current basis.

c. Losses carried forward to future years

At December 31, 2006, the subsidiary of the Company had carryforward losses of approximately NIS 13 million (approximately $ 3 million). The carryforward tax losses are linked to the Israeli CPI and can be utilized indefinitely.

NOTE 9 – TAXES ON INCOME (continued):

d. Deferred income taxes

The major components of the net deferred tax asset, current and non-current, in respect of the balances of temporary differences and the related valuation allowance as of December 31, 2005 and 2006, are as follows:

		December 31
	2005	2006	2006
	NIS		Conveniencetranslation intodollars
		In thousands
In respect of carryforward taxlosses (see c. above)	33,566	3,321	786
Subscriber acquisition costs	31,233	33,313	7,885
Allowance for doubtful accounts	32,640	35,850	8,485
Provisions for employee rights	14,842	16,297	3,857
Depreciable fixed assets	(25,533)	(30,691)	(7,264)
Amortized license	42,074	38,838	9,192
Options granted to employees	24,331	23,243	5,501
Other	1,952	(216)	(51)
	155,105	119,955	28,391
Valuation allowance - in respect ofcarryforward tax losses	(3,239)	(3,321)	(786)
	151,866	116,634	27,605

The changes in the valuation allowance for the years ended December 31, 2004, 2005 and 2006, are as follows:

	2004	2005	2006	2006
		NIS		Conveniencetranslationinto dollars
		In thousands

Balance at beginning of year	8,555	5,694	3,239	767
Utilization during the year	(2,107)
Change during the year	(754)	(2,455)	82	19

Balance at end of year	5,694	3,239	3,321	786

During 2005 and 2006, the Company utilized approximately NIS 549 million and approximately NIS 98 million ($ 23 million) of its carryforward tax losses, respectively.

As of December 31, 2006, the Company fully realized the carryforward tax losses, except for the wholly owned subsidiary carryforward tax losses.

A full valuation allowance was provided in respect of the wholly owned subsidiary, as it is more likely than not that its deferred tax assets will not be realized.

NOTE 9 – TAXES ON INCOME (continued):

e. Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the regular tax rates applicable to companies in Israel (see b. above), and the actual tax expense:

		Year ended December 31
	2004	2005	2006	2006
		NIS		Conveniencetranslationinto dollars
			In thousands
Income before taxes on income,
as reported in the income statements	758,801	557,458	1,051,950	248,982
Theoretical tax expense	265,580	189,536	326,105	77,184
Increase in taxes resulting from adjustment todeferred tax balances due to changes in
tax rates, see b above	34,521	11,442
Increase in tax as resulting from
disallowable deductions:In respect of previous year			*20,115	4,761
For the current year	3,721	3,400	*18,156	4,297
Change in the estimated utilization period of
the tax assetsDifference between the basis of measurement		2,935	3,696	875
of income reported for tax purposes and
the basis of measurement of income for
financial reporting purposes - netDecrease in taxes resulting from utilization,	(10,124)	(86)	(2,159)	(511)
in the reported year, of carryforward
tax losses for which deferred taxes
were not created in previous years	(2,107)
Other	(4,343)	(4,329)	4,762	1,128
Taxes on income for the reported year	287,248	202,898	370,675	87,734

* Following the ruling of the Supreme Court, on November 20, 2006 on the matter of Paz Gas Marketing Company Ltd. and others vs. the assessing officer and others, which overturned the rules regarding the recognition of financing expenses, the Company included in its financial statements an additional provision for taxes in the amount of NIS 35 million. This provision is an estimate of the additional tax expense relating to the possibility that part of the financing expenses accrued in the years 2005 and 2006 in respect of a financial debt, which is attributable, inter alia, to the financing of a repurchase of Company shares, will not be recognized as an expense for tax purposes. The Company has reasons justifying the recognition of these expenses for tax purposes, or part of them, however since at this point the level of certainty required in order to recognize these expenses does not exist, the aforementioned provision was recorded. The Company is examining the possible effects of the ruling, if any, on its results in the future.

NOTE 9 – TAXES ON INCOME (continued):

f. Taxes on income included in the income statements:

As follows:

Year ended December 31
2004	2005	2006	2006
			Conveniencetranslation
	NIS		into dollars
		In thousands

For the reported year:
Current			315,328	74,634
Deferred, see d above	287,248	202,898	35,232	8,339
In respect of previous year - current			20,115	4,761

	287,248	202,898	370,675	87,734

g. Tax assessments:

1. Tax returns filed by the Company through the year ended December 31, 2002, are considered to be final.
1. The subsidiary has not been assessed for tax purposes since incorporation.

NOTE 10 – LIABILITIES SECURED BY PLEDGES AND RESTRICTIONS PLACEDIN RESPECT OF LIABILITIES

At December 31, 2006, the Company's balances of liabilities in the amount of NIS 308 million ($ 73 million) under the Company's credit facility are secured by collateral of a first ranking floating charge on all of the Company's current or future business, property, rights and assets, other than its license (see also note 4). Under the credit facility the Company has also undertaken not to create or permit to subsist any further charges on its assets, with certain limited exceptions.

NOTE 11 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

a. Linkage of monetary balances:

As follows:

	December 31, 2006
	In or linkedto foreigncurrencies(mainly dollars)	Linked tothe IsraeliCPI	Unlinked
		In thousands
NIS:
Assets	6,806	11,614	1,358,415
Liabilities	141,660	2,214,436	919,373
Convenience translation intodollars:
Assets	1,611	2,749	321,518
Liabilities	33,529	524,127	217,603
2)Data regarding the dollar exchange rate and the Israeli CPI:
	Exchangerate of onedollar		IsraeliCPI*

NIS 4.225	184.87 points
NIS 4.603	185.05 points
NIS 4.308	180.74 points
NIS 4.379	178.58 points

(8.2)%	(0.1)%
6.8%	2.4%
(1.6)%	1.2%

* Based on the index for the month ending on each balance sheet date, on the basis of 1993 average = 100.

NOTE 11 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):

b. Derivative financial instrument – foreign exchange risk management

The Company enters into foreign currency derivative transactions in order to protect itself against the risk that the eventual dollar cash flows resulting from the anticipated payments in respect of purchases of handsets and capital expenditures in foreign currency will be affected by changes in exchange rates. In addition the Company enters into derivative transactions in order to protect itself against the increase in the CPI in respect of the principal of the CPI-linked Notes payable. However, these contracts do not qualify for hedge accounting under FAS 133.

The Company does not hold or issue derivative financial instruments for trading purposes.

As the counterparties to the derivatives are Israeli banks, the Company considers the inherent credit risks remote.

The notional amounts of foreign currency derivatives as of December 31, 2005 and 2006 are as follows:

	December 31
	2005	2006	2006
		NIS	Conveniencetranslationinto dollars
		(In millions)

Forward transactions for thechanges in the Israeli CPI	1,500	1,100	260

Forward transactions for theexchange of dollars into NIS	129	351	83
Embedded derivatives -
dollars into NIS	183	153	36

The derivative financial instruments are for a period of up to one year. As of December 31, 2006, the remaining contractual lives are for periods up to one year.

c. Fair value of financial instruments

The financial instruments of the Company as of December 31, 2006 consist mainly of non-derivative assets and liabilities (items included in working capital and long-term liabilities); the Company also has some derivatives, which are presented at their fair value.

In view of their nature, the fair value of the financial instruments included in working capital is usually identical or close to their carrying value. The fair value of long-term loans approximates the carrying value, since they bear interest at rates close to the prevailing market rates. Regarding the fair value of Notes payable see note 5.

The fair value of derivatives as of December 31, 2006, is a liability of approximately NIS 21.2 million (approximately $ 5.0 million) and an asset of approximately NIS 7.5 million (approximately $ 1.8 million) (December 31, 2005 – a liability of approximately NIS 7 million and an asset of approximately NIS 5.1 million).

NOTE 12 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

a. Accounts receivable:

December 31
20062006	2005
Conveniencetranslation
NISinto dollars
In thousands

	Trade (current and long-term)
	The item is presented after the deduction of:
(a)	Deferred interest income*	35,946	58,246	13,786

* Long-term trade receivables (including current maturities) as of December 31, 2005 and 2006 in the amount of NIS 406,072,000 and NIS 661,474,000 ($ 156,562,000), respectively, bear no interest. These balances are in respect of handsets sold in installments (mostly 36 monthly payments).

Income in respect of deferred interest is the difference between the original and the present value of the trade receivable. The current amount is computed on the basis of the interest rate relevant at the date of the transaction (5.85% –6.60%) (2005 – 5% – 5.4%).

(b) Allowance for doubtful accounts.

The changes in the allowance for the years ended December 31, 2004, 2005 and 2006, are as follows:

	2004	2005	2006	2006
		NIS		Conveniencetranslationinto dollars
		In thousands

Balance at beginning of year	77,295	86,651	108,800	25,751
Utilization during the year	(11,900)	(6,590)	(7,236)	(1,713)
Change during the year	21,256	28,739	26,470	6,265
Balance at end of year	86,651	108,800	128,034	30,303

2) Other:

		December 31
	2005	2006	2006
	NIS		Conveniencetranslationinto dollars
		In thousands

Inventory held by dealers	17,653	20,497	4,851
Government institutions	51,340	11,796	2,792
Prepaid expenses	13,386	5,162	1,222
Sundry	14,749	28,078	6,646
	97,128	65,533	15,511

NOTE 12 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

b. Inventory:

		December 31
	2005	2006	2006
	NIS		Conveniencetranslationinto dollars
		In thousands

Handsets	139,156	82,987	19,692
Accessories and other	44,464	25,438	6,021
Spare parts	25,703	18,041	4,270
	209,323	126,466	29,933

c. Accounts payable and accruals - other:

	December 31
2005	2006	2006
NIS		Conveniencetranslationinto dollars
	In thousands

81,501	106,900	25,302
22,827	25,873	6,124

Provision for vacation and recreation pay	22,827	25,873	6,124
Government institutions	38,332	71,162	16,843
Income received in advance	58,655	41,375	9,793
Accrued interest on long-term liabilities	22,654	881	209
Derivative instruments	5,138	21,201	5,018
Handsets warranty	1,064	1,763	417
Sundry	1,309	12,248	2,898

	231,480	281,403	66,604

d. Provision for warranty – the changes in the provision for warranty for the years ended December 31, 2004, 2005, and 2006, are as follows:

	2004	2005	2006	2006
		NIS		Conveniencetranslationinto dollars
		In thousands

Balance at beginning of year	2,053	1,734	1,064	252
Product warranties issued for
new sales	2,943	2,420	2,837	671
Utilization during the year	(3,262)	(3,090)	(2,138)	(506)
Balance at end of year	1,734	1,064	1,763	417

NOTE 12 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

e. Other liabilities:

Asset retirement obligations – the changes in the asset retirement obligations for the years ended December 31, 2004, 2005 and 2006, are as follows:

	2004	2005	2006	2006
		NIS		Conveniencetranslationinto dollars
		In thousands

Balance at January 1,	6,367	7,567	8,157	1,930
Liability incurred during the year	833	682	620	146
Liability settled during the year	(271)	(751)	(618)	(146)
Accretion expenses	638	659	1,558	369

Balance at December 31,	7,567	8,157	9,717	2,299

2. Capital lease:

		December 31
	2005	2006	2006
	NIS	NIS	Conveniencetranslationinto U.Sdollars
		In thousands

Total commitment	17,018	12,160	2,878
Less - deferred interest expenses	1,836	845	200
Long term lease	15,182	11,315	2,678
Less - current maturities	4,155	5,085	1,204
	11,027	6,230	1,474

The lease payments are linked to the US dollar and bear interest at the rate of 5.75%.

The lease (net of current maturities) mature in the following years after the balance sheet dates:

		December 31, 2006
	NIS	Conveniencetranslationinto U.Sdollars
		NIS in thousands
	4,079	965
	2,151	510
	6,230	1,475

NOTE 12 – SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

f. Financial expenses, net:

		Year ended December 31
	2004	2005	2006	2006
		NIS		Conveniencetranslationinto dollars
		In thousands

Financial income	(3,521)	(5,934)	(4,065)	(962)
Financial expenses	203,115	214,741	137,695	32,591
Expenses relating to the
redemption of notes, note 5b		62,615
Derivative instruments	63,356	(45,492)	44,321	10,490
Exchange rate differences	(8,978)	49,839	(11,326)	(2,681)
CPI Linkage differences	2,285	69,029	(183)	(43)
Factoring costs	17,459	650
Less - capitalized interest	(13,171)

	260,545	345,448	166,442	39,395

g. Diluted EPS

Following are data relating to the net income and the weighted average number of shares that were taken into account in computing the basic and diluted EPS:

			Year ended December 31
	2004	2005	2006	2006
		NIS		Conveniencetranslationinto dollars
			In thousands
Net income used for the computation ofbasic and diluted EPS (in thousands) :
Before cumulative effect	471,553	354,560	681,275	161,249
Cumulative effect			1,012	239
Net income	471,553	354,560	682,287	161,488
Weighted average number of shares usedin computation of basic EPS	183,389,383	161,711,125	153,633,758	153,633,758
Add - net additional shares from assumedexercise of employee stock options	719,534	1,906,147	1,043,927	1,043,927
Weighted average number of shares used incomputation of diluted EPS	184,108,917	163,617,272	154,677,685	154,677,685

NOTE 13 – TRANSACTIONS AND BALANCES WITH RELATED PARTIES:

a. Transactions with related parties:

		Year ended December 31
	2004	2005	2006	2006
		NIS		Conveniencetranslationinto dollars
		I n t h o u s a n d s
Purchase of fixed assets from related party	4,678
Acquisition of handsets from relatedparties	380,721	180,412	158,114	37,423
Financial expenses, mainly in respectof the Facility agreement, net	55,048	7,145
Selling commissions, maintenance andother expenses	4,116	14,221	26,525	6,278

As to the repurchase of Company's share, see note 8a.

The transactions are carried out in the ordinary course of business. Management believes that such transactions were carried out under normal market conditions.

b. Balances with related parties:

		December 31
	2005	2006	2006
		NIS	Conveniencetranslationinto dollars
		I n t h o u s a n d s

Accounts receivable trade	1,273	1,939	459
Current liabilities	58,173	17,480	4,137

c. Cost sharing agreement

The Company entered, on August 15, 2002, into a Cost Sharing Agreement (the "Agreement") with Hutchison Telecommunications Limited, or HTL, and certain of its subsidiaries (hereafter -"the Hutchison group"). The principal purpose of the Agreement is to regulate the sharing of costs associated with various joint procurement and development activities relating to the roll out and operation of a 3G Business.

The Agreement sets out the basis upon which expenses and liabilities are paid or discharged by the Hutchison group companies in connection with the joint procurement or development activities. Under the Agreement, the Company has the right to decide, and give notice of, which of the joint projects it wishes to participate in. As of December 31, 2006, the Company had given notice of its participation in 7 projects. The Company's expected share in these projects in financial terms (including its share of joint expenses and liabilities) is not material.

SIGNATURES

The Company 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.

Partner Communications Company Ltd.

——————————————

By: /s/ David Avner

David Avner Chief Executive Officer June 10, 2007

By: /s/ Emanuel Avner

Emanuel Avner Chief Financial Officer June 10, 2007

Exhibit 1.1

Articles of Association

Partner Communications Company Ltd.

	Chapter One - General	3
1.	Definitions and Interpretation	3
2.	Public Company	5
3.	The Purpose of the Company	5
4.	The Objectives of the Company	5
5.	Limited Liability	5
	Chapter Two - The Share Capital of the Company	6
6.	Share Capital	6
7.	The Issuance of Shares and Other Equity Securities	6
8.	Calls for Payment	7
9.	The Shareholder Registers of the Company and the Issuance of Share Certificates	8
10.	Transfer of Shares of the Company	9
10A.	Limitations on Transfer of Shares	11
10B.	Required Minimum Holdings	13
11.	Bearer Share Certificate	13
12.	Pledge of Shares	13
13.	Changes in the Share Capital	14
	Chapter Three - General Meetings	16
14.	The Authority of the General Meeting	16
15.	Kinds of General Meetings	17
16.	The Holding of General Meetings	18
17.	The Agenda of General Meetings	19
18.	Discussions in General Meetings	20
19.	Voting of the Shareholders	21
20.	The Appointment of a Proxy	23
21.	Deed of Vote, Voting Via the Internet	25
	Chapter Four - The Board of Directors	25
22.	The Authority of the Board of Directors	25
23.	The Appointment of Directors and the Termination of Their Office	26
24.	Actions of Directors	30
25.	Committees of the Board of Directors	33
25A.	Committee for Security Matters	33
25B.	Approval of Certain Related Party Transactions	35
26.	Chairman of the Board of Directors	35

Cha	pter Five- Officers who are not Directors and the Auditor	36
27.28.29.	The General ManagerThe Corporate Secretary, Internal Controller and Other Officers of the CompanyThe Auditor	363839
Cha	pter Six- The Share Capital of the Company and its Distribution	40
30.31.32.	Permitted DistributionsDividends and Bonus SharesThe Acquisition of Shares	404044
Chapter Seven	- Insurance, Indemnification and Release of Officers	44
33.34.35.	Insurance of OfficersIndemnification of OfficersRelease of Officers	444547
Chapter Ei	ght- Liquidation and Reorganization of the Company	47
36.37.	LiquidationReorganization	4747
Cha	pter Nine- Miscellaneous	48
38.	Notices	48
Chapter 10	- Intentionally Deleted	49
39.40.41.42.	Intentionally DeletedIntentionally DeletedIntentionally DeletedIntentionally Deleted	49494949
Chapter 11	- Compliance with the License/ Limitations on Ownership and Control	49
43.44.	ComplianceLimitations on Ownership and Control	4949

Chapter One – General

1. Definitions and Interpretation

1.1. The following terms in these Articles of Association bear the meaning appearing alongside them below:

Articles of Association	The Articles of Association of the Company, as set forth herein or as amended, whether explicitly or pursuant to any Law.
Business Day	Sunday to Thursday, inclusive, with the exception of holidays and official days of rest in the State of Israel.
Companies Law	The Companies Law, 1999.
Companies Ordinance	The Companies Ordinance [New Version], 1983.
Companies Regulations	Regulations issued pursuant to the Companies Ordinance or Companies Law.
Director	A Director of the Company in accordance with the definition in Section 1 of the Companies Law, including an AlternateDirector or an empowered representative.
Document	A printout and any other form of written or printed words, including documents transmitted in writing, via facsimile, telegram,telex, e-mail, on a computer or through any other electronic instrumentation, producing or allowing the production of a copyand/or an output of a document.
Founding Shareholder	A "founding shareholder or its substitute" as defined in Section 21.8 of the License.
Founding IsraeliShareholder	A Founding Shareholder who also qualifies as an "Israeli Entity" as defined for purposes of Section 22A of the License.
Financial Statements	The balance sheet, profit and loss statement, statement of changes in the share capital and cash flow statements, including thenotes attached to them.
Law	The provisions of any law ("din") as defined in the Interpretation Law, 1981.
License	The Company's General License for the Provision of Mobile Radio Telephone Services using the Cellular Method in Israeldated April 7, 1998, and the permit issued by the Ministry of Communications dated April 7, 1998.

Linkage	Payments with respect to changes in the Israeli consumer price index or the representative exchange rate of NIS vis-a-vis theU.S. dollar, as published by the Bank of Israel, or any other rate which replaces such rate.
Minimum FoundingShareholders Holding	The minimum shareholding in the Company required to be held by Founding Shareholders pursuant to Section 22A.1 of theLicense.
Minimum IsraeliHolding	The minimum shareholding in the Company required to be held by Founding Israeli Shareholders pursuant to Section 22A.2 ofthe License.
NIS	New Israeli Shekel
Office	The registered office of the Company.
Ordinary Majority	A simple majority of the shareholders who are entitled to vote and who voted in a General Meeting in person, by means of aproxy or by means of a deed of voting.
Periodic Statement	According to its definition in Chapter B of the Securities Regulations (Periodic and Immediate Reports), 1970, or suchSecurities Regulations replacing them.
Qualified IsraeliDirector	A director who at all times (i) is a citizen of Israel and resident in Israel, (ii) qualifies to serve as a director under applicable law,(iii) qualifies as a Director with Clearance as defined in section 25A, and (iv) is appointed to the Board of Directors of theCompany pursuant to section 23.2.6 of these Articles.
Record Date	The date on which a shareholder must be registered as a Shareholder in order to receive the right to participate in and vote at anupcoming general meeting of Shareholders.
Securities	Shares, bonds, capital notes or securities negotiable into shares and certificates, conferring a right in such securities, or othersecurities issued by the Company.
Securities Law	The Securities Law, 1968.
Securities Regulations	Regulations issued pursuant to the Securities Law.
Shares	shares in the share capital of the Company.
Shareholder	Anyone registered as a shareholder in the Shareholder Register of the Company.

Special Majority A majority of at least three quarters of the votes of shareholders who are entitled to vote and who voted in a general meeting, in person, by means of a proxy or by means of a deed of voting.

1.2. The provisions of Sections 3 through 10 of the Interpretation Law, 1981, shall also apply to the interpretation of these Articles of Association, mutatis mutandis, unless the context otherwise requires.
1.3. Except as otherwise provided in this Article, each word and expression in these Articles of Association shall have the meaning given to it in accordance with the Companies Law, and to the extent that no meaning is attached to it in the Companies Law, the meaning given to it in the Companies Regulations, and if they lack reference thereto, as stated, the meaning given to it in the Securities Law or Securities Regulations, and in the absence of any meaning, as stated, the meaning given to it in another Law, unless it contradicts the relevant provision or its contents.

2. Public Company

The Company is a public company.

3. The Purpose of the Company

The purpose of the Company is to operate in accordance with business considerations to generate profits; provided, however, the Board of Directors is entitled to donate reasonable amounts to worthy causes, even if such a donation is not within the framework of business considerations, as stated.

4. The Objectives of the Company

The Company shall engage in any legal business.

5. Limited Liability

The liability of the Shareholders of the Company is limited, each one up to the full amount he undertook to pay for the Shares allotted to him, at the time of the allotment.

Chapter Two – The Share Capital of the Company

6. Share Capital

6.1. The authorized share capital of the Company is NIS 2,350,000, divided into 235,000,000 ordinary shares at a par value of NIS 0.01 each (hereinafter: the "Ordinary Shares").
6.2. Each Ordinary Share shall confer upon its holder the right to receive notices of, and to attend and vote in, general meetings, and to one vote for each Ordinary Share held by him.
6.3. Each class of Shares shall also confer equal rights to each holder in the class with respect to the amounts of equity which were paid or credited as paid with respect to their par value, in all matters pertaining to dividends, the distribution of bonus shares and any other distribution, return of capital and participation in the distribution of the balance of the assets of the Company upon liquidation.
6.4. The provisions of these Articles of Association with respect to Shares, shall also apply to other Securities issued by the Company, mutatis mutandis.

7. The Issuance of Shares and Other Securities

7.1. The Board of Directors of the Company may issue Shares and other equity Securities of the Company, up to the limit of the registered share capital of the Company. In the event that the share capital of the Company includes several classes of Shares and other equity Securities, no shares and other equity Securities shall be issued above the limit of the registered share capital for its class.
7.2. The Board of Directors of the Company may issue redeemable Securities, having such rights and subject to such conditions as will be determined by the Board of Directors.
7.3. Subject to the provisions of these Articles of Association, the Board of Directors may allot Shares and other Securities according to such stipulations and conditions, at par value or by way of a premium, as it deems fit.
7.4. The Board of Directors may decide on the issuance of a series of bonds or other debt securities within the framework of its authority or to take a loan on behalf of the Company and within the limits of the same authority.
7.5. The Shareholders of the Company at any given time shall not have any preemption right or priority or any other right whatsoever with respect to the acquisition of Securities of the Company. The Board of Directors, in its sole discretion, may decide to offer Securities of the Company first to existing Shareholders or to any one or more of them.

7.6. The Company is entitled to pay a commission (including underwriting fees) to any person, in consideration for underwriting services, or the marketing or distribution of Securities of the Company, whether reserved or unreserved, as determined by the Board of Directors. Payments, as stated in this Article, may be paid in cash or in Securities of the Company, or partly in one manner and partly in another manner.

8. Calls of Payment

8.1. In the event that according to the terms of a Share allotment, there is no fixed date for the payment of any part of the price that is to be paid for the Shares, the Board of Directors may issue from time to time calls of payment to the Shareholders with respect to the moneys which were not yet paid by them in relation to the Shares (hereinafter: "Calls of Payment" or "a Call of Payment", as the case may be).
8.2. A Call of Payment shall set a date, which will not be earlier than thirty days from the date of the notice, by which the amount indicated in the Call of Payment must be paid, together with interest, Linkage and expenses incurred in consequence of the non–payment, according to the rates and amounts set by the Board of Directors. The notice shall further specify that in the event of a failure to pay within the date fixed, the Shares in respect of which payment or the rate is required may be forfeited. In the event that a Shareholder fails to meet any of its obligations, under a Call of Payment, the Share in respect of which said notice was issued pursuant to the resolution of the Board of Directors may be forfeited at any time thereafter. The forfeiture of Shares shall include the forfeiture of all the dividends on same Shares which were not paid prior to the forfeiture, even if such dividends were declared.
8.3. Any amount, which according to the terms of a Share allotment, must be paid at the time of issuance or at a fixed date, whether at the par value of the Share or at a premium, shall be deemed for the purposes of these Articles of Association to be combined in a duly issued Call of Payment. In the event of non-payment of any such amount, all the provisions of these Articles of Association shall apply with respect to such an amount, as if a proper Call of Payment has been made and an appropriate notice thereof was given.
8.4. The Board of Directors, acting reasonably and in good faith, may differentiate among Shareholders with respect to amounts of Calls of Payment and/or their payment time.
8.5. The joint holders of Shares shall be liable, jointly and severally, for the payment of Calls of Payment in respect of such Shares.
8.6. Any payment for Shares shall be credited, pro rata, according to the par value of and according to the premium on such Shares.
8.7. A Call of Payment may be cancelled or deferred to another date, as may be decided by the Board of Directors. The Board of Directors may waive any interest, Linkage and expenses or any part of them.
8.8. The Board of Directors may receive from a Shareholder any payments for his Shares, in addition to the amount of any Call of Payment, and the Board of Directors may pay to the same Shareholder interest on amounts which were paid in advance, as stated above, or on same part of them, in excess of the amount of the Call of Payment, or to make any other arrangement with him which may compensate him for the advancement of the payment.
8.9. A Shareholder shall not be entitled to a dividend or to his other rights as a Shareholder, unless he has fully paid the amounts specified in the Calls of Payment issued to him, together with interest, Linkage and expenses, if any, unless otherwise determined by the Board of Directors.
8.10. The Board of Directors is entitled to sell, re-allot or transfer in any other manner any Share which was forfeited, in the manner it decides, with or without any amount paid on the Share or deemed as paid on it.
8.11. The Board of Directors is entitled at all times prior to the sale, reallotment or transfer of the forfeited Share to cancel the forfeiture on the conditions it may decide.
8.12. A person whose Shares have been forfeited shall, notwithstanding the forfeiture, remain liable to pay to the Company all moneys which, up until the date of forfeiture, were due and payable by him to the Company in respect of the Shares, including interest, Linkage and expenses up until the actual payment date in the same manner as if the Shares were not forfeited, and shall be compelled to fulfill all the requirements and claims which the Company was entitled to enforce with respect to the Shares up until the forfeiture date, without any decrease or discount for the value of the Shares at the time of forfeiture. His liability shall cease only if and when the Company receives the full payment set at the time of allotment of the Shares.
8.13. The Board of Directors may collect any Calls of Payment which were not paid on the forfeited Shares or any part of them, as it deems fit, but it is not obligated to do so.
8.14. The forfeiture of a Share shall cause, as of the time of forfeiture, the cancellation of all rights in the Company and of any claim or demand against the Company with respect to that Share, and of other rights and obligations of the Shareholder in respect of the Company, save as otherwise provided by Law.

9. The Shareholder Registers of the Company and the Issuance of Share Certificates

9.1. The Company shall maintain a Shareholder Register and a Register of Significant Shareholders, together with a notation of any Exceptional Holdings in accordance with the provisions set forth in Article 10A below, to be administered by the corporate secretary of the Company, subject to the oversight of the Board of Directors.

9.2. A Shareholder is entitled to receive from the Company, free of charge, within two months after an allotment or the registration of a transfer (unless the conditions of the allotment fix a different period) one or several certificates with respect to all the Shares of a certain class registered in his favor, which certificate must specify the number of the Shares, the class of the Shares and the amount paid for them and also any other detail deemed important by the Board of Directors. In the event a Share is held jointly, the Company shall not be obligated to issue more than one certificate for all the joint holders, and the delivery of such a certificate to any of the joint holders shall be viewed as if it was delivered to all of them.
9.3. Each and every Share certificate shall be stamped with the seal or the stamp of the Company or bear the Company's printed name, and shall also bear the signature of one Director and of the corporate secretary of the Company, or of two Directors or of any other person appointed by the Board of Directors for this purpose.
9.4. The Company is entitled to issue a new Share certificate in place of an issued Share certificate which was lost or spoiled or corrupted, following evidence thereto and guarantees and indemnities, as may be required by the Company and the payment of an amount determined by the Board of Directors.
9.5. Where two people or more are registered as joint holders of Shares, each of them is entitled to acknowledge the receipt of a dividend or other payments in connection with such jointly held Shares, and such acknowledgement of any one of them shall be good discharge of the Company's obligation to pay such dividend or other payments.

10. Transfer of Shares

10.1. The Shares are transferable. The transfer of Shares shall not be registered unless the Company receives a deed of transfer (hereinafter: "Deed of Transfer") or other proper Document or instrument of transfer. A Deed of Transfer shall be drawn up in the following manner or in any substantially similar manner or in any other manner approved by the Board of Directors.

Deed of Transfer

I, _________________, (hereinafter: "The Transferor") of ____________, do hereby transfer to ___________ (hereinafter: "The Transferee") of __________, for valuable consideration paid to me, _________ Share(s) having a par value of NIS 0.01 each, numbered ________ to ________ (inclusive), of Partner Communications Company Ltd. (hereinafter: the "Company") to hold unto the Transferee, his executors, administrators and assigns, subject to the same terms and conditions on which I held the same at the time of the execution hereof; and I, the said Transferee, do hereby agree to take the said Share(s) subject to the aforesaid terms and conditions.

In witness whereof we have hereunto set our hands this _____ day of _________, _____.

The TransferorName: _______________Signature: ____________	The TransfereeName: _______________Signature: ____________
Witness to the Signature of:
The Transferor	The Transferee
Name: _____________	Name: _____________
Signature: ____________	Signature: ____________

10.2. The transfer of Shares which are not fully paid, or Shares on which the Company has a lien or pledge, shall have no validity unless approved by the Board of Directors, which may, in its absolute discretion and without giving any reasoning thereto, decline the registration of such a transfer. The Board of Directors may deny a transfer of Shares as aforesaid and may also impose a condition of the transfer of Shares as aforesaid an undertaking by the transferee to meet the obligations of the transferor with respect to the Shares or the obligations for which the Company has a lien or pledge on the Shares, signed by the transferee together with the signature of a witness, authenticating the signature of the transferee.
10.3. The transfer of a fraction of a Share shall lack validity.
10.4. A transferor of Shares shall continue to be regarded as the holder of the transferred Shares, until the name of the transferee of the Shares is registered in the Shareholder Register of the Company.
10.5. A Deed of Transfer shall be filed with the Company's office for registration, together with the Share Certificates for the Shares which are to be transferred (if such are issued) and also any other evidence which the Company may require with respect to the proprietary right of the transferor or with respect to his right to transfer the Shares. Deeds of Transfer which are registered shall remain with the Company. The Company is not obligated to retain the Deeds of Transfer and the Share Certificates, which may be cancelled, after the completion of a seven-year period from the registration of the transfer.
10.6. A joint Shareholder may transfer his right in a Share. In the event the transferring Shareholder does not hold the relevant Share Certificate, the transferor shall not be obligated to attach the Share Certificate to the Deed of Transfer, so long as the Deed of Transfer shall indicate that the transferor does not hold the Share Certificate, that the right he has in the Shares therein is being transferred, and that the transferred Share is held jointly with others, together with their details.
10.7. The Company may require payment of a fee for the registration of the transfer, at an amount or a rate determined by the Board of Directors from time to time.
10.8. The Board of Directors may close the Shareholder Register for a period of up to thirty days in each year.
10.9. Subject to Article 10.10, upon the death of a Shareholder, the Company shall recognize the custodians or administrators of the estate or executors of the will, and in the absence of such, the lawful heirs of the Shareholder, as the only holders of the right for the Shares of the deceased Shareholder, after receipt of evidence to the entitlement thereto, as determined by the Board of Directors.
10.10. In the event that a deceased Shareholder held Shares jointly with others, the Company shall acknowledge each survivor as a joint Shareholder with respect to said Shares, unless all the joint holders in the Share notify the Company in writing, prior to the death of any of them, of their will that the provisions of this Article shall not apply to them. The foregoing shall not release the estate of a joint Shareholder of any obligation in relation to a Share which is held jointly.
10.11. A person acquiring a right in Shares in consequence of being a custodian, administrator of the estate, the heir of a Shareholder, a receiver, liquidator or a trustee in a bankruptcy of a Shareholder or according to another provision of the Law, is entitled, after providing evidence to his right, to the satisfaction of the Board of Directors, to be registered as the Shareholder or to transfer such Shares to another person, subject to the provisions of these Articles of Association with respect to transfers.
10.12. A person becoming entitled to a Share because of the death of a Shareholder shall be entitled to receive, and to give receipts for, dividends or other payments paid or distributions made, with respect to the Share, but shall not be entitled to receive notices with respect to General Meetings of the Company or to participate or vote therein with respect to that Share, or to exercise any other right of a Shareholder, until he has been registered in the Shareholder Register as the holder of that Share.
10.13. Notwithstanding anything to the contrary in Articles 10.5 and 10.7, the transfer of Shares as a result of a realization of a share pledge entered into by a Shareholder of the Company in connection with the Company's $650 million credit facility dated August 13, 1998, as amended from time to time, will not require additional evidence with respect to the proprietary right of the transferor or with respect to his right to transfer the shares other than a properly completed deed of transfer and valid Share Certificate (if issued), nor will the Company require a fee for the registration of said transfer.

10A. Limitations on Transfer of Shares

10A.1. Exceptional Holdings shall be registered in the Register of Members (Shareholder Register) together with a notation that such holdings have been classified as "Exceptional Holdings", immediately upon the Company's learning of such matter. Notice of such registration shall be sent by the Company to the registered holder of the Exceptional Holding and to the Minister of Communications.

10A.2. Exceptional Holdings, registered in the manner set forth in Article 10A.1, shall not entitle the holder to any rights in respect to his holdings, and such holdings shall be considered "Dormant Shares" within the meaning of Section 308 of the Companies Law, except, however, that the holder of such shares shall be entitled to receive dividends and other distributions to shareholders (including the right to participate in a rights offering calculated on the basis of Means of Control of the Company (as defined in the License), provided, however, that such additional holdings shall be considered Exceptional Holdings). Therefore, any action taken or claim made on the basis of a right deriving from an Exceptional Holdings shall have no effect, except for the receipt of dividends or other distribution as stated above.

Without derogating from the above:

10A2.1 A Shareholder participating in a vote of the General Meeting will certify to the Company prior to the vote or, if the vote is by Deed of Vote, on the Deed of Vote, as to whether or not his holdings in the Company or his vote require consent pursuant to Sections 21 and 23 to the License; in the event the shareholder does not provide notification as aforesaid, he shall not vote and his vote shall not be counted.
10A.2.2 No Director shall be appointed, elected or removed on the basis of Exceptional Holdings. In the event a Director is appointed, elected or removed from his position as a Director as set forth above, such appointment, election or removal shall have no effect.
10A.2.3 Exceptional Holdings shall have no voting rights at a General Meeting of the Company.

For the purposes of this Article 10A, "Exceptional Holdings" means the holdings of Traded Means of Control held without the consent of the Minister of Communications pursuant to Section 21 to the License or as a result of a breach of the provisions of Section 23 to the License, and all holdings of a holder of Traded Means of Control who acted contrary to the provisions of Section 24 to the License; and as long as the consent of the Minister of Communications is required but has not been obtained pursuant to Section 21 to the License, or the circumstances exist which constitute a violation of the provisions of Sections 23 or 24 to the License.

For the purposes of this Article 10A, "Traded Means of Control" means Means of Control (as defined in the License) including Global or American Depositary Shares (GDRs or ADRs) or similar certificates, registered for trade on a securities exchange in Israel or abroad or which have been offered to the public in connection with a prospectus, and are held by the public in Israel or abroad.

10A.3. The provisions of Article 10A shall not apply to those who were Shareholders of the Company on the eve of the first registration of the Company's Shares for trade.

10B. Required Minimum Holdings

10B.1. Our License requires that Founding Shareholders hold Shares constituting at least the Minimum Founding Shareholders Holding and that Founding Israeli Shareholders hold Shares constituting at least the Minimum Israeli Holding.
10B.2. Shares held by Founding Shareholders, to the extent such Shares constitute all or a portion of the Minimum Founding Shareholders Holding, shall be registered directly in the name of the Founding Shareholder in the shareholder register of the Company, with a note indicating that such Shares are "Minimum Founding Shareholders Shares." Minimum Founding Shareholders Shares that are held by Founding Israeli Shareholders, to the extent such Shares constitute all or a portion of the Minimum Israeli Holding, shall also be recorded in the shareholder register with a note indicating that such Shares are "Minimum Israeli Holding Shares.
10B.3. No transfer by a Founding Shareholder of Minimum Founding Shareholder Shares or by a Founding Israeli Shareholder of Minimum Israeli Holding Shares shall be recorded in the Company's shareholder register, or have any effect, unless the Company's Secretary shall have received written confirmation from the Ministry of Communications that the transfer complies with section 21.8 of the License. The Company Secretary may, in his or her discretion, refer any question in connection with the recording of Minimum Founding Shareholders Shares or Minimum Israeli Holding Shares, or their transfer, to the Company's audit committee whose decision shall be binding on the Company. As a condition to any transfer of Minimum Founding Shareholders Shares or Minimum Israeli Holding Shares, the transferee shall be required to deliver to the Company's Secretary (a) a share transfer deed that includes an undertaking by the transferee to comply with all requirements of section 22A of the License and (b) all information requested with respect to the transferee's qualification as a Founding Shareholder and/or a Founding Israeli Shareholder.

11. Bearer Share Certificate

The Company shall not issue bearer Share Certificates which grant the bearer rights in the Shares specified therein.

12. Pledge of Shares

12.1. The Company shall have a first degree pledge on, and a right to create a lien on, all Shares which are not fully paid and registered in the name of any Shareholder, and the proceeds of their sale, with respect to moneys (which payment time is due or not) whose payment was already called or are to be paid up within a fixed time. Furthermore, the Company shall have a first degree pledge right on all the Shares (other than Shares which were fully paid) registered in the name of any Shareholder to secure the payment of moneys which are due from him or from his property, whether with respect to his own debts or debts jointly with others. The said pledge shall also apply to dividends, declared from time to time, with respect to these Shares.

12.2. For purposes of the realization of any such pledge and or lien, the Board of Directors is entitled to sell the Shares which are the subject of the pledge or lien, or any part of them, as it deems fit. No sale, as aforesaid, shall be carried out, until the date fixed for the payment has passed and a notice in writing was transferred to same Shareholder with respect to the intention of the Company to sell them, on condition that the amounts were not paid within fourteen days after the notice.
12.3. The proceeds of any such sale, after deduction for the payment of the sale expenses, shall serve for the covering of the debts or obligations of said Shareholder, and the balance (if any) shall be paid to him.
12.4. In the event that a sale of Shares was carried out pursuant to the realization of a pledge or a lien, pursuant to the presumptive authority conferred above, the Board of Directors is entitled to register such Shares in the Shareholder Register in favor of the buyer, and the buyer shall not be under the obligation to examine the fitness of such actions or the manner in which the purchase price paid for such Shares was used. After the said Shares are registered in the Shareholder Register in favor of the buyer, no person shall have the right to object to the validity of the sale.

13. Changes in the Share Capital

The General Meeting is entitled to take any of the following actions at all times, so long as the resolution of the General Meeting is adopted by a Special Majority.

13.1. Increasing the Share Capital

To increase the share capital of the Company, regardless of whether all the Shares registered at such a time were issued or not. The increased share capital shall be divided into Shares having ordinary rights or preference rights or deferred rights or other special rights (subject to the special rights of an existing class of Shares) or subject to conditions and restrictions with respect to entitlement to dividend, return of capital, voting or other conditions, as may be instructed by the General Meeting in a resolution with respect to the increase of the share capital, and in the absence of a special provision, according to the terms determined by the Board of Directors.

13.2. Classes of Shares

To divide the share capital of the Company into various classes of Shares, and to set and change the rights attaching to each class of Shares, according to the conditions specified below:

13.2.1. So long as it was not otherwise set in the Share allotment conditions, the rights of any class may be changed pursuant to a resolution of the General Meeting of the Shareholders of each class of Shares, separately, or upon the written consent of all the Shareholders of all classes.

13.2.2. The rights conferred on the holders of Shares of a certain class shall not be deemed to have been changed as a result of the creation or allotment of other Shares having identical rights, unless it was otherwise stipulated in the allotment conditions of said Shares.
13.3. Amalgamation and Redivision of the Share Capital

To amalgamate and redivide the share capital of the Company, entirely or partially, into Shares having a higher or lesser par value than that stated in these Articles of Association. In the event that in consequence of such amalgamation, there are Shareholders left with fractions of Shares, the Board of Directors if approved by the Shareholders at a General Meeting in adopting the resolution for amalgamation of the capital, may agree as follows:

13.3.1. To sell the total of all the fractional shares and to appoint a trustee for this purpose, in whose name Share Certificates representing the fractions shall be issued, who will sell them, with the proceeds received after the deduction of commissions and expenses to be distributed to those entitled. The Board of Directors shall be entitled to decide that Shareholders who are entitled to proceeds which are below an amount determined by it, shall not receive the proceeds of the sale of the fractional shares, and their share in the proceeds shall be distributed among the Shareholders who are entitled to proceeds, in an amount greater than the amount that was determined, relative to the proceeds to which they are entitled;
13.3.2. To allot to any Shareholder, who is left with a fractional Share following the amalgamation, Shares of the class of Shares prior to the amalgamation, which are fully paid, in such a number, the amalgamation of which together with the fractional Share shall complete a whole Share, and an allotment as stated shall be viewed as valid shortly before the amalgamation;
13.3.3. To determine that Shareholders shall not be entitled to receive a Share in exchange for a fractional Share resulting from the amalgamation of a half or smaller fraction of the number of Shares, whose amalgamation creates a single Share, and they shall be entitled to receive a whole Share in exchange for a fractional Share, resulting from the amalgamation of more than a half of the number of Shares, whose amalgamation creates a whole Share.

