---

---

As filed with the Securities and Exchange Commission April 22, 2005

SECURITIES AND
EXCHANGE COMMISSION WASHINGTON, D.C. 20549

# FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
2004 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 | 184,037,221

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     x   NO        o

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

ITEM 17        o               ITEM 18        x



---

---



# TABLE OF CONTENTS

|                                                                                      |    
|------------------------------------------------------------------------------------- | ---
|
|
|
|
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         | 5  
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                       | 5  
|ITEM 3. KEY INFORMATION                                                               | 5  
|ITEM 4. INFORMATION ON THE COMPANY                                                    | 20 
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  | 49 
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    | 58 
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             | 73 
|ITEM 8. FINANCIAL INFORMATION                                                         | 79 
|ITEM 9. THE OFFER AND LISTING                                                         | 82 
|ITEM 10. ADDITIONAL INFORMATION                                                       | 84 
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 95 
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 97 
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 97 
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 97 
|ITEM 15. CONTROLS AND PROCEDURES                                                      | 97 
|ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            | 97 
|ITEM 16B. CODE OF ETHICS                                                              | 97 
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      | 97 
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES       | 98 
|ITEM 17. FINANCIAL STATEMENTS                                                         | 98 
|ITEM 18. FINANCIAL STATEMENTS                                                         | 98 
|ITEM 19. EXHIBITS                                                                     | 99 
|GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS                                         | 101

- 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 subsidiary, Partner Future Communications 2000 Ltd.,
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 31, 2004 of NIS 4.308= 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.

- 2 -

---

---



# 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 forward-looking 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:

| | the
effects of the high degree of regulation in the telecommunications market in which we
operate;
|- | --------------------------------------------------------------------------------------------------

| | regulatory
developments relating to tariffs, including interconnect tariffs;
|- | ----------------------------------------------------------------------------

| | regulatory
developments related to the implementation of number portability;
|- | ----------------------------------------------------------------------------

| | the
difficulties associated with obtaining all permits required for building and operating of
antenna sites;
|- | ------------------------------------------------------------------------------------------------------------

| | alleged
health risks related to antenna sites and use of telecommunication devices;
|- | -----------------------------------------------------------------------------------

| | the
possible requirement to indemnify planning committees in respect of claims made against
them relating to the depreciation of property values or to alleged health damages
resulting from antenna sites;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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,
expenditures required and 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;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the
risks associated with technological requirements, technology substitution and changes and
other     technological developments;
|- | -----------------------------------------------------------------------------------------------------------------------------------

| | fluctuations
in foreign exchange rates;
|- | ---------------------------------------

| | the
availability and cost of capital and the consequences of increased leverage;
|- | --------------------------------------------------------------------------------

| | the
results of litigation filed or that may be filed against us; and
|- | --------------------------------------------------------------------

- 3 -

---

---



| | 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;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

- 4 -

---

---



# 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, 2004 prepared in accordance with US GAAP. The
selected financial data for each of the years in the three-year period ended
December 31, 2004 and at December 31, 2004 and 2003 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, 2001 and December 31,
2000 and at December 31, 2002, 2001 and 2000 are derived from our audited financial
statements not appearing in this annual report. We were incorporated in
September 1997 and began full commercial operations on January 1, 1999. 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,
|--------------------------------- | -----------------------
|
|
|
|
|Statement of Operations Data      |                        
|Revenues, net                     |                        
|Services                          |                        
|Equipment                         |                        
|                                  |                        
|                                  |                        
|Cost of revenues                  |                        
|Services                          |                        
|Equipment                         |                        
|                                  |                        
|                                  |                        
|                                  |                        
|Gross profit (loss)               |                        
|Selling and marketing expenses    |                        
|General and administrative        |                        
|expenses                          |                        
|                                  |                        
|Operating profit (loss)           |                        
|Financial expenses, net           |                        
|Loss on impairment of investments |                        
|in non-marketable securities      |                        
|                                  |                        
|Income (loss) before tax          |                        
|Tax benefit (tax expenses)        |                        
|                                  |                        
|Income (loss) before cumulative   |                        
|effect of a change in accounting  |                        
|principles                        |                        
|Cumulative effect, at beginning   |                        
|of year, of a change in           |                        
|accounting principles             |                        
|                                  |                        
|Net income (loss) for the year    |                        
|                                  |                        