In the event that an action pursuant to Articles 13.3.2 or 13.3.3 above requires the allotment of additional Shares, their payment shall be effected in a manner similar to that applicable the payment of Bonus Shares. An amalgamation and redivision, as aforesaid, shall not be regarded as a change in the rights attaching to the Shares which are the subject of the amalgamation and redivision.

13.4. Cancellation of Unissued Share Capital

To cancel registered share capital which has not yet been allotted, so long as the Company is not under an obligation to allot these Shares.

13.5. The Division of the Share Capital

To divide the share capital of the Company, entirely or partially, into Shares having a lower par value than those stated in these Articles of Association, by way of dividing the Shares of the Company at such a time, entirely or partially.

13.6. The provisions specified in this Article 13 shall also apply to other equity Securities of the Company, mutatis mutandis.

Chapter Three – General Meetings

14. The Authority of the General Meeting

14.1. Subjects within the authority of the General Meeting

The following matters shall require the approval of the General Meeting:

14.1.1. Changes in the Articles of Association, if adopted by a Special Majority.
14.1.2. The exercise of the authority of the Board of Directors, if resolved by a Special Majority that the Board of Directors is incapable of exercising its authority, and that the exercise of any of its authority is essential to the orderly management of the Company.
14.1.3. The appointment or reappointment of the Company's auditor, the termination or non-renewal of his service, and to the extent required by Law and not delegated to the Board of Directors, the determination of his fee.
14.1.4. The appointment of Directors, including external Directors.
14.1.5. To the extent required by the provisions of Section 255 of the Companies Law, the approval of actions and transactions with interested parties and also the approval of an action or a transaction of an officer which might constitute a breach of the duty of loyalty.
14.1.6. Changes in the share capital of the Company, if adopted by a Special Majority as set forth in Article 13 above.
14.1.7. A merger of the Company, as defined in the Companies Law.
14.1.8. Changes in the objectives of the Company as set forth in Article 4 above, if adopted by a Special Majority.
14.1.9. Changes in the name of the Company, if adopted by a Special Majority.
14.1.10. Liquidation, if adopted by a Special Majority.
14.1.11. Settlements or Arrangements pursuant to Section 233 of the Companies Ordinance.
14.1.12. Any other matters which applicable Law requires to be dealt with at General Meetings of the Company.

14.2. The authority of the General Meeting to transfer authorities between corporate organs.

The General Meeting, by a Special Majority, may assume the authority which is given to another corporate organ, and may transfer the authority which is given to the General Manager to the Board of Directors.

The taking or transferring of authorities, as aforesaid, shall be with regard to a specific issue or for a specific period of time, all as stated in the resolution of the General Meeting.

15. Kinds of General Meetings

15.1. Annual Meetings

A General Meeting shall be convened at least once a year, within fifteen months of the last general meeting. The meeting shall be held at the registered offices of the Company, unless otherwise determined by the Board of Directors. These General Meetings shall be referred to as "Annual Meetings".

15.1.1. An Annual Meeting shall be convened to approve the following:
(One) The Financial Statements and the Report of the Board of Directors, as of December 31st of the calendar year preceding the year of the annual meeting.
- (Two) The Report of the Board of Directors with respect to the fee paid to the Company's auditor.
15.1.2. The Annual Meeting shall be convened to adopt resolutions on the following matters:

(One) The appointment of Directors and the termination of their office in accordance with Article 23 below.

(Two) The appointment of an auditor or the renewal of his office, subject to the provisions of Article 29 below.
15.2. Extraordinary Meetings

General Meetings of the Shareholders of the Company which are not convened in accordance with the provisions of Article 15.1 above, shall be referred to as "Extraordinary Meetings". An Extraordinary Meeting shall discuss and decide in all matters which are not discussed and decided in the Annual Meeting, and for which the Extraordinary Meeting was convened.

15.3. Class Meetings

The provisions of these Articles of Association with respect to General Meetings shall apply, mutatis mutandis, to meetings of a class of Shareholders of the Company.

16. The Holding of General Meetings

16.1. The Convening of the Annual Meeting

The Board of Directors shall convene Annual Meetings in accordance with the provisions of Article 15.1 above.

16.2. The Convening of an Extraordinary Meeting

The Board of Directors may convene an Extraordinary Meeting, as it decides, provided, however, that it shall be obligated to convene an Extraordinary Meeting upon the demand of one of the following:

16.2.1. Any two Directors or a quarter of the Directors, whichever is lower; or

16.2.2. any one or more Shareholders, holding alone or together at least 4.99% of the issued share capital of the Company.

16.3. Date of Convening an Extraordinary Meeting Upon Demand

The Board of Directors, which is required to convene a general meeting in accordance with Article 16.2 above shall announce the convening of the General Meeting within twenty-one (21) days from the receipt of a demand in that respect, and the date fixed for the meeting shall not be more than thirty-five (35) days from the publication date of the announcement of the General Meeting.

In the event that the Board of Directors shall not have convened an Extraordinary Meeting, as required in this Article, those demanding its convening or half of the Shareholders which demand it subject to Article 16.2.2, are entitled to convene the meeting themselves, so long as it is convened within three months from the date on which the demand was filed, and it shall be convened, inasmuch as possible, in the same manner by which meetings are convened by the Board of Directors. In the event that a General Meeting is convened as aforesaid, the Company shall bear the reasonable costs and expenses incurred by those demanding it.

16.4. Notice of Convening a General Meeting

Notice of a General Meeting shall be sent to each registered Shareholder of the Company as of the Record Date set by the Board of Directors for that meeting, within five (5) days after that Record Date, unless a different notice time is required by Law and cannot be altered or waived in the Company's Articles of Association.

A General Meeting may be convened following a shorter notice period, if the written consent of all the Shareholders who are entitled at such time to receive notices has been obtained. A waiver by a Shareholder can also be made in writing after the fact and even after the convening of the General Meeting.

16.5. Contents of the Notice

Subject to the provisions of any Law, a notice with respect to a general meeting shall specify the agenda of the meeting, the location, the proposed resolutions and also the arrangements for voting by means of a deed of voting or a deed of authorization, and the requirements of Article 10A.2.1.

Any notice to be sent to the Shareholders shall also include a draft of the proposed resolutions or a concise description of their particulars.

17. The Agenda of General Meetings

17.1. The agenda of the General Meeting shall be determined by the Board of Directors and shall also include issues for which an Extraordinary Meeting is being convened in accordance with Article 15.2 above, or demanded in accordance with Article 17.2 below.
17.2. One or more Shareholders holding alone or in the aggregate, 4.99% or more of the share capital of the Company may request that the Board of Directors include an issue on the agenda of a general meeting to be convened in the future. The Board of Directors shall incorporate such issue on the agenda of such a future general meeting, provided that the Board of Directors determines, in its discretion, such issue is suitable to be discussed in the General Meeting of the Company.
17.3. The General Meeting shall only adopt resolutions on issues which are on its agenda.

17.4. So long as it is not otherwise prescribed by Law, the General Meeting is entitled to accept or reject a proposed resolution which is on the agenda of the General Meeting, the draft or concise description of the particulars of which were published by the Company, including slight alterations, however, it is not entitled to take a resolution, which is materially different than the proposed resolution.

18. Discussions in General Meetings

18.1. Quorum

No discussion shall be held in the General Meeting unless a lawful quorum is present. Subject to the requirements of the applicable Law in force at the time these Articles of Association come into force, the rules of the Nasdaq National Market, the London Stock Exchange and any other exchange on which the Company's securities are or may become quoted or listed, and the provisions of these Articles, any two Shareholders, present by themselves or by means of a proxy, or who have delivered to the Company a Deed of Voting indicating their manner of voting, and who hold or represent at least one-third of the voting rights in the Company shall constitute a lawful quorum. A Shareholder or his proxy, who may also serve as a proxy for other Shareholders, shall be regarded as two Shareholders or more, in accordance with the number of Shareholders he is representing.

18.2. Deferral of the General Meeting in the Absence of Lawful Quorum

In the event that a legal quorum is not present after the lapsing of 30 minutes from the time specified in the convening notice for the commencement of the meeting, the meeting may be adjourned to the same day of the following week (or the first business day thereafter) at the same time and venue, or to another time and venue, as determined by the Board of Directors in a notice to the Shareholders, and the adjourned meeting shall discuss the same issues for which the original meeting was convened. If at the adjourned meeting, a legal quorum is not present at the time specified for the commencement of the meeting, then and in such event one or more Shareholders holding or representing in the aggregate at least 10% of the voting rights in the Company shall be deemed to form a proper quorum, subject to the provisions of Section 79 of the Companies Law.

18.3. The Chairman of the General Meeting

The chairman of the Board of Directors (if appointed) shall preside at each General Meeting. In the absence of the chairman, or if he fails to appear at the meeting within 15 minutes after the time fixed for the meeting, the Shareholders present at the meeting shall choose any one of the Directors of the Company as the chairman, and if there is no Director present at the meeting, one of the Shareholders shall be chosen to preside over the meeting. The chairman shall not have an additional vote or casting vote.

18.4. Adjourned Meeting

Upon adoption of a resolution at a General Meeting at which a lawful quorum is present, the chairman may and upon demand of the General Meeting shall adjourn the General Meeting from time to time and from venue to venue, as the meeting may decide (for the purpose of this Article: an "Adjourned Meeting"). In the event that a meeting is adjourned for fourteen days or more, a notice of the Adjourned Meeting shall be given in the same manner as the notice of the original meeting. With the exception of the aforesaid, a Shareholder shall not be entitled to receive notice of an Adjourned Meeting or of the issues which are to be discussed in the Adjourned Meeting. The Adjourned Meeting shall only discuss issues that could have been discussed at the General Meeting which was adjourned. The provisions of Articles 17.1, 17.2 and 17.3 of the Articles of Association shall apply to an Adjourned Meeting.

19. Voting of the Shareholders

19.1. Resolutions

In any General Meeting, a proposed resolution shall be adopted if it receives an Ordinary Majority, or any other majority of votes set by Law or in accordance with these Articles of Association. For the avoidance of doubt, any proposed resolution requiring a Special Majority under the Companies Ordinance shall continue to require the same Special Majority even after the effective date of the Companies Law.

In the event of a tie vote, the resolution shall be deemed rejected.

19.2. Checking Majority

19.2.1. The checking of the majority shall be carried out by means of a count of votes, at which each Shareholder shall be entitled to vote in each case in accordance with rights fixed for such Shares, subject to Articles 10A above and Article 44 below. A Shareholder shall be entitled to a single vote for each share he holds which is fully paid or that Calls of Payment in respect of which was fully paid.
19.2.2. The announcement of the chairman that a resolution in the General Meeting was adopted or rejected, whether unanimously or with a specific majority, shall be regarded as prima facie evidence thereof.

19.3. Written Resolutions

Subject to the provisions of applicable Law, a written resolution signed by all of the Shareholders of the Company holding Shares which entitle their holders to participate in General Meetings of the Company and vote therein, or of the same class of Shares to which the resolution refers, as the case may be, shall be regarded as a valid resolution for all purposes, and as a resolution adopted at a General Meeting of the Company or at a class meeting of the relevant class of Shares, as the case may be, which was properly summoned and convened, for the purpose of adopting such a resolution.

Such a resolution could be stated in several copies of the same document, each of them signed by one Shareholder or by several Shareholders.

19.4. Record Date For Participation and Voting

The Record Date shall be set by the Board of Directors, or by a person or persons authorized by the Board of Directors, in accordance with applicable Law.

19.5. A Right to Participate and Vote

A Shareholder shall not be entitled to participate and vote in any General Meeting or to be counted among those present, so long as (i) he owes the Company a payment which was called for the Shares held by him, unless the allotment conditions of the Shares provide otherwise, and/or (ii) his holdings are registered in the Shareholder Register together with a notation that such holdings have been classified as Exceptional Holdings, as defined in Article 10A or Affected Shares, as defined in Article 44.

19.6. Personal Interest in Resolutions

A Shareholder seeking to vote with respect to a resolution which requires that the majority for its adoption include at least a third of the votes of all those not having a personal interest (as defined in the Companies Law) in the resolution shall notify the registered office of the Company at least two business days prior to the date of the General Meeting, whether he has a personal interest in the resolution or not, as a condition for his right to vote and be counted with respect to such resolution.

A Shareholder voting on a resolution, as aforesaid, by means of a Deed of Vote, may include his notice with regard to his personal interest on the Deed of Vote.

19.7. The Disqualification of Deeds of Vote

Subject to the provisions of applicable Law, the corporate secretary of the Company may, in his discretion, disqualify Deeds of Vote and Deeds of Authorization and so notify the Shareholder who submitted a Deed of Vote or Deeds of Authorization in the following cases:

19.7.1. If there is a reasonable suspicion that they are forged;
19.7.2. If there is a reasonable suspicion that they are falsified, or given with respect to Shares for which one or more Deeds of Vote or deeds of authorization have been given and not withdrawn; or
19.7.3. If there is no note on the Deed of Vote or Deed of Authorization as to whether or not his holding in the Company or his vote require the consent of the Minister of Communications pursuant to Sections 21 and 23 to the License.

19.7.4. With respect to Deeds of Vote:
- (One) If more than one choice is marked for the same resolution; or
(Two) With respect to resolutions which require that the majority for their adoption includes a third of the votes of those not having a personal interest in the approval of the resolution, where it was not marked whether the relevant Shareholder has a personal interest or not, as aforesaid.

Any Shareholder shall be entitled to appeal on any such disqualification to the Board of Directors at least one business day prior to the relevant General Meeting.

19.8. The Voting of a Person without Legal Capacity

A person without legal capacity is entitled to vote only by means of a trustee or a legal custodian.

19.9. The Voting of Joint Holders of a Share

Where two or more Shareholders are registered joint holders of a Share, only the first named joint holder shall vote, without taking into account the other registered joint holders of the Share. For this purpose, the first named joint holder shall be the person whose name is registered first in the Shareholder Register.

19.10. Minutes of the General Meeting

The chairman of the General Meeting shall cause that the minutes of each General Meeting shall be properly maintained and shall include the following:

19.10.1. The name of each Shareholder present in person, by Deed of Vote or by proxy and the number of Shares held or represented by him;
19.10.2. The principal issues of the discussion, all the resolutions which were adopted or rejected at the General Meeting, and if adopted according to what majority.

20. The Appointment of a Proxy

20.1. Voting by Means of a Proxy

A Shareholder registered in the Shareholder Register is entitled to appoint by deed of authorization a proxy to participate and vote in his stead, whether at a certain General Meeting or generally at General Meetings of the Company, whether personally or by means of a Deed of Vote, so long as the deed of authorization with respect to the appointment of the proxy was delivered to the Company at least two Business Days prior to the date of the General Meeting.

In the event that the deed of authorization is not limited to a certain General Meeting, then the deed of authorization, which was deposited prior to a certain General Meeting, shall also be good for other General Meetings thereafter. This Article 20 shall also apply to a Shareholder which is a corporation, appointing a person to participate and vote in a General Meeting in its stead. A proxy is not required to be a Shareholder of the Company.

20.2. The Draft of the Deed of Authorization

The deed of authorization shall be signed by the Shareholder and shall be in or substantially in the form specified below or any such other form acceptable to the Board of Directors of the Company. The corporate secretary, in his discretion, may accept a deed of authorization differing from that set forth below provided the changes are immaterial.

The corporate secretary shall only accept either an original deed of authorization, or a copy of the deed of authorization which is certified by a lawyer having an Israeli license or a notary.

Deed of Authorization

Date: ________

To: Partner Communications Company Ltd. Attn.: Corporate Secretary

Re: [Annual/Extraordinary] General Meeting of the Company to be Held On __________________

I, the undersigned _________________, Identification No. / Registration No. _____________, of ________________, being the registered holder of ________ (*) Shares [Ordinary Shares having a par value of NIS 0.01, each], hereby authorize ___________, Identification No. ___________ (**) and/or ___________, Identification No. ___________ and/or ___________, Identification No. ___________ to participate and vote in my stead and on my behalf at the referenced meeting and in any adjournment of the referenced meeting of the Company / at any General Meeting of the Company, until I shall otherwise notify you .

Signature

——————————————

(*) A Shareholder is entitled to give several deeds of authorization, each of which refers to a different quantity of Shares of the Company held by him, so long as he shall not give deeds of authorization with respect to an aggregate number of Shares exceeding the total number he holds.

(**) In the event that the proxy does not hold an Israeli Identification number, indicate a passport number, if any, and the name of the country which issued the passport.

20.3. A vote in accordance with a deed of authorization shall be lawful even if prior to it, the appointer died or became incapacitated or bankrupt, or if it is a corporation – was liquidated, or if he cancelled the deed of authorization or transferred the Share in respect of which it was given, unless a notice in writing was received at the Office of the Company prior to the meeting with respect to the occurrence of such an event.

21. Deed of Vote, Voting Via the Internet

21.1. A Shareholder may vote in a General Meeting by means of a Deed of Vote (ktav hatba'ah) on any issue for which voting by Deed of Vote is required to be offered under applicable Law and on any other issue for which the Board of Directors has approved voting by Deed of Vote, either generally or specifically. The form of the Deed of Vote shall be set by the corporate secretary or any one so authorized by the Board of Directors.
21.2. The Board of Directors may authorize Shareholder voting in a General Meeting via the Internet, subject to any applicable Law.

Chapter Four – The Board of Directors

22. The Authority of the Board of Directors

22.1. The authority of the Board of Directors is as specified both in the Law and in the provisions of these Articles of Association.
22.2. Signature Authority and Powers of Attorney
22.2.1. The Board of Directors shall determine the person(s) with authority to sign for and on behalf of the Company with respect to various issues. The signature of such person(s), appointed from time to time by the Board of Directors, whether generally or for a specific issue, whether alone or together with others, or together with the seal or the stamp of the Company or its printed name, shall bind the Company, subject to the terms and conditions set by the Board of Directors.
22.2.2. The Board of Directors may set separate signature authorities with respect to different issues and different amounts.
22.2.3. The Board of Directors may, from time to time, authorize any person to be the representative of the Company with respect to those objectives and subject to those conditions and for that time period, as the Board of Directors deems fit. The Board of Directors may also grant any representative the authority to delegate any or all of the authorities, powers and discretion given to the Board of Directors.

22.3. The Registered Office of the Company

The Board of Directors shall fix the location of the Office of the Company.

23. The Appointment of Directors and the Termination of Their Office

23.1. The Number of Directors

The number of Directors in the Company shall not be less than seven (7) or more than seventeen (17).

23.2. The Identity of a Director
23.2.1. A member of the Board of Directors may hold another position with the Company.
23.2.2. A corporation may serve as a Director in the Company, subject to the provisions of Article 23.6 below.
23.2.3. For as long as any individual or an entity which is an Interested Party in the Company is also an Interested Party in Cellcom (Israel) Ltd. (hereinafter "Cellcom"), such Interested Party or an Office Holder of an Interested Party in Cellcom or an Office Holder of any entity controlled by an Interested Party in Cellcom (other than Elron Electronic Industries Ltd ("Elron") or an entity controlled by Elron) will not serve as an Office Holder of the Company, and no Interested Party in Cellcom or any entity controlled by such Interested Party, may appoint more than two Directors to the Board of Directors of the Company. For the purposes of this Article, the terms "control", "Interested Party" and "Office Holder" shall bear the same meaning as in, and shall be interpreted in accordance with, the License.
23.2.4. The Board of Directors shall include independent and/or external Directors required to comply with the applicable requirements of any Law, the Nasdaq Stock Market, the London Stock Exchange and any other investment exchange on which the securities of the Company are or may become quoted or listed. The requirements of the Companies Law applicable to an external Director (Dahatz) shall prevail over the provisions of these Articles of Association to the extent these Articles of Associations are inconsistent with the Companies Law, and shall apply to the extent these Articles of Associations are silent.
23.2.5. At least 10% of the members of the Board of Directors of the Company shall be comprised of Qualified Israeli Directors. Notwithstanding the above, if the board is comprised of up to 14 members, one Qualified Israeli Director shall be sufficient, and if the board is comprised of between 15 and 24 members, two Qualified Israeli Directors shall be sufficient.
23.2.6. Notwithstanding any other provision of these Articles, a Qualified Israeli Director shall be appointed as a member of the Board of Directors, and may be removed from such office, only upon written notice to the Company Secretary of his or her appointment or removal by the Founding Israeli Shareholders holding Minimum Israeli Holding Shares. For purposes of this section, a notice signed by at least two of the Founding Israeli Shareholders who are the record holders of at least 50% of Minimum Israeli Holding Shares shall be deemed to be sufficient notice on behalf of all holders of Minimum Israeli Holding Shares.
23.3. The Election of Directors and their Terms of Office
23.3.1. The Directors shall be elected at each Annual Meeting and shall serve in office until the close of the next Annual Meeting, unless their office becomes vacant earlier in accordance with the provisions of these Articles of Association. Each Director of the Company shall be elected by an Ordinary Majority at the Annual Meeting; provided, however, that external Directors shall be elected in accordance with applicable law and/or any relevant stock exchange rule applicable to the Company. The elected Directors shall commence their terms from the close of the Annual Meeting at which they are elected, unless a later date is stated in the resolution with respect to their appointment. Election of Directors shall be not conducted by separate vote on each candidate, unless so determined by the Board of Directors.
23.3.2. In each Annual Meeting, the Directors that were elected in the previous Annual Meeting, and thereafter, in any Extraordinary Meeting shall be deemed to have resigned from their office. A resigning Director may be reelected.
23.3.3. Notwithstanding the other provisions of these Articles of Association and without derogating from Article 23.4, an Extraordinary Meeting of the Company may elect any person as a Director, to fill an office which became vacant, or to serve as an additional member to the then existing Board of Directors, or to serve as an external Director (Dahatz) or an independent Director and also in any event in which the number of the members of the Board of Directors is less than the minimum set in the Articles of Association provided that the maximum number of Directors permitted under Article 23.1 is not exceeded. Any Director elected in such manner (excluding an external Director (Dahatz) shall serve in office until the coming Annual Meeting, unless his office becomes vacant earlier in accordance with the provisions of these Articles of Association and may be reelected.
23.3.4. An elected external Director (Dahatz) shall commence his term from the date of, and shall serve for the period stated in, the resolution of the General Meeting at which he was elected, notwithstanding Article 23.3 above, unless his office becomes vacant earlier in accordance with the provisions of the Companies Law. A General Meeting may reelect an external Director (Dahatz) for additional term(s) as permitted by the Companies Law.
23.4. The election of Directors by the Board of Directors

The Board of Directors shall have the right, at all times, upon approval of at least 75% of the Directors of the Company, to elect any person as a Director, to fill an office which became vacant, or to serve as an additional member to the then existing Board of Directors provided that the maximum number of Directors permitted under Article 23.1 is not exceeded. Any Director elected in such manner shall serve in office until the coming Annual Meeting and may be reelected.

23.5. Alternate Director

Any Director may, from time to time, appoint for himself an alternate Director (hereinafter: the "Alternate Director"), dismiss such Alternate Director and also appoint another Alternate Director instead of any Alternate Director, whose office becomes vacant, due to whatever cause, whether for a certain meeting or generally. Anyone who is not qualified to be appointed as a Director and also anyone serving as a Director or as an existing Alternate Director shall not serve as an Alternate Director.

23.6. Representatives of a Director that is a Corporation

A Director that is a corporation shall appoint an individual, qualified to be appointed as a Director in the Company, in order to serve on its behalf, either generally or for a certain meeting, or for a certain period of time and the said corporation may also dismiss that individual and appoint another in his stead (hereinafter: "Representatives of a Director").

23.7. Manner of Appointment or Dismissal of an Alternate Director or a Representative of a Director that is a Corporation

Any appointment or dismissal of Representatives of Directors, when such Directors are corporations, or of Alternate Directors, shall be made by means of a notice in writing to the corporate secretary, signed by the appointing or dismissing body and shall become valid upon the date indicated in the appointment or dismissal notice or upon the date of its delivery to the corporate secretary, whichever is the later.

23.8. Miscellaneous Provisions with Respect to Alternate Directors and Representatives of Directors that are Corporations.

23.8.1. Any person, whether he is a Director or not, may serve as the representative of a Director, and any one person may serve as the representative of several Directors.
23.8.2. The Representative of a Director in addition to his own vote, if he is serving as a Director shall have a number of votes corresponding to the number of Directors represented by him.
23.8.3. An Alternate Director and the Representative of a Director shall have all the authority of the Director for whom he is serving as an Alternate Director or as a representative, with the exception of the authority to vote in meetings at which the Director is present in person.
23.8.4. The office of an Alternate Director or a representative of a Director shall automatically become vacant, if the office of the Director for whom he is serving as an Alternate Director or as a representative becomes vacant.
23.9. Termination of the Term of a Director

The term of a Director shall be terminated in any of the following cases:

23.9.1. If he resigns from his office by way of a signed letter, filed with the corporate secretary at the Company's Office;
23.9.2. If he is declared bankrupt or if he reaches a settlement with his creditors within the framework of bankruptcy procedures;
23.9.3. If he is declared by an appropriate court to be incapacitated;
23.9.4. Upon his death and, in the event of a corporation, if a resolution has been adopted for its voluntary liquidation or a liquidation order has been issued to it;
23.9.5. If he is removed from his office by way of a resolution, adopted by the General Meeting of the Company, even prior to the completion of his term of office;
23.9.6. If he is convicted of a crime, as stated in Section 232 of the Companies Law;
23.9.7. If his term is terminated by the Board of Directors in accordance with the provisions of Section 231 of the Companies Law; or
23.9.8 If his term is terminated by the Board of Directors in case the Board of Directors concludes that the office of such dDirector is in violation to the provisions of the License or any other telecommunications license granted to the Company or to any of its subsidaries or to any other entity it controls."
23.10. The Implications on the Board of Directors of the Termination of the Term of a Director.

In the event that an office of a Director becomes vacant, the remaining Directors are entitled to continue operating, so long as their number has not decreased below the minimum number of Directors set forth in Article 23.1.

In the event that the number of Directors decreased below that minimum number, the remaining Directors shall be entitled to act solely for the convening of a General Meeting of the Company for the purpose of electing additional Directors to the Board of Directors.

23.11. Compensation of Members of the Board of Directors

Members of the Board of Directors who do not hold other positions in the Company and who are not external Directors shall not receive any compensation from the Company, unless such compensation is approved by the General Meeting and according to the amount determined by the General Meeting, subject to the provisions of the Law.

The compensation of the Directors may be fixed, as an all-inclusive payment or as payment for participation in meetings or in any combination thereof.

The Company may reimburse expenses incurred by a Director in connection with the performance of his office, to the extent provided in a resolution of the Board of Directors.

24. Actions of Directors

24.1. Convening Meetings of the Board of Directors
24.1.1. The chairman of the Board of Directors may convene a meeting of the Board of Directors at any time.
24.1.2. The chairman of the Board of Directors shall convene a meeting of the Board of Directors at least four times a year, in a manner allowing the Company to fulfil the provisions of the Law with respect to the publication of Financial Statements and reporting to the public.
24.1.3. The chairman of the Board of Directors shall convene a meeting of the Board of Directors on a specific issue if requested by at least two Directors or one Director, if he is an external Director, within no more than 14 days from the date of the request.
24.1.4. The chairman of the Board of Directors shall act forthwith for the convening of a meeting of the Board of Directors, within 14 days from the time that a Director in the Company has informed him of a matter related to the Company in which there is an apparent violation of the Law or a breach of proper management of the business, or from the time that the auditor of the Company has reported to him that he had become aware of material flaws in the accounting oversight of the Company.

24.1.5. In the event that a notice or a report of the General Manager requires an action of the Board of Directors, the chairman of the Board of Directors shall forthwith convene a meeting of the Board of Directors, which should be held within 14 days from the date of the notice or the report.
24.2. Convening of a Meeting of the Board of Directors
24.2.1. Any notice with respect to a meeting of the Board of Directors may be given in writing, so long as the notice is given at least 14 days prior to the date fixed for the meeting, unless all the members of the Board of Directors or their Alternate Directors or their representatives agree on a shorter time period. A notice, as stated, shall be delivered in writing or transmitted via facsimile or E-mail or through another means of communication, to the address or facsimile number or to the E-mail address or to an address where messages can be delivered through other means of communication, as the case may be, as the Director informed the corporate secretary, upon his appointment, or by means of a written notice to the corporate secretary thereafter.

A notice, which was delivered or transmitted, as provided in this Article, shall be deemed to be personally delivered to the Director on its delivery date.

24.2.2. In the event that a Director appointed an Alternate Director or a representative, the notice shall be delivered to the Alternate Director or the representative, unless the Director instructed that the notice should be delivered to him as well.
24.2.3. The notice shall include the venue, date and time of the meeting of the Board of Directors, arrangements with respect to the manner of management of the meeting (in cases where telecommunications are used), the details of the issues on its agenda and any other material that the chairman of the Board of Directors requests be attached to the summoning notice with respect to the meeting.
24.3. The Agenda of Meetings of Board of Directors

The agenda of meetings of the Board of Directors shall be determined by the chairman of the Board of Directors and shall include the following issues:

24.3.1. Issues determined by the chairman of the Board of Directors.

24.3.2. Issues for which the meeting is convened in accordance with Article 24.1 above.
24.3.3. Any issue requested by a Director or by the General Manager within a reasonable time prior to the date of the meeting of the Board of Directors (taking into account the nature of the issue).

24.4. Quorum

The quorum for meetings of the Board of Directors shall be a majority of the Directors, which must include one external Director.

24.5. Conducting a Meeting Through Means of Communication

The Board of Directors may conduct a meeting of the Board of Directors through the use of any means of communications, provided all of the participating Directors can hear each other simultaneously.

24.6. Voting in the Board of Directors

Subject to Article 23.4 and Article 44, Issues presented at meetings of the Board of Directors shall be decided upon by a majority of the votes of the Directors present (or participating, in the case of a vote through a permitted means of communications) and voting, subject to the provisions of Article 23.8 above, with respect to Alternate Directors and representatives of Directors that are corporations.

Each Director shall have a single vote.

24.7. Written Resolutions

A written resolution signed by all the Directors shall be deemed as a resolution lawfully adopted at a meeting of the Board of Directors. Such a resolution may be made in several copies of the same Document, each of them signed by one Director or by several Directors. Such a resolution may be adopted by signature of only a portion of the Directors, if all of the Directors who have not signed the resolution were not entitled to participate in the discussion and to vote on such resolution in accordance with any Law whatsoever, so long as they confirm in writing that they are aware of the intention to adopt such a resolution.

24.8. Resolutions Approved by Means of Communications

A resolution approved by use of a means of communications by the Directors shall be deemed to be a resolution lawfully adopted at a meeting of the Board of Directors, and the provisions of Article 24.6 above shall apply to the said resolution.

24.9. The Validity of Actions of the Directors

All actions taken in good faith in a meeting of the Board of Directors or by a committee of the Board of Directors or by any person acting as a Director shall be valid, even if it subsequently transpires that there was a flaw in the appointment of such a Director or person acting as such, or if any of them were disqualified, as if any such person was lawfully appointed and was qualified to serve as a Director.

24.10. Minutes of Meetings of the Board of Directors

The chairman of the Board of Directors shall cause that the minutes of meetings of the Board of Directors shall be properly maintained and shall include the following:

24.10.1. Names of those present and participating at each meeting.
24.10.2. All the resolutions and particulars of the discussion of said meetings.

Any such minutes signed by the chairman of the Board of Directors presiding over that meeting or by the chairman of the Board of Directors at the following meeting, shall be viewed as prima facie evidence of the issues recorded in the minutes.

25. Committees of the Board of Directors

25.1. Subject to the provisions of the Companies Law, the Board of Directors may delegate its authorities or any part of them to committees, as they deem fit, and they may from time to time cancel the delegation of such an authority. Any such committee, while utilizing an authority as stated, is obligated to fulfil all of the instructions given to it from time to time by the Board of Directors.
25.2. Subject to the provisions of the Companies Law, each committee of the Board of Directors shall consist of at least two Directors, and it may include members who are not Directors, with the exception of the audit committee which shall consist of at least three (3) Directors, and all of the external Directors of the Company shall be members of it.
25.3. The provisions with respect to meetings of the Board of Directors shall apply to the meetings and discussions of each committee of the Board of Directors, with the appropriate changes, provided that no other terms are set by the Board of Directors in this matter, and provided that the lawful quorum for the meetings of the committee, as stated, shall be at least a majority of the members of the committee, unless otherwise required by Law.

25A. Committee for Security Matters

25A.1. Notwithstanding any other provision in these Articles, the Board of Directors shall appoint from among its members who have security clearance and security compatibility to be determined by the General Security Service ("Directors with Clearance") a committee to be designated the "Committee for Security Matters". The members of the Committee for Security Matters shall include at least four (4) Directors with Clearance including at least one external director. Subject to section 25A.2 below, security matters shall be considered only in the context of the Committee for Security Matters. Any decision of, or action by the Committee for Security Matters shall have the same effect as if it had been made or taken by the Board of Directors. The Board of Directors shall consider a security matter only if required pursuant to section 25A.2 below, and subject to the terms of that section. For purposes of this section 25A, "security matters" shall be defined in the same manner as defined in the Bezeq Order (Determination of Essential Service Provided by Bezeq-The Israeli Telecommunications Company Ltd.), 1997, as of March 9, 2005.
25A.2. Security matters which the audit committee or board of directors shall be required to consider in accordance with the mandatory rules of the Companies Law or other Law applicable to the Company, shall be considered to the extent necessary only by Directors with Clearance. Other Directors shall not be entitled to participate in meetings of the audit committee or board of directors dealing with security matters, or to receive information or documents related to these matters. A quorum for these meetings shall include only Directors with Clearance.
25A.3. Any director or officer of the Company who would otherwise be required to receive information or participate in meetings by virtue of his or her position or these Articles or any Law, but who is prevented from doing so by the provisions of this Article 25A, will be released from any liability for any claim of breach of duty of care to the Company which results from her or his inability to receive information or participate in meetings, and the Company shall indemnify any such director or officer and hold her or him harmless to the maximum extent permitted by law for any injury or damage she or he incurs as a result of the inability to receive such information or participate in such meetings.
25A.4. The shareholders at a general meeting shall not be entitled to assume, delegate, transfer or exercise any of the authorities granted to any other corporate body in the Company with respect to security matters.
25A.5. (1) The Minister of Communications shall be entitled to appoint an observer (the "Security Observer") to all meetings of the board of directors and its committees. The Security Observer shall have the security clearance and security compatibility to be determined by the General Security Service.
- (2) The Security Observer shall be an employee of the State of Israel qualified to serve as a director pursuant to Chapter C of the Government Companies Law, 1975.

(3) In addition to any other obligations under Law, the Security Observer shall be bound to preserve the confidentiality of [information relating to] the Company, except as required to fulfill his responsibilities as an observer. The Security Observer will not act as an observer or in any other position at a competitor of the Company, and will avoid a conflict between his position as an observer and the interests of the Company. The Security Observer shall undertake not to serve as an observer or officer or director, and not serve in any other capacity or be employed, directly or indirectly, by any entity competing with the Company or in a position of conflict of interest with the Company during the period of his service as the Security Observer and for two years after termination of such period.

(4) Notices of meetings of the board of directors and its committees, including of the Committee for Security Matters, shall be delivered to the Security Observer, and he shall be entitled to participate in each such meeting.

(5) The Security Observer shall have the same right to obtain information from the Company as that of a Director. If the Company believes that specific information requested is commercially sensitive and not required by the Security Observer for fulfillment of his duties, the Company may delay delivery of the information upon notice to the Security Observer. If the Security Observer still believes the information is needed for his duties, the matter shall be brought for decision to the head of the General Security Service.

(6) If the Security Observer believes that the Company has made a decision, or is about to make a decision, in a security matter, which conflicts with a provision of the License or section 13 of the Communications Law (Telecommunications and Broadcasting), 1982 or section 11 of the General Security Service Law, 2002, he shall promptly notify the Company in writing. Said notice shall be delivered to the chairman of the board of directors and chairman of the Committee for Security Matters and shall provide an appropriate defined period of time, in light of the circumstances, in which the Company shall be required to correct the violation or change the decision, to the extent possible."

25B. Approval of Certain Related Party Transactions

A transaction of the type described in Section 270(1) of the Companies Law i.e. a transaction with directors or officers or a transaction in which an officer or a director has a personal interest, provided that such transactions are in the Company's ordinary course of business, are on market terms and are not likely to substantially influence the profitability of the Company, its assets or its liabilities, may be approved by the Audit Committee, without the need for Board of Director's approval, or by the Board of Directors, subject to any applicable Law and any relevant stock exchange rule applicable to the Company.

26. Chairman of the Board of Directors

26.1. Appointment

26.1.1. The Board of Directors shall choose one of its members to serve as the chairman of the Board of Directors, and shall set in the appointing resolution the term for his service.

26.1.2. Unless otherwise provided in the appointing resolution, the chairman of the Board of Directors shall be chosen each and every calendar year at the first meeting of the Board of Directors held after the General Meeting in which Directors were appointed to the Company.
26.1.3. In the event that the chairman of the Board of Directors ceases to serve as a Director in the Company, the Board of Directors in its first meeting held thereafter shall choose one of its members to serve as a new chairman who will serve in his position for the term set in the appointing resolution, and if no period is set, until the appointment of a chairman, as provided in this Article.
26.1.4. In the event that the chairman of the Board of Directors is absent from a meeting, the Board of Directors shall choose one of the Directors present to preside at the meeting.

26.2. Authority

26.2.1. The chairman of the Board of Directors shall preside over meetings of the Board of Directors.
26.2.2. In the event of a deadlock vote, the chairman of the Board of Directors shall not have an additional or casting vote.
26.2.3. The chairman of the Board of Directors is entitled, at all times, at his initiative or pursuant to a resolution of the Board of Directors, to require reports from the General Manager in matters pertaining to the business affairs of the Company.
26.3. Reservations with Regard to Actions of the Chairman of the Board of Directors
26.3.1. The chairman of the Board of Directors shall not serve as the General Manager of the Company, unless he is appointed in accordance with the provisions of Article 27.2 below.
26.3.2. The chairman of the Board of Directors shall not serve as a member of the Audit Committee.

Chapter Five – Officers who are not Directors, and the Auditor

27. The General Manager

27.1. The Appointment and Dismissal of the General Manager
27.1.1. The Board of Directors shall appoint a General Manager for a fixed period of time or for an indefinite period of time. The Board of Directors may appoint more than one General Manager.

27.1.2. The compensation and employment conditions of the General Manager shall be determined by the Board of Directors in any manner it deems fit. Where the compensation of the General Manager is regarded by the Board of Directors in accordance with the Company Law as an "exceptional transaction" and also in cases of the granting of a release, insurance, liability for indemnification or indemnification given by a permit, said compensation requires the prior approval of the audit committee.
27.1.3. The Board of Directors may from time to time remove the General Manager from his office or dismiss the General Manager and appoint another or others in his stead.
27.2. The Chairman of the Board of Directors as the General Manager
27.2.1. The General Meeting of the Company is entitled to authorize the chairman of the Board of Directors to fulfil the position of the General Manager and to exercise his authority, so long as the majority of the votes in the General Meeting adopting such a resolution include at least two thirds of the votes of Shareholders present and entitled to vote at the meeting who are not controlling Shareholders of the Company as defined in the Companies Law or representatives of any of them. "Abstain" votes shall not be taken into account in the counting of the votes of the Shareholders.
27.2.2. The validity of a resolution provided in Article 27.2.1 above is restricted to a maximum period of three years from the date of the adoption of the resolution by the General Meeting. In the event that no period was set in the resolution, the period shall be deemed to be for three years. Prior to the completion of the three year period, as aforesaid, and even after the end of this period, the General Meeting is entitled to extend the validity of such resolution.
27.2.3. A resolution, as stated, may relate to the authority of the chairman of the Board of Directors, generally, or to a specific person who is serving as the chairman of the Board of Directors.
27.3. The Authority of the General Manager and Subordination to the Board of Directors
27.3.1. The General Manager is responsible for the day-to-day management of the affairs of the Company within the framework of the policy set by the Board of Directors and subject to its instructions.

The General Manager shall have all administrative and operational authority which were not conferred by Law or pursuant to these Articles of Association to any other corporate organ of the Company, and he shall be under the supervision of the Board of Directors and subject to its instructions.

The General Manager shall appoint and dismiss officers of the Company, with the exception of Directors, and he shall also determine the terms of their employment, unless otherwise resolved by the Board of Directors and provided, however, that the appointment and dismissal of senior managers of the Company shall require consultation with and approval by the Board of Directors.

27.3.2. The Board of Directors may instruct the General Manager on how to act with respect to a certain issue. If the General Manager fails to fulfil the instruction, the Board of Directors may exercise the required authority in order to act in the place of the General Manager.

The Board of Directors may assume the authority granted to the General Manager, either with respect to a certain issue or for a certain period of time.

27.3.3. In the event that the General Manager is unable to exercise his authority, the Board of Directors may exercise such authority in his stead, or authorize another to exercise such authority.

27.4. Reporting Duties of the General Manager

The General Manager is obligated to notify the chairman of the Board of Directors of any exceptional matter which is material to the Company, or of any material deviation by the Company from the policy set by the Board of Directors. In the event that the Company shall be without a chairman of the Board of Directors for whatever reason the General Manager shall notify all the members of the Board of Directors, as aforesaid. The General Manager shall deliver to the Board of Directors reports on issues, at such time and in such scope, as is determined by the Board of Directors.

27.5. Delegating Authority of the General Manager

The General Manager, upon approval of the Board of Directors, may delegate to his subordinates any of his authority. However, such delegation of authority shall not release the General Manager from his liability.

28. The Corporate Secretary, Internal Controller and Other Officers of the Company

28.1. The corporate secretary

28.1.1. The Board of Directors is entitled to appoint a corporate secretary on terms it deems fit, joint secretaries, sub–secretaries and to determine the areas of their functions and authorities.

28.1.2. In the event that no corporate secretary has been appointed, the General Manager or anyone authorized by him shall fulfil the functions assigned to the corporate secretary, in accordance with any Law, to these Articles of Association and the resolutions of the Board of Directors.
28.1.3. The corporate secretary shall be responsible for all documents which are kept at the Office, as stated in Section 124 of the Companies Law, and he shall manage all the registries maintained by the Company in accordance with the Law or Companies Law.

28.2. Internal Controller

28.2.1. The internal controller of the Company shall report to the chairman of the Board of Directors.
28.2.2. The internal controller shall file with the Board of Directors a proposal for an annual or other periodic work plan, which shall be approved by the Board of Directors, subject to any changes it deems fit.
28.3. Other Officers of the Company

The Board of Directors may decide that in addition to the General Manager and the corporate secretary, other officers may be appointed, whether generally or for a specific issue. In such event, the Board of Directors shall appoint the officer, define his position and authority, and set his compensation and terms of employment.

The Board of Directors is entitled to authorize the General Manager to fulfil any or all of its authorities, as stated.

29. The Auditor

29.1. The Shareholders at the Annual Meeting shall appoint an auditor for a period until the close of the following Annual Meeting. The Annual Meeting may appoint an auditor for a period not to extend beyond the close of the third Annual Meeting following the Annual Meeting in which he was appointed. In the event that the auditor was appointed for said period, the Annual Meeting shall not address the appointment of the auditor during said period, unless a resolution is adopted with respect to the termination of his service.
29.2. The General Meeting is entitled at all times to terminate the service of the auditor or to decide not to renew it.
29.3. The Board of Directors shall determine the compensation of the auditor of the Company and it shall report in that respect to the Annual Meeting of the Company.

29.4. The Board of Directors shall set the compensation of the auditor for additional services which are not regarded as oversight activities, and it shall report in this respect at the Annual Meeting of the Company.

Chapter Six – The Share Capital of the Company and its Distribution

30. Permitted Distributions

30.1. Definitions

In this Chapter, the following terms shall be construed, in accordance with their definition in Sections 301 and 302 of the Companies Law: "distribution", "acquisition", "profits", "profit test", "adjusted financial statements" and "balances".

30.2. Distribution of Profits

The Company shall not make any distribution except from its profits, provided that the Company shall not make any distribution if there is a reasonable fear that such distribution shall preclude the Company from having the ability to meet its present and anticipated liabilities, as they become due. Notwithstanding the aforesaid, the Company, with the approval of the Court, is entitled to make a distribution which fails to meet the profit test.

30.3. Allotment for a Consideration Below the Par Value

In the event the Board of Directors decides to allot Shares having a par value, for consideration which is less than their par value, including Bonus Shares, the Company shall convert into share capital from its profits, premium on its Shares, or any other source, included in its shareholders equity, as stated in its most recent Financial Statements, an amount equal to the difference between the par value and the consideration.

Even if the aforesaid is not done, with the approval of the Court, the Company shall be entitled to make an allotment of Shares, for consideration which is less than their par value.

31. Dividends and Bonus Shares

31.1. Right to Dividends or Bonus Shares
31.1.1. A Shareholder of the Company shall have the right to receive dividends or Bonus Shares, if the Company so decides in accordance with Article 31.2 below, consistent with the rights attaching to such Shares.

31.1.2. Dividends or Bonus Shares shall be distributed or allotted to those who are registered in the Shareholder Register on the date of the resolution approving the distribution or allotment or upon a latter date, if another date is determined for this purpose in same resolution (hereinafter: the "Determining Date").
31.1.3. In the event that the share capital of the Company consists of Shares having various par values, dividends or Bonus Shares shall be distributed in proportion to the par value of each Share.
31.1.4. Subject to special rights conferred upon Shares in accordance with the conditions of their allotment, profits of the Company which the Company decides to distribute as a dividend or as Bonus Shares shall be paid in proportion to the amount which was paid or credited on the account of the par value of the Shares, held by the Shareholder.
31.1.5. In the event that it was not otherwise determined in the conditions applicable to the allotment of the Shares or in a resolution of the General Meeting, all the dividends or Bonus Shares with respect to Shares, which were not fully paid within the period in which the dividends or Bonus Shares are paid, shall be paid in proportion to the amounts which were actually paid or credited as paid on the par value of the Shares during any part of said period (pro rata temporis).
31.2. Resolution of the Company with Respect to a Dividend or Bonus Shares
31.2.1. The Authority to Distribute Dividends or Bonus Shares

The resolution of the Company on the distribution of a dividend or Bonus Shares to be distributed to the Shareholders according to their respective rights and benefits, and on their time of payment, shall be made by the Board of Directors.

31.2.2. Funds

The Board of Directors may, in its discretion, allocate to special funds any amount whatsoever from the profits of the Company or from the revaluation of its assets or its relative share in the revaluation of assets of "branch companies," and also to determine the designation of these funds.

31.3. The Payment of Dividends

31.3.1. Manner of Payment

Unless otherwise provided in the resolution with respect to the distribution of the dividend, the Company may pay any dividend with the withholding of any tax required by Law, by way of a cheque to the order of the beneficiary alone, which should be sent by means of registered mail to the registered address of the Shareholder entitled thereto, or by way of a bank transfer. Any cheque, as stated, shall be drawn up to the order of the person to whom it is intended.

In the event of registered joint holders, the cheque shall be passed to the same Shareholder whose name is registered first in the Shareholder Register with respect to the joint holding.

The sending of a cheque to a person whose name is registered in the Shareholder Register as the holder of the Share upon the Determining Date or, in the case of joint holders, to any of the joint holders, shall serve as evidence with respect to all the payments made in connection with same Shares.

The Company may decide that a cheque under a certain amount shall not be sent and the amount of the dividend which was supposed to be paid shall be deemed to be an unclaimed dividend.

31.3.2. An Unclaimed Dividend

The Board of Directors is entitled to invest the amount of any unclaimed dividend for one year after it was declared or to utilize it in any other manner to the benefit of the Company until it is claimed. The Company shall not be obligated to pay interest or Linkage on an unclaimed dividend.

31.3.3. Specific Dividend

In the event the Company declares a dividend, as provided in Article 31.2.1 above, it may decide that same dividend shall be paid, entirely or partially, by way of the distribution of certain assets, including fully paid Shares or bonds of any other company or in any combination of these assets.

31.4. Manner of Capitalization of Profits and the Distribution of Bonus Shares
31.4.1. Subject to the provisions of Article 30 above in the event of a capitalization of profits and distribution of Bonus Shares, the undistributed profits of the Company, or premium on Shares, or funds derived from the revaluation of the assets of the Company, or funds derived on the basis of equity from the profits of "branch companies," or from the revaluation of assets of "branch companies" and capital redemption funds shall be capitalized and distributed among the Shareholders entitled thereto, as per the provisions of Article 31.1 above, to be held by the shareholders as capital, and that this capital, entirely or partially, shall be used on behalf of same Shareholders as full payment, whether according to the par value of the Shares or together with premium decided upon, for Shares to be distributed accordingly, and that this distribution or payment shall be received by same Shareholders as full consideration for their portion of the benefit in the capitalized amount, as determined by the Board of Directors.

The provisions of this chapter six shall also apply to the distribution of bonds.

31.4.2. The Company, in the resolution with respect to the distribution of Bonus Shares, is entitled in accordance with the recommendation of the Board of Directors, to decide that the Company shall transfer to a special fund, designated for the future distribution of Bonus Shares, an amount the capitalization of which shall be sufficient in order to allot to anyone having at such time a right to acquire Shares of the Company (including a right which can be exercised only upon a later date), Bonus Shares at the par value which would have been due to him had he exercised the right to acquire the Shares shortly before the Determining Date, at the price of the right in effect at such time. In the event that after the Determining Date, the holder of said right shall exercise his right to acquire the Shares or any part of them, the Board of Directors shall allot to him fully paid Bonus Shares at such par value and of such class, which would have been due to him had he exercised shortly before the Determining Date the right to acquire those Shares he actually acquired, by way of an appropriate capitalization made by the Board of Directors out of the special fund, as aforesaid. For the purpose of the determination of the par value of the Bonus Shares which are to be distributed, any amount transferred to the special fund, with respect to a previous distribution of previous Bonus Shares shall be viewed as if it had already been capitalized and that Shares entitling the holders to the right to acquire Shares of the Company were already allotted as Bonus Shares.
31.4.3. Upon the distribution of Bonus Shares, each Shareholder of the Company shall receive Shares of a uniform class or of the class which confers on its holder the right to receive the Bonus Shares, as determined by the Board of Directors.
31.4.4. For purposes of carrying out any resolution pursuant to the provisions of Article 30, the Board of Directors may settle, as it deems fit, any difficulty arising with regard to the distribution of Bonus Shares, and, in particular, to issue certificates for fractions of Shares and sell such fractions of Shares, in order to pay their consideration to those entitled thereto, and also to set the value for the distribution of certain assets and to decide that cash payments shall be paid to the Shareholders on the basis of the value determined in such a way, or that fractions whose value is less than NIS 0.01 shall not be taken into account, pursuant to the adjustment of the rights of all parties. The Board of Directors may pay cash or convey these certain assets to trustees in trust in favor of those people who are entitled to a dividend or to a capitalized fund, as the Board of Directors shall deem beneficial.

43

32. Acquisition of Shares

32.1. The Company is entitled to acquire or to finance an acquisition, directly or indirectly, of Shares of the Company or securities convertible into Shares of the Company or which could be exercised into Shares of the Company, including incurring an obligation to take any of these actions, subject to the fulfillment of the conditions of a permissible distribution, as stated in Article 30 above.
32.2. In the event that the Company acquired any of its Shares, such a Share shall become a dormant Share, and shall not confer any rights, so long as it is in the holding of the Company.
32.3. A subsidiary or another corporation in the control of the Company is entitled to acquire Shares of the Company or securities convertible into Shares of the Company or which can be exercised into Shares of the Company, including an obligation to take any of these actions, to the same extent the Company may make a distribution, so long as the board of directors of the subsidiary or the managers of the acquiring corporation have determined that had the acquisition of the Shares been carried out by the Company it would have been regarded as a permissible distribution, as specified in Article 30 above. Notwithstanding the foregoing, an acquisition by a subsidiary or by another corporation in the control of the Company, which is not fully-owned by the Company, will be considered a distribution of an amount equal to the product of the amount acquired multiplied by the percentage of the rights in the capital of the subsidiary or in the capital of said corporation which is held by the Company.
32.4. In the event that a Share of the Company is acquired by a subsidiary or by a corporation in the control of the Company, the Share shall not confer any voting rights, for so long as said Share is held by the subsidiary or by said controlled corporation.

Chapter Seven – Insurance, Indemnification and Release of Officers

33. Insurance of Officers

33.1. The Company may insure the liability of an officer in the Company, to the fullest extent permitted by Law.
33.2. Without derogating from the aforesaid, the Company may enter into an insurance contract and/or arrange and pay all premiums in respect of an insurance contract, for the insurance of the liability of an officer in the Company, resulting directly or indirectly from an action or inaction by him (or together with other officers of the Company) in his capacity as an officer in the Company, for any of the following:
33.2.1. The breach of the duty of care toward the Company or toward any other person;
33.2.2. The breach of the duty of loyalty toward the Company provided the officer has acted in good faith and had reasonable grounds to assume that the action would not harm the Company; and
33.2.3. A financial liability imposed on him in favor of another person.
33.2.4. Any other matter in respect of which it is permitted or will be permitted under Law to insure the liability of an officer in the Company.

34. Indemnification of Officers

34.1. The Company may indemnify an officer in the Company.to the fullest extent permitted by Law. Without derogating from the aforesaid, the Company may indemnify an officer in the Company as specified in Articles 34.2 through 34.4 below.

34.2. Indemnification in Advance

The Company may indemnify an officer in the Company for liability or expense he incurs or that is imposed on him in consequence with an action or inaction by him (or together with other officers of the Company) in his capacity as an officer in the Company, as follows:

34.2.1. Any financial liability he incurs or is imposed on him in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by the Court.
34.2.2. Reasonable litigation expenses, including legal fees, incurred by the officer or which he was ordered to pay by the Court, in the context of proceedings filed against him by the Company or on its behalf or by a third party, or in a criminal proceeding in which he was acquitted, or in a criminal proceeding in which he was convicted of an offense which does not require criminal intent.
34.2.3. Reasonable litigation expenses, including legal fees, incurred by the officer due to such investigation or proceeding conducted against him by an authority authorized to conduct an investigation or proceeding, and which was ended without filing an indictment against him and without the imposition of a financial liability as a substitute for a criminal proceeding, or that was ended without filing an indictment against him but for which he was subject to a financial liability as a substitute for a criminal proceeding relating to an offense which does not require criminal intent, within the meaning of the relevant terms in the Law.
34.2.4. Any other liability or expense in respect of which it is permitted or will be permitted under Law to indemnify an officer in the Company.
34.3. Indemnification in Advance

The Company may undertake in advance to indemnify an officer of the Company in respect of the following matters:.

34.3.1. Matters as detailed in Article 34.2.1 provided however, that the undertaking to indemnify is restricted to events which in the opinion of the Board of Directors are anticipated in light of the Company's activities at the time of granting the obligation to indemnify, and is limited to a sum or measurement determined by the Board of Directors to be reasonable in the circumstances. The undertaking to indemnify shall specify the events that, in the opinion of the Board of Directors are expected in light of the Company's actual activity at the time of grant of the indemnification and the sum or measurement which the Board of Directors determined to be reasonable in the circumstances.
34.3.2. Matters as detailed in Article 34.2.2 and 34.2.3.
34.3.3. Any other matter permited by Law.
34.4. Indemnification after the Fact

The Company may indemnify an officer in the Company for all kinds of events, retrospectively, subject to any applicable Law

35. Release of Officers

35.1. The Company shall not release an officer from his liability for a breach of the duty of care toward the Company, other than in accordance with the provisions of this Article.
35.2. The Company may release an officer in the Company, in advance, from his liability, entirely or partially, for damage in consequence of the breach of the duty of care toward the Company.
35.3. Notwithstanding the foregoing, the Company may not release an officer from his liability, resulting from any of the following events:
35.3.1. The breach of the duty of loyalty toward the Company.
35.3.2. The breach of the duty of care made intentionally or recklessly ("pezizut");
35.3.3. An intentional act intended to unlawfully yield a personal profit;
35.3.4. A criminal fine or a penalty imposed on him.

Chapter Eight – Liquidation and Reorganization of the Company

36. Liquidation

36.1. In the event that the Company is liquidated, whether voluntarily or otherwise, the liquidator, upon the approval of an Extraordinary Meeting, may make a distribution in kind to the Shareholders of all or part of the property of the Company, and he may with a similar approval of the General Meeting, deposit any part of the property of the Company with trustees in favor of the Shareholders, as the liquidator with the aforementioned approval, deems fit.
36.2. The Shares of the Company shall confer equal rights among them with respect to capital amounts which were paid or which were credited as paid on the par value of the Shares, in all matters pertaining to the refund of the capital and to the participation in the distribution of the balance of the assets of the Company in liquidation.

37. Reorganization

37.1. Upon the sale of the property of the Company, the Board of Directors or the liquidators (in case of a liquidation), if they are so authorized by a resolution of the General Meeting of the Company adopted with a Special Majority, may receive fully or partially paid up Shares, bonds or securities of another company, either Israeli or foreign, whether incorporated or which is about to incorporated for the purpose of acquiring property of the Company, or any part thereof, and the Directors (if the profits of the Company allow for it) or the liquidators (in case of a liquidation) may distribute among the Shareholders the Shares or the securities mentioned above or any other property of the Company without selling them or depositing them with trustees on behalf of the Shareholders.

37.2. The General Meeting may, pursuant to a resolution adopted by a Special Majority, decide on the valuation of the securities or of the aforementioned property at a price and in the same manner as it deems appropriate and all the Shareholders shall be obligated to accept any valuation or distribution, authorized in accordance with the foregoing and to waive their rights in this matter, unless the Company is about to liquidate or is in a liquidation process, of same lawful rights (if any) which according to the provisions of the Law should not be altered or denied.

Chapter Nine – Miscellaneous

38. Notices

38.1. A notice or other document may be sent by the Company to any Shareholder appearing in the Shareholder Register of the Company either personally or by way of sending by registered mail, at the registered address of the Shareholder in the Shareholder Register, or at such address as the Shareholder shall have provided in writing to the Company as the address for the delivery of notices.
38.2. All the notices to be given to Shareholders, shall, in respect of Shares held jointly, be given to the person whose name is mentioned first in the Shareholder Register, and any notice given in such a manner shall be viewed as a sufficient notice to all the joint Shareholders.
38.3. Any Shareholder registered in the Shareholder Register, with an address, whether in Israel or overseas, is entitled to receive, at such address, any notice he is entitled to receive in accordance with the Articles of Association or according to the provisions of the Law. Unless otherwise stated above, no person who is not registered in the Shareholder Register shall be entitled to receive any notices from the Company.
38.4. Any notice or other document which is sent to a Shareholder in accordance with these Articles of Association shall be considered lawfully sent with respect to all the Shares held by him (whether with respect to Shares held by him alone or held by him jointly with others) even if same Shareholder had died by that time or had become bankrupt or had received an order for its liquidation or if a trustee or a liquidator or a receiver was appointed with respect to his Shares (whether the Company was aware of it or not) until another person is registered in the Shareholder Register in his stead, as the holder thereof. The sending of a notice or other document, as aforesaid, shall be viewed as a sufficient sending to any person having a right in these Shares.
38.5. Any notice or other document which was sent by the Company via registered mail, to an address in Israel, shall be considered sent within 72 hours from its posting at the post office. In order to prove sufficient sending, it is enough to show that the letter containing the notice or the document was addressed to the correct address and was posted at the post office.
38.6. Any accidental omission with respect to the giving of a notice of a General Meeting to any Shareholder or the non-receipt of a notice with respect to a meeting or any other notice on the part of whatever Shareholder shall not cause the cancellation of a resolution taken at that meeting, or the cancellation of processes based on such notice.
38.7. Any Shareholder and any member of the Board of Directors may waive his right to receive notices or waive his right to receive notices during a specific time period and he may consent that a General Meeting of the Company or a meeting of the Board of Directors, as the case may be, shall be convened and held notwithstanding the fact that he did not receive a notice with respect to it, or notwithstanding the fact that the notice was not received by him within the required time, in each case subject to the provisions of any Law prohibiting any such waiver or consent.

Chapter 10 – Intentionally Deleted

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Chapter 11 – Compliance with the License / Limitations on Ownership and Control

43. Compliance

The Shareholders and the Company shall at all times comply with the terms of the License and of any other telecommunications license held by the Company. Nothing herein shall be construed as requiring or permitting the performance of any acts which are inconsistent with the terms of the License and of any other telecommunications license held by the Company. If any article of these Articles shall be found to be inconsistent with the terms of the License and of any other telecommunications license held by the Company, the provisions of such Article shall be null and void, but the validity, legality or enforceability of provisions of the other Articles shall not be affected thereby.

44. Limitations on Ownership and Control

44.1. This Article is to ensure that so long as and to the extent that any Operating Right is conditional on or subject to any conditions or restrictions relating to ownership or control over the Company imposed by the Ministry, the Company is so owned and controlled. This Article shall not affect or influence in any way the interpretation or application of Article 10A.

44.2. In this Article:

"Affected Share" means any Share determined to be dealt with as such pursuant to Article 44.4;

" Affected Share Notice" means a notice in writing served in accordance with Article 44.5;

"Depositary" means a custodian or other person appointed under contractual arrangements with the Company (or a nominee for such custodian or other person) whereby such custodian or other person holds or is interested in Shares and which issues securities evidencing the right to receive such Shares;

" Depositary Receipts" means receipts or similar documents of title issued by or on behalf of a Depositary;

" Depositary Shares" means the Shares held by a Depositary or in which a Depositary is interested in its capacity as a Depositary;

" Intervening Act" means the refusal, withholding, suspension or revocation of any Operating Right applied for, granted to or enjoyed by the Company, or the imposition of any conditions or limitations upon any such Operating Right which materially inhibit the exercise thereof, in either case by any state, authority or person (including the Ministry) by reason of the activities of persons holding Shares in and/or controlling the Company;

"Ministry" means the Ministry of Communications and/or Minister of Communications;

" Operating Right" means all or any part of any authority, permission, licence or privilege applied for, granted to or enjoyed by the Company, including the Licence, for the establishment, subsistence, maintenance and operation of a mobile radio telephone system using the cellular method and the provision of mobile radio telephone services to the public in Israel;

"Permitted Maximum" means the maximum aggregate permitted number of Relevant Shares specified by the Board of Directors in accordance with the terms of the Licence, any other requirements of the Ministry and any relevant requirements of Law;

"Relevant Person"means:

(a) any person who, without the approval of the Ministry, acquires, directly or indirectly, any Means of Control (as defined in the Licence) in breach of Section 21 of the Licence other than a person who falls within Article 10A; or

(b) any Interested Party (as defined in the Licence) who, or who has an Officer Holder (as defined in the Licence) who, is in breach of Sections 23 or 24 of the Licence other than a person who falls within Article 10A;

"Relevant Share" means any Share (other than a Share removed from the Relevant Shares Register (defined in Article 44.3.2) pursuant to Article 44.3.5), in which a Relevant Person has an interest or which is declared to be a Relevant Share pursuant to Article 44.3.4;

44.3.1. The Board of Directors shall not register a person as a holder of a Share unless the person has given to the Board of Directors a declaration (in a form prescribed by the Board of Directors) signed by him or on his behalf, stating his name, nationality, that he is not a Relevant Person falling within paragraphs (c) or (d) of the definition of that term and other information required by the Board of Directors.
44.3.2. The Board of Directors shall maintain a register (the "Relevant Shares Register"), in which shall be entered particulars of any Share which has been:
- (a) acknowledged by the holder (or by a joint holder) to be a Relevant Share;
- (b) declared to be a Relevant Share pursuant to Article 44.3.4; or
- (c) determined to be an Affected Share pursuant to Article 44.4.2.;

and which has not ceased to be a Relevant Share. The particulars in the Relevant Shares Register in respect of any Share shall include the identity of the holder or joint holders and information requested by and supplied to the Board of Directors.

44.3.3. Each registered holder of a Share which has not been acknowledged to be a Relevant Share who becomes aware that such Share is or has become a Relevant Share shall forthwith notify the Company accordingly.
44.3.4. The Board of Directors may notify in writing the registered holder of a Share which is not in the Relevant Shares Register and appears to be a Relevant Share, requiring him to show that the Share is not a Relevant Share. Any person to whom such notice has been issued may within 21 clear days after the issue of the notice (or such longer period as the Board of Directors may decide) represent to the Board of Directors why such Share should not be treated as a Relevant Share but if, after considering such representations and other relevant information, the Board of Directors is not so satisfied, it shall declare such Share to be a Relevant Share and treat it as such.

44.3.

44.3.5. The Board of Directors shall remove a Relevant Share from the Relevant Shares Register if the holder of the Relevant Share gives to the Board of Directors a declaration (in a form prescribed by the Board of Directors), together with such other evidence as the Board of Directors may require, which satisfies it that such Share is no longer, or should not be treated, as a Relevant Share.

44.4.

44.4.1. Article 44.4.2 shall apply for so long as the Company holds or enjoys any Operating Right where the Board of Directors determines that it is necessary to take steps to protect any Operating Right because an Intervening Act is contemplated, threatened or intended, may take place or has taken place;
44.4.2. Where a determination has been made under Article 44.4.1, the Board of Directors shall take such of the following steps as they consider necessary or desirable to overcome, prevent or avoid an Intervening Act:
44.4.2.1. the Board of Directors may remove any Director from office, by a resolution passed by a majority of 75 per cent or more of the other Directors present and voting at the relevant meeting;
44.4.2.2. the Board of Directors may seek to identify those Relevant Shares which gave rise to the determination under Article 44.4.1 and by a resolution passed by a majority of 75 per cent or more of the Directors present and voting at the relevant meeting deal with such Shares as Affected Shares; and
44.4.2.3. when the aggregate number of Relevant Shares in the Relevant Shares Register exceeds the Permitted Maximum, the Board of Directors may deal with the Relevant Shares which it decides, by a resolution passed by a majority of 75 per cent or more of the Directors present and voting at the relevant meeting, are in excess of the Permitted Maximum as Affected Shares.
44.5. The Board of Directors shall give an Affected Share Notice to the registered holder of any Affected Share and state that Article 44.6 is to be applied forthwith in respect of such Affected Share. The registered holder of the Affected Share may within 21clear days after the issue of the notice (or such longer period as the Board of Directors may decide) represent to the Board of Directors why such Share should not be treated as an Affected Share and if, after considering such representations and other relevant information, the Board of Directors considers that the Share should not be treated as an Affected Share it shall forthwith withdraw the Affected Share Notice and Article 44.6 shall no longer apply to the Share.
44.6. An Affected Share in respect of which an Affected Share Notice has been served shall be treated as a dormant share (as defined in section 308 of the Companies Law) except that the registered holder of the Affected Share shall continue to have the right to receive dividends and other distributions of the Company and participate in bonus or rights issues of the Company in respect of such Share.
44.7. In deciding which Shares are to be treated as Affected Shares, the Board of Directors shall have regard to the Relevant Shares which in its opinion have directly or indirectly caused the determination under Article 44.4 and the chronological order in which Relevant Shares have been entered in the Relevant Shares Register (and accordingly treat as Affected Shares those Relevant Shares entered in the Relevant Shares Register most recently) except where such criterion would in their opinion be inequitable, in which event the Board of Directors shall apply such other criterion or criteria as they may consider appropriate.
44.8. Subject to the other provisions of this Article 44, the Board of Directors shall be entitled to assume without enquiry that:
44.8.1. all Shares not in the Relevant Shares Register and not falling within clause 44.8.2 are neither Relevant Shares nor Shares which would be or be capable of being treated as Affected Shares; and
44.8.2. all or some specified number of the Shares are Relevant Shares falling within paragraphs (a)-(b) in the definition of that term if they (or interests in them) are held by a Depositary, trustee, registration or nominee company or other agent unless and for so long as, in respect of any such Shares, it is established to their satisfaction that such Shares are not Relevant Shares.
44.9. Any resolution or determination of, or any decision or the exercise of any discretion or power by, the Board of Directors or any one of the Directors under this Article 44 shall be final and conclusive.

44.10.

44.10.1. On withdrawal of the determination under Article 44.4.1, the Board of Directors shall cease to act pursuant to such determination and inform every person on whom an Affected Share Notice has been served that Article 44.6 no longer applies in respect of such Share. The withdrawal of such a determination shall not affect the validity of any action taken by the Board of Directors under this Article whilst that determination remained in effect and such actions shall not be open to challenge on any ground whatsoever.

44.10.2. The Board of Directors shall, so long as it acts reasonably and in good faith, be under no liability to the Company or to any other person for failing to treat any Share as an Affected Share or any person as a Relevant Person in accordance with this Article and it shall not be liable to the Company or any other person if, having acted reasonably and in good faith it determines erroneously that any Share is an Affected Share, or any person is a Relevant Person or on the basis of such determination or any other determination or resolution, they perform or exercise their duties, powers, rights or discretions under this Article in relation to such Share.
44.11. A person who has an interest in Shares by virtue of having an interest in Depositary Receipts shall be deemed to have an interest in the number of Shares represented by such Depositary Receipts and not (in the absence of any other reason why he should be so treated) in the remainder of the Depositary Shares held by the relevant Depositary.

The State of Israel Ministry of Communications

General License for Partner Communications Ltd. for the Provision of Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 35

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter: "Partner") the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Replacement of Annex L

Instead of Annex L shall come the revised Annex L attached hereto.

(25 July 2006)

(sgd)

—————————————— Mordechai Mordechai Director-General

The State of Israel Ministry of Communications

General License for Partner Communications Ltd. for the Provision of Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 36

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after further study of the aforesaid in amendment 34 dated 2.3.06, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Amendment of Annex M

In the definition of "Adult Voice Services" in Annex M Article 1.1, in section (2), the words from "for implementation purposes" until ""Cellular Portal" shall be deleted.

(26 July 2006)

(sgd)

—————————————— Mordechai Mordechai Director-General

The State of Israel Ministry of Communications

General License for Partner Communications Ltd. for the Provision of Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 37

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter: "Partner") the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Amendment of Annex M In the Second Appendix, Annex M-

In Article 1.1-

After the definition of "Service Provider" shall come:

"Adult Voice Promo"- The playing or display of a voice or contractual message of sexual content, including a recorded message, provided through a public telecommunications installation, either directly or indirectly, and the said message intends to relay information regarding the service that will follow the message or encourage use of it, as long as there is no additional charge for the playing or the display of the message besides the cost for the call that is charged through the telephone bill.

For this matter, "indirectly"- including a connection from the terminal equipment of the Subscriber as a condition for the provision of the Adult Voice Promo."

In Article 4-

(a) Article 4.1 shall be marked as "a", and afterwards shall come:
"b. If the Ministry of Communications should notify the Licensee that an Adult Voice Promo is being provided through a telehone line on the Licensee's network and the access to it is being provided not through a service number, the Licensee will disconnect the said line, or shall block the line for incoming calls."

(b) In Article 4.2, instead of the words "Article 4.1" shall come "Article 4.1a".

Commencement

3. This amendment shall be effective as of 28 December 2006.

(29 October, 2006)

(sgd)

—————————————— Mordechai Mordechai Director-General

The State of Israel Ministry of Communications

General License for Partner Communications Ltd. for the Provision of Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 38

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter: "Partner") the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Replacement of Article 67A

1. Instead of Article 67A shall come:
"67A. Information Service for Telephone Number Enquiries
67A.1 Without derogating from the aforesaid in Article 66, the Licensee shall provide, either by itself or through another on its behalf, an information service for the enquiry of telephone numbers of all subscribers of land line operators or MRT operators, except for classified subscribers (hereinafter- "information service"), as follows:
(a) for the general public and cost free, through an internet site that will provide the service;
(b) for its subscribers, at a reasonable cost, through a telephone center to which the the access will be provided by a network access code to be determined by the Director;
(c) the information service shall be provided by all of the above methods based on the same information features that the subscriber will provide when he requests the service.
67A.2 Without derogating from the aforesaid in Article 67A.1, the Licensee shall provide to the general public and cost free, either by itself or through another, an information service to enquire about a phone number of any subscriber, except a classified subscriber, through a telephone center to which the access will be provided by a national access code to be determined by the Director.
67A.3 In addition to the above-mentioned in Articles 67A.1 and 67A.2, the Licensee may offer, at a reasonable price, either by itself or another on its behalf, an information service, through any other method, including a national access code or through a short message system service (SMS).
67A.4 For the execution of the aforesaid in Article 67A.1 and 67A.3:
(a) The Licensee may approach any database of a line operator or MRT operator (hereinafter in this article "another licensee") with a question, or receive information from a database of another licensee through any other method and with the consent of the other licensee, all subject to the obligation regarding protection of the subscriber's privacy;
(b) For the provision of the information service by another licensee in accordance with its general license, the Licensee shall allow any other licensee access to the Licensee's database;
(c) The Licensee shall reguarly update the database, so that every name, address or telephone number of a subscriber that has been added, changed or removed, shall be updated in the database within one working day after the implementation of the update in the Licensee's system for the provision of telephone services.

For this Article –

"database"- a pool of data that includes the name, address and telephone number of every subscriber that is not classified, including a subscriber that is a business.

67A.5 (a) The Licensee shall obtain the consent of every new subscriber in order to include their details in the database; if the subscriber consents to the aforesaid, the Licensee shall include the subscriber's details in the database.
(b) The Licensee shall comply at no cost with every subscriber's initial request to remain classifed.

In this Article, "new subscriber" –a subscriber that registered with the Licensee after the commencement date as set forth in Article 67A.7 below.

67A.6 (a) The conditions for the provision of information service to enquire about telephone numbers in accordance with Article 67A shall be determined by the Licensee, provided that they are fair and non discriminatory, including presentation of the data to those requesting the service; the service shall be provided twenty four (24) hours a day, every day of the year, except for Yom Kippur; in this Article, "presentation of the data"- if the answer to a question of a person requesting the service consists of a number of different data, the data shall be presented in a coincidental manner;
(b) The response to the information service for telephone number enquiries as set forth in Article 67A.2, shall be done within a reasonable amount of time; if the Director is of the opinion that the waiting time for the service is unreasonable, he may set standards for response time.
(c) Information service for telephone number enquiries as set forth in Article 67A.1 (b) and Information Service through a telephone center to which the access shall be provided by a national access code as set forth in Article 67A.3 shall meet the following service standards:
(1) at any time, except in cases of heavy traffic of calls requesting the service1, the amount of callers that will receive service shall not be less than 90%;
(2) the average waiting period of a caller until the start of receiving service2 shall not exceed 30 seconds;
(3) the maximum waiting period of a caller until the start of receiving service shall not exceed 60 seconds.
- 67A.7 Article 67A shall become effective on 8 February 2007 ("commencement date"), excluding Article 67A.2 that will become effective upon signature of this amendment.
- 67A.8 The Licensee, either itself or through another, including together with another licensee, shall publish all of the information services for telephone number enquiries that are provided by the licensee at no cost as well as the national access codes that have been allotted to the MRT Licensee for the provision of the service (hereinafter-cost free information services"); the publication shall include at least the following:
  - (a) an internet site of the Licensee;
(b) at least bi-annually, the Licensee shall include together with the subscriber's bill a separate page and a magnetic sticker regarding cost free information services, that should not include any other information, beginning with the first bill sent to a subscriber after the commencement date.

2 Start of receiving service-an answer by a telephone operator or by the IVR system that requests the information from the caller in order to locate the requested telephone number etc.

1 Busy Hour Call Attempts

(c) at least four (4) times during the first year after the commencement date, the Licensee shall publish large and prominent advertisements in at least 3 of the most common newspapers in Hebrew and the most common newspaper in Arabic, English and Russian as well as in the most common financial newspaper; these advertisments shall not include any other information. The first publication regarding cost free information services shall be in the above detailed newspapers, except for the financial newspaper, which shall be on the first Friday after the commencement date or the following one and in the financial newspaper on the first Tuesday after the commencement date of the following one.

Without derogating from the above-mentioned, the Minister may instruct the Licensee regarding the manner and format for the publication of the information services.

(5 November, 2006)

(sgd)

—————————————— Mordechai Mordechai Director-General

(sgd)

The State of Israel Ministry of Communications

General License for Partner Communications Ltd. for the Provision of Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 39

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter: "Partner") the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Amendment of Article 75

1. At the end of sub-section 75.10 (c) shall come:
" "Voice Mail"- a device or mechanism that is part of the MRT system, that is meant to allow the calling Subscriber to leave a voice message for the receiving Subscriber."
1. After sub-section 75.10 (c) shall come:
" (d) For a call that is transferred to Voice Mail, the Licensee shall play an introductory recorded message to the calling Subscriber, that is at least 2 seconds long (in this sub-section-"a Message"), and will allow the calling Subscriber, in accordance with his choice, to disconnect the call without a charge, in the course of the Message, or within a reasonable amount of time that will not be less than 1 second after its termination ("Reasonable Time"). In this case, the timing of the execution of the call with the receiving Subscriber shall be as set forth in sub-section (c) above, as occuring after a reasonable time.

The Message text shall be "the call is being transferred to voice mail" and it shall be played in a clear manner and a reasonable pace.

In this sub-section, "a call that is transferred to voice mail"- except for a call that originated in the International Bezek system".

Commencement

3. The amendment shall be effective as of 7 January 2007.

(6 November 2006)

(sgd)

—————————————— Mordechai Mordechai Director-General

(sgd)

The State of Israel Ministry of Communications

General License for Partner Communications Ltd. for the Provision of Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 40

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter: "Partner") the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Amendment of Article 65

1. After Article 65.1 shall come:
"65.2 The Licensee shall enable the public emergency service centersa to indentify the telephone number of a subscriber that dials themb, free of charge and at any time, including a subscriber with an unlisted number, a subscriber that implemented barring a call and a subscriber that dials from a private switchboard, effective 5 April 2007 (hereinafter-"the commencement date");

The Licensee may implement the aforesaid through a licensee that routes the call to the public emergency service center.

No later than 30 days from the commencement date, the Licensee shall notify all its subscribers, in writing, and in a clear manner, that as of the commencement date, the subscriber's number will be identifiable by the public emergency service centers, and shall also notify in writing all subscribers that request an "unlisted number"-that the number will not be unlisted for calls made to the public emergency service centers."

b Excluding a subscriber whose terminal equipment allows him to dial emergency centers only, for example a handset without a SIM card on a GSM network.

a Israel Police-100, Magen David Adom-101 and the Fire Department-102

Amendment of the First Annex

In the comment section, under "Access to Emergency Calls", at the end shall come:

"the phone number of the caller shall be indentifiable by the public emergency service centers".

(8 January 2007)

(sgd)

—————————————— Mordechai Mordechai Director-General

(not an official translation-for convenience only)

The State of Israel Ministry of Communications

General License for Partner Communications Ltd. for the Provision of Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 41

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter: "Partner") the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Amendment of Article 1

1. After the definition "technical requirements and Grade of Service" shall come:
" "subscriber agreement" a contract that serves as an agreement between the licensee and a subscriber, for the provision of all or part of the licensee's services;"
1. Instead of the definition of "subscriber" shall come:

"subscriber" whoever has signed a subscriber agreement with the licensee for obtaining MRT services as a terminal user;"

Amendment of Article 19

In article 19.1, instead of the words "agreement" shall come "the agreement".

Amendment of Article 20

1. Instead of article 20.1, shall come:
" 20.1 Details regarding the legal entity of the licensee, its incorporation, the parties controlling it**,** those who have considerabe influence over it, interested parties in it, officers in it are detailed in Annex A of the license; the licensee shall provide the director annually at the beginning of March, with an updated Annex A."

Instead of the title of part 4 in Chapter D shall come:

" Chapter D- Tests and Maintenance"

Replacement of articles 49 to 54

Instead of articles 49 to 54 shall come:

" 49. Definitions

In this section:

"periodic test" –	test of the network or any other part of it that is conducted in accordance with the provisions of the license, at fixed intervals andat least annually;

"special test" – test of the network or any part of it that is conducted due to a maintenance or repair activity, following an electromagnetic disturbance, a malfunction, complaint review, technology change, engineering change plan etc.

"routine test" – testing of the network or any part of it that is conducted on a regular basis.

50. Execution of Tests

50.1 The licensee shall carry out periodic tests of the MRT system, and shall submit the results of the test upon the director's request within 30 days from the day of the request.
50.2 The licensee shall establish and operate an inspection system for constant monitoring of the network's performance and its intactness and shall conduct on a regular basis routine tests of the network or any part of it, as needed.
50.3 The licensee shall conduct routine tests regarding the quality of service as detailed in Annex E, and the relevent standards of the ITU-T, and shall provide the results of the tests upon the director's request, within 30 days from the day of the request.
50.4 The director may instruct the licensee to conduct a special test; the licensee shall perform the said test in a manner and at a time to be advised by the director and shall submit the results to the director.
50.5 The director or anyone else authorized on his or her behalf shall be allowed to perform the test themselves, if in their opinion it is required, the licensee shall allow the director or anyone else authorized on his or her behalf, after prior coordination, access to installations and equipment and shall put at their disposal their testing equipment and professional manpower employed by the licensee.

51. Test, Fault and Maintenance Log

51.1 The licensee shall maintain a test, fault and maintenance log (hereinafter "maintenance log"), in which details of the faults and tests of the network shall be recorded.
51.2 The licensee shall keep the maintenance log, shall allow the director or anyone authorized on his or her behalf to see the log at any time, to check it, copy it in any manner and to pass it to the director upon his demand.

52. Repair of Faults and Defects

52.1 The director may, after giving the licensee sufficent opportunity under the circumstances to present its arguments, notify the licensee in writing of faults and defects that he found and that harm the grade of service for subscribers, the level of survivability and back up of the network, damage to the level of security or interference with the other systems that operate properly, based on tracking the network's performance, including through subscriber complaints, tests he carried out or based on test reports, documents and information provided to him by the licensee.
52.2 The director may instruct the licensee of the dates that the defects and malfunctions must be repaired.
52.3 If the licensee receives such notification, it must notify the director within the time set forth in the director's notice of the repair of the defects and malfunctions, detailed as per the director's request.
1. deleted
1. deleted

Amendment of Chapter E part A

1. After the caption of part A in Chapter E, instead of artciles 55-58, shall come:
" 55. The subscriber agreement
55.1 The licensee shall prepare a format for a subscriber agreement that it intends to offer its subscribers, and shall submit it to the director upon his demand.
55.2 The terms of the subscriber agreement shall not contradict, explicitly or implicitly the provisions of any law or the license; the aforesaid is not meant to prevent changes to the provisions of the subscriber agreement, that benefit the subscriber as compared to the provisions of the law or the license.
55.3 The subscriber agreement shall be in writing and shall be in a clear and easy manner to read and understand, and shall state clearly any condition or restriction regarding the subscriber's right to terminate the subscriber agreement or regarding the licensee's duties towards the subscriber; any stipulation in the subscriber agreement shall be stated clearly and not only by reference.

For this article- "writing"-including an electronic document that can be saved and reconstructed by the subscriber.

55.4 The subscriber agreement shall clearly include, among other things, the following:
- (a) The service conditions for the subscriber, including gauges of quality of service to customers and subscribers as set forth in article 2 in Annex E;
- (b) The termination conditions of the licensee's services or the conditions for discontinuing service;
(c) The service tariffs of the licensee that the subsciber joined updated to the day of the agreement, including the date and conditions for the termination of the tariff plan;
- (d) The limitation regarding the amount of interest for late payment, linkage differentials and collection expenses as set forth in article 80.3;
- (e) The condition for changing the tariff of a service that the subscriber has joined, as set forth in article 78.1;
- (f) The details set forth in articles 61 and 61A regarding a person responsible for handling the public's complaints and for settling disagreements;
(g) A condition that states that in case of a contradiction between the provisions regarding the tariffs and the service packages that are detailed in the agreement and the provisions of the license regarding this matter, the provisions of the license shall prevail;
(h) A notice regarding the director's authority to instruct the licensee to change the subscriber agreement, and clarification that the subscriber's signing a subscriber agreement with the licensee constitutes agreement to said changes.