- 5 -

---

---



|                                      | Year ended December 31,
|------------------------------------- | -----------------------
|
|
|
|
|Earnings (loss) per ordinary share    |                        
|and per ADS                           |                        
|Basic:                                |                        
|Before cumulative effect              |                        
|Cumulative effect                     |                        
|                                      |                        
|                                      |                        
|                                      |                        
|Diluted:                              |                        
|Before cumulative effect              |                        
|Cumulative effect                     |                        
|                                      |                        
|                                      |                        
|                                      |                        
|Weighted average number of shares     |                        
|outstanding                           |                        
|Basic:                                |                        
|                                      |                        
|Diluted:                              |                        
|                                      |                        
|                                      |                        
|Other Financial Data                  |                        
|                                      |                        
|Capital expenditures, net             |                        
|EBITDA(1)                             |                        
|Statement of Cash Flow Data           |                        
|Net cash provided by (used in)        |                        
|operating activities                  |                        
|Net cash used in investing activities |                        
|Net cash provided by (used in)        |                        
|financing activities                  |                        
|Balance Sheet Data (at year end)      |                        
|Current assets                        |                        
|Investments and long-term receivables |                        
|Fixed assets, net                     |                        
|License and deferred charges, net     |                        
|Deferred income taxes                 |                        
|                                      |                        
|Total assets                          |                        
|                                      |                        
|Current liabilities (2)               |                        
|Long-term liabilities (2)             |                        
|                                      |                        
|Total liabilities                     |                        
|                                      |                        
|Shareholders' equity (capital         |                        
|deficiency)                           |                        
|                                      |                        
|Total liabilities and shareholders'   |                        
|equity                                |                        
|                                      |                        

|(1) | EBITDA
represents earnings (loss) 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.                The EBITDA figures presented above
are substantially the same as those resulting                from the calculation of
Consolidated Adjusted EBITDA as required under the                indenture governing our
13% senior subordinated notes due 2010, or the Notes due 2010.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | See
Notes 5, 6 and 7 to our consolidated financial statements for information
               regarding long-term liabilities and current maturities of long-term bank
loans.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 6 -

---

---



|                                            | Year ended December 31,
|------------------------------------------- | -----------------------
|
|
|
|
|Reconciliation Between Operating Cashflow   |                        
|and EBITDA                                  |                        
|Net cash provided by (used in) operating    |                        
|activities                                  |                        
|Liability for employee rights upon          |                        
|retirement                                  |                        
|Accrued interest, exchange and linkage      |                        
|differences on long-term liabilities        |                        
|Amount carried to deferred charges          |                        
|Accrued interest, exchange and linkage      |                        
|differences on security deposit             |                        
|Sundry                                      |                        
|Increase (Decrease) in accounts receivable: |                        
|Trade                                       |                        
|Other                                       |                        
|Decrease (Increase) in accounts payable and |                        
|accruals:                                   |                        
|Trade                                       |                        
|Shareholder  current account               |                        
|Other                                       |                        
|Increase (Decrease) in inventories          |                        
|Increase in asset retirement obligation     |                        
|Financial Expenses(*)                       |                        
|                                            |                        
|EBITDA                                      |                        
|                                            |                        

(*)
          Financial expenses excluding any charge for the amortization of pre-launch
          financial costs.

|                                                                 | At December 31,
|---------------------------------------------------------------- | ---------------
|
|
|
|
|Industry Data                                                    |                
|Estimated population of Israel (in thousands)(1)                 |                
|Estimated Israeli mobile telephone subscribers (in thousands)(2) |                
|Estimated Israeli mobile telephone penetration(3)                |                

|                               | Year ended December 31 | Three months ended
|------------------------------ | ---------------------- | ------------------
|
|
|
|
|Partner Data                   |                        |                   
|Subscribers (000's) (at period |                        |                   
|end)(4)                        |                        |                   
|Pre-paid                       |                        |                   
|Post-paid (private)            |                        |                   
|Post-paid (business)           |                        |                   
|Share of total Israeli         |                        |                   
|subscribers (at period end)(5) |                        |                   

- 7 -

---

---



|                               | Year ended December 31 | Three months ended
|------------------------------ | ---------------------- | ------------------
|
|
|
|                               |                        |                   
|Average monthly usage per      |                        |                   
|subscriber (mins.)(6)          |                        |                   
|Average monthly revenue per    |                        |                   
|subscriber including inroaming |                        |                   
|(NIS)(7)                       |                        |                   
|Churn rate(8)                  |                        |                   
|Subscriber acquisition costs   |                        |                   
|per subscriber (NIS)(9)        |                        |                   
|Estimated coverage of Israeli  |                        |                   
|population (at period end)(10) |                        |                   
|Number of operational base     |                        |                   
|stations (at period end)       |                        |                   
|Number of microsites out of    |                        |                   
|total number of operational    |                        |                   
|base stations (at period end)  |                        |                   
|Number of employees (full time |                        |                   
|equivalent) (at period         |                        |                   
|end)(11)                       |                        |                   

|(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, 2002, 2003 and 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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, 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
               in-roaming 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                Global System for Mobile Communications, or GSM, 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 8 -