55.5 The licensee shall deliver a copy of the subscriber agreement and the annexes to the subscriber.

56. Changes to the Subscriber Agreement

56.1 The director may instruct the licensee to change the subscriber agreement, after having given the licensee an opportunity to present their arguments.
56.2 If the subscriber agreement shall be amended in accordance with the directive of the director or in accordance with a decision of the court for standard contracts, if the agreement has been submitted to the court for its approval, the relationship between the subscriber and the licensee shall be done in accordance with the amended subscriber agreement, from the date of the amendment.
56.3 The provisions of article 55 shall apply, with the necessary changes, when the format of the subscriber agreement is amended by the licensee.
1. deleted
1. deleted

Amendment of Article 60

1. After article 60.5 shall come:
"60.6 The licensee shall not supply, with consideration or without, any of its services that the subscriber has not specifically requested, except for a service provided free of charge to all subscribers, and shall not allow the provision of a service of a service provider that the subscriber has not specifically requested to receive; For this matter, "service provider"-a provider of a service through the network and the payment for the service is done through the telephone bill."

Amendment of Article 61

Instead of article 61 shall come:

"61. Complaints Officer

61.1 The licensee shall appoint a person to be responsible for handling complaints of the public ("compliants officer") whose duties will be as follows:

(a) to check subscriber complaints, including someone requesting to receive a service offered, regarding services of the licensee;
(b) to clarify subscriber complaints regarding bills that the licensee has submitted and to settle them.

the complaints officer shall respond in writing to said complaints submitted in writing.

61.2 The complaints officer shall act in accordance with the policy outlined by the licensee's management.
61.3 The licensee shall provide the complaints officer with all the assistance required to fulfill his duties.
61.4 The licensee shall notify every subscriber of the option to submit a complaint to the complaints officer, his authority and the various methods of applying to him. The content of this sub-section shall be included in the subscriber agreement, in the bill sent to the subscriber and on the website of the licensee.

61A. Dispute Settlement

61A.1 The subscriber agreement sall state that all disagreements that arise between the licensee and a subscriber, regarding the interpretation or implementation of the subscriber agreement, shall be assigned to arbitration to the licensee's complaints officer.
61A.2. The subscriber agreement shall state that an application to the complaints officer in accordance with article 61.1A, shall not:
- (a) prevent the subscriber from bringing the matter before the appropriate court;
(b) derogate from the authority of the licensee to act in accordance with the provisions of article 72 regarding termination or disconnection of service as a result of a breach of the subscriber agreement."

Amendment of Article 65A.9

In Article 65A.9, instead of "Applications and Subscriber Report as set forth in Article 104 (b)" shall come "harassing subscribers as set forth in Article 104.4(i)".

Amendment of Article 67A

In sub section 67A.8 (b), the words "and magnetic sticker"- shall be deleted.

Deletion of Article 67B

Article 67B shall be deleted.

Amendment of Article 67C

Instead of Article 67C, shall come:

" 67C. Service File

67C.1 If the licensee wishes to activate a service that is included in the list of services listed in the First Appendix and titled "future", it shall notify the director in writing no later than thirty (30) days before the date it intends to begin supplying the service.
67C.2 If the licensee wishes to activate a new service that is not included in the list of services listed in the First Appendix that it intends to supply to any of their service receipiants, it shall notify the director in writing no later than thirty (30) days before the the date it intends to begin supplying the new service.
67C.3 The director shall notify the licensee within thirty (30) days of receipt of the notice of the licensee as set forth in Articles 67C.1 and 67C.2, if it is allowed to begin supplying the service or if it needs to submit a service file for the director's approval, as a condition for beginning the service.
67C.4 The licensee shall submit a service file for the director's approval upon his demand; if the licensee shall not submit a service file upon the director's demand, or if the director does not approve the service file, the licensee shall not begin supplying the service.
67C.5 The director's decision regarding the service file submitted to him shall be given within sixty (60) days from the day that the licensee submitted to the director all the required documents and information for the approval of the service file. In special cases, the director may extend the dates set forth in this article, in a written and detailed notice to the licensee.
67C.6 The director may require the licensee to submit for his approval a service file for an existing service, that does not require a service file, and he may also require the licensee to submit for his approval a new service file for a service for which a service file has already been approved.
67C.7 The service file shall be submitted to the director in a format and at a time set forth by the director and shall include ,among other things, provisions regarding the following:the name of the service, a detailed description of the service and the supply method, the service tariff, an engineering description, and all in accordance with the First Appendix; the director may advise of additional details that should be included in the service file.
67C.8 If the service file is approved, the licensee shall supply the service in accordance with the conditions of the approved file and the approved service file shall be considered an integral part of the license.
67C.9 The licensee shall publish the approved service file, with the details and in a manner set forth by the director, and the director may publish it himself, as long as he does not do so until after the licensee begins supplying the service. The notice to the public shall not include information that are trade secrets, that have been noted by the licensee and attached as a separate annex marked as trade secrets to the service file.
67C.10 Each new service file that the licensee shall begin supplying in accordance with this article, will be considered part of the First Appendix; the director shall update the Appendix from time to time.
67.11C The provisions of this article shall apply with the necessary changes for tests by means of the network of the licensee."

Amendment of Article 77

Article 77 shall be deleted.

Amendment of Article 78

Instead of article 78 shall come:

" 78 Tariff Changes

78.1 Subject to the above-mentioned in article 75, the licensee may change the tariff of any service or packages of services (hereinafter in this article –"service"), set by itself as long as:
(a) it shall submit to the director a written notice, before the tariff comes into effect, detailing the new tariff;
(b) it shall give prior written notice to every subscriber that joined the service; despite the afore-mentioned, for the matter of reduction, a notice to the subscriber can be given up until a month after the reduction.

For this section, "change" –any change to a tariff that can result in an increase or decrease in payment before V.A.T that a subscriber must pay for services of the licensee."

Amendment of Article 80

Article 80.2 shall be deleted.

Amendment of Article 95

In sub article 95.1 (l) shall be deleted.

Replacement of Articles 103-106

Instead of articles 103 until 106 shall come:

" 103. Obligation to Submit Reports

103.1 The licensee shall submit to the director the reports detailed in this license, in a format and on the dates set forth in this section.
103.2 Each report should reflect the correct and relevent facts regarding the subject of the report so that they are updated to the report period.
103.3 A report should be submitted in two (2) copies, printed and formattted in a manner that is easy to read and will bear the date of its compilation and the signature of the licensee or anyone that has been authorized to do so; the report should be submitted in a format to be advised by the director, including regarding the contents, the structure and the method of submission of the report.
103.4 The director may require the licensee to redraft or supplement a report it has submitted, including in cases where the director has found that it is lacks necessary details or other details that in the director's opinion the licensee should have included in the report.

104. Types of Reports and their Submission Date

104.1 The licensee shall submit to the director upon his request or at least annually, at the end of the calender year, and no later than ninety (90) days, the annual reports that describe the activities during the period from the month of January until the month of December, of the previous year:
- (a) An audited financial statement signed by an accountant;
- (b) A subscriber report, including the following data:
  - (1) The amount of private and business subscribers as well as post-paid and pre-paid subscribers.
(2) The scope of income in the segmentation set forth in sub-article (1), so that the income from interconnect appears separately for each one, and in addition, a division according to airtime and value added services.
(3) A report regarding use of frequencies in accordance with Chapter 4 section C.
(4) Annex A- "The Licensee's Details" updated, at the beginning of the month of January, as detailed in article 20.1.
104.2 The licensee shall submit to the director on a quarterly basis, and no later than one month after the end of the quarter, the following reports:
- (a) A reviewed quarterly financial statement, signed by an accountant;
- (b) A reviewed quarterly income report, signed by an accountant, that includes all of the income that bears royalty payments;
- (c) A traffic report-in a format to be advised by the director.
104.3 The licensee shall submit to the director a report for extraordinary events, as set forth in regulation 8 of the Supervision Regulations.
104.4 The licensee shall submit to the director the following reports, upon his request:
(a) A report regarding the infrastructure developments of the network;
(b) A fault report- that contains a summary of the network faults, details of the amount of faults and the accumulated time of each type of fault, an analysis of the faults and details of the steps taken to rectify them;
(c) A quality of service report-an analysis of the licensee meeting the requirements in articles 49 through 51 and Chapter E the level of service for a subscriber, during the period of the report;
(d) A complaint report- that contains details of all the written complaints that were submitted by subscribers regarding service including the subject of the complaint, the dates it was received and was responded to in writing, the manner in which it was handled, and details of the actions of the complaint officer;
- (e) Details of the licensee's tariffs;
- (f) An updated engineering plan;
(g) A lien report- the licensee shall report immediately to the director in any case of an attachment or lien on one of the licensee's assets or in case of a lien on the means of control in the licensee, exercise of such a lien or termination of any right of the licensee over the asset;achment or lien on one of the licensee's assets or in case of a lien on the means of control in the licensee; exercise of such liens or termination of any right of the licensee over the asset; In addition, the licensee shall submit to the director, upon his request, a report that sets out all of the afore-mentioned liens.
(h) A subscriber summary report, income and minutes according to private and business subscribers, and in each category-a division of subscribers according to plans priced as "all inclusive" tariff and subscribers in plans priced separately for payment of "airtime" and interconnect, in a format to be advised by the director;
(i) A harassing subscriber report as set forth in article 65A.9;
(j) Any additional data that should be required in order to supervise the activities of the licensee as well as any necessary information that the office requires in order to administer telecommunication matters.
104.5 The director may add or remove periodic, quarterly or annual reports as well as require the licensee to submit special reports, as advised.

105. Notification of a Defect

105.1 Should the director find defects or deficiencies in the licensee's activities, he shall notify it in writing.
105.2 Should the licensee receive such a notification, it shall submit to the director within thirty (30) days from the day the notification was received, its response that will contain details of the steps taken for repair and of the said defects.
1. Deleted"

Amendment of Article 108

Article 108.2 (c) "Annex C-Maintenance Procedures"; shall be deleted

Amendment of the First Appendix

1. After article 1.3 of the First Appendix, shall come:
" 1.4 The licensee shall include in the service file at least the following details:

a. Name of the Service: name of the service, including the commercial name of the service and a general description of the service.

b. Detailed Description of the Service: including:

Is this a new service/expansion of an existing service/combination of services/is there a need for preliminary test; The manner of operation of the service;
Date of commencement of the service; Availability and gauges for quality of service;
Support centers;
Service price;
The target clientele of the service;
The manner of ordering the service;
The process of connecting to the service; The ramifications or influences of this service on other services.

c. Engineering Description

A description and diagram of the system; Handsets-target equipment for receipt of the service.

d. Miscellaneous

The need for number portability

necessary coordinations with the licensee or other factors".

Deletion of Annexes C and D

1. "Annex C-Maintenance Procedures" in the Second Appendix, shall be deleted.
1. "Annex D-Uniform Subscriber Agreement " in the Second Appendix, shall be deleted.

Amendment of Annex E

In "Annex E"-Minimum Requirements and Level of Service to Subscriber in the Second Appendix, at the end shall come:

" 2.4 Gauges for handling consumer complaints

(a) The level of handling complaints in writing-the response times to the complaints shall be no more than 14 working days, and 5% of the applications should be answered within one month.
- (b) Gauges for the quality of service for service centers-
  - 90% of the applications should be handled directly by the service representatives, until resolved.
  - No more than 10% of the applications, of which some will arise from the escalation of complaints, should be referred to higher levels.
(c) Applications that will be handled by the higher levels-in any case where the reply of the person responsible for handling consumer complaints does not satisfy the applicant, the application shall be referred to the management level that will re-examine the application and will directly respond to the applicant. In any case, the applicant shall receive an answer within thirty days from the date of his application."

Commencement

24. This amendment shall become effective no later than 15.3.2007

(11 February 2007)

(sgd)

Haim Giron, Adv. Senior Deputy Director-General, Engineering and Licensing

——————————————

—————————————— Mordechai Mordechai Director-General

(not an official translation-for convenience only)

The State of Israel Ministry of Communications

General License for Partner Communications Ltd. for the Provision of Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 42

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter: "Partner") the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Amendment of Article 65

In article 65.2, instead of " than 30 days from" shall come "than two days from".

(14 January 2007)

(sgd)

Mordechai Mordechai Director-General

——————————————

(not an official translation-for convenience only)

The State of Israel Ministry of Communications

General License for Partner Communications Ltd. for the Provision of Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 43

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter: "Partner") the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Amendment of Article 67A

1. In article 67A.7, instead of " ("commencement date"), excluding article 67A.2 shall come:
- ", excluding article 67A.1 (a) that shall become effective on 15 March 2007 ("commencement date") but excluding article 67A.2".

(19 February 2007)

(sgd)

Mordechai Mordechai Director-General

——————————————

(sgd)

(not an official translation-for convenience only)

The State of Israel Ministry of Communications

General License for Partner Communications Ltd. for the Provision of Mobile Radio Telephone (MRT) Services using the Cellular Method

Amendment No. 44

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Communications Company Ltd. (hereinafter: "Partner") the opportunity to present their arguments regarding this matter, we hereby amend the General License for the provision of mobile radio telephone (MRT) services using the cellular method granted to Partner on 7 April 1998, as follows:

Amendment of Annex M

In the Second Appendix, in Annex M-

The contents of article 4.2 of the annex shall be marked "a" and afterwards shall come:
"b. A subscriber's request to remove the bar to Adult Voice Services that is provided in the cellular portal, shall be done by submitting a written request, including by sending a facsimile message or a scanned message by electronic mail, that will include a copy of formal document that identifies the subscriber as an adult, for example an identification card, drivers license, passport or by appearing before the licensee and presenting such an identifying card."

Commencement

This amendment shall be effective on 25 May 2007.

(25 April 2007)

(sgd)

Mordechai Mordechai Director-General

——————————————

August 14, 2006 MM9

Exhibit 4.(a).58

To Mr. Amikam Cohen, CEO Partner Communications Ltd. 8 Amal Street Rosh Ha'ayin 48103

Fax:03-9054123

Dear Sir,

Re: Special License For the Provision of Fixed-Line Domestic Transmission and Data Communications Services

I am pleased to attach herein a License for the Provision of Fixed-Line Domestic Transmission and Data Communication Services (Transmission License").

In accordance with the provisions of section 4.1 to the License, the validity of this transmission license is through the date of 31.7.2007, or until such date that an Exclusive General License will be granted to a corporation controlled by Partner Communications Ltd ("D.O. Corporation", "Partner"), all per the later of the two. Regardless of the aforesaid, it has been stated within the above section that the Minister will be authorised, in view of special circumstances, to determine that the validity of this License will not expire on the above stated times, and that the Minister will have the right to establish other instructions in this respect.

Director General

I would thus like to bring to the knowledge of the Company, that further to the exchange of ideas and documents, as provided re the above topic, and as is well known to you, the Minister is currently considering the process that will be needed in order to arrange the activities of the D.O. Corporation and the Transmission activity.

Respectfully Yours

Mordechai Mordechai Managing Director

Copies:

Mr. Ariel Atias – Minister of Communications

Adv. Haim Geron Senior Deputy Director General for Engineering and Licensing
Ms. Noga Rubinstein Chief Legal advisor, Communications Ministry
Dr. Assaf Cohen Senior Deputy Director General for Economics & Budgets
Mr. Zvi Yondler Senior Deputy Director General for Supervision & Enforcement
Mr. Shy Rather Manager of Exclusive General Licensing Section, Communications Ministry Ms. Ruth Cohen – Manager Special (Integrated) Licensing Section, Engineering & Licensing,
Communications Ministry

23 Yaffo Street, Jerusalem 91999 Tel: 02-6706310/1/3, Fax: 02-6240321 9 Ehad Haam Street, Migdal Shalom, Tel-Aviv Tel: 03-5198212/8, Fax: 03-5101706

Israel Ministry of Communications

Special License No. 5-11890-0-965091

Per the Communications Law (Telecommunications and Broadcasting), 1982

By virtue of my authority under sections 4 of the Communications Law (Telecommunications and Broadcasting), and other authorizations as provided per law, we hereby grant this special license for the provision of Telecom Services – including domestic transmissions and high-rate data communication services. all as detailed hereinafter, and as dependent on the following:

Part A: Licensee Details

Partner Communications Ltd.

A Company registered in Israel, under registration No. 52-134400-4 Address of the Company Offices: 8 Amal Street, Afek Industrial Park, Rosh Haayin 48103 Telephone Number: 03-9054888, Fax Number: 03-9054999 mail: [email protected] Internet Site: www.orange.co.il

The above, hereinafter: "Licensee".

Part B: The License

1. Definitions

1.1 Within this License, the following terms will have the significance as indicated for each:

"Law"	–Including the instructions of the administration;
"The Law"	–The Communications Law (Telecommunications and Broadcasting), 1982, and any legal jurisdiction asderiving from said Law.
"Land Cable"	–A cable that has been deployed as detailed in Appendix A, including customer access points.The cable andaccess points as detailed in Appendix A, including all accessories and ancillary installations.
"Undersea Cable"	–An undersea cable deployed along the shores of Israel, including landing points in Israel, that are designatedIsrael Coasting One (IC-1). Details of the cable and its landing points are detailed in Appendix A, includingall accessories and ancillary installations.

1 A time-limited License, for a short period, as detailed in Section 4.1 of the License.

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"The Customer"	–	A Licensee, including General Licensee for cable transmissions. an Israeli corporation broadcasting televisionand radio transmissions (radio as defined by Law to the public or to subscribers in Israel, a Special Licenseefor the broadcasting of audio and video transmission services via satellite (Up-Link), a Special Licensee forthe provision of transmission services to overseas by satellite, a Special Licensee for the provision ofdomestic transmission services, and a Special Licensee for the provision of Internet access services, and asrelevant to the services as described in section 3.1.9, a corporation that has established a business relation withthe Licensee for receipt of the service, and who supports the provisions as set forth in the section.
"Backup Customer"	–	Who has established a contractual agreement with the Licensee for the receipt of backup services, per theirdefinition in section 3.1.8.
"The Director"	–	The Director General of the Ministry, including any person authorized by him for purposes of this License, inall respects or for specific instances.
"The System"	–	Telecom facilities used for provision of the services, as detailed in the Appendices.
"The Supervisor"	–	As authorized by the Minister for supervisory and regulatory affairs.
"Domestic Operator (D.O.)"	–	Including an Exclusive D.O.
"State of Emergency"	–	One of the following:
		a.A state of emergency as defined in sections 38, 39 and 41 of the Base Law: The Government.
		b.A special situation on the home front - as defined in section 9c of the Civil Defence Law - 1951.
		c.A communications crisis - the lack of any ability to properly operate the telecom system, includingwhen caused by natural disaster, mass disaster, or by an act of terror, or if the risk of such failureexists and said risk has been determined by the Minister of Communications.
		d.Activation of the emergency economy - as instituted by government decision 1716 dated 6 July1986, and government decision 1080 dated 13 February 2000, or any other governmental decision.
"The Ministry"	–	The Communications Ministry.
"Customer Connection Point"	–	A telecom facility where the cable ends, and where digital transmission equipment is installed and otherfacilities as required for operation of the cable and transmission equipment, for the linkage of these to thecustomer's system.
"Landing Point"	–	A telecom facility located no more than one kilometre from the Israeli shoreline, at which the cable (one ormore) is terminated, and where telecom facilities are located as required for operation of the cable and itslinkage to other telecom systems of the D.O.
"Transfer"	–	Whether directly or indirectly, for a fee or for no charge, whether for always or for a time period.
		Page 2 of 12

"Main Assets"	–	Licensee assets that are used to provide the telecom services as detailed within this license, without which theLicensee will be incapable of providing all or some of the services, as detailed by the license, therebysignificantly effecting the quality of service provided by the Licensee.
"The Minister"	–	The Minister of Communications, or any person authorized by the Minister, in respect to granting of a SpecialLicense and for the defining of provisions within such Special License.
"Supervisory Regulations"	–	The Telecom regulations (supervision of Licensee activities) - 1986.

1.2 As regards terminology that have not been specifically defined within section 1.1 of this license, the significance of these will be as provided elsewhere in this license, in law, or in Interpretations to the Law – 1981. to the extent that no other significance can be construed from the wording itself or from any relevancy hereto.

2. Purpose of the License

This license is designed to define the telecom services and the telecom activities that will be allowed, per the terms of this license, as well as the conditions for these.

3. Allowed Activities and Serviced

3.1 The Licensee will be authorized, per this License and as subject to the provisions of any law, to effect the activities as detailed following:
3.1.1 Provide digital transmission services, at various rates, as detailed in Appendix A.
3.1.2 Establish a contractual agreement with customers for the provision of transmission services, as required for linking between customer sites and between the site of one customer and those of another.
3.1.3 Establish a contractual agreement with customers for the provision of "dark fibers" services, for linking between customer sites and between the site of one customer and those of another.
3.1.4 Laying, installation, connection, operation and maintenance of a land cable, as detailed in Appendix A.
3.1.5 Laying of the cable and connection of the cable at a customer interconnection point, to the customer's system, as required for the provision of services, per this License.
3.1.6 Installation, connection and operation of a backup and survivability system, as detailed in Appendix A.
3.1.7 Setup and operation of control means, as required to ensure the proper functionality of the system.
3.1.8 Backup services (disaster, recovery) provision of transmission services between the storage site of a backup customer and the backup facility, as required for the provision of backup as detailed in Appendix A1.
3.1.9 Provision of data communication services and management of a private data network, ptp lines, and linkage to a licensee for the provision of Internet access services, via a symmetrical data link only, all at high transmission rates of no less than 2 Mbps for a customer who is an organization with several branches or an organization requesting that said service be provided between itself and another organization, all as detailed in Appendix A2 to the License and as defined by the limitations set forth in the License.

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3.1.10 The Licensee will have the right to establish microwave channels, as subject to receiving a License for such microwave link from the Spectrum Division of the Ministry; it is hereby clarified that an individual permit will be required for each channel, according to criteria as determined by the Spectrum Division, and for a predetermined time period.

3.2 Backup for the "Lev" Cable and the "Nautilus System

The Licensee will have the right to utilize the under-sea cable to link between two sites of the Licensee in Israel, as required to provide backup for the "Lev" cable and the "Nautilus" system, as detailed in Appendix A1.

4. License Validity

4.1 The effectivity of this License will commence upon the date of its signing, and it will remain valid through the date of Wednesday, July 31, 2007, or until such date as the corporation controlled by the Licensee will be granted an exclusive general license, the later of the two (hereinafter – the license period). Regardless of the aforesaid, the Minister will have the right, in view of special considerations, to determine that the validity of the license will not expire upon termination of the aforesaid license period, and the Minister will have the right to issue special instruction in this respect.
4.2 Within the license period, the Director may examine the observance of License provisions by the Licensee, and the quality of services provided by the Licensee.

5. License Conditions

5.1 Installation, Operation and Maintenance of Terminal Equipment

Within the scope of installing, operating and maintaining the system, the Licensee will ensure at least the existence of a type approval for all terminal equipment.

5.2 Maintenance and Handling of Interferences

5.2.1 In the event of any failure, the time required to renew service to customers shall be as detailed in the contractual agreement with the customer.
5.2.2 In any event of a failure comprising a safety hazard, the Licensee shall be responsible for the resolution of such hazard immediately when detected.
5.2.3 In any event of a failure, the Licensee shall first check that the source of failure is not from system modules or digital transmission equipment, and only then will issue a request for service to the D.O., to the extent that the D.O. network is being utilized.
5.2.4 The Licensee shall verify that system operations will not cause any electromagnetic interference to systems of the State of Israel, or to other systems operated as allowed by law.
5.2.5 Where it has been brought to the Licensee's attention that the system is in fact causing interference, as aforesaid in section 5.2.4, the Licensee will immediately discontinue the system and will not reactivate the system for as long as the interference is continued, or could be continued.

5.3 Use of Encryption System

Any use of an encryption system, whether directly or indirectly, including through use of hardware and/or software, will be subject to the provision of the decree for supervision of commodities and services (dealing with encryption devices) – 1998.

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5.4 Restrictions

5.4.1 To remove any doubt, it is hereby clarified that the Licensee will not be authorized to:
5.4.1.1 Provide services via microwave links that have been allocated to a licensee within the scope of another licence that has been granted to such other licensee.
5.4.1.2 Provide a microwave link to a customer.
5.4.1.3 Perform changes in the system other than with express prior approval, in writing, from the Director, other than when adding transmission lines in additional geographical areas in Israel, or for the increase of capacity, on condition that once a year within the scope of an annual report, Licensee will forward an updated engineering plan to the Director.
5.4.1.4 Provide any telecom services that have not been explicitly defined and approved within this License or within any other license as granted to the Licensee.
5.4.1.5 Provide services per this License to any person or entity who is not a customer, other than with prior approval in writing from the Director.
5.4.1.6 Establish transmission systems in the Judea and Samaria territories other than by prior approval of the civilian administration.
5.4.1.7 Provide voice telephony services, including VOIP to a customer, or to otherwise assist a customer in the conducting of said telecom activities in any manner whatsoever, other than if said customer has received a license for the provision of said services.
5.4.1.8 Hold or operator Licensee telecom facilities or customer telecom facilities, including hardware or software, that are intended for voice transmissions or for video transmissions.

5.5 Fair Activities

5.5.1 The activities as conducted by the Licensee will not be construed, through deeds or misdeeds as having any detrimental impact on fair play or competition, or will limit or constrain these, or will have an impact on the good of the public.
5.5.2 The Licensee will offer, with no discrimination, any service or any package of services under equal conditions and at uniform tariffs, to all types of subscribers, at all locations where the service is being offered by the Licensee, In respect to this section, "Subscriber Type" – a group of subscribers, the characteristics of whom can reasonably be seen as justifying their identification as being a separate group.

5.6 Revocation of a Provision of the License

5.6.1 A revocation or finding that a provision of the License or part thereof is void, will apply only to that provision or part thereof, as the case may be, and nothing in them per se will effect the binding nature of the License or any other provision therein.
5.6.2 Upon revocation of the License pr expiration of the License validity, the Licensee shall take steps to disconnect the system, including terminal equipment, that was used to provide the service.

5.7 Licensee Functions under a State of Emergency

Behaviour of the Licensee under a State of Emergency will comply with the provisions of Appendix D to the License.

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5.8 Standards, Procedures and Specifications

All activities of the Licensee will comply with standards, procedures and specifications, all as determined and approved by the Director, and according to updates to these as notified by the Director from time to time.

5.9 Instructions and Constraints as Related to the Spectrum

5.9.1 The approval for system activities on the electromagnetic spectrum will be as detailed in Appendices A and E, and as updated from time to time by the Director.
5.9.2 The allocation of frequencies for microwave channels, for temporary use as required by this License, and per criteria as established by the Director, will be as determined for a common initial base. A request must be submitted for each required channel as specified by Communications Ministry procedures. The request must be submitted on a "Request for License for the Setup and Operation of a Microwave Channel" form, available for downloading from the Ministries site. Upon receipt of the request, the Spectrum Division will consider the allocation of suitable frequencies, for a fixed time period, and subject to other conditions, all as required for the individual channel, as detailed in Appendix E.
5.9.3 The frequencies and transmission power levels as detailed in Appendix E, will match the aforesaid constraints, per the above sections.

5.9.4 Use of Frequencies

5.9.4.1 The Licensee will set up and operate the system, such that no part of the system will radiate any prohibited radiation, as defined by the provisions of the Pharmacists Act (Radioactive Elements and By-products) – 1980, or per the provisions of the Non-ionizing Radiation Law – 2006, and will take all the steps necessary, if required, to obtain a permit, as required by the said regulations or law, and as required by any law.
5.9.4.2 The Licensee will establish and operate the system as required to prevent any interference to other telecom and wireless systems being operated per law. Prior to operation of the system, the Licensee will conduct tests and measurements designed to prevent said electromagnetic interference. If found that such electromagnetic interference may be caused, or having detected interference effects during operation, the Licensee will take all the necessary steps for coordination of a solution designed to prevent such interference and to prevent their reoccurrence, and where said solution is not available, will approach the Director or any person on his behalf in writing in order to find a reasonable solution to the issue. The Director may subsequently call upon each of the parties to implement modifications in the operation of the equipment or in use of the frequencies, or to discontinue transmissions on specific frequencies, throughout the entire country or within a specific region.
5.9.4.3 The Licensee will utilize the frequencies allocated to him, per the provisions of Appendix E, only for the provision of services as defined by this License.
5.9.4.4 The granting of this License, including approval of the engineering plan, shall not be seen as granting protection in respect to interference caused by other emitters operating per law external to the geographical area of the State, or from emitters operated per law, the harmonies of which could be received by the system, but the Director will make a reasonable effort to provide the necessary adequate protection.

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5.10 Contractual Agreement

5.10.1 The provisions of a contractual agreement between the Licensee and a customer will not conflict, either explicitly or as deduced thereof, from the provisions of any law or from provisions of the License.
5.10.2 In respect to service, per section 3.1.9, the Licensee will have the right to include within the contractual agreement with a customer, the following obligations to be undertaken by the customer:
5.10.2.1 Not to make use of a data communications line for the purpose of voice (including VOIP) or for the transmission of video, other than if the customer has received a license for the provision of such services.
5.10.2.2 To allow the inspector access to his premises, for the purpose of inspecting the Licensee, within normal work hours and subject to prior coordination, as required to inspect the customer's communication system.

5.11 Payments

Per the contractual agreement with the customer.

5.12 Separation of Accounts

The Licensee will maintain a mechanism providing full accountancy separation, through a separate accounts reporting system for activities as related to the License. This accounts reporting system will provide for the isolating of expenditures and revenues due to licensed activities, such that it will be possible to examine (audit) said activity separately from all other business activities of the company.

5.13 Provision of Services to Security Forces

5.13.1 The Licensee will provide special services to the security forces, as detailed in the Security Appendix (Classified) attached to this License as Appendix F.
5.13.2 The Licensee will enable security forces, as notified by the Director in writing, to implement, subject to any law, their authorities in respect to intercom activities within scope of the License, and will be responsible for the maintenance, serviceability and technological compliance of the equipment and infrastructures required for the implementation of said capabilities, all in coordination with the security forces and as detailed in Appendix F.
5.13.3 The Licensee will be exempt from the obligation of indemnification to the State per the provisions of section 11.2.1, or from the provisions of any law, subsequent to the implementation of special services for the security forces.

5.14 Security Instructions

5.14.1 The Licensee will appoint a Security Officer, as specified by the law for Regulation of Security Affairs in Public Bodies 1998, and will strictly comply with the security instructions as detailed in Appendix G.
5.14.2 The Licensee will establish the necessary instructions within his corporate documents and regulations, and will act such no person will be appointed to a duty or position as detailed in Appendix G, other than if said person is in compliance with the following conditions:
(a) A citizen and resident of the State of Israel.
(b) Security clearance has been granted by the General Security Service, stating that no reason has been found to prevent said duty or position.

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5.14.3 The Licensee will undertake to preserve the secrecy and classification of activities by the security forces, and will comply with the security instructions and guidelines of these security forces, including in respect to adequate security clearance for all company duty personnel and functionaries, and including the compartmentalization of information relevant to any activities related to the security forces.
5.14.4 The Licensee will take all the necessary steps to provide protection for his system, system components and databases used for the provision of services, and for operation and control of the systems, against any acts or activities by unauthorized elements, per the instructions detailed in Appendix G.

6. Installation and Operation of the System

6.1 Where the Licensee has found, during setup of the System, that a need has been identified to change or modify the engineering plan, the Licensee shall apply in writing to the Director, as required to obtain the approval of the Director for such change or modification.
6.2 Within scope of system setup, operation and maintenance, the Licensee will ensure the support of any other provision of the License, as granted by law, in respect to the equipment installed at customer premises.

7. Manner of Provision of Services

7.1 Provision of Service
7.1.1 The services will be provided by the system. An interface between the system and the end of cable will provide for the connecting and disconnecting of the customer to the system, and for the execution of serviceability and troubleshooting tests towards both the networks.
7.1.2 The Licensee will enable the D.O., the public telecom network of whom is being utilized in whole or in part for the customer, if wanted by the D.O., to install a device as required to link, diagnose, identify and repair system faults, at a connection point between the Licensee transmission system and the D.O. transmission system.
7.1.3 The Licensee will provide the service continuously, per the provisions of this License, and as stated in the contractual agreement with the customer, and as subject to any law.
7.1.4 The Licensee will provide full and detailed information to all requesting parties, who could be potential customers, in respect to the service, its quality, scope, and the price requested for said service.
7.1.5 The Licensee will provide the customer with a contractual agreement as detailed in section 5.10.
7.1.6 The Licensee will support the actions and services per this License in the manner as detailed by the License in respect to performance and the manner in which said services will be provided. The Licensee will not be allowed to bypass the conditions as aforesaid, through allowances as provided within another license that has been granted to the Licensee, and that has been intended for other affairs.

7.2 Marketing of the Service

The Licensee will not refuse, in any unreasonable manner, to supply the service to any requesting party within the boundaries of the State of Israel, and as approved by the Director and by the Civil Administration, including residents of Judea and Samaria and the Gaza Strip, and as subject to the provisions of local law and security laws governing these territories.

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7.3 Publication of the Service

The Licensee will have the right to advertise the service being offered, as subject to this License, on condition that the following are observed:

7.3.1 Such advertising will have no adverse effect on the good of the public and on the Ministry.
7.3.2 Said advertising will be true and accurate.
7.3.3 Said publication will comply with the provisions of the License.

8. Qualifications and Capabilities

8.1 As required for the provision of services per this License, the Licensee will utilize adequate means and devices, and will employ a skilled technical team, said team to include system experts.
8.2 The Licensee will add means, in accordance with directives issued by the Director, and while taking into consideration technological developments, the development of services and system needs.

9. Supervision, Reporting and Cooperation

Within the License period, the supervisor will have the right to verify the support of License provisions by the Licensee.

9.1 In respect to the supervisory and inspection authorities over the activities of the Licensee, and the obligation of the Licensee to issue reports, as specified per this section, the instructions of the supervisory regulations, with necessary modifications, will be seen as being an inseparable part of this License.
9.2 The Licensee will cooperate with representatives of the Ministry, will provide these with all the assistance required, and will submit to said representatives the plans and other documents, including statements and accounts as requested by said representatives from time to time, and as specified by the Supervisory Regulations.

In addition, the Licensee will allow the Supervisor to conduct engineering tests, and others, within the premises of the Licensee and while using the equipment that has been installed.

9.3 Request for Renewal of License and Activity Report of the Licensee

9.3.1 The Licensee will submit, upon request of the Director or the Supervisor, a periodic report as detailed in Attachment A, to the Senior Deputy Manager for Engineering and Licensing, and to the Senior Deputy Manager for Supervision and Enforcement of the Communications Ministry.
9.3.2 The request for renewal of a License that has not yet expired will be submitted no later than 90 days prior to expiration of the License, as specified by the Communications Regulations (Telecom and Broadcasts) (details of a request for a Special License) –2004. In the event that the Licensee has not submitted a request as aforesaid, the Director will have the right not to view said request as a request for renewal, but rather as a request for a new license, including all signified by such request, including in respect to the payment of a license fee, submission of the request, etc.

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10. Miscellaneous

10.1 Fees

10.1.1 The following fees will be paid by the Licensee for this License, at the rates and times as determined by the Ministry all according to the Law.
10.1.2 A stipulated condition for validation of this License will be that the Licensee has paid all the aforesaid payments in full.
10.1.3 Where the License has been revoked, limited, voided or not renewed, for any reason whatsoever the Licensee will not be entitled to any return of the payments or the fees, in whole or in part. that have been paid in respect to this License.

10.2 Responsibilities of the Parties and Relationships between the Parties

10.2.1 The Ministry will bear no responsibility towards customers of the Licensee or towards any third party in respect to any damage that may have been caused due to action or non-action of the Licensee, of any persons empowered by the Licensee, or who are related to the provision of a service as detailed within this License. The Licensee will compensate the Ministry immediately for any damages or claims granted to a third party resulting from use of the License.

Within this section, "use of the license" – setup, installation, maintenance or operation of the system, and the provision of telecom services by means of the system.

10.2.2 The Licensee will clarify, within the contractual agreement between the Licensee and customers, that the contractual relationships established for provision of the service, are between the Licensee and customer only, and that no contractual or other relationship will exist between the customer and the Communications Ministry, or between the customer and the Domestic Operator, in all matters concerning provision of the Service per this License.

10.3 Changing of Identifying Details

The Licensee will notify the Director in advance and in writing as regards any change of Licensee's address, call center address, Licensee's name, telephone number or fax number.

10.4 Publicity and Provision of Information

10.4.1 The License will have the right to publish the License, as a whole or in part, except the Appendices to the License, for the knowledge of the public, at a time and date as preferred by the Ministry. Without detracting from the aforesaid, the License without the Appendices will be available to the public for reading, at the Ministry.
10.4.2 In respect to a request for information, including details of the Appendices to the License, the provisions of the Freedom of Information Law 1998 will apply (hereinafter – freedom of information law).
10.4.3 The entity requesting renewal of the License will indicate, within the request for renewal of license, the information included in the license appendices to which, in his opinion, sub-section 9(b)(6) of the freedom of information law should apply, and will give his reasons for such request, as detailed in section 13 of the freedom of information law.

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11. The License, its Provisions, and Provisions of the Law

11.1 Section Headings

The section headings of the License have been given for the sake of reading convenience only, and they should not be used to interpret or explain the contents of any provision of those provided in the License.

11.2 Conflict between License Provisions

In any event of conflict as regards an interpretation of the provisions of this License, or an apparent conflict between these, the Director will determine the interpretation of the instructions, or will settle the dispute after having given the Licensee due opportunity to present his claims.

11.3 Support for the Provisions of all Laws

11.3.1 When providing the services as defined by this License, the Licensee will strictly observe the following:
11.3.1.1 Provisions of the Law.
11.3.1.2 Provisions of the order, as the case may be.
11.3.1.3 Instructions provided by the Director, in accordance with the Law or the Order.
11.3.1.4 The granting of this License shall not be construed as exempting the Licensee from observing the instructions as applicable to the Licensee, in accordance with any Law.

11.4 The License as an Exhaustive Document

11.4.1 The Licensee's rights, obligations and powers with respect to the conduct of Telecom Activities and the provision of Telecom Services as specified in this License.
11.4.2 The Licensee shall be refrain from claiming the existence of any right, permission or power in regard to carrying out Telecommunication Activities or to the provision of Telecommunication Services based on any information, promise, commitment, representation, offer, understanding, publication, protocol, discussion or declaration, made outside the scope of the License, whether written or oral, whether prior to the grant of the License or subsequent thereto, unless explicitly contained in this License or pursuant thereto.

11.5 Transfer to Another

11.5.1 This License is personal and the Licensee will not have the right to transfer the License to another, whether directly of indirectly, including any privilege or obligation construing from the License, other than if Licensee has received an approval of said transfer from the Minister.

11.5.2 In respect to section 11.5.1 -

11.5.2.1 "Transfer" including any change in the holding of controlling rights in the corporation owning the License, even if such change in holdings has no effect on the controlling elements of the corporation, including the transfer of a majority of the Licensee's assets.
11.5.2.2 "Controlling Means" as defined in section 1 of the Law.

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12. Appendices to the License

The Appendices as listed below comprise an inseparable part of this License:

Appendix A	– System description, connecting points to a customer, engineering plan and backup system.
Appendix A1	– Description of the backup system
Appendix A2	– Description of the data communications system
Appendix B	– List of those with holdings in the company
Appendix C	– Not applicable
Appendix D	– Licensee functions in a State of Emergency
Appendix E	– Description of microwave channels, system technical and spectral data, and approvalof microwave channels
Appendix F	– Security (classified)
Appendix G	– Security instructions (not published to the public)
Attachment A	– Period Report

13. Liaison on behalf of the company:

Ms. Keren Sheinman, Phone number: 054-5814100 Fax number: 054-7814142

August 14, 2006 (sgd)

—————————————— Ariel Atias Minister of Communications

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[FOR CONVENIENCE ONLY, NOT AN OFFICIAL TRANSLATION]

State of Israel

Israel Ministry of Communications

Special License for the provision of Fixed-Line Domestic transmission and Data Communications Services to Partner Communications Company Ltd

No. 5-11890-0-96509

Amendment No. 1

By virtue of the power of the Minister of Communications under section 4(e) of the Communications Law (Telecommunications and Broadcasting), 5742-1982, that has been delegated to us by all our other powers under any law and after Partner Communications Company Ltd. (hereinafter-"Partner") has notified us that they do not object to the amendment set forth below, we hereby amend the special licence for the provision of fixed line domestic transmission number 5-11890-0-96509 that was granted to Partner on August 14, 2006 as follows:

Amendment of Article 5

1. In Article 5.13.2, at the end shall come "the security forces shall bear the costs in accordance with Article 13 of the Law".
1. After Article 5.14.4 shall come:
"5.14.5 The Board of Directors of the Licensee shall appoint from among its members that have security clearance and security compatibility to be determined by the General Security Service (hereinafter-"Directors with Clearance"), a committee to be designated "the Committee for Security Matters", or CSM.

The CSM shall consist of at least 4 Directors with Clearance including at least one External Director. Security Matters shall be discussed, subject to Article 5.14.6, solely by the CSM. A resolution that was adopted or an action that was taken by the CSM, shall have the same effect as a resolution that was adopted or an action that was taken by the Board of Directors and shall be discussed by the Board of Directors only if necessary in accordance with Article 5.14.6 and subject to Article 5.14.6. In this Article "Security Matters", as defined in the Bezeq Order (Determination of Essential Service Provided by "Bezeq", the Israeli Telecommunications Company Ltd), 5757-1997, as of March 9, 2005.

5.14.6 Security matters that the Board of Directors or the Audit Committee of the Licensee shall be required to consider in accordance with the mandatory provisions of the Companies Law, 5759-1999, or in accordance with the mandatory provisions of any other law that applies to the Licensee shall be discussed, if they need to be discussed by the Board of Directors or the Audit Committee, only in the presence of Directors with Clearance. Directors that do not have security clearance shall not be allowed to participate in this Board of Directors or Audit Committee meeting and shall not be entitled to receive information or to review documents that relate to this matter. The legal quorum for such meetings shall include only Directors with Clearance.

The Licensee may set out in its Articles of Association that an Office Holder, who in the capacity of his position or based on the provisions of the law or the Articles of Association, should have received information or participate in security matter meetings and this was denied him due to Article 5.14.6, will be released from any liability for any claim of breach of duty of care towards the Licensee, if the breach of duty of care was a result of his or her inability to participate in the meetings or receive information.