---

---



|(9) | Subscriber
acquisition costs, or SAC, include mainly handset and car kit costs,                net
of revenues received from sales of handsets, referred to as handset
               subsidies, and commissions paid to dealers, distributors and sales
               personnel. Subscriber acquisition costs per subscriber are calculated by
               dividing the subscriber acquisition costs incurred during the reporting
period                by the number of subscribers acquired in the reporting period. The
               aforementioned components of SAC are included in our consolidated
financial                statements as follows: handset and car kit costs  in cost
of equipment                revenues; commissions paid to dealers, distributors and
sales                personnel  in selling and marketing expenses; and
revenues                received from sales of handsets  in equipment revenues.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | 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.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | 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.

|              | 2000 | 2001 | 2002 | 2003  | 2004
|------------- | ---- | ---- | ---- | ----- | ----
|
|
|
|
|Average(1)    |      |      |      | 4.077 |     
|High          |      |      |      | 4.198 |     
|Low           |      |      |      | 3.967 |     
|End of period |      |      |      | 4.041 |     

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

|     | October
2004 | November
2004 | December
2004 | January
2005 | February
2005 | March
2005
|---- | ------------ | ------------- | ------------- | ------------ | ------------- | ----------
|
|
|
|
|High |              |               |               | 4.481        |               |           
|Low  |              |               |               | 4.430        |               |           

On April 19, 2005, the exchange
rate was NIS 4.374 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.

- 9 -

---

---



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. In
particular, the regulators decisions may materially adversely affect our results of
operations.

Our
business is highly regulated. We are subject to government regulation regarding
telecommunications licenses, antitrust, frequency allocation and costs and arrangements
pertaining to interconnection and leased lines. 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:

| | reducing
call and/or SMS termination tariffs (as described below under   We may be
adversely affected by regulatory developments relating to interconnect tariffs);
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | changing
the method of calculating call duration;
|- | -------------------------------------------------

| | implementing
number portability in the cellular market in Israel (as described below under   We
may be adversely affected by regulatory developments relating to number portability);
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | increasing
the rate of royalties to be paid to the State of Israel;
|- | -------------------------------------------------------------------

| | broadening
the range of the types of revenues on which royalties are paid;
|- | --------------------------------------------------------------------------

| | setting
policies and imposing new regulations governing electronic trade and content services,
including 3G     content services;
|- | ---------------------------------------------------------------------------------------------------------------------------------

| | changing
the regulation affecting our roaming business; and
|- | -----------------------------------------------------------

| | otherwise
limiting the prices that we may charge our customers.
|- | ---------------------------------------------------------------

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 interconnect tariffs.

The
Ministry of Communications reduced call termination tariffs from NIS 0.50 per minute to
NIS 0.45 per minute at the beginning of 2003. In addition, the Ministry of Communications
amended our license and the relevant regulations, reducing SMS termination tariffs from
NIS 0.38 to NIS 0.285 effective May 1, 2004.

In
November 2004, the Ministry of Communications issued regulatory changes further reducing
call termination tariffs, effective March 1, 2005, from NIS 0.45 to NIS 0.32, with
additional reductions mandated as follows: effective March 1, 2006, to NIS 0.29 per
minute; effective March 1, 2007, to NIS 0.26 per minute; and effective March 1, 2008, to
NIS 0.22 per minute. At the same time, the Ministry of Communications reduced SMS
termination tariffs, effective March 1, 2005, from NIS 0.285 to NIS 0.05, with an
additional reduction mandated effective March 1, 2006 to NIS 0.025. We have implemented
cost-cutting measures as well as price increases and repackaging 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.

At
the same time as it announced the regulatory changes described above, the Ministry of
Communications also indicated that it intends to start implementing a process to bring
about unification of rates for calls terminating on and off an operators network and
that it intends to hold preliminary hearings with the cellular operators in Israel on this
matter in 2005. Additionally, the Ministry of Communications announced that billing units
will be reduced from the present intervals of up to 12 second units to 1 second intervals
effective December 31, 2008. These changes, if implemented, could also adversely affect
our revenues and profits.

- 10 -

---

---



Recent statements by the Israeli
Commissioner of Restrictive Trade Practices have indicated that he may seek a change in
the law that 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
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.