5.14.7 The shareholders at a general meeting shall not be entitled to assume, delegate, transfer or exercise any of the authorities granted to another organ in the company, regarding Security Matters.
5.14.8 (a) The Minister shall appoint an observer for the Board of Directors and committee meetings, that has security clearance and security compatibility that will be determined by the General Security Services.
(b) The observer shall be a government employee, qualified to serve as a director, in accordance with Chapter C of the Government Companies Law, 5735-1975.
(c) In addition, and without derogating from any duty imposed on him by any law, the observer shall be bound by confidentiality towards the Licensee, except as the matter may be required to fulfill his responsibilities as an observer. The observer shall not act as an observer or in any other capacity for any entity that deals with the provision of telecommunication services and directly competes with the Licensee, and shall refrain from any conflict of interest between his position as an observer and between the Licensee, excluding conflicts of interest that result from his being a government employee that is fulfilling his responsibilities as an observer with the Licensee. The observer shall undertake towards the Licensee not to serve as an observer or an office holder, and not to fulfill a position or be employed, directly or indirectly by any entity that directly competes with the Licensee or has a conflict of interest with the Licensee, excluding a conflict of interest that results from his being a government employee that is fulfilling his responsibilities as an observer with the Licensee throughout the duration of his position as an observer with the Licensee and for eighteen (18) months after he completes this term.

In any case of a dispute regarding a conflict of interest of the observer, the matter shall be decided by the State Attorney General or a person on his behalf.

(d) Notices to Board of Director and committee meetings, including the CSM, shall be sent to the observer and he shall be entitled to participate as an observer in each such meeting.
(e) The observer's entitlement to receive information from the Licensee, shall be the same as a director. If the Licensee believes that certain information that is sensitive business information is not required by the observer in order to fulfill his duties, the Licensee may delay delivery of such information to the observer and shall inform him accordingly. If the observer believes that he should receive such information, the matter shall be decided by the head of the General Security Services.
(f) If the observer believes that the Licensee adopted or is about to adopt a resolution regarding security matters, contrary to the provisions of the License, contrary to Article 13 of the Law or contrary to the provisions of Article 11 of the General Security Services Law, 5762-2002, he shall immediately notify the Licensee in writing. Such a notice shall be sent to the chairman of the Board of Directors and to the chairman of the CSM and adequate time shall be given, under the circumstances of the case, to remedy the breach or to change the resolution, if possible.

(g) The provisions of Article 5.14 shall be adopted in the Articles of Association of the Licensee. "

(10 September 2006)

(sgd)

—————————————— Mordechai Mordechai Director-General

(sgd)

STATE OF ISRAEL MINISTRY OF COMMUNICATIONS

EXCLUSIVE GENERAL LICENSE OF PARTNER FIXED COMMUNICATION SOLUTIONS LIMITED PARTNERSHIP1

FOR THE PROVISION OF DOMESTIC FIXED-LINE TELECOMMUNICATION SERVICES

Consolidated version, correct for January 15, 2007

This consolidated version is based on the following documents:

The original license dated January 15, 2007.

This consolidated version has been prepared for the convenience of the reader; the determining version is that of the original license, in Hebrew, including amendments to the original license. This version does not include Appendices that are not published for use by the public.

1 A limited partnership within which the general partner is Partner Future Communications 2000 Ltd., company number 51-293450-6, and the limited partner is Partner Communications Ltd., company number 52-004431-4.

Ministry of Communications, Engineering and Licensing Department Tel: 03-5198230/264 9 Echad Ha'am Street, The Shalom Tower, Tel-Aviv Fax: 03-5198244

Page

Grant of License

Part A - Definitions and Interpretations21.Definitions22.Interpretation73.The "Blue Pencil" Principle7Part B - Legal Instructions and Administrative Instructions74.Applicability of Laws and Instructions75.Obligatory per any other Law7Chapter B - The License - Its Scope, Validity and Cancellation8Part A - Scope and Validity of the License86.The Scope of the License87.The Term of the License88.Extension of the License Time Period89.Ministerial Pronouncement of an Extension to the License910.Ending of the License Period9Part B - Alteration of Terms or Revocation of the License1011.Alteration of the Terms of the License1012.Revocation of the License10Chapter C - Structural Separation, Ownership and Controlling Interest12Part A - Structural Separation in the Provision of Services1213.Structural Separation1214.Prohibition of Partiality12Part B - Constraints in respect to Transfer of License Assets1315.Definitions1316.Limited Transfer of License Assets13Part C - Controlling Interests - Changes and Restrictions1417.Licensee Details1418.Essential Holding Interest1419.Transfer and Acquisition of Controlling Interests14Chapter D - Network Establishment, Maintenance, Development and Operation17Part A - Establishment and Development of the Network1720.Establishment of Network1721.Modification of Engineering Plan During Setup and Development1722.Report of Development Works1723.Precautions, Safety and Hazard Prevention17Part B - Inspections and Maintenance1824.Definitions1825.Performance of Inspections1826.Inspections, Malfunctions and Maintenance Log1827.Repair of Defects and Flaws19	Chapter A - General	2

Table of Contents (Continued)

Topic		Page

	Part C - Inspections and Maintenance	19
28.	Definitions	19
29.	Allocation of Frequencies	19
30.	Reservation in Use of Frequencies	19
31.	Safety in the Use of Frequencies and Prevention of Interference	20
	Part D - Numbering	21
32.	Definitions	21
33.	Operation in Accordance with the Numbering Plan	21
34.	Prohibition on the Transfer of Telephone Numbers and Ranges of Numbers	22
35.	Preparation of a Telephone Numbers Plan	22
36.	Number Portability	22
37.	Telephone Numbers Plan and Interconnection	23
	Part E - Implementation of the License	23
38.	Operation of the Licensee's Network and Provision of Services	23
39.	Backup in Cooperation with Another	23
40.	Non-Infringement of Competition	23
41.	Service File	24
42.	Issuing of Instructions to the Licensee	24
	Part F - Interconnection and Use	25
43.	Mandatory Interconnection	25
44.	Rules with Respect to Carrying Out Interconnection	25
45.	Payment for Interconnection	27
46.	Prohibition on Delaying Interconnection	27
	Part G - Operation of the Licensee's Network During a State of Emergency	28
47.	Network Activities in a State of Emergency	28
48.	Services to the Security Forces	29
49.	Security Provisions	29
	Chapter E - Provision of Services to Service Recipients	30
	Part A - Contractual Agreement with Subscribers	30
50.	The Contractual Agreement	30
51.	Amendment of the Contractual Agreement	30
52.	Prohibition of Discrimination	31
53.	Provision of Service	31
	Part B - Service Level	31
54.	Service Call Center	31
55.	Ombudsman	31
56.	Dispute Resolution	32
57.	Fault Repair Center	32
58.	Terminal Equipment	32
59.	Access to Public Emergency Services	33
60.	Blocking of Service to a Nuisance Subscriber	34
61.	Protection of Privacy	35
62.	Prevention of Fraudulent Acts	35
63.	Bills to Subscribers	36
64.	Telephone Number Information Services (Directory Assistance)	37
65.	Erotic Service	38

Table of Contents (Continued)

Topic		Page

	Part C - Interruption, Disconnection or Cancellation of Service	39
66.	Definitions	39
67.	Prohibited Interruption, Disconnection or Cancellation of Service	39
68.	Cancellation of Service	39
69.	Disconnection of Service following a Service Recipient Request	39
70.	Discontinuation of Service following a Service Recipient Request	40
71.	Discontinuation or Disconnection of Service Due to a Violation of the Agreement	40
72.	Disconnection of Service due to Interference or Maintenance Activities	40
73.	Service Disconnect due to Safety Hazard	41
	Chapter F - Tariffs	42
	Part A - Determination and Publication of Tariffs	42
74.	Definitions	42
75.	Determination of Tariffs and Rates	42
76.	Publication of Tariffs	44
	Part B - Miscellaneous	45
77.	Delayed Payments	45
78.	Billing for Installation Fees	45
79.	Infringement of Competition or Consumers	45
	Chapter G - Licensee Payments, Warranty, Insurance and Surety	46
	Part A - Royalties	46
80.	Definitions	46
81.	Payment of Royalties	46
82.	Prohibited Offset of Royalty Fees	46
	Part B - Insurance	47
83.	Definition	47
84.	Execution of an Insurance Contract	47
85.	Conditions with Respect to Insurance	47
	Part C - Guarantee for Fulfilment of the License Conditions	48
86.	The Guarantee and its Purpose	48
87.	Forfeiture of the Guarantee	48
88.	The Manner of Forfeiting the Guarantee	49
89.	The Validity of the Guarantee	49
90.	Preservation of Remedies	49
	Chapter H - Oversight and Accountability	50
	Part D - Supervision of Licensee Activities	50
91.	Power to Oversee	50
92.	Preservation of Confidentiality	50
93.	Entry into Premises and the Examination of Documents	50
94.	Cooperation	50
	Part E - Reports and Correction of Faults	51
95.	Filing of Reports	51
96.	Types of Reports and Due-Dates for Filing	51
97.	Notification Regarding Defects	52

Table of Contents (Continued)

Topic		Page
	Part F - Fiscal Sanctions	52
98.	Fiscal Sanctions	52
	Chapter I - Miscellaneous	54
99.	The License as an Exhaustive Document	54
100.	Access to License Documents	54
101.	Postponement for Carrying Out the Provisions of the License	54
102.	Maintenance of Responsibility	55
103.	The Manner of Delivering Notices	55
104.	Responsibility of General Partner	55
105.	Conviction of a Functionary	55
	List of Appendices	56
	Appendix A - Not published to the public.Appendix B - A list of services provided by the LicenseeAppendix C - Erotic ServiceAppendix D - Level of Services to a SubscriberAppendix E - Rules of Accessibility to International Telecom ServicesAppendix F - Not published to the public.Appendix G - Not published to the public.

Appendix H - Not published to the public.

STATE OF ISRAEL MINISTRY OF COMMUNICATIONS

EXCLUSIVE GENERAL LICENSE OF PARTNER FIXED COMMUNICATION SOLUTIONS LIMITED PARTNERSHIP

FOR THE PROVISION OF DOMESTIC FIXED-LINE TELECOMMUNICATION SERVICES

GRANT OF LICENSE

By virtue of my authority under the Communication Law (Telecommunications and Broadcasting)), 1982, and the Wireless Telegraph Ordinance [New Version], 1972, I hereby grant an Exclusive General License to "Partner" Fixed-Line Communication Solutions, limited partnership, for the setup, subsistence, maintenance, operation and conduct of a Fixed-Line Domestic Telecommunication Services Network, and for the effecting of Telecommunication Activities and the provision of Telecommunication Services by means of this network, as set forth in this license.

This license is granted for a time period as detailed within the License, and as subject to conditions of the License, as follows:

Chapter A – General

Part A - Definitions and Interpretations

1. Definitions

1.1 Within the Scope of this License:

Service Area	–	A geographical area within which a General License Holder is obligated, by the terms of his License, to establish, maintain, and operate aPublic Telecommunication Network, and to provide Telecom Services to the general public by the means thereof.
Type Approval	–	Approval which is given in accordance with the Law to a model of Terminal Equipment for the purpose of connecting it to the Licensee'sNetwork.
Telecom(s)	–	The broadcasting, transfer or reception of signs, signals, writing, visual forms, sounds or information by means of wire, wireless, opticalsystem or other electromagnetic systems.
Licensee	–	An entity who has received a General License, an Exclusive General License or a Special License for the conduct of TelecommunicationsActivities and for the provision of Telecommunication Services, other than the Licensee.
Technical and ServiceQuality Requirements	–	Standards of availability and service quality as specified in Appendix C, standards for Telecommunications Facilities and instructions forinstallation, operation and maintenance, [all] in accordance with this License, and in accordance with the instructions issued by theDirector from time to time with respect to the Licensee's Services.
Contractual Agreement	–	A standard contract used for contracting between the Licensee and a Subscriber for the provision of the Licensee's Services, in whole orin part.
Significant Influence	–	The capability to significantly influence the activity of a corporation, whether alone or together with or through others, whether in a director indirect manner, arising from holding Means of Control in that corporation or in another corporation, including capability that derivesfrom the corporation's articles of association, from a written, oral or other kind of agreement, or capability deriving from any othersource, excluding capability that derives solely from the performance of an office holder's duties in the corporation. Without derogatingfrom the generality of the foregoing, a person shall be deemed to hold Significant Influence over a corporation if he holds twenty-five percent (25%) or more of any means of control in that corporation.
The Licensee	–	"Partner" Fixed-Line Communication Solutions
Parent Company	–	A company with Significant Influence over another company.
Sister Companies	–	Companies where the entity holding Significant Influence over one company also has Significant Influence over the other company.
Linked Company	–	A Parent Company, a Subsidiary Company, a Sister Company and a Connected Company.

Subsidiary Company	–	A company over which another company exerts Significant Influence.
Connected Company	–	A company whose investments in another company amount to 25% or more of its equity, whether in shares or in some other manner,other than a loan extended in the ordinary course of business.
The Law	–	The Communications Law (Telecommunications and Broadcasting) -1982.
Security Forces	–	The I.D.F. [Israel Defense Force], the Israel Police Force, the General Security Service and the Institute for Intelligence and SpecialTasks ["Mossad"].
I.O. (InternationalOperator	–	The recipient of a General License for the provision of International Telecommunication Services.
Sector of Activity	–	An area of services provided throughout Israel or in any part thereof, including Telephony Service, Transmission Service, DataCommunication Service, M.R.T. Service, International Telecommunication Services, and multi-channel subscriber broadcasting services,including a distinct part of an area of services.
Interface	–	A connection device, which facilitates physical contact between Telecommunications Facilities with different functionality.
TelecommunicationsFacility	–	A facility or apparatus, which is primarily intended for Telecommunication purposes, including Terminal Equipment.
Director	–	The Director-General of the Ministry of Communications, or any person whom the Minister has empowered with respect to licenses ingeneral or with respect to this License, whether generally or with respect to a particular matter.
Subscriber	–	Any person who has entered into a Contractual Agreement with the Company for the purpose of receiving its services as an end-user.
InternationalTelecommunicationSystem	–	A system of Telecommunications Facilities installed in Israel, other than Terminal Equipment, including an international exchange,international N.T.P. and Interface with international transmission infrastructure, which serves or which is meant to serve for the transferof Telecommunication Messages originating in Israel but whose destination is in another country or vice-versa, or for the transfer ofTelecommunication Messages between destinations located in different countries.
M.R.T.System (MobileRadio-Telephone System)	–	A system of wireless, cellular Facilities and other Facilities, through which Mobile Radio- Telephone Services are provided to the public,including Mobile Radio-Telephone exchanges, cellular radio base stations, and wireless or cable transmission channels, which connectcellular radio base stations, a single cellular base station to a Mobile Radio-Telephone Switch, or a Mobile Radio-Telephone Switch toanother Public Telecommunication Network.
D.O. (DomesticOperator)	–	The recipient of a General License, or an Exclusive General License, for the provision of Domestic Fixed-Line TelecommunicationServices.
M.R.T. Operator	–	The recipient of a General License for the provision of M.R.T. Services.
Service Recipient	–	A customer of the Licensee, including a Subscriber, an occasional customer or a Licensee.
		- 3 -

Switch [or Exchange]	–	A Telecommunications Facility in which switching, routing and transmission facilities are contained and operated, which facilitatecommunication between different pieces of Terminal Equipment attached or connected to it and the transfer of TelecommunicationMessages between them, including control and monitoring Facilities, as well as other Facilities which enable the provision of differentTelecommunication Services to the Licensee's Subscribers or to the Subscribers of another Licensee.
The Ministry	–	The Ministry of Communications
N.T.P. (NetworkTermination Point)	–	An Interface to which a Public Telecommunication Network is connected on one side, and Terminal Equipment, a Private Network or adifferent Public Telecommunication Network on the other side, as the case may be.
International N.T.P.	–	An N.T.P., which serves or is meant to serve as the connection between an International Telecommunication System and another PublicTelecommunication Network.
Telecom(s) Activity	–	The operation, installation, construction or maintenance of a Telecommunications Facility, all for the purpose of Telecommunication.
Ordinance	–	The Wireless Telegraph Ordinance [New Version], 1972.
TelecommunicationsOrder	–	The Telecommunications Order (Determination of Essential Service Provided by "Bezeq", The Israel Telecommunication Corp. Limited),1997, as amended from time to time, and including any Order which may take its place.
Terminal Equipment	–	Telecommunication equipment for use by Subscribers, which connects or is meant to connect between the Subscriber's premises or anyother location and a Public Communication Network, by means of the Interface designated for this purpose.
P.T.P. Line (Point toPoint)	–	A line used for the transfer of Telecommunication Messages, which provides a permanent physical or logical connection between twopoints, including by means of a switched or routed network.
Interconnection	–	A connection between a Public Telecommunication Network of one Licensee and a Public Telecommunication Network of anotherLicensee, in either a physical or logical manner, which enables the transfer of Telecommunication Messages between the Licensees'Subscribers or the provision of services by one Licensee to the Subscribers of the other Licensee.
The License	–	This License, including all the Appendices thereto, as well as any other document or provision, which the License incorporates byreference as an integral part thereof. ["which the License determines will constitute an integral part of the License or of the provisionsthereof."]
PublicTelecommunicationNetwork	–	A system of Telecommunications Facilities which serve or are meant to serve for the provision of Telecommunication Services to thegeneral public, nationwide or at the very least in a Service Area, and which includes switching and routing equipment, transmissionequipment and an Access Network, including an M.R.T. System and an International Telecommunication System, but excludingTerminal Equipment.

Fixed-Line PublicTelecommunicationNetwork	–	A Domestic Public Telecommunication Network, with the exception of an M.R.T. System and an International TelecommunicationSystem.
Access Network	–	Components of a Public Telecommunication Network used for connecting [the "last mile"] between a Switch (PSTN) and a N.T.P. usingterrestrial infrastructure, wireless infrastructure or a combination of the two.
The Licensee's Network	–	The Public Telecommunication Network which the Licensee uses for the provision of the Licensee's Services in accordance with thisLicense as well as for other Telecommunication Services provided according to the Law, whether by the Licensee or by a third party.
Private Network	–	A Telecommunication Network which serves or is meant to serve a particular person or a particular group of people with a commoninterest, which connects or is meant to connect to a Public Telecommunication Network by means of a N.T.P., including switchingequipment, connection devices, cables, Transmission equipment and any other Telecommunications Facility, provided that the commoninterest is not merely the very existence of the Network.
Use	–	Access to a Telecommunication Facility of the Licensee, including the Licensee's Network, its Access Network or any part of the above,and the possibility of using them for the purpose of conducting Telecommunication Activities and providing Telecommunication Servicesvia same, as well as allowing the installation of another Licensee's Telecommunication Facility in a Telecommunication Facility of theLicensee or on its premises.
TelecommunicationService	–	Conducting Telecommunication Activities on behalf of a third party.
Other Service	–	Any service which is not a Basic Service or Ancillary Service, as detailed in section 4 of Appendix A to the License.
Telephone Service	–	Switched or full duplex routed transfer, including via modem, of speech or speech-like Telecommunication Messages, such as facsimilesignals.
Telephony Service	–	Telephone Service and Ancillary Services to such Service.
Value Added Service	–	A service provided on the basis of a Basic Service, and which by its nature can also be provided by another, including another Licensee,who is not the provider of the Basic Service.
M.R.T.(Mobile RadioTelephone) Service	–	Telecommunication Service provided to the public by means of a M.R.T. System of a M.R.T. Operator.
Infrastructure Service	–	Allowing another Licensee or a Broadcasting Licensee to use the Licensee's Network, including by providing Transmission Service forthe purpose of conducting Telecommunication Activities or in order for them to provide Telecommunication Services.
InternationalTelecommunicationServices	–	International Telephone Service, International Data Communication Service and International Transmission Service.

Domestic Fixed-Line	–	Infrastructure, Transmission, Data Communication and Telephony Services provided by means of a Fixed-Line Public
TelecommunicationServices		Telecommunication Network.
The Licensee's Services	–	Those services the Licensee is entitled to provide to Service Recipients in accordance with the License.
Basic Services	–	Domestic Fixed-Line Telecommunication Services as specified in section 2 of Appendix A to the License.
Ancillary Services	–	Those services, which are ancillary to Basic Service, as specified in section 3 of Appendix A to the License.
The Minister	–	The Minister of Communications, including any person to whom the Minister has delegated his powers with respect to this License, inwhole or in part.
Transmission Service	–	Carrying out transmission on behalf of a third party.
Data CommunicationService	–	Carrying out Data Communications on behalf of a third party.
Transmission	–	The transfer of electromagnetic signals or a sequence of bits between Telecommunications Facilities of a Licensee, excluding TerminalEquipment.
Supervisory Regulations –		The Telecommunication Regulations (Supervision Over Activities of a Licensee), 1986.
Data Communication	–	The transfer of Information and Software, excluding speech, between pieces of Terminal Equipment, including Computers; for thepurpose of this definition.
Information	–	data, signals, concepts or instructions, excluding software, which are expressed in a computer-readable format and stored on Computer oron another storage medium.
Computer	–	a device that operates by means of Software in order to perform arithmetic or logical processing of data, and its peripheral equipment,including a system of computers.
Software	–	a set of instructions expressed in a computer readable format, which is capable of causing a computer to function or to perform an action.
InternationalInfrastructure	–	A system of Telecommunication Facilities, which includes wireless Transmission channels or submarine or terrestrial cable Transmissionchannels, or via satellite, which serve or are meant to serve for carrying out international Transmission.

1.2 Other words and phrases in the License, insofar as not defined in section 1.1 above, shall have the meaning set forth in the Law, in the Regulations enacted pursuant thereto, in the Telecommunications Order, in the Interpretation Law – 19812, or as specified in the appropriate places in the License, unless the language or context indicate a different meaning.

2. Interpretation

2.1 The titles of the sections in the License have been provided solely for reading convenience, and are not to be used for purposes of construction or elucidation of the content of any of the terms of the License.
2.2 In the event of a prima facie contradiction between provisions of the License, the Minister will determine the meaning of the provisions or the manner in which the contradiction between them shall be resolved.
2.3 The instructions of the Interpretation Law shall apply to the interpretation of this License, with the necessary modifications.

3. The "Blue Pencil" Principle

3.1 The cancellation or a determination in respect to such cancellation of a condition in the License will apply only to the specific part of same, or the part of same, and shall not in itself effect the mandatory validity of the license or any other condition herein, other than if such is required due to the cancellation or cancellation of any other implication.

Part B – Legal Instructions and Administrative Instructions

4. Applicability of Laws and Instructions

4.1 In all applicable to the setup, maintenance and operation of the network, as well as for the performance of telecommunication activities and the provision of telecommunication services, the Licensee will act in accordance with the following terms and conditions of the License.
- (a) Instructions of the law, the edict any subsidiary legislation of these.
- (b) Instructions of the administration, as instructed according to the law, the edict or any subsidiary legislation of these.
- (c) International treaties, to which Israel is a part, as related to telecoms and radio.
4.2 Any legislation or administrative edicts, as aforesaid in section 4.1, shall apply to the Licensee as issued from time to time, including any remedies as to their violation, and these instructions shall be seen as being an inseparable part of the conditions of the License.

5. Obligatory per any other Law

5.1 To remove any doubt, the granting of this License shall not be construed as exempting the Licensee from the fulfillment of any other legal obligations, including the obligation to obtain all the required licenses, permits, approvals or agreements, as required by law.

- 7 -

Chapter B -The License - Its Scope, Validity and Cancellation

Part A - Scope and Validity of the License

6. The Scope of the License

6.1 The Licensee, in accordance with the License, and subject to all its provisions and terms, shall do the following:
(a) Will construct, install, sustain, maintain, operate and utilize a Fixed Public Telecommunication Network, insofar as necessary for the provision of the Licensee's Services.
(b) Will supply those receiving the Licensee's services the services as detailed in Appendix B; services as provided will be at a scope of no less than fifty (50) million NIS, over an accumulated period of up to three years from start of provision of the service, upon notification of same per the instructions of section 20.3;
(c) May permit a third party to carry out Telecommunication Activities by means of the Licensee's facilities, to the extent that these will be required in order to obtain the services of the Licensee.
6.2 The Licensee will not conduct Telecommunication Activities nor will it provide Telecommunication Services unless permitted to do so by this License or pursuant thereto, or by another license granted to the Licensee by the Minister, except as set forth within framework of the License, or within another License, in accordance with the Law or Edict.

7. The Term of the License

7.1 The License shall remain in force for a time period of twenty (20) years, starting from the day that the License was granted (hereinafter the first period).
7.2 The Minister may extend the time period of the License for additional ten (10) year periods, as described in section 8 below (hereinafter additional period).

8. Extension of the License Time Period

8.1 The Minister may, upon request of the Licensee, extend the validity of the License for an additional period, after having given due consideration to the issues detailed in 4 (b) of the Law, including the following:
- (a) The Licensee has complied with the conditions of the License to the considered satisfaction of the Minister.
- (b) The Licensee has complied with the instructions as detailed in section 4.
(c) No action or inaction has been taken by the by the Licensee that could have a detrimental effect on the competitiveness of telecoms in Israel or could have a constraining effect on these.
(d) The Licensee acted consistently for the enhancement of telecom services and their scope, availability and quality, and for the technological upgrading of the network.
(e) The Licensee is able to continue the provision of high level telecom services, and possesses the investment capabilities necessary for technological upgrading of the network, and for enhancing of the scope of telecom services, their availability and quality.

- 8 -

8.2 The Licensee will submit a request for extension of the License within forty five (45) days prior to the eighteen (18) month period, before termination of the License period.
8.3 As required to examine said request by the Licensee for extension of the License period, the Minister will have the right to request submission, within a time period as determined and in a manner as determined, any information and data as requested, without detracting from the generality of the aforesaid, and the Minister will have the right to –
- (a) Request the submission of a summarizing report from the Licensee, including the following:
  - (1) A report including a consolidation of all the annual reports submitted by the Licensee, whether at start of the License or at any other time upon request.
  - (2) A comparison between the data as detailed in the report, for every year, versus those of the previous year, and explanations of any data.
(3) A review of the means, activities and investments as enacted or performed by the Licensee, in respect to improvements in the quality of telecom services, their scope and availability, and for the development and upgrading of network technologies.
(b) Require the Licensee to attach a report summarizing any document as necessary to authenticate the data detailed in the report, to complete the report and to provide any additional data that was not included in the report.
(c) To invite the Licensee to meet in person with the Minister and to answer any questions or queries, and to show any documents in his possession or under his control, that relate to the data as provided in the report.
(d) To demand from the Licensee the submission of an engineering plan describing the Licensees plans for the upgrading of network technologies and for the advancement of the Licensees services within the first five (5) years of the additional time period.
(e) To demand from the Licensee a presentation of his business plan, including proforma reports, balance sheets, and cash-flow reports, for the first five (5) years of the additional period, and to provide clarifications in respect to any planned investments and the financing of these.

9. Ministerial Pronouncement of an Extension to the License

9.1 The Minister will notify the Licensee in writing in respect to his decision as regards the extension of the License, no later than one year prior to ending of the License period.
9.2 In the event that the Minister has decided to reject the request, after an adequate opportunity has been provided to the Licensee to state his case, he will so notify the Licensee in writing, with reasons for said rejection.

10. Ending of the License Period

10.1 Upon ending of the first License period per section 7.1, or an additional period per section 7.2, and the License has not been extended, or if the License has been revoked per section 12, the Minister may:
(a) Instruct the Licensee to continue operation of the network and the provision of services as detailed in the License for a time period to be determined (hereinafter end of service period), until all steps required for handover of the network and the rights and obligations of those receiving services will be transferred to an alternate Licensee, as described in 10.2; the end of service period will in no event exceed three (3) years from date of the instruction.

(b) If the Licensee has not fulfilled the instruction of the Minister per subsection (a), and after an adequate opportunity has been granted to the Licensee to state his case, the Minister will have the right to appoint a trustee for management and operation of the network, pending the granting of a license to an alternate Licensee.
10.2 Within the end of service period, and if an approach has been made by one or more alternate Licensees, with a request to purchase the network and the rights and obligations of service recipients, negotiations will be effected between the Licensee and the alternate Licensee as required for acquisition of the network as described at its economic value as a viable concern. In the event that no conclusion is reached between the parties within six (6) months of end of the License period, and no agreed arbitrator has been appointed by the parties, the minister will have the right to instruct that the network acquisition conditions will be determined by an arbitrator appointed by the chairman of the certified public accountants council, when requested to do so by one or both of the negotiating parties.
10.3 The arbitrator will give his decision after hearing both the Licensees, and has given due opportunity to appear before him. The decision of the arbitrator will be given no later than three (3) months of his appointment.
10.4 Within this section an "Alternate Licensee" is an entity that has satisfied the Minister that he is fully qualified to receive an Exclusive General License, if the network is transferred to his ownership.

Part B - Alteration of Terms or Revocation of the License

11. Alteration of the Terms of the License

11.1 The Minister may alter the terms of the License, including with respect to the scope of the License as set forth in section 6, add or detract there from, after taking into account the considerations specified in section 4(e) of the Law, and after affording the Licensee a reasonable opportunity to plead its case.

12. Revocation of the License

12.1 The Minister may revoke the License, limit it or suspend it, as the case may be, provided the Licensee has been given a reasonable opportunity for a hearing, in one of the following instances:
(a) In any of the cases as detailed in section 6 of the law.
(b) If any of the instructions of ordinance 22 of the exclusive domestic operator are no longer being supported, and in respect to clause 11(a)(3) of the exclusive domestic operator regulations, if any one of these is no longer a citizen of the State of Israel or a resident of the state.
(1) The CEO of the Licensee partnership, or a person in a position of responsibility as aforesaid within the partnership, even if the title of same has been changed;
(2) A director or a person fulfilling a role equivalent to a director within the general partnership of the Licensee, to whom implementation authorizations have been granted, and any person fulfilling a role within the Licensee partnership, even if the title of same has been changed;
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(3) A majority of the directors of the Licensee general partnership and a majority of those fulfilling a role as aforesaid within the Licensee partnership, even if the titles of these have been changed.
(c) If the Licensee of a partner of the Licensee has violated any instruction of those detailed in clause 19a and 19b.

Chapter C – Structural Separation, Ownership and Controlling Interest

Part A – Structural Separation in the Provision of Services

13. Structural Separation1

13.1 The Minister will have the right, after having provided the Licensee with adequate opportunities to declare his views and claims, to set constraints and conditions within the license in respect to the relationship between the Licensee and other companies with a linkage and affinity to the Licensee, including the manning of positions and the appointment of functionaries, the transfer of information, the existence of separate corporate entities or separate accounting systems between activities, and in respect to technological, geographical or commercial constraints when deploying infrastructures or when providing services.
13.2 Without detracting from the instructions of clause 13.1 of this license and the instructions of any law, the Director may view the scope of activities of the Licensee as being accumulative with the scope of activities of another domestic telecommunications operator or exclusive domestic telecommunications operator, that are in fact companies with an affinity to the Licensee, and the minister may view these as being the possessors of a single license, these in respect to the following:
- (1) The allocation of frequencies as defined by Part C of Chapter D; in this respect, "The Administration" as defined in clause 28.1.
- (2) The allocation of dialing codes, numbering ranges and access codes as defined by the instructions of Part D in Chapter D.
(3) A determination that the services of the operator are essential, and shall be provided within at least one service area, as defined by the instructions of clause 4(a1)(3) of the law, if so determined by the minister within the scope of regulations dealing with essential operators as defined by the above clause.

14. Prohibition of Partiality

14.1 The Licensee shall not discriminate and shall not favor a company with affinity to the Licensee, over any other Licensee, in the provision of services, including in respect to payment for services, service conditions, availability of services, the provision of information concerning the service, or in all other respects.
14.2 The Licensee will not provide commercial information to a company with affinity, which is in competition with another Licensee, and will not receive such information from a company with affinity. For this purpose, the Licensee will prepare procedures dealing among others with the preserving of confidentiality, the limiting of information distribution to the Licensee, and the limiting of access to data and information by employees not requiring such access in view of their duties.

1 When taking into consideration the identity of the requesting party, individual instructions shall be issued in respect to structural separation, as seen fit by the Minister of Communications, for the promotion of competition and for the benefit of the public.

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	As regards this section:
	Commercial Information –		Data concerning a Competitor, that are not common knowledge, and that concerns one of the following:
		(1)	The quantity, the type and the destination of Telecommunication Messages transiting the Licensee's Network.
		(2)	The structure of the Telecommunications Facilities system, its deployment and the technology by which it operates.
		(3)	Plans for the expansion of the Telecommunications Facilities system, for alterations thereto and for the operation of new services bymeans thereof.
	(4)		The amount of telecommunication messages transmitted by the system, and the types and destinations of these messages.
	(5)		Marketing or other technological plans or activities, information in respect of which has been given to the Licensee by a Competitor, oranother business activity, information in respect of which has been classified by a Competitor as confidential information.
	Competitor–		Another Licensee, including a Licensee for transmissions.
			Part B – Constraints in respect to Transfer of License Assets
15.	Definitions
15.1	As regards this part and Part C:
	Holding	–	Including acquisitions, and both as one, per the implications of these in the Securities Law - 1968, and including any transfer or lienthereof, and without detracting from the definition of "Holding", clause 1.
	Essential Holding	–	The holding of controlling means by the Licensee, as a result of which a person becomes an interested party, a person with considerableinfluence, or a controlling factor of the Licensee.
	Transfer–		In respect to controlling means - whether directly or indirectly, whether for a remuneration or for no remuneration, whether permanently orfor a period, whether immediately or in parts.

16. Limited Transfer of License Assets

16.1 The Licensee is not authorized to transfer to another or to attach any asset of the license assets, including through mortgage, other than following an agreement received in advance and in writing from the Minister, and in accordance with conditions as set forth by the Minister. The Minister shall grant his agreement for such transfer or attachment of any asset of License assets to a third party, if convinced that Licensee has assured that said transfer of rights to a third party will not effect in any way whatsoever the provision of Licensee services, for as long as Licensee is obliged to provide such services per conditions of the license, including no constraint or limit to said Licensee services per conditions as set forth in the License, including conditions defining the level of services, their scope, availability and quality, and that the possibility of renewal of said services will not be effected, if they have been limited or discontinued prior to the implementation of rights to the License assets.

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16.2 Irrespective of the aforesaid in section 16.1, the Licensee will have the right to attach an asset of the License assets to the benefit of a banking corporation that has been duly registered in Israel, as required for the obtaining of banking credits, on condition that Licensee has delivered due notice in advance to the Director in respect to the intended attachment, and on condition that the attachment agreement includes a section according to which the banking corporation agrees that any implementation of rights as allowed by the attachment agreement will not impair in any way the provision of services as set forth per this License.
16.3 The instructions of section 16.1 shall not apply to the sale of equipment items within the scope of upgrading procedures, including the sale of equipment, as aforesaid, by trade-in method.

Part C – Controlling Interests – Changes and Restrictions

17. Licensee Details

17.1 Details in respect to the Licensee's legal standing, his corporation, controlling interests, those with significant influence, functionaries, as detailed in Appendix A to the License; the Licensee will deliver an updated Appendix A to the Director every year, at the beginning of January.
17.2 The Licensee will report to the Director in writing in the event of any change to the information as provided in Appendix A, no later than twenty one (21) days from the change that has taken place.

18. Essential Holding Interest

18.1 No person shall hold an essential interest other than if approved by the Minister.
18.2 The transfer of a controlling interest in the Licensee by a person will not be allowed, if as a result of such transfer the receiving person/entity will then possess an essential holding interest, other than if approved by the Minister.
18.3 The holder of a controlling interest in the Licensee or in an interested factor, will not be allowed to attach such controlling interests in a manner where the implementation of such attachment will cause the creditor to hold an essential holding, other than if the attachment agreement included a reservation stating that implementation of the attachment will not be allowed other than with the express agreement of the Minister in advance and in writing. Ub respect to this subsection and in respect to an attachment to a banking corporation, "essential holdings" signifies the holding of a controlling interest in the Licensee, as a result of which a person will gain significant influence, or will become a controlling factor of the Licensee.

19. Transfer and Acquisition of Controlling Interests

19.1 Controlling shares of the Licensee have been transferred, at an amount that could cause essential holding interests, with no approval from the Minister, the Licensee will notify the Minister concerning such transfer of interests in writing, immediately having discovered such transfer, and no later than twenty one (21) of this date.

Said notification shall not detract from the instructions of section 18 and from the instructions of the License that are applicable to said violation.

19.2 Regardless of the stated in section 18, the transfer, acquisition or attachment of traded controlling shares in the limited partner of the Licensee, that are not considered to be cause for cancellation of the General License for the provision of cellular mobile radiotelephone services, as granted to the limited partner of the Licensee (the Cellular Telephony License), as stated by section 14(h) of the Cellular Telephony License, shall not be cause for the revocation of this License. Within this section: "traded controlling shares" – as defined within section 21.5 of the Cellular Telephony License.

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19a Organizational Change of the Licensee Partnership

19a.1 (a) No changes will occur in the structure of the Licensee partnership, including a change in the identity of the Licensee partners, the addition of a limited partner or a general partner, or the conversion of a general partner to a limited partner or vice versa, other than if approval for such a change has been granted by the Minister, in advance and in writing.
(b) Partner Communications Ltd. ("Partner") will hold 100% of the controlling shares in the general partner of the Licensee, other than if the Minister has granted approval in advance and in writing, for the holding of a lower percentage of controlling shares.

19b Israeli Citizenship

19b.1 The Board of Directors of the Licensee General Partner will appoint a "security committee" from among those directors who possess the necessary security clearances and security standards as determined by the General Security Service ("classified directors"), a "security matters" committee.

At least three classified directors will serve in the security committee. Only the said security committee will discuss security issues, subject to the provisions of section 19.2 below. A decision of the security committee or an action by the committee will be considered as identical to a decision or action taken by the Board of Directors, and it will be tabled for discussion at the full Board of Directors of the General Partner only if such is required according to section 19.2b following and subject to the provisions of section 19b.2 following. Within the scope of this section – "security matters" – as defined by the Telecom Act (the determination of a vital service as provided by Bezeq, the Israeli Communications Company Ltd.) – 1997, on the date of 9/3/2005.

19b.2 Security matters to be dealt with by the security committee or auditing committee (if exists) of the Licensee general partner, per the cogent instructions of the Corporations Law – 1999, or per cogent instructions of any other law applicable to the Licensee general partner, will be discussed, to the extent that these must be discussed by the Board of Directors or the auditing committee (if exists), with participation of the security classified directors only. Unclassified directors of the general partner will not be allowed to participate in such meetings of the Board of Directors or the auditing committee (if exists), and will not be allowed access to documents or reports applicable to the matters being discussed. The legal quorum for any such meeting as described above will include directors with security clearance only.

The Licensee general partner will determine within statutes, that a functionary, if in view of his duties or as determined by instructions and regulations of the law, or statutes of the general partner, is required to receive information or participate in meetings where security matters are being discussed, but such participation has been denied him in view of section 19.2b, said director will be exempt from responsibility to his obligatory caution and watchfulness towards the Licensee, if said requirement has been violated due to his non-participation in a meeting or his non-receipt of information as aforesaid.

19b.3 The general meeting of the general partner will not have the right to take, delegate, transfer or activate powers as provided to another organ of the general partner, where security matters are concerned.
19b.4 (a) The Minister will appoint an observer to meetings of the general partner Board of Directors, and to committees of same, said observer to possess the necessary security classifications as determined by the General Security Service.
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(b) The observer will be a State employee with capabilities of a Director, per Chapter C of the Government Companies Law 1975.
(c) Furthermore, and without detracting from any obligation imposed by law, said observer will be required to observe full secrecy and non-disclosure commitments in respect to the Licensee and the partners, other than if required for the fulfilling of his duties as an observer. The observer will not serve as observer or in any other role with any factor engaged in the provision of Telecom services and who may be in direct competition with the Licensee or a partner to the Licensee. The observer will further refrain from any conflict of interest between his duties as an observer and the Licensee or a partner of the Licensee, other than any conflicts that may arise in view of his being an official of the state fulfilling his duties as an observer to actions of the Licensee general partner. The observer will undertake, towards the Licensee general partner not to serve as an observer or an official, and not to fulfill a position or to be engaged, whether directly or indirectly, by any factor that is in direct competition with the Licensee or a partner of the Licensee, or who may be in a conflict of interests towards these, not including any conflict of interest that may arise as aforesaid in view of his being an official of the state performing his duty as an observer to the Licensee general partner, throughout his tenure as an observer at the Licensee general partner and for eighteen (18) months after termination of this duty.

In any case of a difference of opinion in respect to presence of the observer, in view of a conflict of interest, the legal advisor to the government or an appointed representative of same, will resolve the issue.

(d) An invitation to meetings of the Board of Directors or committees of the general partners, including to meetings of the Security Committee, will submitted to the observer as well, and the observer will have the right to participate, as an observer in all such meetings as aforesaid.
(e) The observer will be entitled to receive information from the Licensee and from the general partner of the Licensee, at a level equivalent to that of a Director of the general partner. If in view of the general partner to the Licensee, some specific information should be considered sensitive commercial information, which is not required by the observer for fulfilling his duties, the general partner to the Licensee will have the right to prevent the submission of such information to the observer, and will so notify the observer. Where observer believes that said information should have been delivered, the issue will be brought to the Chief of Security Services for resolution.
(f) Where seen by the observer that the general partner to the Licensee has taken, or is about to take, a decision in respect to security matters that is in conflict with an instruction of the License, in conflict to section 13 of the Law or in conflict to section 11 of the General Security Service Law – 2002, he will so notify, in writing and without delay, the general partner of the Licensee. Such notification will be delivered to the Chairman of the Board of Directors of the general partner and to the Chairman of the Security Committee, with a time parameter as relevant to the case for a correction of the decision, if such correction is possible.
19c.1 The instructions of sections 19a and 19b will be included in the partnership agreement of the Licensee.

Partnership Agreement with significance as described in section 61 (a) of the Partnerships Act (new version) – 1975.

19c.2 The provisions of section 19b will be included in the statute of the general partner to the Licensee.