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.

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 and quality 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:

| | erection
and operating permits from the Ministry of the Environment;
|- | --------------------------------------------------------------------

| | permits
from the Civil Aviation Authority, in certain cases; and
|- | ----------------------------------------------------------------

| | 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 of these consents and
permits, especially from local building authorities. As of December 31, 2004,
approximately 30% of our antenna sites were operating without local building permits. A
substantial portion of these 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. If we continue to experience difficulty in
obtaining approvals for the erection of antenna sites, this could adversely affect our
existing network, delay the erection of additional antenna sites to our network and
adversely impact our 3G network build-out. 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. 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. If
the local planning and building authorities determine that permits are necessary for the
installation of these devices, it could have a negative impact on our ability to obtain
permits for our repeaters.

- 11 -

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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. We may be further faced with additional demolition orders,
monetary penalties and criminal charges, including against 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. Several
lawsuits have been filed 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.

The
actual or perceived health risks of mobile telephone communications devices could have a
material adverse effect on our business, operations and financial condition, including
through exposure to potential liability, a reduction in subscribers, reduced usage per
subscriber and increased difficulty in obtaining sites for base stations. Furthermore, we
do not expect to be able to obtain insurance with respect to such liability.

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 or to
alleged health damage that result from 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 health risks relating to
antenna sites or 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 a number of
developments. First, since National Building Plan 36 was approved, some planning
committees have started to require that, as a precondition for issuing new permits for
antenna sites, we submit an undertaking to indemnify the committee against claims for
depreciation in the value of nearby properties as a result of issuing a permit to build,
and the building of, antenna sites. Our position, like that of the other mobile network
operators, is that under existing law and the National Building Plan, the planning
committees have no authority to require us to submit such an undertaking. Recently, our
position received support in a judicial decision of the District Court of Tel Aviv.
However, the National Council for Planning and Building decided to add the requirement
described above to National Building Plan 36 itself. In order for such a requirement to be
included in the National Building Plan and to become effective, it has to be approved by a
Governmental Ministers Committee. At this stage we cannot predict whether such a
requirement will become effective. However, if it will eventually become effective it may
have a material effect on our financial condition and results of operations.

Second,
legislation is pending in the Knesset which, if enacted, would require that, as a
precondition for issuing building permits for antenna sites, we submit an undertaking to
indemnify the building and planning committee against claims for both depreciation in the
value of nearby properties and health damage that result from the issuance of a permit to
build, and the building of, antenna sites. According to the pending legislation, we would
be required to submit such an undertaking also in relation to antenna sites for which we
had obtained building permits prior to the date the pending legislation takes effect. The
pending legislation also provides that in a class action claim regarding damage to health
from any antenna sites, a defendant would have the burden of proving that the damage to
health was not caused by such sites. The pending legislation also provides absolute
liability for offenses committed and prescribes liability for officers of a company
violating such law. For more information, see - 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. If the
pending legislation becomes law, it may have an adverse effect on our financial condition
and results of operation.

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

We
compete primarily with Cellcom and Pelephone, two of the other mobile telephone network
operators in Israel. 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. These developments may
adversely affect our market share, financial condition and results of operations.

During
2003, Cellcom and Pelephone launched new technologies enabling faster transfers of data:
EDGE technology, in the case of Cellcom, and CDMA-1x, in the case of Pelephone. In 2004,
further technological enhancements were introduced by our competitors, Cellcom announcing
commercial service over UMTS spectrum and Pelephone announcing the implementation and
commercial offering of EV-DO technology. If Cellcom or Pelephone successfully maximizes
the potential of these technologies before we benefit from our 3G technology, we will be
at a competitive disadvantage.

To
the extent that fixed-line telephones are used instead of mobile telephones, we also
compete with Bezeq, the incumbent public fixed-line operator in Israel. Bezeq completed
during 2004 its acquisition of 100% of the shares of Pelephone, and that may enable
Pelephone to offer combined packages of fixed-line, mobile telephone and other
telecommunication services. If any of our other competitors is granted a fixed-line
telephone service license or acquires or cooperates with a fixed-line operator, we may 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. Recently, a
company jointly owned by the three cable companies in Israel launched fixed-line telephone
service on a very limited basis. We may also face competition from additional fixed-line
operators, if additional fixed-line licenses are granted. The Ministry of Communications
may also choose to grant additional mobile telephone operator licenses, which may further
intensify competition in the mobile market in Israel. 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. We
experienced a material increase in churn in each of 2002 and 2003. Although we experienced
slightly lower churn in 2004 as compared to 2003, we may face a greater churn rate in 2005
than that experienced in 2004. Competition, including increased competition resulting from
the introduction of number portability, may further increase our level of churn.