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Chapter D – Network Establishment, Maintenance, Development and Operation

Part A - Establishment and Development of the Network

20. Establishment of Network

20.1 In all matters concerning network deployment, maintenance, operation and development, including the technical quality level of the network and its various components, the Licensee will act according to the instructions of the License, and will observe the statements of the engineering plan.
20.2 The Licensee shall follow the rules, standards and technical specifications set by the Ministry, and will act, wherever possible, according to accepted standards and recommendations set by standards institutes in Israel and abroad (such as the Israeli Standards Institute, ITU and ETSI), or by de facto industry standards forums (such as WI-FI, ATM, D.S.L.) in the area of Telecommunications and wireless, insofar as these relate to the establishment of the Licensee's Network, its operation, its maintenance and its development, and to the services provided or meant to be provided thereby.
20.3 The Licensee will notify the Director that all preparations have been completed for the provision of services as required by the License, and the date upon which such services will commence.

21. Modification of Engineering Plan During Setup and Development

21.1 Where found by the Licensee that a need has arisen to diverge or digress from the original engineering plan to the extent that could fundamentally effect the provision of services, Licensee will so notify the Director in writing, will detail the essence and nature of the engineering change and its effect on the provision of services, and will attach an updated engineering plan to said notification. The Director may in response issue instructions to the Licensee, including actions to be taken, as required to maintain the level of services.

22. Report of Development Works

22.1 Upon request of the Director, the Licensee will submit reports detailing any network development works conducted during the time period covered by the report. The Director may instruct the Licensee as regards a format for submission of the said report.

23. Precautions, Safety and Hazard Prevention

23.1 The Licensee shall deploy and develop its Network while taking suitable safety precautions at the work site for the prevention of injury and damage to person and property, and for the prevention of nuisances and hazards to the public; in the event that the Licensee is required to perform any excavations it will take all necessary measures to prevent damage to underground systems, including Telecommunication Networks, and will thus make sure to obtain any permit required according to any law.

Part B – Inspections and Maintenance

24. Definitions

24.1 In this part:
- Periodic Inspection Inspection of the Licensee's Network or any part thereof, which is conducted in accordance with the provisions of the License, at fixed periods and at least once a year.
- Special Inspection Inspection of the Licensee's Network or any part thereof, which is conducted due to a maintenance or repair operation following an electromagnetic disturbance, a malfunction, the investigation of a complaint, a technological change, or a change to an Engineering Plan etc.

25. Performance of Inspections

25.1 The Licensee shall conduct Periodical Inspections of the Licensee's Network, and will present the results of such Inspections upon the Director's demand, within 30 days from the date of such demand.
25.2 The Licensee shall establish and operate a control system for the constant monitoring of the performance of the Licensee's Network and for regular inspection of the normalcy of the Licensee's Network. The Licensee shall also conduct, in a regular ongoing manner, Regular Inspections of the Licensee's Network or any part thereof, as necessary.
25.3 The Licensee shall conduct regular inspections of all concerning the Quality of Service as detailed in Appendix D, including for compliance with ITU-T standards, and will submit the results of such tests upon request of the Director, within 30 days from the date of such request.
25.4 The Director may instruct the Licensee to conduct a Special Inspection; the Licensee shall conduct such an Inspection in the format and at such time as the Director shall determine, and shall provide the results of such tests to the Director.
25.5 The Director, or any person authorized by him for this purpose, may conduct inspections himself, insofar as he deems that there is a need to do so; after prior coordination, the Licensee shall afford the Director, or any person authorized by him, access to the Facilities and to the equipment, and will place any inspection equipment which it uses and technical personnel at his disposal.

26. Inspections, Malfunctions and Maintenance Log

26.1 The Licensee shall keep an Inspections, malfunctions and maintenance log (hereinafter "Maintenance Log"), in which particulars of the malfunctions in the Network and the Inspections thereto will be recorded.
26.2 The Licensee shall keep the Maintenance Log in its registered office, and will allow the Director, or an authorized representative on his behalf, to examine it at any time, inspect it or copy it in any manner, and will submit it for the Director's perusal upon demand.

$$ -18 $$

Regular Inspection – Inspection of the Licensee's Network or any part thereof, which is conducted in a regular ongoing manner.

27. Repair of Defects and Flaws

27.1 After observing the Network's performance, complaints from Service Recipients, inspections which he has conducted or on the basis of inspection reports, documents and information which he has received from the Licensee, the Director may, after affording the Licensee a proper opportunity under the circumstances to present its case before him, give written notice to the Licensee of defects and flaws which he has discovered, and which impair the standard of service provided to its Service Recipients, impair the survivability and back-up level of the Network, are deleterious to safety standards, or cause disturbances to other systems which operate according to law.
27.2 The Director may issue directives to the Licensee with respect to the dates by which the Licensee must repair the said defects and flaws.
27.3 In the event that the Licensee receives such notice, it will inform the Director of the repair of the defects and flaws, by the date set out in the Director's notice and in the detail requested by the Director.

Part C – Inspections and Maintenance

28. Definitions

28.1 In this part, "Director" – a senior deputy managing director responsible for spectrum management and for the licensing of frequencies within the Ministry, or a person with equivalent duties in the Ministry designated to replace said deputy managing director.

29. Allocation of Frequencies

29.1 The Licensee is authorized to operate wireless telecom facilities only at those frequencies that have been approved for use by the Licensee, by the Director, within the scope of individual licenses and within a framework of rules and limitations as instructed by the Director, all as defined by the Order and the Covenant.
29.2 The Director may instruct the Licensee in respect to limitations, among others, in the operation of wireless telecom installations on specific frequencies and in defined geographical areas, or in respect to limited operation of wireless telecom installations at frequencies allowed for use, in parallel to the operators of other services or in coordination with such operators, all as instructed by the Director.
29.3 The Licensee will pay fees for use of the frequencies, and operation and licensing fees, all as determined by law.
29.4 The Director may allocate alternate frequencies to the Licensee. Having allocated such alternate frequencies as aforesaid, the Licensee will effect the necessary changes in the network, at Licensee's expense, as required for operation with the alternate frequencies, within a time frame as determined by the Director.

30. Reservation in Use of Frequencies

30.1 The Licensee will be allowed use of the frequencies only for the provision of Licensee services. The Licensee will not be allowed to transfer his rights to the frequencies for the benefit of other uses or to other parties, and will not allow the use of these frequencies by others.

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30.2 The Licensee will utilize such frequencies only as instructed by the Director; the Director will determine his instructions for such usage as based, upon others, on the utilization of frequencies by other factors, and on a plan derived from deployments towards a state of emergency or special conditions on the home front.
30.3 The Licensee shall not be allowed use, for the provision of his services, of frequencies that have been detailed in orders stating non-effectiveness of the order, other than if approval has been obtained from the Director, in writing and in advance, and subject to conditions as set forth by the Director.

Regardless of the aforesaid, the Licensee will be allowed use of WLAN technology, within the scope of the frequencies as set forth by the Wireless Telegraph Order (noneffectiveness of the order) (No. 2) – 1982, all in accordance with the instructions of the "Policy for Regularization of Commercial Use of WLAN Technology" document, dated 23.8.03 as published by the Ministry, or any other policy document that may come in place. The Licensee will report to the Director in respect to any such use as aforesaid, and the Director will be authorized to issue instructions relevant to this issue, including an instruction to refrain from use.

30.4 The Licensee will not be allowed the use of frequencies that have been allocated to others, other than by express approval of the Director, in advance and in writing.

31. Safety in the Use of Frequencies and Prevention of Interference

31.1 Where the Network includes a wireless telegraph station as defined by the order, being established and operated by the Licensee as allowed by any law, in compliance with Pharmaceutical Regulations (radioactive substances and byproducts) – 1980 (hereinafter – "Pharmaceutical Regulations", and having received a permit as required by said Pharmaceutical Regulations.
31.2 The Licensee will submit to the Director, during the month of January of every year, an updated annual report as regards the wireless telecom facilities being operated by the Licensee, including among others the location of each facility, transmission and reception frequencies, the gain levels of antennas, antenna heights, transmission power and transmission bandwidth. But in special cases the Director may demand submission by the Licensee at any time and within five (5) days, an updated report as regards the operation of wireless telecom installations, radio channels and the use of frequencies.
31.3 The Licensee will establish and operate the network in a manner designed to avoid any mutual interference between the Licensee's network and other systems operating as required by law. Without detracting from the generality of the aforesaid, the Licensee will act, in this respect and among others, as follows:
- (a) Prior to the activation of any wireless element on the Network, will conduct tests and measurements as required to prevent any electromagnetic interferences.
(b) Having found that electromagnetic interferences may be expected, or where electromagnetic interferences have been caused by operation of the installation, will act immediately, and no later than 24 hours from such detection, as required to coordinate a solution to avoid and prevent any such interferences. Where such a solution has not been found, the Licensee will apply to the Director in writing, or to any other as appointed by the Director, as required to find a reasonable solution to the problem.
(c) The Licensee will cooperate with other operators in the event of interference to a system operating as required by law. Where no solution to the problem has been found, as aforesaid, the Licensee will proceed, after having been granted adequate opportunity to state his case, and as instructed by the Director, to make changes to the network's operational procedures, to network elements or to the use of frequencies, or will discontinue transmission on specified frequencies through the entire geographical area or in given areas.
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(d) Will immediately respond, and no later than 24 hours of receiving a demand from the Director, to any Director demands relevant to the handling of interferences and coordination with other Licensee's or other factors operating according to law, in Israel, in areas of the Palestinian Authority and in neighboring countries, and will submit to the Director any information required to deal with the situation. The Licensee will for this purpose conduct electromagnetic measurements as required by the Director, will avoid the use of frequencies as determined by the Director, and will act within constraints as instructed by the Director, including in respect to transmission power levels on specific frequencies at specific sites, including constraints specifying the height of antennas, antenna gain, and antenna types, polarization and orientation. Such coordination will be effected by the Licensee, at his expense and under his responsibility, both in respect to special instructions issued by the Director and to the instructions of international treaties and bilateral agreements with countries and/or with the Palestinian Authority to which the State of Israel is a party.
31.4 The granting of this License shall not be construed as providing protection against other transmitters operating on the same frequencies as those that have been allowed for use by the Licensee, or any protection against harmonies caused by other legally operating transmitters, or protection against other transmitters operating on frequencies that are identical to those allowed for use by the Licensee and other factors operating in conjunction with the Licensee, or external the geographical area of the State of Israel, or from areas over which the State has no control, or from space. But the Director will do all in his power to find an adequate solution, for provision of the required protection, and to solve mutual interference, if such occurs.

Part D - Numbering

32. Definitions

32.1 In this part -

The Numbering Plan	A plan, formulated by the Director, for the allocation and assignment of telephone numbers, for mandating dialing rules and Number
–	Portability, or any part of the foregoing2, as amended from time to time.
Telephone Numbers Plan –	A plan prepared by the Licensee in accordance with the Numbering Plan and the instructions of the Director for the assignment oftelephone numbers to Subscribers and service providers, which includes Access Codes to the its Services and the services of otherLicensees.

33. Operation in Accordance with the Numbering Plan

33.1 The Licensee shall operate in accordance with the Numbering Plan, and in accordance with the Director's instructions concerning the operation and application of the Numbering Plan. The Director's orders will be issued after the Licensee has been afforded an opportunity for a hearing.

2 The plan, which has been formulated, is contained in the document entitled "Numbering Plan for Telephony Services and Value Added Services in Israel," which can be found on the Ministry of Communications Internet site at http://www.moc.gov.il and in administrative directives issued by the Director from time to time

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33.2 Should the Numbering Plan make no provision for a certain matter, and if no directive has been issued by the Director in the said matter, the Licensee shall act in that matter in accordance with accepted standards and recommendations, which are relevant to the Numbering Plan, as set by standards organizations around the world or other international organizations.
33.3 The Director may restrict the Licensee in respect of using specific groups of numbers, by Number Range, Dialing Prefixes, Access Codes or Telephone Numbers, so as to ensure, inter alia, the efficient utilization of the ranges of numbers and Dialing Prefixes, or in order ensure that numbers are used in a manner compatible with the needs of Service Recipients or global standards.

34. Prohibition on the Transfer of Telephone Numbers and Ranges of Numbers

34.1 The Licensee may assign Telephone Numbers for the use of its Service Recipients out of the range of numbers assigned for its own use, in accordance with the Numbering Plan and the provisions of the License.
34.2 The Licensee may not transfer numbers or groups of numbers, which are included in the range of numbers assigned for its use, to any other Licensee, except at such time as Number Portability implemented or in accordance with the instructions of the Director.
34.3 The Licensee may not assign a telephone number to a Service Recipient, which has been assigned to another Service Recipient, with the exception of a number which was allocated to a Service Recipient who no longer receives the Licensee's Services, and after a reasonable period of time has passed, [all] in accordance with the rules set by the Director.

35. Preparation of a Telephone Numbers Plan

35.1 The Licensee shall prepare a Telephone Numbers Plan in accordance with the Numbering Plan and the instructions of the Director, and will update it from time to time as needed.
35.2 The Licensee shall provide the Director, upon demand, with the Telephone Numbers Plan in the format and at such time as the Director orders.
35.3 The Director may order the Licensee to amend the Telephone Numbers Plan, in whole or in part, or to make changes to it; The Licensee shall amend the Telephone Numbers Plan in accordance with the Director's instructions.
35.4 The Licensee shall act in accordance with the Telephone Numbers Plan and the instructions of the Director.

36. Number Portability

36.1 The Licensee will act in accordance with directives issued by the Minister, as regards the provision of Number Portability, and will integrate mechanisms within his network that will allow for application of the directive, at such time and according to the method as set out in the directive3

3 On the date of August 22, 2005, a document titled "Numbering Plan as Regards Number Portability" was published; the document was published on the Communications Ministry web site: http://www.moc.gov.il.

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37. Telephone Numbers Plan and Interconnection

37.1 The Licensee shall apprise every other Licensee in respect of changes to the Telephone Numbers Plan, which may affect the Interconnection with the Public Telecommunication Network of the other Licensee or the provision of services to the other Licensee.
37.2 The Licensee shall not discriminate in any manner between other Licensees in all matters concerning the implementation of the Telephone Numbers Plan and in carrying out the foregoing duty of notification, including with respect to the scope of the information, its contents, the manner of its provision and the time of notification, and will provide the foregoing information in a manner which will enable other Licensees to prepare themselves in a reasonable manner for the implementation of the foregoing changes.
37.3 The Licensee shall publish the dialing rules relevant to Subscribers' Telephone Numbers as well as the Access Codes to all the services provided to Subscribers by means of an Access Code in the telephone directory. The Director may issue instructions to the Licensee in respect to the format of this publication.

Part E – Implementation of the License

38. Operation of the Licensee's Network and Provision of Services

38.1 The Licensee shall establish, sustain, maintain and operate the Network, all year round, 24 hours a day, during both times of calm and emergency, in accordance with the Technical and Service Quality Requirements and in a manner that enables the proper and regular provision of the Licensee's Services to its Service Recipients, in accordance with this License.
38.2 The Director may from time to time set Technical and Quality of Service requirements for the upgrading and updating of the Licensee's Network, including for the incorporation of modern technological means for the provision of its services.
38.3 Where the Director has seen that the Licensee is acting in a way that could impair the adequate and regular provision of communication services, he may issue instructions to the Licensee, while allowing due time for the Licensee to present his case, as regards the steps and procedures to be undertaken as required to prevent such impairment.
38.4 The Licensee shall provide his services as required by technical and QoS requirements, and as required by Law and the License.

39. Backup in Cooperation with Another

39.1 The Licensee will have the right reach an agreement with another Licensee, as required for backup services that will ensure the continuity of services, in all regarding operation or service that are identical to the operation or service as provided by the Licensee. The Licensee will notify the Director in regards to any such backup agreement, as described.

40. Non-Infringement of Competition

40.1 The Licensee shall carry out no activity, either by act or omission, and will be a party to no agreement, arrangement or understanding, which are meant or are liable to restrict or prejudice competition in the area of Telecommunications.
40.2 Should the Minister be apprised that the Licensee's actions may prejudice competition in the field of Telecommunications or in the field of broadcasting, he may issue orders to the Licensee, regarding the steps it is required to take in order to prevent the said injury, after affording it a proper opportunity for a hearing.
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41. Service File

41.1 In the event that the Licensee requests to inaugurate a service included in the list of services in Appendix A, provision of which has not yet commenced, it shall notify the Director in writing of same no later than thirty (30) days before the date on which it intends to start providing the service.
41.2 In the event that the Licensee requests to inaugurate a new service, which is not included in the list of services in Appendix A, which it intends to provide to some of its Service Recipients (for the purpose of this section – "the New Service"), it shall notify the Director in writing of same no later than sixty (60) days prior to the date which is designated for commencing provision of the New Service.
41.3 The Director will inform the Licensee within thirty (30) days from the date of receipt of the Licensee's notice as set forth in section 21.1, or within sixty (60) days from the date of receipt of the Licensee's notice as set forth in section 21.2, whether it may begin providing the service or whether it must submit a service file for the approval of the Director as a condition for commencing the said service.
41.4 The Licensee shall submit a service file for the Director's approval, upon demand. In the event that the Licensee fails to submit a service file in accordance with the Director's order, or in the event that that Director does not approve the service file, the Licensee shall not inaugurate the service.
41.5 The Director's decision with respect to the service file submitted to him shall be made within sixty (60) days of the date on which the Licensee provides the Director with all the documents and information he has requested in order to approve the service file for the New Service. In special cases, the Director may extend the terms mandated in this section, by written and reasoned notice to be delivered to the Licensee.
41.6 The Director may require the Licensee to submit a service file for his approval in respect of an existing service, for which a service file was not required, and he may also require the Licensee to submit a new service file for his approval in respect of a service for which a service file has been approved.
41.7 The service file will be submitted to the Director in the format and at the time ordered by the Director and shall include, inter alia, documents which explain the service and the manner in which it is provided, the way it is operated by the Service Recipient, its price and the germane Technical and Service Quality Requirements.
41.8 Once a service file has been approved, the Licensee shall provide the service in accordance with terms of the approved file.
41.9 The Licensee shall notify the public of any service file which has been approved, in such detail and in the manner ordered by the Director; and the Director may publicize it himself, provided he does not do so until the Licensee has begun providing the service. The notice to the public shall not include trade secrets, which the Licensee has asked not to reveal and the Ministry has approved.
41.10 Any New Service, which the Licensee inaugurates in accordance with this section, shall be regarded as part of Appendix A. The Director shall update Appendix A from time to time.
41.11 The provisions of this section shall apply, mutatis mutandis, in respect of an experiment on the network.

42. Issuing of Instructions to the Licensee

42.1 Where the Minister has found that the Licensee has violated any instruction as set forth by Law or as an edict from the Minister, or any condition of the License conditions, the Minister will have the right to instruct the Licensee to correct such violation, including the manner for said correction of the violation.

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Part F – Interconnection and Use

43. Mandatory Interconnection

43.1 The Licensee shall act to carry out Interconnection between the Licensee's Network and every other Public Telecommunication Network. The Interconnection will be carried out in a manner that enables a proper and regular transfer of Telecommunication Messages between the Licensee's Subscribers and the Subscribers of another Licensee, as well as in a manner which enables the proper and regular provision of services by the Licensee to Subscribers of another Licensee, and the provision of services by another Licensee to the Licensee's Subscribers.
43.2 Interconnection may be carried out in a direct manner, or in an indirect manner by means of a Public Telecommunication Network of another General Licensee, provided that the terms of section 43.1 are met.
43.3 In interconnecting between the Licensee's Network and another Public Telecommunication Network, the Licensee shall act to establish points of Interconnection between the two Networks for the purpose of providing Telephony Services at two main transit switches at least. Regardless of the aforesaid, the Licensee will have the right to provide said Services with only one main transit switch on condition that when the number of connected telephone lines reaches 50,000, two main transit switches will be connected.
43.4 The Licensee shall act in accordance with the provisions set forth in Appendix E to the License in respect of Interconnection between the Licensee's Network and an International Telecommunication System.

44. Rules with Respect to Carrying Out Interconnection

44.1 Without derogating from the generality of the foregoing section 43, the Licensee shall act to carry out Interconnection, subject to the following:
(a) The Licensee shall verify that the technical and operational standards of the Licensee's Network will enable connection of M.R.T. Operators, I.O. Operators and D.O. Operators (the aforementioned Operators will be referred to hereinafter as "Other Operator" or "Another Operator") to the Licensee's Network by reasonable and accepted means, in compliance with the recommendations of ITU-T; that the operation of the Licensee's Network will integrate properly with the operation of the Public Telecommunication Network of the Other Operator; and that the Interconnection will not impair the proper functioning of those systems and the normal service to their Subscribers.
(b) The Licensee shall interconnect with any Other Operator on equal terms, and will refrain from any discrimination in carrying out the Interconnection, including with respect to the following matters:
- (1) Provision of infrastructure Facilities and connection services to the Licensee's Network;
- (2) Availability of connection Facilities, services and handling of faults;
- (3) Method of the connection, and the quality and survivability of the connection;
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(4) Changes and adjustments to switching, Facilities, protocols and the points of Interconnection to the Licensee's Network;
(5) Payments for Interconnection;
(6) Billing and collection arrangements and the transfer of information regarding Subscribers;
(7) Commercial terms for carrying out Interconnection;
(8) The provision of information with respect to the Licensee's Network and the changes thereto concerning Interconnection.

Notwithstanding the foregoing, the Minister may, upon the Licensee's written request, in special cases, and when convinced that it is justified to do so, permit the Licensee to deviate from the provisions of this subsection.

(c) The Licensee shall place at the disposal of the Other Operator any essential information required by the Other Operator in order to provide its services by means of the Licensee's Facilities. The foregoing information will be provided subject to the provisions of any law concerning the protection of privacy or commercial confidentiality. Where the parties are unable to reach an understanding with respect to the substance and scope of the essential information, the Minister will settle the matter.
(d) The Licensee shall furnish the Other Operator with information concerning intended changes to the Licensee's Network, which may have an effect on Interconnection with the Public Telecommunication Network of the Other Operator, or on Interconnection between Public Telecommunication Networks of the Other Operators. The Licensee shall provide the aforesaid information in a manner, which will enable the Other Operator to prepare itself reasonably for the implementation of the aforementioned changes.
(e) With respect to sub-sections (c) and (d), the Licensee may make the provision of the information to the Other Operator conditional upon the execution of a reasonable confidentiality agreement, which is meant to protect the Licensee's interests according to any law, including trade secrets, intellectual property rights etc., concerning the foregoing information, as relevant to information regarding changes in the Network that could be provided to another operator.
(f) The Licensee shall enable its Subscribers to receive all the services, which are offered to them by Another Operator, and it may also enable the Other Operator's Subscribers to receive services from itself, all of the above being subject to the proviso that the receipt of such services is technically or legally possible. The Director may instruct the Licensee to enable the Subscribers of Another Operator to receive services, which it provides, provided that the receipt of such services is technically or legally possible. Notwithstanding the foregoing the Director may, upon the Licensee's written request, exempt it from the obligation to enable reception of service, by its own Subscribers or by the Subscribers of Another Operator, including on technical or economical grounds.
- (g) The Licensee shall provide the Director a copy of every agreement between itself and Another Operator concerning Interconnection.
(h) The Licensee shall provide the Director, upon demand, with any information which is provided to Another Operator according to subsections (c) and (d), as well as a signed copy of every confidentiality agreement according to sub-section (e).
(i) The Licensee will operate according to any other instructions as determined by the Minister in this respect.

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45. Payment for Interconnection

45.1 In the event that no regulations have been enacted concerning payment for Interconnection or payments in respect of effecting Interconnection, the Licensee may demand payment of a reasonable and non-discriminatory charge for such services. In the event that there is no agreement between the Licensee and Another Operator with respect to this matter, the Minister will order payment as aforesaid, pursuant to his power according to section 5 of the Law. Any amount, which is not in dispute, will be paid in a timely manner even before the Minister's decision in the matter.

46. Prohibition on Delaying Interconnection

46.1 If, after affording the Licensee the opportunity for a hearing concerning [these matters], the Minister issue a directive to the Licensee with respect to the manner of carrying out Interconnection and the scope thereof, with respect to actions, services and arrangements which are incidental to effecting Interconnection, or with respect to the payments for Interconnection, the Licensee shall not delay Interconnection to the Licensee's Network, and will fulfill its obligations in accordance with the Minister's directives, in good faith and in a proper manner, within the set time and while cooperating fully.

Part G -Operation of the Licensee's Network During a State of Emergency

47. Network Activities in a State of Emergency

47.1 During a State of Emergency, the Director, including in his capacity as Head of the Supreme National Authority for Communications in Time of Emergency, and any person so authorized pursuant to any law, may take measures required in the interest of national security or for the maintenance of essential public services, while giving notice [thereof] to the Licensee, including directives with respect to operation of the Licensee's Network and the provision of services or the limitation thereof. Without derogating from the generality of the foregoing, the Licensee shall act according to the directives and notices of those authorized for this purpose by any law, including the Government, the Minister and the Director. For this purpose–

State of Emergency	–	Including during any Activation Period of State of National Emergency Economic Measures, Communications Crisis, or SpecialSituation on Homeland Security.
Activation Period ofNational EmergencyEconomic Measures	–	The period during which the national emergency economy system is in force, pursuant to Government Decision No. 1716 dated July 6,1986, and Government Decision No. 1080 dated February 13, 2000, and any other Government Decision.
Communication Crisis	–	Shall mean the collapse of Telecommunication Systems, including because of a natural disaster, a mass casualty disaster or armed attack,or the well-founded apprehension of such a collapse.
Special Situation on theHome Front	–	Shall have the meaning set forth in section 9(c) of the Civil Defense Act, 1951.

47.2 The Licensee shall inform the Director of the name of its representative who is authorized to receive directives and notices at any time, 24 hours a day, with respect to any matter concerning a State of Emergency; the said representative will have a first deputy and a second deputy, who will act as alternates for the representative during his absence.
47.3 The Licensee shall establish the Licensee's Network and operate it in a manner which will prevent its collapse in a State of Emergency, and in a manner which will enable its activity to be restricted in the following ways:
- (a) By [part of a] frequency range;
- (b) By [part of a] geographical area;
- (c) By disconnecting some of its Service Recipients, according to pre-prepared lists or in accordance with the Director's instructions;
- (d) By intersection of the criteria outlined in (a), (b) and (c) above.
47.4 The Licensee shall organize itself in a manner, which will enable it to impose the restrictions set forth in section 47.3 in a quick and efficient manner, by having a qualified operator on-site or by remote control of the on-site equipment from a manned control facility.
47.5 The Director may set up a detailed procedure to regulate the Network's operations during a State of Emergency, which he will provide to the Licensee, and the latter will strictly fulfill the provisions of said procedure.
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48. Services to the Security Forces

48.1 The Licensee shall provide special services to the Security Forces as specified in the top secret Security Appendix attached to the License as Appendix F.
48.2 The Licensee shall enable the Security Forces, in respect of which the Director has given notice in writing, to exercise their powers, subject to any law, with respect to any Telecommunications Activity under the License, and will be responsible for maintaining, the proper functioning and the technological compatibility of those Telecommunications Facilities required for the operation of the above, [all] in coordination with the Security Forces, and as specified in Appendix F.
48.3 The Security Forces will bear the cost, pursuant to the provisions of section 13 of the Law.
48.4 The Licensee will be exempt from any obligation to reimburse the State in view of Clause 84.2 of the law, or per any other law, due to the provision of special services to the Security Forces.

49. Security Provisions

49.1 The Licensee shall appoint a Security Officer pursuant to the provisions of the Public Bodies Security Arrangements Law, 1998, and will strictly fulfill the security provisions specified in Appendix F to the License.
49.2 The Licensee will establish suitable provisions within its corporation documents and procedures, and will undertake to ensure that no person will be appointed to a duty or position of those listed in Appendix F, other than if said person has complied with the following conditions:
(a) Is a citizen and resident of the State of Israel.
(b) Has been granted security clearance by the General Security Services, according to which he may fulfill his appointed duties as aforesaid.
49.3 The Licensee shall act to maintain the confidentiality of the operation of the Security Forces, and will act in accordance with the security guidelines of those Security Forces, including with regard to the of appropriate security classification for officers and functionaries in the Company, and the compartmentalization of information concerning activity involving the Security Forces.
49.4 The Licensee shall take the steps necessary for the protection of the system, the system components and the data base, which are used for the provision of services and the operation and the control of the system against the activity of non-authorized entities, pursuant to the provisions detailed in Appendix F to the License.

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Chapter E -Provision of Services to Service Recipients

Part A – Contractual Agreement with Subscribers

50. The Contractual Agreement

50.1 The Licensee shall prepare the text of the Contractual Agreement, which it intends to offer to a Subscriber, and will submit it for the Director's perusal upon demand.
50.2 The terms of the Contractual Agreement will not be in explicit or implicit contradiction to the provision of any law or to the provisions of the License; however, the foregoing shall not prevent the incorporation of [different] provisions in the Contractual Agreement, which favor the Subscriber in contrast to the provisions of the law or the License.
50.3 The Contractual Agreement will be prepared in a format which is easy and convenient to read and understand, and it will point out in a conspicuous manner any condition or restriction with respect to the Subscriber's right to revoke the Contractual Agreement or with respect to the Licensee's obligation towards the Subscriber; any conditional provision in the Contractual Agreement shall be made explicitly and not by way of reference.
50.4 The Contractual Agreement will include clear and explicit provisions, including among others the following:
(a) Subscriber service conditions, including indicators for quality of service.
(b) Conditions for disconnecting from Licensee services, or for discontinuing a service.
- (c) Tariffs for services provided by the Licensee, correct for the date of the Contractual Agreement, including conditions for moving between tariff programs.
- (d) Interest rates for delayed payments, linkage differentials, and collection rates as stated in section 77.
(e) A provision stating that any change to tariffs will be applied only following the provision of prior notice to the subscriber, in advance and in writing. In this respect "Change" signifies any change to a tariff that may cause an increase or decrease of payments by the subscriber for services provided by the Licensee.
- (f) The provisions of sections 55 and 56, in respect to an ombudsman and the settling of complaints.
(g) A provision stating that in the event of conflict between instructions related to tariffs, and overall services as detailed in the Agreement, and the provisions of this License, the provisions of the License shall take precedence.
(h) A statement indicating the Director's authority to instruct the Licensee to change the wording of the Contractual Agreement, and a clarification stating that the Contractual Agreement between Subscriber and Licensee comprises an agreement to accept such change as aforesaid.
50.5 The Licensee shall provide the Subscriber with a copy of the Contractual Agreement and its appendices.

51. Amendment of the Contractual Agreement

51.1 The Director may instruct the Licensee to amend the Contractual Agreement after affording the Licensee a proper opportunity for a hearing.

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51.2 In the event that the Contractual Agreement is amended pursuant to the Director's order or pursuant to a decision of the Standard Contracts Tribunal, if submitted for its approval, the contract between the Licensee and a Subscriber shall be concluded based on the amended Contractual Agreement, commencing from the date of the amendment.
51.3 The provisions of section 50 shall apply, mutatis mutandis, to any amendment to the wording of the Contractual Agreement by the Company.

52. Prohibition of Discrimination

52.1 The Licensee will offer, with no discrimination, each and every service, and all the services, under equal conditions and at uniform tariffs, per types of subscribers, at the locations to which the Licensee provides the service. In respect to this section, "Subscriber Type" signifies a group of subscribers possessing characteristics that could reasonably justify the distinguishing of these subscribers from other subscribers.

53. Provision of Service

53.1 The Licensee will not provide, for payment or for no payment and service of those offered by the Licensee, and will not enable the provision of a service by a service provider, where the subscriber has not requested the receipt of such service, and the provision of one service will not be conditional on the provision of another service.

Part B – Service Level

54. Service Call Center

54.1 The Licensee will establish and maintain a service call center, and will publish to all the address and means available to access said service center. The licensee will notify the Director and licensee subscribers of the address of the service center or any change to this address. A telephone call to the service center could be through an access code as allocated by the Director, or by a fixed-line phone number.
54.2 The service center will provide for calls from the public, in all matters relating to services provided by the Licensee, including quality of service and handling of accounts. The service center will be available to the public through days of the week, other than weekends and holidays, according to provisions of the Government and Legal Affairs Law – 1948.
54.3 The Licensee shall comply with all the requirements in respect to the level of services provided to subscribers, as detailed in Appendix D to the License, in all matters related to the maintenance and operation of a service call center.

55. Ombudsman

55.1 The Licensee shall appoint an Ombudsman, whose functions will be as follows:
(a) To investigate Subscribers' complaints concerning the Licensee's Services;
(b) To investigate Subscribers' complaints concerning bills which the Licensee has issued to a Subscriber and to resolve such complaints.
55.2 The Ombudsman shall act in accordance with the policy set by the Licensee's management.
55.3 The Licensee shall furnish the Ombudsman with all the assistance which he requires in order to perform his job.
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55.4 The Licensee shall inform every Subscriber of the possibility of filing a complaint with the Ombudsman, of his powers and address. The content of this sub-section will be included in the Contractual Agreement.

56. Dispute Resolution

56.1 The Contractual Agreement will state that any difference of opinion, which may come to light between the Licensee and a Subscriber, in any matter concerning the construction or performance of the Contractual Agreement, will be referred to the Licensee's Ombudsman for investigation.
56.2 The Contractual Agreement will stipulate that having reference to the Ombudsman pursuant to section 59.1 will not
- (a) Prevent the Subscriber from bringing his complaint before a competent court.
(b) Derogate from the authority of the Licensee, to act according to the provisions of section 71, in respect to the discontinuing or disconnection of a service due to violation of the contractual agreement.

57. Fault Repair Center

57.1 The Licensee will establish a permanent service center for the handling of subscriber requests in respect to failures in the receipt of services, and for this purpose Licensee shall operate a manned center for the receipt of messages and complaints as aforesaid (hereinafter – "Call Center"). The call center will be equipped with various communication means, such as telephones and facsimile equipment, and as detailed in Appendix D. The Licensee will bear the costs of telephone communications to the call center.
57.2 The Licensee will undertake to repair any fault reported to the call center, with a response time as detailed in Appendix D. If the troubleshooting or repair of the fault necessitates a visit to the subscriber's premises, the Licensee will coordinate a time for such visit to customer's premises, on condition that the time period during which the customer will have to wait for the required visit will not exceed the times as specified in Appendix D.
57.3 Where a complaint has been received at the call center in respect to a discontinued service, or an actual impairment of the quality of service, the Licensee will act to identify the failure and will take the necessary steps to repair said failure, all in accordance with the provisions as stated in Appendix D.
57.4 Where the Licensee is of the opinion, following tests conducted by the Licensee, that the source of the failure is associated with the service provider, he shall immediately notify the service provider while providing details of the customer and the fault, and will so inform the customer that his complaint has been referred to the service provider, while indicating the message number. In the event of disagreement between the Licensee and the service provider in respect to the responsibility for repair of the fault, they will both cooperate until the fault is resolved.

58. Terminal Equipment

58.1 The Licensee will ensure that Licensee's network will support terminal equipment, on condition that a type approval has been granted to the terminal equipment, and Licensee will provide proper services through such terminal equipment, as aforesaid.
58.2 The Licensee will act in accordance with technical and quality of service requirements, including the following:
- (a) Integration of the Hebrew language in terminal equipment and services.

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(b) Prevention of interference to other systems operating in compliance with law.
(c) Prevention of interference from other systems operating in compliance with law.
(d) Compliance with requirements of the numbering program.
(e) Safety.
58.3 The Licensee, upon demand of the Director, will conduct the necessary tests, free of charge, as required to verify compliance of the terminal equipment with Network specifications. The testing of terminal equipment as aforesaid shall be concluded within fourteen (14) days of receipt of the Director's request. The aforesaid shall not detract from the authority delegated to the Minister to authorize the Licensee to conduct tests for the provision of type approval, for a fee.

The Licensee will provide the Director, upon request, with the standards and specifications necessary for the granting of a type-approval by the Ministry or any agent on behalf of the Ministry.

58.4 The Licensee may, upon request of the subscriber, sell, lend, or lease type-approved terminal equipment to a subscriber (hereinafter: "Sale of Terminal Equipment"), on condition that the following provisions are supported:
(a) The Licensee shall not stipulate any conditions in regards to the sale of terminal equipment or the provision of maintenance services for terminal equipment, by the Licensee or by any other on his behalf.
(b) The Licensee will bring to the knowledge of the subscriber the fact that he may obtain terminal equipment or maintenance services, from others.
58.5 Where a subscriber has acquired the terminal equipment from the Licensee or a representative of his behalf, the Licensee will be responsible for the maintenance of said equipment, at no cost to the subscriber, for a warranty period of at least one year, to be followed, for payment, by a maintenance period as defined by the manufacturer of the equipment, and that will be detailed in the purchasing agreement of the terminal equipment.
58.6 Where a subscriber has acquired terminal equipment from the, the operation of which depends on the supply of electricity at the subscribers premises, the Licensee will inform the subscriber that in the event of a power failure, the operation of said terminal equipment will be discontinued as well, other than if a power backup system has been installed (hereinafter – "backup system"). Such information will be provided to the subscriber when buying the equipment and when installing the equipment at the subscriber's premises, to the extent that the sale and/or installation of the terminal equipment is effected by the Licensee. Such information will also be provided by a printed notice in clear and easily read lettering that will be posted in a conspicuous location or on the terminal equipment or on its packaging.

Where the Licensee has supplied a backup system for the terminal equipment, he will bring to the knowledge of the subscriber details in respect to the backup time provided by said system, within which the terminal equipment will continue to operate.

As regards this sub-section: "terminal equipment" – equipment that is used to receive telephony services by a subscriber, including modems and adapters.

59. Access to Public Emergency Services

59.1 The Licensee shall allow its Subscribers and Occasional Customers at any time and at no charge, free and quick access to public emergency services as instructed by the Director, using uniform access codes as determined by the Director, in accordance with the Numbering Plan. The Licensee will coordinate with the providers of public emergency services the manner by which access to their services will be provided.

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59.2 The Licensee will enable the identification of subscribers calling to the public emergency services4, at any time and free of charge, including subscribers with secure phone numbers, those who have blocked the ID of their calls and subscribers calling from a private exchange, all as effective from the date of April 5, 2007 (hereinafter –"the start date").

The Licensee will be entitled to effect the above through a Licensee who will route the call to a public emergency call center5.

Within no more than 30 days of the start date, the Licensee will provide due notification, in writing, to all subscribers associated with the Licensee, that in effect from the start date all subscribers will be identifiable by the public emergency services call center, and will provide written notification to all subscribers requesting a "secured number" – that their number will not be concealed from the public emergency services call center.

59.3 The Licensee shall give adequate publicity to the Access Codes to the public emergency services, including in the Licensee's Telephone Directory, if such is published by the Licensee, by Internet publicity and by signs in public phone booths.

60. Blocking of Service to a Nuisance Subscriber

60.1 Regardless of the provisions of section 59.1, the Licensee shall block access by a nuisance subscriber to the public emergency services. If such blocking to a public emergency service only is technically impossible, the Licensee will block the access of the nuisance subscriber to all the services provided by the Licensee. As concerns this sub-section: a "nuisance subscriber" is a subscriber who contacts a specific emergency call center, for no justifiable reason, more than 10 times with a 24-hour period, through the subscriber's terminal equipment.
60.2 Notification as regards a nuisance subscriber will be applied in writing to the Licensee, by a senior employee of the public emergency services (hereinafter the employee), that will be verified by a deposition signed by the employee (hereinafter – the complaint). The complaint will include, among others, the name of the nuisance subscriber and his phone number, to the extent as these are now to the plaintiff, and details in respect to times of the calls by the nuisance subscriber and call contents, showing that the calls were made for no justifiable reason. Where the complaint has not included the nuisance subscriber phone number, the Licensee will take all reasonable steps possible to identify the nuisance subscriber, from the details and information provided in the complaint.
60.3 Licensee will block access to the emergency services as aforesaid, per the provisions of 60.1 above, after having given due notice to the nuisance subscriber. Such notification will be issued 3 days prior to the date of service blocking, in one of the following manners:
- (a) By phone call from the Licensee's call center to the subscriber.
- (b) By SMS message to the subscriber's terminal equipment.
- (c) By registered mail to the subscriber, other then if the subscriber is pre-paid with unknown address.
60.4 The blocking of service to a pre-paid subscriber, to whom notification can not be issued as aforesaid in 60.3, will be effected no later than 24 hours from receipt complaint or following identification as described in 60.2.
60.5 In spite of the aforesaid in 60.1, the Licensee shall refrain from blocking access to public emergency services, if the circumstances of the calls, following explanations provided by the subscriber to the Licensee, show that the calls made were in fact justified, and that he should not be seen as a nuisance subscriber. The Licensee will in such case submit to the Director, within 10 business days from receipt of the complaint or from identification of the subscriber as described in section 60.2, the reasons for said non-blocking of the nuisance subscriber.

4 Israel Police – 100, Medical Services – 101, Fire Brigades – 102.

5 At this time, only call centers that are linked by PRI

60.6 Where subscriber access has been blocked to emergency services, as aforesaid, the Licensee will be entitled to collect all debts owed by the subscriber, and will be entitled to charge said subscriber for the removal of the block.
60.7 The Licensee will have the right to remove said block only after the nuisance subscriber has provided a specific commitment in writing, according to which no such nuisance activities will be repeated in the future.
60.8 The Licensee will prepare records in respect to the method used to identify the nuisance subscriber, the method used to notify the nuisance subscriber, or alternatively, the non-notification of the nuisance subscriber, including the reason for such non-notification. Furthermore, Licensee will prepare records in respect to removal of the block.
60.9 The Licensee will detail, within scope of the Requesting Parties and Subscribers report, as aforesaid in section 96(b).1, the number of nuisance subscribers that have been blocked from access to public emergency services or to all Licensee services, per the provisions of this section, and the number of un-blocked subscribers, as well as the number of subscribers that have not been blocked per the provisions of this section, and the reasons for not blocking these subscribers.

61. Protection of Privacy

61.1 Without derogating from the provisions of the Secret Monitoring [i.e. wire-tapping] Law 1979, the Protection of Privacy Law 1981, or the provisions of any other law, concerning the protection of a person's privacy, the Licensee may not tap Telecommunication Messages of a Service Recipient without his prior written consent, except as necessary to audit the nature and quality of the service or for the prevention of acts of fraud.
61.2 Subject to the foregoing section 48, the Licensee, its employees, its agents and any person acting on its behalf may not disclose information about a Licensee subscriber, including records or documents which contain mention of his name, address, details of his account, his telecommunication messages, the times they were made and their destinations or any other information relating to him (hereinafter "Subscriber Particulars") except for information delivered to a person empowered for this purpose by the Subscriber.
61.3 Notwithstanding the foregoing section 61.2, the Licensee may do the following:
(a) Provide the Subscriber's details to a third party for the purpose of collecting monies owed by the Subscriber in respect of services that were provided according to this License, provided that the information provided is necessary for the collection of the monies and the preparation of bills, and that the third party undertakes to preserve the confidentiality of Subscribers pursuant to any law and to use the information solely for the purpose for which it was provided.
(b) Provide the Subscriber's particular's to another entity, insofar as the data is in its possession, where authorized by law so to do.