We expect our subscriber growth
rate, and consequently our revenue growth rate, 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.

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 we expect the
growth of the overall Israeli market and of our own subscriber base to be slower than in
the past. According to data from the Central Bureau of Statistics, the population of
Israel at September 14, 2004 was approximately 6.8 million. According to a recent report
issued by a research company, at December 31, 2004, Israels mobile telephone market
penetration is estimated to be 105%, although this includes 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 will not grow at the same rate as in the past, and our own subscriber
growth will not develop 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. While our market
share, based on internal estimates, has increased from approximately 13% of Israeli mobile
subscribers at December 31, 1999 to approximately 32% at December 31, 2004, our market
share growth has slowed since 2003, and we expect this trend to continue.

- 13 -

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Delays in the development of
handsets, services and network compatibility and components may hinder the deployment of
3G technology. If we are unable to successfully develop our 3G network or attractive
services for our subscribers, our results of operations will be adversely affected.

Our
operations depend in part upon the successful deployment of continuously evolving mobile
telecommunications technologies, including 3G technology. We have selected Nortel Networks
to supply the infrastructure necessary to build-out our 3G network. We were one of the
first 3G networks in the world to be built with Nortel equipment, and we cannot assure you
that Nortel will be able to successfully deliver all of the requirements of our network,
including interoperability with our existing GSM network. Commercially viable 3G handsets
may not be available in the timeframe required or in the amounts needed. If we cannot
obtain reasonably priced devices, technologically proven network equipment or software
with sufficient functionality or speed from Nortel or other suppliers, or if we experience
delays in the delivery or functional deployment of devices, handsets and related network
equipment or software, our ability to further develop our 3G network, and our
customers ability to access it, will be impaired.

We
also rely on applications developers to develop services that will stimulate demand for
our 3G network. We cannot predict whether customer demand will develop as expected. If
applications 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.

3G
technology is newer and has less mature standards than second generation technology. We
may not be able to roll-out or operate new technologies to perform as expected or as
favorably when compared to existing or emerging competing communications technologies.

Establishing
a 3G network 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 network. If we are unable to develop
our 3G network or services attractive to 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.

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 and other communications services that have the technical capability to handle
mobile telephone calls and to interconnect with the fixed-line telephone network. The
effect of emerging and future technological changes, including the convergence of
technologies, on 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 technology, will not become obsolete or subject to competition from new
technologies in the future.

Our business, financial condition
and results of operations could be adversely affected if we have underestimated future
capital requirements or overestimated anticipated revenue and profits.

We
expect to incur capital expenditures in maintaining our existing network and building out
our 3G network and increasing the capacity of our existing network. We began building out
national coverage of our 3G network at the end of 2003. At the end of 2004, our 3G network
covered approximately 60%, and currently covers approximately 85%, of the Israeli
population. We intend to cover over 90% of the Israeli population by the end of 2005 at a
cost in 2005 of approximately $100 million. Although at present we believe we have a fully
funded business plan, we may have underestimated our future capital requirements or
overestimated our future revenues and operating profits in the build-out and operation of
a third generation network. If we have underestimated our future capital requirements or
overestimated our future revenues and operating profits, our future business, financial
condition and results of operations could be adversely affected.

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 and adversely affect our financial condition and
our ability to provide services to our subscribers.

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. Our license also
requires us, upon demand by the Minister of Communications, to permit other operators to
provide telecom services using our network. 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. 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 determine those tariffs. If the Ministry of Communications sets those
tariffs too low, this may adversely affect our financial condition.

- 14 -

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# Our company is
controlled by a single shareholder.

In
April 2005, we purchased
approximately 33.3 million Partner shares held by our principal Israeli shareholders Elbit Limited,

or Elbit,

Eurocom Communications Ltd.,

or Eurocom,

Matav  Cable Systems Ltd. and Polar Communications Ltd.,

or Polar.

As a
result, the holdings of our principal shareholder Hutchison Telecommunications
International Limited, or Hutchison,
increased from 42.9% to 52.15%, and the holdings of
Elbit decreased to approximately 2.04%, the holdings of Eurocom decreased to approximately
1.5%, the holdings of Matav decreased to approximately 1.25% and the holdings of Polar
decreased to approximately 0.55%.

Our
controlling shareholder, Hutchison, 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 is not obligated, however, to provide
us with financial support or to exercise its rights as a shareholder in our best interests
or 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.

Hutchison
and its parent company,

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 and HWL, for example, in connection
with our ability to access supply of 3G handsets on favorable pricing terms. We cannot
assure you that Hutchison will continue to be our controlling shareholder, or if it ceases
to be our controlling shareholder, that we will continue to enjoy the benefits of our
relationship with Hutchison 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 in the
past, and may suffer in the future, from these activities. The financial impact of
fraudulent activities that have occurred in the past has not been material. However, we
cannot assure you that fraudulent activities, if they occur in the future, 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 fixed-line,
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
fixed-line, 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 interconnection 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 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.

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We
currently lease most of our transmission capacity from Bezeq, and we lease additional
capacity from other suppliers, primarily Cellcom and HOT. 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. In particular, Bezeq has experienced labor disputes with its
employees, including stoppages, notably in recent years as the privatization of Bezeq and
liberalization of the telecommunications market in Israel have developed. 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 pursuant to a general 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.

Additionally,
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.

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.

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. However, 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 Nortel, 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 Nortel,
Ericsson, Nokia or an alternative supplier fails 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.

- 16 -

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Our telecommunications 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. Recently, 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 principal Israeli

shareholders




 or their substitutes,



 and requiring that these
shareholders appoint, generally, 10% of our board of directors. 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. 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 have 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 unless our principal shareholders hold an aggregate of at least 26%
of our ordinary shares.

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

Pursuant
to legislation passed on March 29, 2005, the Ministry of Communications is putting
regulatory measures into place that would require mobile telephone operators to implement
number portability, which would permit mobile network subscribers in Israel to change
network operators without having to change their telephone numbers. According to the
legislation, the number portability plan must be implemented by September 1, 2006. Because
this will eliminate one of the major barriers that we believe currently prevents
subscribers from changing network operators, we expect that number portability will
increase competition in our industry and churn and may increase subscriber acquisition and
retention costs. Although we cannot predict with certainty the consequences of number
portability, these developments may have a material adverse effect on our business.
Furthermore, we expect to have to incur material expenditures during 2005 in order to meet
the technological challenges presented by the requirement to comply with the expected
regulatory measures implementing number portability.

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, 2004, 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, a
substantial majority of our capital expenditures (including with respect to our 3G
network) are incurred in, or linked to, non-shekel currencies, and our Notes due 2010 are
denominated in US dollars and require US dollar interest and principal payments. 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.

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We
hedge most of our foreign currency commitments, and we currently hedge the principal and
interest payable on our Notes due 2010 until August 2005. As of December 31, 2004, the
notional amounts of our foreign currency derivatives were approximately US$285 million.
Our derivative transactions are mainly designed to hedge the cash flows related to the
payments of dollar interest and principal on our Notes due 2010 until the anticipated
redemption in August 2005 and those related to anticipated payments in respect of
purchases of handsets and capital expenditures in foreign currency. The transactions are
primarily foreign currency transactions and purchases and sales of currency options.

Our
bank credit facility borrowings are currently in shekels, some of which are linked to the
Israeli consumer price index, or 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
Israeli 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.

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.

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 high leverage could
adversely affect our financial health.

We
are highly leveraged. On December 31, 2004, our total long-term indebtedness was
approximately NIS 1,939 million ($450 million). This debt represents approximately 55.0%
of our total capitalization (bank loans plus notes payable plus shareholders equity)
on December 31, 2004. Of this debt, $175 million aggregate principal amount of our Notes
due 2010 will remain outstanding until our planned optional redemption of those notes in
August 2005. After giving effect to (a) our debt offering in Israel on March 31, 2005 of
NIS 2 billion 4.25% unsecured series A notes due 2012, or the Notes due 2012, (b) our repurchase of 33.3 million of our shares at NIS 32.22 per share
and (c) our planned redemption of our Notes due 2010, which we refer to collectively in
this Annual Report as the 2005 Refinancing, as if the 2005 Refinancing had taken place on December 31,
2004, our indebtedness would have been approximately NIS 3,122 million ($725 million),
representing approximately 87% of our total capitalization on December 31, 2004. However,
in the event we determine not to redeem the Notes due 2010, they will continue to remain
outstanding.