62. Prevention of Fraudulent Acts

62.1 The Licensee will take appropriate and reasonable steps to prevent fraudulent acts, and will maintain a control and tracking systems as required to verify, to the extent possible, that the services for which the subscriber is being billed are indeed effected from terminal equipment that is connected to the network via interface devices located at the subscriber's premises, and will refund the subscriber in respect to any charges collected from the subscriber due to services not effected by the subscriber, including any linkage differentials and interest rates, per the provisions of section 77.3.

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62.2 The Licensee will disconnect a service, upon request of a subscriber, following the receipt of said request from the service recipient at the Licensee's service call center, where a suspicion has occurred that another is using the service through an unauthorized internal wiring connection at the subscriber's premises. The subscriber will in such case have the right to submit such message by phone call or in writing, including by facsimile or email. Having received said message or notification, or immediately after having received the written notification, as aforesaid, the Licensee will verify the credibility of such message and will disconnect the service. Disconnection and subsequent reconnection of the service in view of the aforesaid, will be free of charge.
62.3 The Licensee will cooperate with other Licensees, including with a transmissions Licensee, for the identification and prevention of fraudulent activities.
62.4 The Directive may issue directives relevant to the prevention of fraudulent acts, for the identification and handling of fraudulent acts, and the Licensee will comply with such instructions issued by the Director in this respect.

63. Bills to Subscribers

63.1 The Licensee will bill subscribers for services per the provisions of Chapter V –Tariffs and Appendix D Level of Services to Subscribers.
63.2 The Licensee will not be allowed to request payment for the submission of current bills.
63.3 A credit owed to a subscriber by the Licensee, will be affected in a subsequent bill, immediately after such credit to the subscriber has been established.
63.4 Where the Licensee has collected payment from a subscriber for services provided by another Licensee, the bill will include details of the payment being transferred to the other Licensee, with details of the services for which the subscriber is being billed, according to overall rates.
63.5 The Licensee will indicate within each bill sent to a subscriber, the services group for which the subscriber is being billed.
63.6 (a) Without detracting from other provisions of the License related to the preparation of subscriber bills and to charges within the bill, the Licensee will comply with the instructions of Israel Standard 5262, that deals with the reliability of billing and proper disclosure within phone bills (hereinafter within this section – "the Standard").
- (b) Sub-section (a) comprises a "Service Condition" in respect to section 37b(a)(1) of the law.
- (c) Regardless of the aforesaid in sub-section (a)
  - (1) In respect to section 2.2.2 of the Standard, sums will be rounded of, per the following:
((a)) The bill total will be rounded off to the nearest sum in shekel ended by two digits after the decimal point, where a sum ending at five tenths of an agora (three digits after the decimal point) will be rounded off upwards.
((b)) The payment sum for a single call will be rounded off to the nearest sum ending at three digits after the decimal point, in shekels, where a sum ended by five hundredths of an agora (four digits after the decimal point) will be rounded off upwards.
(2) The Licensee will have the right to show any sum appearing in the bill at a detail level higher than as required by section 2.2.2 of the standard, on condition that the method used for the rounding off of sums will comply with the provisions of sub-section (c)(1) above.
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(3) The price of a phone call (voice) that includes a varying tariff, will be shown in the bill submitted to the subscriber as an average price per minute, as calculated according to the sum that was charged for the call, divided by minutes of the call duration.

Within this section "varying tariff" – a tariff that changes as the call progresses in accordance with various scales of measure, such as a reduced tariff for extended duration, or a tariff that varies due to transition from "peak time" to "slack time" during the call, or vice versa.

(4) Further to the statements of section 2.2.4 annex to the standard as relevant to the group of services, the details of the services included in the bill will also be shown within the bill, and the total tariff being paid for the total group of services.

64. Telephone Number Information Services (Directory Assistance)

64.1 Without detracting from the instructions of section 61, the Licensee will provide, whether himself or by means of another on his behalf, an information service for finding the telephone number of any subscriber to domestic phone services or to a mobile radio-telephone operator, other than subscribers with unlisted (concealed) phone numbers (hereinafter – "Directory Assistance"):
(a) To the public at large, with no charge for this service, via an Internet site through which this service will be provided.
(b) To Licensee subscribers, at a reasonable price, by a call center that will be accesses by a network access code, to be determined by the Director.
(c) Said Directory Assistance will be provided by all the aforesaid means, as based on identical information characteristics provided by the calling subscriber when requesting such directory assistance.
64.2 Deleted
64.3 Further to the provisions of section 64.1, the Licensee may offer, at a reasonable price, whether himself or by another on his behalf, a directory assistance service by any other means, including via a national access code or via SMS messaging.
64.4 As required for the implementation of sub-sections 64.1 and 64.3:
(a) The Licensee will have the right to query the database of any domestic operator or mobile telecoms operator (hereinafter for this section "other licensee"), or to receive data from the database of any other licensee, by any means and with the agreement of the other licensee, all as subject to the obligation to maintain subscriber privacy.
(b) As required for the provision of Directory Assistance by another licensee, as specified by the general license of the other licensee, the Licensee will access by any other licensee to the database of the Licensee.
(c) The Licensee will maintain his database in updated condition, such any name or phone number of a subscriber that has been added, changed or deleted, will be updated in the database within one business day after implementation of the update in the Licensee system that is used for the provision of telephony services.

In respect to this sub-section

"Data Store: – a collation of data including the name, address and telephone number of all subscribers that are not unlisted (concealed), including business subscribers.

64.5 (a) The Licensee will request the agreement of every new subscriber for the inclusion of said subscriber details in the data store. Having received the subscriber's agreement as aforesaid, the details of the subscriber will be included in the data store.

(b) The Licensee will respond to the first request of any subscriber asking to remain unlisted, for no charge. Within this sub-section, "New Subscriber**" –**a subscriber that has established a contractual relationship with the Licensee after the start date as described in section 64.7.
64.6 (a) The conditions for the provision of Directory Information as described by section 64 will determined by the Licensee, but only on condition that these will be fair and non-discriminatory, including in respect to the order by which data will be shown to those requesting the service. The service will be provided 24 hours a day, through all days of the year, except Yom Kippur. Within this sub-section, "sequence of data display"– where the response to a query applied by a caller to the service consists of several different data, the requested data will be displayed in random order.
- (b) Deleted.
(c) The Directory service for the provision of telephone numbers as described by sub-section 64.1 (b) and the Directory Assistance service provided by a call center, the access to which will by national access code as described in section 64.3, will comply with the following service scales:
(1) At all times, in the event of a high caller level6, the number of callers for whom service is provided will be no less than 90%.
(2) The average waiting period for a caller, up to start of the service7, shall not exceed 30 seconds.
(3) The max waiting period for a caller, until start of the service, will not exceed 60 seconds.
64.7 The effectivity of section 64 will commence from February 8, 2007 ("starting date"), other than sub-section 64.1 (b) and sub-section 64.6 (c), that will come into effect three (3) years following the granting of the License.
64.8 The Licensee, whether himself or through another, including in conjunction with another licensee, will publish all those Directory Assistance services that will be provided free of charge, and the national access codes that have been allocated to those with mobile telecom licenses for the provision of said Directory Services (hereinafter –"free of charge directory services"). Such publication will include at least the following:
- (a) Licensee's Internet site.
(b) At least once every half-year, Licensee will attach, within the bill mailed to the subscriber, a separate informative sheet and a magnetized label dealing with free of charge directory services, that will not include any other information, said material starting from the first bill issued to the subscriber after the starting date.

Without detracting from the aforesaid, the Director may issue instructions to the Licensee in respect to the format and publication of the information services.

65. Erotic Service

65.1 Erotic Services provided by means of the Licensee's Network shall be provided according to the provisions of Appendix C.

As defined for this section – "Erotic Service" – as defined by section 1 of Appendix C.

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6 Busy Hour Call Attempts.

7 Start provision of service - a response by an operator or of the IVR system, with a request to the caller of the information needed to find the requested phone number, etc.

Part C – Interruption, Disconnection or Cancellation of Service

66. Definitions

66.1 Definitions within this part:

Cancel Service	–	A full interruption of the telecom service to all receivers of the service.
Disconnect Service	–	A temporary interruption of telecom services.
Discontinue Service	–	A full interruption of the telecom service.

67. Prohibited Interruption, Disconnection or Cancellation of Service

67.1 The Licensee will not have the right to discontinue, disconnect or cancel any service of those provided by the Licensee, as defined by the License, other than if the provisions of this section are supported, or the provisions of section 47 in respect to limited services during states of emergency.

68. Cancellation of Service

68.1 The Licensee will be entitled, subject to the Director's approval, to cancel the provision of a telecom service, including as resulting from the following:
- (a) The service has been rendered obsolete due to technological advances.
- (b) Economic constraints.
- (c) Misuse of the service, such that actual economic damage has been caused to the public, or to parts of the public, or to the Licensee.

Within a request for cancellation of a service, the Licensee will detail the number of subscribers receiving the service, the steps Licensee intends to take in order to prevent any damage or loss to said recipients, including the provision of an alternate service replacing the canceled service, and any other information as the case may be.

68.2 When granting an approval for cancellation of the service as aforesaid, the Minister will consider, among others, an instruction to the Licensee for the provision of an alternate service to replace the canceled service, or a continuation of the service for an additional time period as determined by the Minister.

69. Disconnection of Service following a Service Recipient Request

69.1 A subscriber may request the Licensee to disconnect a service for a time period not exceeding six (6) months (hereinafter "disconnection period"). Such request will be submitted by the subscriber in writing, and the request will duly be authenticated of the by the Licensee.
69.2 The Licensee will subsequently disconnect the service as stated in section 69.1, within no more than two business days following the date as requested by the subscriber. Where the subscriber has not stated a date, the service will be disconnected no later than two business days following submission of the request.
69.3 The Licensee will renew the telecom service that has been previously disconnected as stated in section 69.1, at the end of the disconnection period. Where the subscriber has submitted a request to the Licensee, in writing, to renew the disconnected service before end of the disconnection period, the Licensee will renew the service, within two business days following submission of the subscriber's request.

69.4 A disconnection of service following a request from a recipient of the service who is not a subscriber, will be implemented according to the provisions of the contractual agreement with said recipient of the service.

70. Discontinuation of Service following a Service Recipient Request

70.1 A subscriber may request a discontinuation of service. The subscriber's request will be submitted in writing, and will require authentication of the request by the Licensee.
70.2 The Licensee will subsequently discontinue the service as stated in section 70.1, within no more than two business days following the date as requested by the subscriber. Where the subscriber has not stated a date, the service will be disconnected no later than two business days following submission of the request.
70.3 A discontinuation of service following a request from a recipient of the service who is not a subscriber, will be implemented according to the provisions of the contractual agreement with said recipient of the service.

71. Discontinuation or Disconnection of Service Due to a Violation of the Agreement

71.1 The Licensee will have the right to disconnect a service or to discontinue a service if one of the following are supported:
(a) The recipient of the service has not paid a debt owed for a service received from the Licensee, at the time for payment as specified in the agreement.
(b) The service recipient has violated a condition of the agreement, as determined for the recipient within the agreement, and that is considered a fundamental condition.
71.2 A service will not be disconnected and will not be discontinued in cases as detailed in section 71.1(a) and (b) other than after the Licensee has issued due notice in writing to the recipient of the service, at least twenty (20) days in advance of the scheduled disconnection or discontinuation of service. Such notification shall state that the recipient of the service is given sufficient and reasonable time, as set forth in the notification, to correct the action or inaction due to which the service will be disconnected or discontinued.
71.3 Regardless of the aforesaid in section 71.2, the Licensee will have the right to disconnect the service with no prior notification to the subscriber, on condition that access to emergency services will not be disconnected without prior notice, if one of the following are supported:
(a) Where the subscriber has not defrayed his debt, for the third time, within a time period of twelve (12) months, in respect to the debt owed by the subscriber for services provided by the Licensee, at the time specified for such remittance.
- (b) Where a reasonable suspicion exists that fraudulent acts may be committed via the subscriber's terminal equipment or by features of the terminal equipment.

72. Disconnection of Service due to Interference or Maintenance Activities

72.1 The Licensee may disconnect or temporarily constrain services that Licensee is required to provide, if the performance of essential maintenance or setup activities on the network so requires (hereinafter – "maintenance disconnect", on condition that the following are supported:
(a) The time period of said maintenance disconnect does not exceed six (6) consecutive hours.

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(b) The number of maintenance disconnects does not exceed two (2) disconnects within one year. In spite of the aforesaid, within the first two years following granting of the License, the number of disconnects shall not exceed 4 disconnects within a single year.
(c) Prior notice has been delivered to the Director, at least four (4) days prior to the scheduled disconnect.
(d) Prior notice has been issued to service recipients, at least four (4) days prior to the scheduled disconnect.
(e) The Licensee has done all in his power, within reason, such that maintenance disconnects shall take place at low-load hours of the day.
72.2 The Director may demand a detailed explanation from the Licensee, in respect to the circumstances requiring a maintenance disconnect, and the Director may request a postponement of said disconnect if he has seen, after considering the reasons presented by the Licensee, that essential public interests mandate such postponement.
72.3 Where a service disconnect is required for a time period exceeding six (6) hours, and in view of the need to perform vital and essential maintenance or network setup works, the Licensee will apply in advance for approval by the Director and will notify the relevant service recipients in respect to such expected disconnection, including through the public media. The request will detail the number of service recipients who will be effected by the temporary disconnect, the locations where the disconnect will occur, the maintenance activities that will be required and the actions taken by the Licensee to accelerate these activities and to limit to the extent possible the time period of the service disconnect.
72.4 Where an urgent disconnection or a limiting of service is required, for the effecting of essential and immediate activities, the Licensee will immediately so notify the Director, including by phone, facsimile or email, in respect to the urgent disconnect or limiting of service. The Licensee will notify recipients of the service in respect to the disconnection or limiting as aforesaid, as early as possible, including via public media, other than if the circumstances of the disconnection do not allow the issuing of such prior notification as aforesaid.
72.5 In spite of the statements of sections 72.1 and 72.4, the Licensee will not be obliged to notify the Director or the service recipients of a maintenance disconnect, and such a disconnect will not be taken into account in the count of allowed disconnects, per section 72.1, if one of the following are supported:
(a) The time duration of the disconnect does not exceed one half hour.
(b) The maintenance disconnect, as aforesaid, has occurred between 24:00 of Saturday night or Holiday night and 05:00 of the following morning.

73. Service Disconnect due to Safety Hazard

73.1 Where a hazard to humans or to property has been discovered, resulting from a telecom facility that is connected to the network (hereinafter "Safety Hazard"), the Licensee will be allowed to immediately disconnect the service recipients, with no prior notice.
73.2 Where Licensee has disconnected a service according to section 73.1, he will immediately issue due notification to service recipients, including verbally, and by mail. telephone, facsimile or email. The notification will clarify the reason for the disconnection.
73.3 Having received notice from the service recipient that the safety hazard has been removed, the Licensee will verify that no safety hazard remains and will subsequently reconnect the service, no later than the first business day after the day upon which the notice was submitted by the service recipient.
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Chapter F – Tariffs

Part A – Determination and Publication of Tariffs

74. Definitions

74.1 Within this Chapter
- Overall Tariff A single tariff, embodying within it all the various types of costs and payments included in the varying payments applied by the Licensee to the subscriber for a given service.

Varying Payment – A payment for use of a telecom service, that varies according to the time of use or the volume of traffic.

75. Determination of Tariffs and Rates

75.1 Where the Licensee collects payments from a subscriber for the services provided by another licensee, said payments will be according to the tariffs as offered by the other licensee for his services to the public, with no additions.
75.2 The billing for varying rates and for associated services or for added value services will comply with the following guidelines:
(a) The Licensee will not be allowed to charge the subscriber for calls where the subscriber has not initiated the call (hereinafter uninitiated call).
(b) In spite of the statement of sub-section (a), the Licensee may bill the subscriber for uninitiated calls, in the following instances:
(1) A collect call that has been accepted by the subscriber.
(2) A call generated by a special prefix number (caller free of charge dialing), as allocated to the subscriber according to an agreement with the subscriber.
(3) A call generated by a number with special prefix (split charges), as allocated to the subscriber according to an agreement with the subscriber.
(4) A call generated from a subscriber line to another line subsequent to the "follow me" service (or a similar service) on the subscriber's line.
75.3 The Licensee will not have the right to bill a subscriber who has initiated a call, for the following services: emergency services, collect call service, toll free service for the caller or the Licensee's repair service.

75.4 Regarding tariffs set according to the length of the call, the charge will be determined as follows:

(a) The tariffs will be stated in NIS per minute and will be measured in one (1) second time units. For this purpose, any part of a second will be regarded as a whole second.

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(b) For the purpose of payment, the duration of a call is from the time that the connection is effected between the Subscriber who initiated the connection (hereinafter "the Calling Subscriber") and the Subscriber receiving the call and until the time that the said call is terminated, which is the time at which the instruction for terminating the connection is received by the Calling Subscriber; the time during which the connection is being effected until the moment the connection is actually made and the time during which the disconnection is being effected, from the moment the order for termination of the connection is received until it's actually realized, is not included in calculating the duration of the call; for the purpose of this sub-section, a voice mail box shall be included in the definition of a Subscriber who receives a call.
(c) Notwithstanding the foregoing in sub-section (a), the Licensee may offer its Subscribers a tariff that will be based on other time units, provided that a Subscriber will be permitted at any time to transfer to a charge according to one-second time units.
(d) In respect to calls that are transferred to voice mail, a preliminary message of at least 2 seconds will be issued to the calling subscriber (within this sub-section "the message"), stating that the caller may choose to disconnect the call, free of charge, during the message or within a reasonable time period of no less than one second following termination of the message ("reasonable time"). In such case the timing for establishment of the call to the receiving subscriber, per its significance within sub-section (b) above, will commence following said reasonable time.

The phrasing of the message will include "this call is being transferred to voice mail", and it will be pronounced in a clear and legible voice, at a reasonable rate.

75.5 In setting the Licensee's tariffs, the following rules will be observed:
(a) Any payment which a Subscriber makes for a Domestic Fixed-Line call, whether to another Subscriber of the Licensee or to the Subscriber of any other D.O., will be according to a standard and all-inclusive tariff, with respect to all of the Licensee's Subscribers and the Subscribers of the other Domestic Operators. Regardless of the aforesaid, the Licensee will have the right to set a different tariff for calls between his subscribers, but only on condition that the Licensee will provide means, with approval of the Director, that will enable his subscribers to differentiate between in-network calls and such that are not in-network.
(b) Any payment, which a Subscriber makes for a call made to an M.R.T. Subscriber, will be according to a standard and all-inclusive tariff, with respect to the entirety of the M.R.T. Operators.
(c) Any payment which a Subscriber makes for a call to a Special Telephone Service or for a call to a Country-Wide Special Telephone Service, excluding services according to section 39.12, will be according to a tariff identical to the one for a call as aforementioned in sub-section (a), unless the Director has given his approval to the Licensee to charge other tariffs with respect to a particular type of such services, which are provided through a special Dialing Prefix pursuant to the Numbering Plan.
(d) The principles set forth in this section with respect to the determination of tariffs will apply whether the Licensee sets a tariff based on the length of the call or whether a tariff has been set in any other way (e.g. flat rate).
(e) In this section:

"Numbering Plan" – shall have the meaning set forth in its definition in Chapter D – Numbering;

" Special Telephone Service" and "Country-Wide Special Telephone Service"– shall have the meaning set forth in their definition in the Numbering Plan.

76. Publication of Tariffs

76.1 The Licensee shall make available to any person who so requests, both at its service centers and on the Internet, full and detailed information, for no charge, concerning the current tariffs for all its services; the Director may issue instructions to the Licensee with respect to the manner and format of the foregoing publication of tariffs.

Part B – Miscellaneous

77. Delayed Payments8

77.1 The Licensee will have the right to bill a subscriber for arrears interest, linkage differentials and collection costs, as related to Licensee services for which the subscriber has not paid at the time determined for such payment within the bill that was sent to the subscriber, as defined by the contractual agreement between the parties (hereinafter – the time of payment).
77.2 The Licensee will state, within the contractual agreement with the subscriber, said arrears interest rates, linkage differentials and collection costs.
77.3 The arrears interest will not exceed the interest rates as determined within "linkage differentials and interest" as defined in Section 1 of the Interest and Linkage Ruling Law 1961, plus linkage differentials for the period between the time determined for defrayment and the actual time of payment of the specified sum.
77.4 The Licensee may bill the subscriber for collection costs as applicable to payments in lieu of services provided to the subscriber, that have not been paid as of the date set forth for such payment (hereinafter – "the debt sum"), on condition that at least fourteen (14) days have elapsed from the date set for payment, other than in cases where nonpayment has occurred due to refusal of the bank or a credit card company to pay the bill, where the Licensee has received to collect such sums. The collection expenses that will be billed by the Licensee will be reasonable and commensurate to the debt sum, and to the steps and actions taken by the Licensee for the collection of the aforementioned debt. In this respect "collection fees" – including any legal actions that will be taken by the Licensee or any person on his behalf for collection of the debt, prior to the institution of legal actions.

78. Billing for Installation Fees

78.1 Where the Licensee has decided to bill for installation fees, the Licensee will have the right to bill the subscriber for installation fees, only for initial connection of the subscriber premises to the network.
78.2 In spite of the aforesaid in Section 78.1, the Licensee will have the right to collect installation fees from the subscriber following a disconnection of service or an interruption of service, per Section 71.

79. Infringement of Competition or Consumers

79.1 Where the Minister has found, following due opportunity for the Licensee to state his claims, that the tariff or fee as set by the Licensee contradicts with instructions of the Law or the License, to the extent that could infringe on competition or on the rights of consumers, the Minister will so notify the Licensee, while indicating the necessary corrections, and the Licensee will comply with the Minister's instruction, and will issue a message in writing within which the corrected tariff or fee will be detailed.
79.2 Where the Licensee has billed a service recipient according to a tariff or fee that contradicts the provisions of the License and the rate or fee has been corrected as aforesaid, the Licensee will take steps to return the excess funds paid by the service recipient, plus linkage differentials and interest, per the provisions of Section 77.3.

8 The Ministry is currently considering the possibility to regulate this issue in Directives. If such regulation is adapted, the phrasing of this section will be revised as required to reflect the new arrangement.

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Chapter G – Licensee Payments, Warranty, Insurance and Surety

Part A – Royalties

80. Definitions

80.1 Within the scope of this chapter: "linkage differentials", "interest"and "delayed payments interest" – as set forth in the Telecommunication Regulations (Royalties) 2001 or any other regulations which may replace them (hereinafter "the Royalties Regulations").

81. Payment of Royalties

81.1 The Licensee shall pay royalties as pursuant to the provisions of the Royalties Regulations.
81.2 To each payment of royalties which is made pursuant to this section the Licensee shall attach two copies of a non-audited Quarterly earnings report, signed by the Licensee and certified by an accountant; this report will include itemization of the Licensee income, itemization of the income exempt from the payment of royalties, calculation of the chargeable income pursuant to the Royalties Regulations, and anything else upon which the Licensee based the amount of the royalties.
81.3 Upon filing an audited annual earnings report, and signed by the Licensee's accountant (hereinafter "the Audited Report"), the Licensee shall submit a report, organized by Quarters, detailing the reconciliation between the income in respect of which it has paid royalties and the income appearing in the Audited Report (hereinafter "the Reconciliation Report").
81.4 In the event that the amount of royalties payable by the Licensee according to the Reconciliation Report or according to audits conducted by the Ministry is higher than the sum, which it has paid for a particular Quarter, the Licensee shall pay royalty differentials, with the addition of interest arrears.
81.5 If [it becomes clear that] the Licensee has paid a higher amount of royalties than it should have paid for a particular Quarter, the Licensee shall be credited for the amount of the surcharge; the surcharges to which the Licensee is entitled will be set off against the payment of royalties according to the Director's confirmation in writing, with the addition of the interest and linkage differentials, which will be calculated according to the last published index prior to the date of the said set off.

82. Prohibited Offset of Royalty Fees

82.1 As subject to the provisions of this chapter, the Licensee will not be allowed to offset any debt owed by the State of Israel to the Licensee from said Royalties.

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Part B – Insurance

83. Definition

83.1 Within this Part:

Use of the License – Development of the Licensee's Network, the installation, preservation, maintenance, updating or operation thereof, whether by the Licensee or by another entity acting on its behalf, including its employees, contractors, agents or representatives.

84. Execution of an Insurance Contract

84.1 At its own expense, the Licensee shall enter into an insurance contract with a licensed Israeli insurer pursuant to the terms set forth in section 85, and will present a copy of the said contract to the Director within ninety (90) days of granting of the License, with an attached statement from a solicitor representing the Insurer, stating that the insurance contract indeed unconditionally covers all the required provisions as stated in Sections 84 and 85.
84.2 The Licensee shall indemnify the State for any financial liability which is imposed on it by law with respect to any third party, as a result of the Use of the License or in consequence of the Use thereof; indemnification pursuant to this section will be insured by the Licensee by liability insurance as defined in the Insurance Contract Law, 1981.
84.3 The Licensee shall insure itself and its employees, as well as obligate any contractor who works for it or on its behalf to take out insurance coverage, against any financial liability, which is likely to be levied against the Licensee pursuant to any law, on account of damage caused to person or property as a result of the Use of the License or in consequence of the Use thereof. Furthermore, the Licensee will obligate all persons working for the Licensee or on his behalf, to be covered by insurance cover as aforesaid.

85. Conditions with Respect to Insurance

85.1 The insurance contract will stipulate the term of the insurance and will be extendable, insofar as possible, and it shall stipulate that at the end of the term set therein it will be automatically extended, unless it has been revoked in accordance with the section 85.6.
85.2 The Licensee shall present the Director, upon demand, with confirmation from the insurer that the insurance contract is in effect, that no arrears exist with respect to the Licensee's payments of insurance premiums, and that no notices are pending concerning the revocation, suspension, limitation, amendment or termination of the validity of the insurance contract.
85.3 The insurance contract will contain a stipulation that in every instance that the insurer wishes to revoke the insurance contract due to non payment of the insurance premiums, it is obligated to notify the Director and the Licensee of same, in advance, no less than ninety (90) days prior to the date on which it actually intends to revoke the contract (hereinafter in this section – "Notice of Revocation").
85.4 In the event that the Licensee receives a Notice of Revocation, it will act immediately to remedy the cause of revocation, or will act immediately to enter into an alternative insurance contract pursuant to section 89.6, and shall also notify the Director of the actions, which it has taken for that purpose. In the event that the cause of revocation is the non-payment of insurance premiums by the Licensee, the Director may pay the insurance premiums in lieu of the Licensee, and he may order forfeiture of the Bank Guarantee or any part thereof in order to cover the amounts which he has expended for this purpose, without derogating from his entitlement to collect these sums by any other means.
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85.5 In the event that Licensee wishes to revoke the insurance contract it will notify the Director of such fact at last forty-five (45) days prior to the date on which it actually intends to revoke the contract.
85.6 In the event that the Licensee consents to the revocation of the insurance contract by the insurer, or itself wishes to revoke the insurance contract, the Licensee shall execute an alternative insurance contract with a licensed Israeli insurer in such a manner that the entry into force of the alternative insurance contract will be simultaneous with the expiration of the previous contract; the new insurance contract will be presented to the Director, together with an opinion as set forth in section 84.1, a minimum of thirty (30) days prior to its coming into effect, and the provisions of this chapter will apply to it.

Part C – Guarantee for Fulfilment of the License Conditions

86. The Guarantee and its Purpose

86.1 The Guarantee as presented by the Licensee, per Section 20 of the Unique D.O. Regulations (hereinafter – "the Guarantee"), will be used to secure fulfillment of the provisions of the License by the Company, to ensure payment of pecuniary sanctions pursuant to the Law, as well as for the compensation and indemnification of the State in respect of any damage, payment, loss or expense incurred by it, directly or indirectly, due to the non-fulfillment of the provisions of the License, in whole or in part, at their relevant times and in full, or due to the revocation, limitation or suspension of the License.

86.2 For the purpose of this part: "forfeiture of the Guarantee" - in whole or in part.

87. Forfeiture of the Guarantee

87.1 Without derogating from the generality of the foregoing in section 86.1, the Director may order the forfeiture the Guarantee, including in any one of the occurrences hereinafter detailed:
- (a) The Licensee has breached a material condition of the License.
- (b) The Licensee has not fulfilled its obligations with respect to the insurance contract, as specified in the provisions of the License.
(c) A lawsuit or a demand, has been filed against the State, for the payment of compensation for damage which was caused pursuant to a breach of provisions of the License, pursuant to flawed performance of the License or pursuant to the revocation of the License, as well as where the State has incurred expenses as a result of such a lawsuit or demand. The forfeiture of the Guarantee to cover the sum of the said lawsuit will be carried out only after the judgment in the lawsuit has become final. Notice of such a lawsuit will be given to the Licensee immediately upon receiving it.
- (d) The State has incurred expenses or damages as a result of the revocation of the License.
- (e) The Licensee has failed to pay the entire amount of royalties pursuant to the provisions of the Royalty Regulations and the License.
- (f) A monetary sanction has been leveled against the Licensee, which the Licensee failed to pay in a timely manner.
48 -
(g) The Licensee has not complied with the provisions of the License with respect to the Guarantee.
(h) The Licensee has not paid a fee as imposed on the Licensee, per law or per order.

88. The Manner of Forfeiting the Guarantee

88.1 The Director may order forfeiture of the Guarantee, after he has cautioned the Licensee that if within the period of time he sets the Licensee fails to amend the act or omission, which constitute the object of the warning, the Guarantee will be forfeited.
88.2 In the event that the Guarantee is forfeited, the Licensee shall present a new Guarantee, or bring its balance up to the amount of the original Guarantee, immediately on receiving the Director's demand.
88.3 The Licensee may appeal the Director's decision ordering forfeiture of the Guarantee, to the Minister, within fifteen (15) days from the date on which the Director's decision was brought to its attention. In the event that an appeal has been filed, the forfeiture of the Guarantee will be delayed until the Minister's decision on the matter.

89. The Validity of the Guarantee

89.1 The Guarantee will be renewed from time to time, and will remain in effect for as long as the License is in force, and, in the event that the License is revoked, for two years after the date on which the revocation of the License takes effect, all per the provisions of the Exclusive D.O. Regulations
89.2 Should the Director be apprised that the Licensee has discharged all debts pursuant to the License, including as relevant to the end of service period per section 10, the Director may give his consent to cancel the guarantee before the date indicated in section 89.1.

90. Preservation of Remedies

90.1 The forfeiture of the Guarantee does not derogate from the power to revoke, limit or suspend the License.
90.2 The amount of the Guarantee does not limit the scope of the Company's liability towards the State for payment of all the damages incurred by it, where the liability for their payment devolves upon the Company pursuant to the License or to any law.
90.3 The forfeiture of the Guarantee does not derogate from the possibility of suing the Company for the payment of damages for which it is liable pursuant to the License, or to claim any other relief according to any law.

Chapter H – Oversight and Accountability

Part D – Supervision of Licensee Activities

91. Power to Oversee

91.1 For the purpose of this part and Part B "the Director" shall have the meaning set out in the Supervisory Regulations.
91.2 Pursuant to the provisions of the Supervisory Regulations and the provisions of the License, the Director may inspect the Licensee's operations in all matters concerning the performance of the License and the fulfillment of the provisions of the Law, the Ordinance, or any Regulations, Orders or Directives enacted pursuant thereto.

92. Preservation of Confidentiality

92.1 The Director and anyone who is engaged on his behalf in overseeing the Licensee shall not reveal any information or document (for the purpose of this section "Information") which came into their possession by virtue of their position, to any person who has not been authorized to receive them, unless the Information has became public knowledge. The duty of confidentiality will apply to any person to whom Information has been provided pursuant to the provisions of this section.
92.2 The Director may provide Information to the Anti-Trust Commissioner, the Consumer Protection Commissioner, the Central Bureau of Statistics, and any other agency, which is authorized to receive the Information in order to carry out their duties and the exercise of their lawful authority.

93. Entry into Premises and the Examination of Documents

93.1 In order to carry out the aforesaid [in this part] inspection , the Director, or any person who is engaged on his behalf in overseeing the Company, may:
(a) Enter any Facility or office used by the Licensee in the provision of its services according to this License at any reasonable time and in coordination with the Company;
(b) Carry out measurements and inspections;
(c) Direct the Licensee to perform measurements and inspections for him and report their results to him;
(d) Examine any record, document, plan, accounting ledger, notebook, database or computer file of the Licensee or of anyone who engages on its behalf in matters which the Director has the authority to oversee; the Director may examine and copy these in any way he deems fit;
- (e) Direct the Licensee to deliver to him, upon demand, reports for the purpose of setting policy, at such time, in the format and in the manner determined by him.

94. Cooperation

94.1 The Licensee shall cooperate with the Director, or anyone who conducts inspections on his behalf in all matters which relate to carrying out inspections of the Licensee, and, inter alia, will provide them, upon demand, any information in its possession or control, which they require in order to carry out said oversight.

$$ -50\cdot $$

Part E – Reports and Correction of Faults

95. Filing of Reports

95.1 The Licensee shall file the reports, which are specified in section 68, with the Director, in the format and at the times set out hereinafter.
95.2 Each report will reflect the correct and relevant facts in regard to the subject of the report, updated with respect to the period to which the report relates.
95.3 Each report will be filed in three (3) copies, printed and arranged in a manner which is comfortable to read, will bear a date and will be signed by the Licensee or by a person specifically empowered by the Licensee for this purpose; the report will be filed in the format dictated by the Director, including with respect to the content of the report, its structure and the way it is to be filed.
95.4 The Director may require the Licensee to re-draft or to complete a report, which it has filed, within the time and in the manner that he determines, including in instances in which he finds that necessary details are missing, or the report is missing details which, in the opinion of the Director, the Company should have included.

96. Types of Reports and Due-Dates for Filing

96.1 At least once a year, the Licensee shall present the Director with the Annual Reports, which describe the activity, which took place in the period from January through December of the preceding year; [the reports shall be filed] within the time limit specified for each report from the end of the [previous] calendar year:
(a) An audited financial statement, signed by an accountant, will be filed within ninety (90) days.
(b) An Applicants and Subscribers Report, within sixty (60) days which will include the following data:
(1) The number of Subscribers for each service, divided according to the types of services and the types of Subscribers;
(2) The income for each service, divided according to the types of services;
(3) The number of applicants requesting to connect or disconnect as well as the number of those who are waiting to be connected to the Network;
- (4) The Pre-selection of Subscribers to an International Operator.
- (c) A report regarding the use of frequencies in wireless segments, per the provisions of section 31.
- (d) An updated Appendix A "Licensee Details", at the beginning of January, as detailed in section 17.
96.2 The Licensee shall file the following reports with the Director upon demand:
- (a) A Network Developments Report, within ninety (90) days, per section 22.
(b) A Malfunctions Report which includes a summary and analysis of the malfunctions that have occurred in the Company's Network, according to the Maintenance Log per the provisions of section 26, and which details the number of malfunctions, the cumulative time duration for malfunctions of each type, an analysis of the malfunctions, and description of the steps to reduce their recurrence.
51 -
(c) An Inspections Report which includes details of the results of the inspections carried out on the Company's Network, and analysis of the information received from the control and monitoring system, per section 25.
(d) A Quality of Service Report an analysis of the Company's compliance with the requirements contained in Appendix D to the License, for the period of the Report
(e) A Complaints Report which itemizes the complaints filed by Subscribers with respect to service, including the subject of the complaints, the way these were handled, and details of the Ombudsman's activities;
- (f) A Traffic Report in a format to be dictated by the Director;
- (g) A Special Incident Report as specified in regulation 8 of the Supervisory Regulations;
- (h) An updated Telephone Numbers Plan, pursuant to section 13.
- (i) Details of the Licensee's tariffs.
- (j) An updated engineering program.
96.3 The Licensee shall present the Director, quarterly and no later than a month after the quarter has ended, with the following reports:
- (a) A non-audited quarterly financial statement, signed by an accountant;
- (b) A non-audited quarterly earnings report signed by an accountant, which details the income subject to the payment of royalties.
96.4 The Director may increase or reduce the number of periodic, annual or quarterly reports and may also require the Company to file special reports according to his directives.
96.5 The Licensee shall submit to the Director, upon demand, any additional data, which may be required for overseeing the Licensee's operations as well as any information, which is required by the Ministry in order to carry out telecommunications regulation and oversight.

97. Notification Regarding Defects

97.1 In the event that the Director finds defects or flaws in the Licensee's operations, it shall inform the Licensee of this fact in writing.
97.2 In the event that the Licensee receives such notice, it will present its written response to the Director, within thirty (30) days of the date of receipt, specifying the measures, which it has taken in order to remedy the flaws.

Part F – Fiscal Sanctions

98. Fiscal Sanctions

98.1 The Director may impose fiscal sanctions on the Licensee, at a rate, time and manner as determined in Chapter G1 of the Law.
98.2 In all relating to the imposition of sanctions as aforesaid, the provisions and sections detailed following, shall be considered as comprising service conditions of the License, per its significance in section 37b(a)(1) of the Law.
(a) The obligation to fulfill the Director's instruction per section 27, as applicable to the correction of defects and faults that have an impact on the quality of service to service recipients.

- 52 -

(b) The obligation to sustain, maintain, upgrade and operate the Licensee's Network, in a manner providing for the proper and regular provision of services to service recipients, and the obligation to provide services per the provisions of sections 6.1 and 37.
(c) The obligation to offer Licensee services without discrimination, per the provisions of section 52.
(d) The obligations of the Licensee in respect to tariffs and delayed payments, per the provisions of sections 75-77.

Chapter I – Miscellaneous

99. The License as an Exhaustive Document

99.1 The Licensee's rights, obligations and powers with respect to the conduct of Telecommunication Activities and the provision of Telecommunication Services as specified in this License, and for the conduct of Telecommunication Activities which are required for the purpose of the provisions of the License, derive solely from the law and this License.
99.2 The Licensee shall be stopped from claiming the existence of any right, permission or power in regard to carrying out Telecommunication Activities or to the provision of Telecommunication Services based on any information, promise, commitment, representation, offer, understanding, publication, protocol, discussion or declaration, made outside the scope of the License, whether written or oral, whether prior to the grant of the License or subsequent thereto, unless explicitly contained in this License or pursuant thereto.

100. Access to License Documents

100.1 The Licensee shall allow access to the updated License documents, to the public, at the Licensee's service offices and on his Internet site. The Licensee may also provide such access through a link at his web site to the Communications Ministry web site, subject to publication of these documents at the aforesaid site.
100.2 Where the License and appendices thereof have been provided for reference by the public, the public will not be allowed access to the following appendices:
(a) Appendix A Licensee Details;
(b) Appendix F Security Provisions;
(c) Appendix G Security Annex (Classified);
(d) Appendix H Bank Guarantee and Guarantee Writs.
100.3 The Ministry will have the right to publish the License, other than the appendices listed in section 100.2, at the date and manner as seen fit.

101. Postponement for Carrying Out the Provisions of the License

101.1 In the event that a deadline exists for the performance of a duty, which has been imposed on the Company under this License, the Company will fulfill such duty by the said date.
101.2 The Minister may, upon request of the Licensee, postpone the timetable for the execution of an obligation of any kind (hereinafter in this section –"postponement"), for a time period as determined by the Minister, if he has been convinced that one of the following is supported:
(a) The postponement has been caused by a reason over which the Licensee has no control, and the Licensee has made all reasonable efforts to comply with his obligation.
- (b) The postponement will allow the Licensee to improve the technology used to provide Licensee services.
- (c) The postponement will promote competition within the telecommunications field.
- (d) The postponement is caused by state of emergency circumstances, as defined in section 47, or due to deployment in anticipation of such circumstances.

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102. Maintenance of Responsibility

102.1 None of the approval or supervisory authorizations granted to the Minister or to the Director per the provisions of this License, including the execution of such authorizations as aforesaid, to apply a responsibility of any kind to the Minister or to the Director, that are applicable according to Law or License to the Licensee, and shall not be construed as affecting, detracting, removing or decreasing from the responsibilities of the Licensee as aforesaid.
102.2 Any approval, permission or license as granted to the Licensee, for the purpose of this License or within its framework, whether granted prior to granting of the License or subsequent to it, will not be construed as imposing on the State and responsibility towards the Licensee.

103. The Manner of Delivering Notices

103.1 Any notice with respect to this License or the performance thereof will be given in writing and will be sent by mail, by messenger or by facsimile; a notice sent by mail will be deemed to have reached its destination within 48 hours from the time it is delivered for dispatch. Where a notice is sent in any other manner, the sender will confirm its delivery to the addressee.
103.2 Any notice from the Licensee to the Minister will be delivered via the Director.
103.3 The Licensee's address for the purpose of receiving notices pursuant to this section is: 10 Hagavish Street, P.O.B. 4060, Natanya 42140. The Company shall inform the Minister of any change to the foregoing address.

104. Responsibility of General Partner

104.1 Further to the provisions of any law, all general partners and all limited partners will participate in the commercial management of the Licensee9, both together and each individually, as required to support the provisions of the License by the Licensee, and will attach a Writ of Commitment to the License, that will be marked as Appendix H – Annex H310.

105. Conviction of a Functionary

105.1 Where the CEO of the partnership has been convicted, or another who is directly subordinated to the CEO, or a Director, have committed an offense which by the nature, level of severity or circumstances of the offense indicates that by opinion of the Director, said official cannot serve in a position of responsibility with the Licensee (hereinafter – "the convicted functionary"), said convicted person will immediately be discontinued from serving in a position of responsibility with the Licensee, the general partner or the limited partner within the Licensee partnership.

10 At the date of granting of License, and per the presentation included in the request, the single general partner of the Licensee is Partner Future Communications 2000 Ltd.

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9 Section 63(c) to the Partnerships Order (New Version) – 1975, that states "a limited partner participating in the business management of the partnership will be responsible for all obligations of the partnership, as if he were a general partner, for as long as said participation is continued".

List of Appendices

Appendix A – Not published to the public.