Our
credit facility and the indentures governing the Notes due 2010 and 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:

| | 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 Israeli

consumer price index, or

CPI;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | limit
our flexibility in planning for, or reacting to, changes in our industry and business as
well as the     economy generally;
|- | ---------------------------------------------------------------------------------------------------------------------------------

- 18 -

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| | 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
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | limiting
our ability to obtain the additional finance we need to operate, develop and expand our
business.
|- | ----------------------------------------------------------------------------------------------------------

# We may not be able to
make our debt payments in the future.

Our
ability to meet our debt obligations will depend on whether we can successfully implement
our strategy, as well as on financial, competitive, legal, regulatory and technical
factors, including some factors that are beyond our control. If we are unable to generate
sufficient cash flow from operations to meet principal and interest payments on our debt,
we may have to refinance all or part of our indebtedness. In addition, cash flows from our
operations may be insufficient to repay in full at maturity the Notes due 2012, in which
case the Notes due 2012 may need to be refinanced. Our ability to refinance our
indebtedness, including the Notes due 2012, will depend on, among other things:

| | our
financial condition at the time;
|- | ------------------------------------

| | restrictions
in agreements governing our debt; and
|- | --------------------------------------------------

| | other
factors, including market conditions.
|- | -------------------------------------------

We
cannot ensure that any such refinancing would be possible on terms that we could accept or
that we could obtain additional financing. If refinancing will not be possible or if
additional financing will not be available, we may have to sell our assets under
circumstances that might not yield the highest prices, or default on our debt obligations,
including the Notes, which would permit our lending banks, noteholders and holders of
other outstanding indebtedness to accelerate their maturity dates.

Our credit facility and the
indentures governing the Notes due 2010 and the Notes due 2012 (together the
Notes) each contains a number of restrictions and obligations that limit our
operating and financial flexibility.

Our
credit facility and the indentures governing the Notes each contain a number of
restrictive covenants that limit our operating and financial flexibility. These covenants,
among other things, restrict our ability to pledge our assets, enter into certain types of
lease financing, dispose of assets, make loans or give guarantees, make certain
acquisitions or engage in mergers or consolidations, incur borrowing (other than permitted
borrowings, as defined), make any substantial change to the nature of our business or
engage in any other business. Our credit facility also contains covenants regarding
achieving certain levels of financial ratios during each of the ratio periods (semi-annual
or annual periods) during the term of the relevant credit facility.

Our
ability to continue to comply with these and other obligations depends in part on the
future performance of our business. There can be no assurance that such obligations will
not materially adversely affect our ability to finance our future operations or the manner
in which we operate our business. In particular, any non-compliance with
performance-related covenants and other undertakings of our credit facility or indentures
governing the Notes could result in an acceleration of our outstanding debt under our
credit facility and the indentures governing the Notes and restrict our ability to obtain
additional funds, which could have a material adverse effect on our business, financial
condition or results of operations.

- 19 -

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# 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:

| | In
April 1998, we received our license to establish and operate a mobile telephone
network in Israel.
|- | -----------------------------------------------------------------------------------------------------

| | In
August 1998, we finalized our long-term credit facility to support our network and
business roll out.
|- | --------------------------------------------------------------------------------------------------------

| | By
October 1998, we completed our initial network roll out with approximately 77%
coverage of the Israeli population, enabling us to commence the soft launch of our
services to a test market of targeted customers.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | By
January 1999, we had launched full commercial operations with approximately 88%
population coverage, established a nationwide distribution network and were offering full
services with an extensive media campaign.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2000, we introduced our pre-paid subscriber plan, known as Big Talk. At
December 31, 2004, we had 700,000 subscribers, or approximately 30% of our total
subscriber base, in this plan.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
July 2000, we amended our long-term credit facility, increasing the amount available
to up to $750 million.
|- | --------------------------------------------------------------------------------------------------------------

| | 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.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2001, we received a special license issued by the Ministry of Communications,
allowing us to provide internet services.
|- | --------------------------------------------------------------------------------------------------------------------------------

| | On
March 31, 2001, we had over 1,000,000 subscribers.
|- | -----------------------------------------------------

| | In
July 2001, we registered our ordinary shares for trading on the Tel Aviv Stock
Exchange.
|- | -------------------------------------------------------------------------------------------

| | 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.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 26, 2001, we filed a shelf registration statement under the US Securities
Act of 1933, as amended, registering $400 million of debt securities and ordinary
shares for possible offer and sale.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2002, our license was extended until February 2022.
|- | -----------------------------------------------------------

| | In
December 2002, we amended our senior credit facility in order to further tailor it
to our business plan.
|- | -----------------------------------------------------------------------------------------------------------

| | In
November 2003, we entered into a frame agreement with Nortel Networks to supply what
is expected to be Israels first third generation UMTS wireless network.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | By
August 2003, we had over 2,000,000 subscribers.
|- | --------------------------------------------------