Appendix B – A list of services provided by the Licensee

Appendix C – Erotic Service

Appendix D – Level of Services to a Subscriber

Appendix E – Rules of Accessibility to International Telecom Services

Appendix F – Not published to the public.

Appendix G – Not published to the public.

Appendix H – Not published to the public.

Appendix B – Services Provided by the Licensee

1. General

1.1 This appendix lists the services provided by the licensee, with a concise description of each service.
1.2 The provision of the Services includes: installation, initial operation, maintenance, the location and repair of defects, the operation of a hotline for reporting malfunctions, relocating a line, transfer of a line to another person or change of name, temporary suspension of the service, and subsequent renewals or cancellation of the service, as the case may be.
1.3 The Licensee's Services will be provided according to the Technical and Service Quality Requirements determined by the Ministry from time to time. Indicators of availability and quality of service for the Licensee's Services will be specified in Appendix D of the License, in the following Tables of Services in this Appendix or in the service files authorized by the Director, as the case may be.

2. List of Services

No.	Name of Service	Description of Service	Start Time	Comments
1	Basic Telephone	Basic Telephone calls to and from Subscribers of the Licensee to anytelephone or other Terminal Equipment, such as voice mail, on theLicensee's Network, or other Public Telecom Network, in Israel oroverseas (by means of an International Operator).	Immediate	Other than access via widebandnetwork of another licensee, suchas with DSL equipment or viacable modem
2	BRI Service	Telephone service via BRI interface	Future	The service provides for thetransfer of 2 audio callssimultaneously or the transfer ofswitched data links at 128Kbps.
3	Access to emergency services	Free of charge access for Licensee subscribers to emergency servicesper the provisions of section 59 in the License	Immediate (simultaneouswith basic phoneservices)	The call will be routed to theemergency services call center, perthe subscriber address, as providedby the subscriber for this service,and per the call center of theemergency service as determinedby the service provider.The caller phone number will beidentifiable by the call center forpublic emergency services
4	Transmission via PRI interface	A telephone service provided on transmission access media - IP orTDM via a PRI interface.	Immediate	The service enables thetransmission of 30 audio callssimultaneously to an exchange.

Appendix B - 1 -

5	Access to Internet providers	A service providing subscribers with access to Internet serviceproviders (ISP) at various rates	Immediate	Selection of the ISP by thesubscriber, the data transmissionrate will be indicated in thecontractual agreement, as orderedby the subscriber.
6	Data Comms	Transmission of data, via interfaces suitable for communicationbetween computers.	Immediate
7	Virtual private datacom network -VPN	A virtual private communication network (VPN) for the transmission ofdata via interfaces suitable for communication between computers asbased on IP infrastructures.	Future
8	Call Waiting	Indication of an additional call received while a call in progress, withan option to switch to the awaiting call, An option exists for one-timecancellation or permanent cancellation of the call waiting feature.	Immediate	Conditional on support bysubscriber's terminal equipment.
9	ID of incoming call	Displays number or name of the caller when receiving a call and forcall waiting.	Immediate	Conditional on support bysubscriber's terminal equipment.
10	Blocking of outgoing call ID	Blocks the displays of the subscribers phone number or name whenplacing a call. Two options are available: fixed blocking, one-timeblocking.	Immediate
11	Blocking of incoming calls	Incoming calls blocked upon request of the subscriber.	Future	The block is applied to specificphone numbers; no overall blockfrom another D.O. or from anMRT will be allowed.
12	Blocking of outgoing call	The blocking of outgoing calls by a subscriber, according to predefinedpossibilities.	Future	No overall block to another D.O.or from an MRT will be available.
13	Follow Me	Redirection of all incoming calls to another number per the following:a. When the line is busy.b. When no answer, after number of rings as selected by subscriber.c. For all incoming calls.	Immediate
14	Selective Follow Me	Redirection of calls incoming from selected callers only, to anotherphone number.	Future

Appendix B - 2 -

15	Simulated Private Exchange(Centrex)	A virtual private exchange on the public telecom network.	Future	Including IP-Centrex. A servicefile is required.
16		Free Number Service (free dialing) No charge billed to the subscriber when dialing a free of chargenumber. The subscriber receiving the call is billed for the call.	Future	Depends on a service file.
17	Split Charge Service	The initiator of a call to a split charge number is billed at a reducedrate. The recipient of the call is billed for the remaining cost of the call.	Future	The service will be available to allfixed line subscribers and to MRTsubscribers. The service includesoptions to block calls fromspecified areas and to receivereports of the calls.
18	Conference Call	A possibility to set up conference calls with two additional numbers ormore, as a call is in progress.	Immediate	On condition that the subscriber'sterminal equipment supports theservice.
19	Voice Mail	The allocation of a personal mail box to the subscriber, that is used tostore and extract received voice messages.	Future
20	Fax Mail	The receipt, storage and retrieval of fax messages in a subscriber's faxbox.	Future
21	Common voice mail for fixed lineand mobile extension	Provides a common mail box for a fixed line extension and for theMRT unit.	Future	The tariff for a call, when thevoice mail responds, is per thenumber that was dialed.
22	Returned Call	Dialing of the last phone number from whom an incoming call wasreceived.	Immediate	On condition that subscriber'sterminal equipment supports theservice.
23	Reversed Charges Call	A call, the cost of which will be paid by the subscriber who receivedthe call, after agreeing to receive the call.	Future
24	Access to Premium Info andEntertain-ment Services - at lowprice (1-900)	Provides the subscriber with access to information or entertainmentservices that are interactive or are not interactive, as provided byservice providers.	Future	Dialing prefix according to thenumbering program (1900).
25	Hot Line	A call to a pre-assigned destination by pick up of the phone only.	Future
26	Delayed Hot Line	A call to a pre-assigned destination by pickup of the phone. The call isset up if the subscriber has picked up the handset but has not dialedeven a single number within a pre-defined time period.	Future
27	Leading Number	Determines a leading number for a group of phone numbers on thesubscriber's unit. Dialing of the lead number will divert the call to thenext available free number in the group.	Future

Appendix B - 3 -

28	Parked Call	When a busy signal received or a call waiting signal, dial the accesscode and hang up. When the called line becomes available, an audiblesignal will be provided, and when the phone is picked up the call willbe established.	Future
29	Secure Line	Enables the encryption of all incoming or outgoing voice and faxmessages, from the subscriber's phone line. The line is secure betweenthe terminal equipment at the subscriber's premises and the line endpoint at the switch.	Future	Subject to legal approvals.
30	Call accompanied by advertising	A phone call within which a subscriber who has so agreed will beexposed to commercial advertising.	Future
31	Roaming Features	The incoming phone call is automatically transferred to another line inthe roaming group, if the dialed line was busy.	Future	Various options, including: Linearroaming - call transferred to lastline of the roaming group. Circularroaming - call skips beyond thelast line and returns to the firstline.Roaming per load distribution(several alternatives)
32	SMS	Options available to the subscriber to send and receive instant messagesin form of written message or multi-media message.	Future	SMS, MMS messages, dependingon terminal equipment.
33	Video Call	A telephone call that provides video capabilities as well.	Future	Depends on terminal equipment.
34	Pushed information services	The service will allow a subscriber to passively receive information onselected topics, from a variety of various topics.	Future
35	Wakeup Service	An automated wakeup/memo service, provided by the telephone.	Future	Access by fast dialing
36	Remote follow me control	Remote activation of all "follow me" services (through the audiomanagement system or an Internet portal).	Future
37	Call Hold	Allows holding a call, including the playback of music to a caller whohas been placed in "hold".	Immediate	On condition that the subscriber'sterminal equipment supports theservice.
38	Call Transfer	Transfer the call to another phone number, during the call.	Immediate	A clarification is required asregards billing of the call.

Appendix B - 4 -

39	Call Snatching	An incoming call can be answered at another extension belonging tothe subscriber by dialing a pre-specified code.	Future
40	Speed Dialing for Businesses(*XXXX)	A short and easily remembered number comprised of asterisk (*) and 4digits instead of the regular phone number.	Future
41	Unified Messages service	A service that combines incoming voice, fax, video and email messagesin a single unified mail box, allowing the retrieval of these to a fixedline telephone, a mobile telephone, a fax or a computer.	Future
42	Additional Number	The allocation of an additional phone number to the user, for the samephone line.	Future
43	Web-based services manager	A web-based, password-protected interface providing the recipient ofthe service with full control over the services provided to him by theLicensee.	Future
44	Unique Ringtone	Provides a unique Ringtone for calls received from different callers.	Immediate

Appendix B - 5 -
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Appendix C

Appendix C – Erotic Services

1. Definitions

1.1 In this Appendix:

Licensee	–	A holder of a General License granted by the Minister to provide Domestic Fixed-Line Telecommunication Services or to provide M.R.T.Services.
Telephone Bill	–	A bill issued by the Licensee to a Subscriber for Services that it provided to him.
Writing	–	Including by means of facsimile or electronic mail.
Service Number	–	A number of digits, which are allocated to a Service Supplier by a Licensee, subject to the provisions of the Numbering Plan andadministrative directives in respect thereof, and which, when dialed after the dialing code, enable a Subscriber to have access to an EroticService.
Service Supplier	–	An entity supplying an Erotic Service by means of the Licensee's Network, the service is accessed by means of a Service Number, andpayment for the service being made by means of the telephone bill.
Erotic Promo	–	The playback or display of an audio or visual presentation with erotic content, including a recorded message, as provided by the telecomfacility, whether directly or indirectly, where the promo is intended to provide information in respect to the subsequent service or toencourage the use thereof, on condition that said playback or display are for no additional payment, beyond payment for the phone call asbilled by the regular phone bill.
		In this respect, "indirectly" includes the means used to establish contact to the subscriber's terminal equipment as conditional on theprovision of said erotic promo.
Dialling Prefix	–	A nation-wide dialing prefix in the format mandated by the Ministry for an Erotic Service.
The Network	–	The Public Telecommunication Network of the Licensee.
Erotic Service	–	An service that is provided by the Service Supplier by means of an telecom facility, where the service consists of playing a message orshowing a video clip containing sexual content, including the use of a recorded message, and including a service to meet others or contactother (chat), that is intended to serve, even partially for the purpose of sex. In this respect, "indirectly" signifies the establishing of contactfrom a subscriber's terminal equipment as conditional for the provision of the service or for the billing of such service.
Payment Regulations	–	The Communications Regulations (Telecommunications and Broadcasting)(Payments for Telecommunication Services Specified in theSupplement to the Law), 2004.
Special Payment	–	A price that is stipulated in paragraph 6, which the Subscriber is required to pay for an Erotic Service in addition to the regular payment.
Duration Payment	–	A Special Payment whose sum is fixed according to the amount of time in which the Subscriber utilized the Erotic Service.
		Appendix C - 1 -

Normal Payment–		One of the following:
	(a)	For a call from within the Licensee's Network – payment that does not exceed NIS 0.45 a minute (not including VAT)
	(b)	For a call from the Licensee's Network to an M.R.T. Network – payment that does not exceed the tariff set out in letter "D" in
		Table A of the first Appendix of the Payments Regulations, in addition to NIS 0.45 a minute (not including VAT).
	(c)	For a call from the Bezeq network to the Licensee network – a payment that will not exceed a payment as indicated by the letter
		"C" of Table A of the first Appendix of the Payments Regulations, in addition to NIS 0.45 a minute (not including VAT).
	(d)	For a call from the M.R.T network or the D.O. network, other than the Bezeq network – a payment no higher than the fixed
		payment as defined by the tariffs agreement between D.O subscribers and the D.O. or between M.R.T. subscribers and the
		M.R.T., in respect to call to another subscriber on the same network, plus NIS 0.45 a minute (not including VAT).

2. Access to an Erotic Service

2.1 Subject to the provisions of section 4, the Subscriber will be afforded access to an Erotic Service through the Dialing Prefix and the Service Number.

3. Assignment of a Service Number

3.1 The Licensee may allocate a Service Number to a Service Provider; where the Licensee has allocated such a Service Number, it will enable the Service Provider to provide its services both to the Licensee's Subscribers and to the Subscribers of another Licensee.

4. Blocking Access to an Erotic Service

4.1 a. The Licensee shall block the access to an Erotic Service from all Terminal Equipment, which is connected to the Licensee's Network.
b. Having received notice from the Communications Ministry that an Erotic Promo has been applied through a phone line on the Licensee's network, to which access is possible not through the dedicated service number, the Licensee will disconnect the said telephone line, or will block the line in respect to incoming calls.
4.2 A Subscriber who is 18 years of age may request the Licensee to remove the block aforementioned in section 4.1 from the Terminal Equipment in his possession.
4.3 A Subscriber's request for the removal of the block will be made in writing, or orally, provided the Licensee has set up a procedure, which enables reliable identification of the requesting Subscriber.
4.4 In the event that the Subscriber requests the removal of a block in the aforesaid manner, the Licensee shall inform the Subscriber, even before carrying out the removal of the block, of the rate of the Normal Payment, as defined in section 1 of this Appendix, which is charged for an Erotic Service.

Appendix C - 2 -

4.5 In the event that the Subscriber requests the removal of a block in the aforesaid manner, the Licensee shall, within a reasonable period of time, remove the block in a manner which will enable the Subscriber to have access to Erotic Services through the Terminal Equipment in his possession.
4.6 In the event that the block of the Erotic Services is removed in the aforesaid manner, and the Subscriber changes his mind and requests to the block his Terminal Equipment to the foregoing Services, the Licensee shall replace the block as quickly as possible, and no later than 2 work days from the date of receiving the Subscriber's request.
4.7 The first removal of the block to an Erotic Service, which was performed at the request of the Subscriber as set forth in sections 4.2 and 4.3, will be performed free of charge. The Licensee may charge the Subscriber for any additional blocking of access to an Erotic Service, or for any additional removal of a block, which are performed at the request of the Subscriber.

5. Advance Registration

5.1 Notwithstanding the provisions of section 4, the Licensee may require pre-registration of the Subscriber in order to receive a password, which will serve the Subscriber as a prerequisite for receiving Erotic Service. Nothing in the provision of this section shall derogate from the provisions of sections 4.2-4.4.

6. Determination of a Special Payment

6.1 In the event that a Special Payment is set for an Erotic Service, the rate of such Payment will be set by the Licensee or in an agreement between the Licensee and the Service Supplier.

7. Charging the Subscriber for Erotic Services

7.1 In the event that a Normal Payment is set for an Erotic Service, the Licensee shall include the payment for the Service as part of the Telephone Bill, unless the Subscriber has asked that the charge for the Service be shown in the Telephone Bill separately from the charges for the other Services, which the Licensee provides.
7.2 In the event that a Special Payment is set for an Erotic Service, the Licensee shall present the charge for that Service in the Telephone Bill separately from the charges for the other Services, which the Licensee provides, unless otherwise requested by the Subscriber.
7.3 The Licensee shall provide the Subscriber, upon demand, within ten (10) work days, the particulars of the Special Payment according to the following:
- (a) The Service Number, which was assigned to the Service;
- (b) The date and time of receiving the Service;
- (c) The billable time units charged according to the length of time and the number of such units, which were metered or the total amount of the Special Payment;
- (d) The amount of the charge for that Service.

The Licensee will have the right to charge a reasonable for the provision of said detailing for special payments.

8. Mandatory Announcement

8.1 In the event that a Special Payment is set for an Erotic Service, which is provided through the Licensee's Network, the Licensee shall play a recorded message, itself or via the Service Supplier, at the beginning of the call, which will include the following details:

Appendix C - 3 -

(a) The nature of the service.
(b) The rate of the Special Payment for the Service, whether as a total sum or as a Duration Payment, as applicable.
(c) The option of disconnecting from the Service for no charge, before the tone is sounded, as set forth in section 8.4.
8.2 The recorded message will be made in the same language as the Erotic Service itself, in fluent and clear speech, at a reasonable pace and free of recording disruptions.
8.3 At the beginning of an Erotic Service which is provided in a language other than Hebrew, an announcement will be made specifying the language in which the Service is provided, followed by the recorded message, as set forth in sections 8.1 and 8.2, in the language in which the Service is provided.
8.4 On completion of the recorded message, as set forth in section 8.1, the caller will be given 5 seconds, at the end of which a tone will be sounded denoting the commencement of [receiving] the Erotic Service; should the caller disconnect prior to the sounding of the tone, he will not be charged a Special Payment. Alternatively, the caller will be requested to press a certain key on the Terminal Equipment in his possession, in order to confirm that he wishes to receive the Service, and he will be charged a Special Payment only from such time.

9. Licensee's Relations with a Service Supplier

9.1 The Licensee may allow a Service Supplier to conduct Telecommunications Activities for the provision of an Erotic Service by means of its Facilities; the Service Supplier will be exempt from the obligation to receive a license for the conduct of Telecommunications Activities pursuant to section 3(5) of the Law.
9.2 The Licensee shall include the provisions of this Appendix, mutatis mutandis, in the agreement between itself and the Service Supplier, in such a manner that the Service Supplier shall be obligated to comply with these provisions.
9.3 At the Director's request, the Licensee shall present him with any agreement between itself and the Service Supplier.
9.4 In the event that the Licensee wishes to disconnect a Service Supplier from the Network, it will so inform the Director a reasonable time in advance.

10. Interconnection between Networks

10.1 The terms of Interconnection between the Licensee's Network and between the Public Telecommunication Network of another Licensee, with respect to the provision of Billing and Collection Services by the one Licensee on behalf of another, for the purpose of providing an Erotic Service, which is supplied through the Licensee's Network to the Subscribers of another Licensee, will be settled by agreement between the Licensee and the other Licensee. In the event that the parties cannot reach agreement, the Minister shall determine the matter.
10.2 The Licensee shall present to the Director, upon demand, a signed copy of each agreement between itself and another Licensee with respect to the said Interconnection.

Appendix C - 4 -

11. General

11.1 The Licensee shall be in charge of handling the complaints of Erotic Service customers, with respect to access problems of the Subscriber to the Service and problems of billing and collection with respect to the Service, and for that purpose will maintain an organization for handling customer complaints. The Service Supplier will be responsible for handling customer complaints where the complaints concern the content of the Service. In the event that the Licensee itself provides the Erotic Service, it will also be responsible for handling complaints of Erotic Service customers, which concern the content of the Service.
11.2 The Licensee may not disconnect, terminate or act to the detriment of the Basic Telephone Service of a Subscriber who has challenged a charge for Erotic Service and who refuses to pay it, but it may disconnect such a Subscriber from [continuing to receive] Erotic Service.
11.3 The Licensee shall not provide the Subscriber's details to a Service Supplier or to another entity, without the Subscriber's written approval, and after having verified the authenticity of the approval.
11.4 The Licensee shall deliver to any Subscriber who so requests, free of charge, within three (3) working days, the following details concerning a Service Supplier:
(a) The name and address of the Supplier;
(b) A telephone number through which contact can be made with the Supplier.
11.5 The foregoing in this Appendix will also apply, mutatis mutandis, with respect to the provision of an Erotic Service, which is supplied solely to the Licensee's Subscribers by means of a Network Access Code.
11.6 The Licensee may itself provide an Erotic Service, and the provisions of this Appendix will apply to it, mutatis mutandis.
11.7 This Appendix shall enter into force on July 15, 2004.

Appendix C - 5 -

Appendix D

Appendix D – The Standard of Subscriber Services

1. Bills to Subscribers

a. General

The Licensee will issue and send periodic bills, with the details of charges applied within the time period of the bill. The bill will provide details in respect to all the types of services included within the Service Package that was selected by the subscriber. The bill as issued to the subscriber will be clear, concise, legible and understandable. Said bill to subscribers will detail the relevant items for the specific bills from among the following:

(1) Permanent or one-time payments.
(2) Payments caused by scope of use.
- Call duration minutes, seconds.
- Volume of data transfers (KB, MB) where the service is calculated by volume of data.

(3) Other charges (such as for the receipt of information, electronic commerce).

b. Structure of the Bill

A fixed format will be defined for the bill, that will provide the following details:

(1) Licensee identifying data, and subscriber identifying data (the bill will serve, after payment, as a receipt).
(2) The services for which the bill was issued and the tariffs according to which calculated.
(3) The details of services provided by other licenses that were billed to the subscriber, with details of the sums applied to the subscriber as aforesaid.
(4) The total sum of the bill, excluding VAT, the percentage of VAT, and the total sum to be paid, including VAT.

c. Issuing and Mailing of Bills

(1) The Licensee will issue bills to his Subscribers, monthly or at other times periods, as agreed with the Subscriber.
(2) Where a Subscriber has requested a disconnect from the Licensee, a final bill will be issued at the nearest possible date, and no later than one month following disconnection of the subscriber.
- (3) It will be possible to obtain bills by mail, or by any other means as agreed with the subscriber, to an address as selected by the subscriber.
(4) Upon request of the subscriber, the Licensee will issue a bill with details of the calls, and Licensee will have the right to request a reasonable sum for such detailed bill.

d. Control of Bill Reliability

The Licensee will apply continuous controls, through use of the customer billing system, as required to verify the reliability of the bills being issued. Where an issue has been detected, said issue will be dealt with and corrected immediately. In the event of a failure in the issuing of bills, the data will be restored to the previous, to their condition prior to the running of accounts on the computer system. Following identification and repair of the fault, a rerun of the accounts will be executed.

Appendix D - 1 -

2. Quality Of Service

a. Times for Installation, Relocation or Interruption of Service

(1) The connection, disconnection or interruption of service to a service recipient will be executed according to the provisions of the License, including Chapter D – Part C – Interruption, Disconnection or Cancellation of Service.
(2) No later than 12 months of the service approval date, the installation and relocation of service to a subscriber shall be performed within 14 days of receiving the request, for 80% of the requests. In any event, the installation time shall not exceed 90 days from submission of the request.
(3) The service at subscriber premises will be provided not before 7:00 AM and no later than 22:00, and on Fridays and Holiday Evenings, no later than 15:00, other than with Subscriber agreement. The waiting time of a subscriber for a visit by a technician, at a time that has been coordinated in advance, will not exceed three hours.
(4) The remaining credit or debit sums owed by or to a service recipient who has requested an interruption or disconnection of service, shall be settled within 30 days of submission of said request.

b. Repair Times

(1) In respect to malfunctions regarding which telephoned notifications have been received at the call center or at the service center, these will be repaired within no more than 4 work days from receipt of the notification.
- (2) 80% of malfunctions will be repaired on the same day that said notification was received.
- (3) The fault repair center will be activated 24/7 other than on days of rest, per their significance as defined in the Government and Legal Affairs Law 1948.

c. Provision of Information and Responsivity to Applications and Requests, both Verbally and in Writing

(1) The service center will be open to the public through all hours of the day.
(2) The response to telephone calls will be within a reasonable time period. Where the Director has found that said waiting times are not reasonable, he may set scales of measure for response times. The aforesaid will apply no later than twelve (12) months after receipt of the License.
(3) The main services provided by the Licensee will include the following:
- Information regarding activities and services provided by the Licensee, and registration to Licensee services.
- Requests for updating of subscriber details and for changes in the services package.
- Requests for the clarification of bills and accounts.

Appendix D - 2 -

Technical support.
A center for the provision of information and for the handling of applications and complaints.
Reporting of faults and malfunctions on the network and on terminal equipment.
(4) The Licensee will operate other channels for applications by the public, as required for the provision of information and clarifications as required by the public.
- A computerized IVR voice system.
- Applications through regular mail.
- Applications through fax devices.
- Applications through email facilities.
- (5) The Licensee will publish the address of the Service Center and the telephone number of the Service Center, among others by the following
  - In the contractual agreement with the subscriber.
  - In monthly bills sent to the subscriber.
  - In a document sent on behalf of the Licensee.
  - In telephone directories and at the telephone information center.

d. Handling of Applications and Complaints from the Public

(1) Procedure for the receipt of applications and complaints from the public, and the recording of these:

Without detracting from the provisions of Chapter D of the License – Provision of Services to Service Recipients, the Licensee will appoint a functionary for the handling of applications received from the public. The duties of this functionary will include the handling of applications and complaints that were directed to said functionary by subscribers, or that have been forwarded to him after not receiving an appropriate response from the Licensee's service center.

The process for handling such applications will include the following stages:

Recording and documentation of the complaint on the computer systems.
Sorting per subject.
Classification of priorities.
Investigation of the circumstances.
Receipt of responses from involved and professional elements as relevant to the issue.
Resolution of the problem.
Provision of a response to the Service Recipient.
(2) Scales of Measure for the Handling of Applications from the Public

(a) Complaint Handling Level

Response times to complaints will be up to 14 work days, and the response to 5% of the complaints will be provided within one month.

(b) Service Quality Scales
- 90% handled directly by the Service Rep, until resolved.
- No more than 10%, referred to more senior levels.

Appendix D - 3 -

(c) Applications to be Resolved by Senior Levels

In all cases where the answer as provided by the functionary responsible for Public Applications will not satisfy the applying party, said application will be referred to a management level, where the application will be re-examined, and said manager will respond directly to the applicant. In any event the answer to the applicant will be provided within 30 days of said application.

3. End-To-End Performance Levels

Grade-of Service will be as acceptable for fixed-line telephony networks.

Access Service to an Internet Service Provider (ISP) – such services will be based on "Best Effort", while defining Peak Information Rates for the outgoing and incoming channels.

Data Service – data services will be provided at varying levels of end-to-end performance, including as based on "Best Effort".

Transmission Service – transmission services will be provided at bit error ratios (BER) better than 106.

4. Response Times

Telephony Service – the time needed to establish contact shall not exceed 6 seconds. Network delays will not exceed 150 milliseconds for a call starting and ending within the network, 80 milliseconds for a call starting and ending via interconnection to another public telecom network.

Access times of the Licensee to an ISP – no defined commitment, as the service is based on "Best Effort".

Data Service – according to Class of the service and according to the service level agreement (SLA) with the customer.

5. Reliability and Availability

Licensee services will be provided at the following reliability and availability levels:

a. Elements with very high availability levels (Carrier Grade) and very low failure rates. The equipment used will provide availability levels of 0.99999 (average accumulated essential fault time of 5 minutes per year), or an availability level of 0.99995 (average accumulated essential fault time of up to 30 minutes per year).
- b. The network's topology will provide automatic backup of equipment that has been disabled.
c. Technologies including embedded reconstruction and survivability mechanisms.

Appendix D - 4 -

1. Definitions

1.1 In this Appendix:

Appendix E

Association Form	–	A form signed by the subscriber, where the subscriber indicates a selected operator as detailed in section 3, and that is used forassociation of the subscriber.
Associated Subscriber	–	A subscriber that has selected an international operator as being his selected operator, pursuant to the provisions of this Appendix.
Selected Operator	–	The international operator (I.O.) selected by the subscriber for the receipt of international telecom services by the subscriber, while usingan abbreviated dialing code, pursuant to the provisions of this Appendix
Occasional Caller	–	A subscriber who has not selected any operator as his selected operator.
AbbreviatedDialing Code	–	Dialing prefix "00" used for outgoing I.O. calls when using direct dialing, and the "188" access code to services provided by a mannedexchange, including outgoing I.O. calls.
Subscriber Association	–	A technical definition action effected by the Licensee at the Licensee's switch, such that calls initiated by the subscriber when using anabbreviated dialing code will automatically be routed to the operator selected by said subscriber.
Outgoing I.O. Call	–	The transfer of a voice message or a simulated voice message, such as fax or dialing modem, via the International Telecom System of theI.O., where the initiator of said call is the subscriber.

1.2 Other words and phrases in the License, insofar as not defined in section 1.1 above, shall have the meaning set forth in the Law, in the Regulations enacted pursuant thereto, in the Telecommunications Order, in the Interpretation Law – 1981, or as specified in the appropriate places in the License, unless the language or context indicate a different meaning.

2. Accessibility to International Telecommunication Services

2.1 A subscriber will have the right, in respect to outgoing I.O. calls, to act in one of the following ways:
- (a) As an associated subscriber.
- (b) As an occasional caller.
- (c) As a subscriber with blocked outgoing international calls (hereinafter blocked subscriber).

The subscriber may, at any time, change his mode of activity in respect to the above listed options.

2.2 The Licensee will provide access to international telecom services to any subscriber who has not been blocked, by the following access codes:

(a) 3-digit dialing prefix, as assigned to the I.O. for the provision of outgoing direct dialing calls.

Appendix E - 1 -

(b) 4-digit access codes as assigned to the I.O. for various services associated with international telecom services as provided by the I.O.
2.3 An associated subscriber will be able, via his selected operator, to establish outgoing I.O. calls, while using an abbreviated dialing code, further to his use of dialing prefixes as stated in section 2.2(a).

3. Selection of Selected Operator by a Subscriber

3.1 The Licensee will enable a subscriber to select between enabling access to outgoing I.O. calls from his own telephone, or to block such access as aforesaid. A subscriber that has selected to allow access to outgoing I.O. calls, and who whishes to be associated to an I.O., will do so by written notice to the I.O., by means of an association form.
3.2 The subscriber will have the right to change his selected operator at any time, by signing an association form and submitting said form to his new selected operator.
3.3 The licensee will have the right to charge a reasonable sum for the association of a subscriber, including for a first association.
3.4 The Licensee will provide free of charge direct access, to all associated subscribers, to a service allowing a subscriber to identify his selected operator, when dialing phone number 000-000-00.

4. The Association Process

4.1 The Licensee will execute association of a subscriber subsequent to receiving notification from an I.O. in respect to the selection by a subscriber of said operator as his selected operator (hereinafter – "association notice").
4.2 The association notice will include the subscriber's details private name and family name or corporation name, ID number or incorporation number, address and phone numbers requested by the subscriber for association with the I.O. as a selected operator, and including the date and time as indicated on the association form. The association notices will be delivered via magnetic media files, or in any other manner as agreed between the Licensee and the I.O.
4.3 Only one selected operator may be applied to an individual phone number. Where the Licensee has received two association notices or more, referring to the same phone number, action will be taken according to the notice bearing the latest date and time.
4.4 The Licensee will allow every subscriber possessing several subscriber lines, other than lines within a PRI group, lines referring to a roaming group, and ISDN lines with more than one number for the line, to determine one selected operator for several subscriber lines and another selected operator for other subscriber lines.
4.5 Association of the subscriber will be executed within seven (7) workdays following receipt of the association notice.

5. Occasional Caller

5.1 An occasional caller will be able to receive international telecom services through a dialing prefix and access codes as specified for each I.O.
5.2 The Licensee will not allow an occasional caller to perform outgoing I.O. calls through an abbreviated dialing code.
5.3 The Licensee will provide a voice announcement to such occasional caller, who has dialed an abbreviated dialing code, stating that if the caller wishes to receive international telecom services he must do so through the dialing prefixes or access codes of the I.O. through which he wishes to receive said service, as described in section 2.2 above.

Appendix E - 3 -

6. Blocking of Outgoing I.O. Calls

6.1 The Licensee will have the right to charge a reasonable sum from subscribers for the blocking of outgoing I.O. calls, including for the first block.
6.2 The Licensee will provide a voice message to the subscribers whose access to outgoing I.O. calls has been blocked, but who has dialed an abbreviated dialing code or a dialing prefix or access codes as described in section 2 above, stating that the requested phone number has been blocked for the receipt of services as aforesaid.

7. Prevention of Forced Association

7.1 The Licensee will take all reasonable steps to prevent the forced association of a subscriber, without his knowledge or despite the subscriber's wishes ("Slamming"). Such means will include an identification of the subscriber and an authentication of the customer's right to receive the service.
7.2 The Licensee will cooperate with other licensee's, in respect to the identification of fraudulent activities as aforesaid, and the prevention of these.

8. Transfer of Information to an I.O.

8.1 The Licensee will send a daily file to the I.O., such file containing any changes that occurred in respect to subscriber associations (hereinafter "changes file"). The changes file will include details of the subscribers that have been associated to the I.O. or have been removed from such association on that day. The file will include details of the subscribers, and at least the following: private name, family name or corporation name, ID number or incorporation number, address and phone numbers that have been associated to the I.O., other than if agreed otherwise between the parties as described in section 8.2.
8.2 The conditions for transfer of the changes file, including the time of transfer, the format and fees for preparation of the file and its transfer, will be agreed between the Licensee and the I.O. Where the parties are have not reached an agreement as aforesaid, the Minister will decide the matter.

Appendix E - 4 -

The State of Israel Ministry of Communications

General License of Partner Fixed Communications Solutions Limited Partnership for the Provision of Domestic Fixed-Line Telecommunication Services

Amendment No. 1

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having given Partner Fixed Communications Solutions Limited Partnership (hereinafter: "Partner") the opportunity to present their arguments regarding this matter, we hereby amend the Exclusive General License for the provision of Domestic Fixed-Line Telecommunication Services, granted to Partner on 15 January 2007, as follows:

Amendment of Article 59

In Article 59.2, instead of "Within no more than 30 days of the start date" shall come: "Within no more than two days of the start date".

Amendment of Article 64

In Article 64.8 (b), the words "and a magnetized label" shall be deleted.

Amendment of Article 103

In Article 103.3, instead of "10 Hagavish Street, P.O.B. 4060, Natanya 42140" shall come: 8Amal, Afeq Industrial Park, P.O.B 435".

(16 January, 2007)

(sgd)

—————————————— Mordechai Mordechai Director-General

The State of Israel Ministry of Communications

General License of Partner Fixed Communications Solutions Limited Partnership for the Provision of Domestic Fixed-Line Telecommunication Services

Amendment No. 2

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law and after having considered all of the relevent factors regarding the provision of telephone service by broadband, we hereby amend the Exclusive General License for the provision of Domestic Fixed-Line Telecommunication Services, granted to Partner Fixed Communications Solutions Limited Partnership on 15 January 2007, as follows:

Amendment of Article 1

1. In Article 1.1, after the definition of "Use", shall come:
""Telephone Service by Broadband" basic telephone service that is provided during use of an access broadband network of another domestic fixed line operator;"
1. In Article 1.1, instead of the definition of "Telephone Service", shall come:
""Telephone Service" basic telephone service, including telephone service by broadband and accompanying services to such service;"

Amendment of Article 20

1. After Article 20.1 shall come:
" 20A.1 The licensee shall position and operate the exchanges and transit switches that constitute part of the network, only within the boundaries of the State of Israel."

Addition of Article 46A

After article 46, shall come:

" 46A Prohibition of Interconnect with the P.A.

46A.1 The licensee shall not provide direct interconnection to the network of the telecommunications operator in the areas of the Palestinian Authority (P.A.), unless it receives prior written approval from the director".

Amendment of Article 48

1. After article 48.4 shall come:
"48.5 The afore-said does not derogate from the authority of the director to determine additional requirements that relate to the security forces, as a condition for the provision of any of its services".

Amendment of Article 50

1. After article 50.4 (h) shall come:
" (i) A condition that states that the licensee shall not provide either for valuable consideration or otherwise, any of its services to a receipient of a service that is located outside of the boundaries of the State of Israel."

Amendment of Article 53

1. After article 53.1 shall come:
"53.2 The licensee shall not provide either for valuable consideration or otherwise, any of its services to a receipient of a service that is located outside of the boundaries of the State of Israel."

Amendment of Annex B

In Annex B, after item 1 in article 2-list of services, shall come:

1A.	Telephone service on Broadband	A basic telephone service that is provided	immediate	The service is provided
	(VoB-Voice over Broadband)	during use of an access broadband network		with DSL technology or
		of another domestic fixed line operator		through Cable Modem

(31 January, 2007)

(sgd)

Mordechai Mordechai Director-General

——————————————

—————————————— Haim Giron, Adv. Senior Deputy Director-General, Engineering and Licensing

Signed today, 19 February ,2007

The State of Israel Ministry of Communications

General License of Partner Fixed Communications Solutions Limited Partnership for the Provision of Domestic Fixed-Line Telecommunication Services

Amendment No. 3

By virtue of the powers of the Minister of Communications under Article 4 (e) of the Communications Law (Telecommunications and Broadcasts), 5742-1982, that have been delegated to us, by all our other powers under any law, we hereby amend the Exclusive General License for the provision of Domestic Fixed-Line Telecommunication Services, granted to Partner Fixed Communications Solutions Limited Partnership on 15 January 2007, as follows:

Amendment of Article 64

In Article 64.7, instead of "("commencement date"), other than", shall come: "other than article 64.1 (a) that will become effective on 15 March 2007 ("commencement date") other than".

(19 February, 2007)

(sgd)

Mordechai Mordechai Director-General

——————————————

Exhibit 8

List of Subsidiaries of Partner Communications Company Ltd.

Name of subsidiary	Place of Incorporation	Ownership rights

Partner Future Communications 2000 Ltd.	Israel	100%
Partner Land-Line Communications Solutions, LLP	Israel	100%
Partner Business Communications Solutions, LLP	Israel	100%

Exhibit 12.(a).1

I, David Avner, certify that:

(1) I have reviewed this annual report on Form 20-F of Partner Communications Company Ltd.;
(2) 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;
(3) 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;
(4) 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
(5) 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: June 10, 2007

/s/ David Avner

David Avner Chief Executive Officer

——————————————

Exhibit 12.(a).2

I, Emanuel Avner, certify that:

(1) I have reviewed this annual report on Form 20-F of Partner Communications Company Ltd.;
(2) 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;
(3) 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;
(4) 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
(5) 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: June 10, 2007

/s/ Emanuel Avner

Emanuel Avner Chief Financial Officer

——————————————

Exhibit 13.(a).1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Partner Communications Company Ltd. (the "Company") on Form 20-F for the period ending December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify that to the best of our knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 10, 2007

/s/ David Avner

—————————————— David Avner Chief Executive Officer

Date: June 10, 2007

/s/ Emanuel Avner

Emanuel Avner Chief Financial Officer

——————————————

Kesselman & Kesselman Certified Public Accountants Trade Tower, 25 Hamered Street Tel Aviv 68125 Israel P.O Box 452 Tel Aviv 61003 Telephone +972-3-7954555 Facsimile +972-3-7954556

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form F-3 (No. 333-14222) of Partner Communications Company Ltd., of our report dated June 6, 2007, relating to the financial statements, which appears in this Form 20-F.

Tel-Aviv, Israel /s/ Kesselman & Kesselman

—————————————— Kesselman & Kesselman Certified Public Accountants (Isr.)

Date: June 6, 2007

AI assistant

Partner Communications Co Ltd. — Annual Report 2006

6974_rns_2007-06-13_40330b75-88de-4704-aa34-816e825dd72d.pdf

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

FORM 20-F

PARTNER COMMUNICATIONS COMPANY LTD.

ORDINARY SHARES OF NIS 0.01 EACH 154,516,217

INTRODUCTION

FORWARD-LOOKING STATEMENTS

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

ITEM 3. KEY INFORMATION

3A. Selected Financial Data

Exchange Rate Data

3B. Capitalization and Indebtedness

3C. Reasons for the Offer and Use of Proceeds

3D. Risk Factors

We operate in a highly regulated telecommunications market which limits our flexibility to manage our business. Regulatory decisions may materially and adversely affect our results of operations.

We may be adversely affected by regulatory developments relating to number portability.

We may be adversely affected by regulatory developments relating to interconnect tariffs, roaming charges, and SMS tariffs.

There are alleged health risks related to antenna sites and the use of mobile telecommunications devices, including handsets. The actual or perceived health risks of mobile telephone communications devices could have a material adverse effect on our business, operations and financial condition.

Competition from existing competitors may require us to increase our subscriber acquisition and customer retention costs, decrease our tariffs, and may increase our churn rate.

Possible changes in the law could result in increased anti-trust regulation on the mobile telephone industry in Israel, which could have a material adverse effect on our revenues and financial results.

Our subscriber growth rate, and consequently our revenue growth rate, has begun to slow, because Israel's mobile telephone services market is highly penetrated, making it more difficult for us to obtain new subscribers than in the past and retain existing subscribers.

We are exposed to, and currently engaged in, a variety of legal proceedings, including claims for infringement of third party intellectual property rights and class action lawsuits.

We may be subject to increased regulation in respect of handset sales.

Following a possible rearrangement of spectrum, we may lose some of our frequencies or we may be allocated spectrum of inferior quality.

The telecommunications industry is subject to rapid and significant changes in technology which could reduce the appeal of our services.

Our company is controlled by a single shareholder.

We benefit from our relationship with Hutchison Telecom and Hutchison Whampoa, who are global leaders in the mobile telecommunications market. We cannot assure you that we will continue to enjoy the benefits of this relationship.

Operating a mobile telecommunications network involves the inherent risk of fraudulent activities and potential abuse of our services, which may cause loss of revenues and non-recoverable expenses.

We are dependent upon our ability to interconnect with other telecommunications carriers. We also depend on Bezeq and other suppliers for transmission services. The failure of these carriers to provide these services on a consistent basis could have a material adverse effect on us.

We can only operate our business for as long as we have a license from the Ministry of Communications.

Our mobile telephone license imposes certain restrictions on who can own our shares. If these restrictions are breached, we could lose our license.

Our marketing strategy is, in part, based upon the international Orange brand. If our license agreement terminates or is revoked, we will lose one of our main competitive strengths.

We depend on a limited number of suppliers for our network equipment. Our results of operations could be adversely affected if our suppliers fail to provide us with adequate supplies of network equipment or maintenance support on a timely basis.

Our business may be impacted by the shekel exchange rate fluctuations and inflation.

Our inability to successfully integrate new businesses or technologies could have a material adverse effect on our business.

We may fail to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, which may have a material adverse effect on our operating results and our share price.

The political and military conditions in Israel may adversely affect our financial condition and results of operations.

Our leverage could adversely affect our financial health.

Our credit facility contains a number of restrictions and obligations that limit our operating and financial flexibility.

We cannot assure that we will distribute dividends in the future, nor the amounts of any such dividends.

ITEM 4. INFORMATION ON THE COMPANY

4A. History and Development of the Company

4B. Business Overview

Overview of Mobile Telecommunications Industry in Israel

Strategy

Competitive Strengths

Marketing and Brand

Services and Products

Tariff Plans

International Roaming

Value-Added Services

Handsets

Customer Division

Customer Service

Sales and Distribution

Direct Sales Channels

Indirect Sales Channels

Customer Contracts, Credit Policy, Billing Bad Debt and Disconnection

Our Network

Overview

Infrastructure

Network Design

Spectrum Allocation and Capacity

Other Systems

Site Procurement

Suppliers

Seasonality

Interconnection

Competition

Information Technology

Intellectual Property

Regulation

Overview

Telecommunications Law

Fair Competition and Antitrust Law

Regulatory Developments

Entry of MVNO Operators

Partner Communications Co Ltd. Annual Report 2006