- 20 -

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| | In
December, 2004, we commercially launched our 3G network, having implemented our soft
launch in June 2004.
|- | --------------------------------------------------------------------------------------------------------------

| | On
March 31, 2005, we completed a debt offering, raising NIS 2.0 billion in a public
offering in Israel of the Notes due 2012. In April 2005 we
entered into a new credit facility as part of our 2005 Refinancing.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
April 20, 2005, we used approximately NIS 1,074 million of the proceeds from our 2005 Refinancing to
repurchase approximately 33.3 million shares from our Israeli founding shareholders,
representing approximately 18.1% of our outstanding shares immediately before the
repurchase.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For
information on our capital expenditures, see Item 5B. Liquidity and Capital
ResourcesCommitments and Contractual Obligations.

Discontinuation of
Negotiations Relating to Proposed Investment in Matav

On
March 15, 2004, we announced that we had entered into a non-binding memorandum of
agreement with Matav Cable Systems Media Ltd., or Matav, and its shareholders, Dankner
Investments Ltd. and Delek Investments and Properties Ltd., to invest $137 million in
Matav for approximately a 40% share of Matavs equity. Matav is one of three
operators of broadband cable television services in Israel. The memorandum of agreement
has since expired, and we have discontinued negotiations regarding this transaction.

# 4B. Business Overview

We
were the first GSM mobile telephone network operator in Israel and on December 1, 2004,
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, 2004, we had approximately 2.34 million subscribers, representing an
estimated 32% of total Israeli mobile telephone subscribers at that date. During the
twelve months ended December 31, 2004, we increased our customer base by approximately
11.3%. At December 31, 2004, approximately 52% of our private subscribers had post-paid
tariff plan contracts with us, approximately 30% of our subscribers were in pre-paid
subscriber plans, and approximately 18% of our total subscribers were business
subscribers.

We
market our services by capitalizing on the strong international Orange brand and the
experience of our largest shareholder, Hutchison. 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.

We
currently operate our GSM network in the 900 MHz and 1800 MHz bands. Our GSM network
covers approximately 97% of the Israeli population. 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, icon, ringtone and game downloads,
information services, General Packet Radio Services, or GPRS, which enables the packet
transfer of data in an always on mode at a speed of up to 20-30 Kbps, personal
numbering and data and fax transmission services.

Our
3G network, which as of the end of 2004 covered approximately 60%, and currently covers
approximately 85%, 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.

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, 2000, 2001, 2002, 2003 and
2004:

- 21 -

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|Market Share* | 2000 | 2001 | 2002 | 2003 | 2004
|------------- | ---- | ---- | ---- | ---- | ----
|
|
|
|
|Partner       | 21%  | 27%  | 29%  | 31%  | 32% 
|Cellcom       | 46%  | 41%  | 39%  | 35%  | 34% 
|Pelephone     | 33%  | 28%  | 28%  | 30%  | 30% 
|MIRS**        | --   | 4%   | 4%   | 4%   | 4%  

|* | 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | As
MIRS received a general license at February 5, 2001 its subscribers have not been
included in the Israeli subscriber count in prior years. MIRSs entire subscriber
base has been included in the Israeli subscriber count from the date on which MIRS
received its license.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
operate 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 public
fixed-line operator in Israel that during 2004 increased its ownership of the shares of
Pelephone from 50% to 100%. Pelephone currently operates nationwide mobile telephone
networks in Israel using both the N-AMPS analog and the CDMA digital system and recently
upgraded its network to CDMA1x. The major beneficial shareholders of Cellcom are
BellSouth, the Safra Group and Discount Investment Corporation Ltd. Cellcom operates
nationwide mobile telephone networks based on GMS 1800 MHz and D-AMPS technologies. In
2004, further technological enhancements were introduced by our competitors, with Cellcom
announcing commercial service over UMTS spectrum and Pelephone announcing the
implementation and commercial offering of EV-DO technology. MIRS is an Enhanced
Specialized Mobile Radio, or trunking, iDEN network. MIRSs major
shareholders are Motorola Communications (Israel) Ltd. (66.7%) and Ampal Israel Ltd.
(25%).

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.

Mobile
telephones were first introduced in Israel in 1986. For the first eight years of
operations the growth of mobile telephone services in Israel was slow. There was a single
operator, Pelephone, offering analog service, and prices were relatively high. It was not
until the end of 1994, and the launch of the second mobile telephone operator, Cellcom,
that growth in mobile phone usage in Israel increased significantly. Within two years,
subscriber numbers had increased by more than seven times.

Since
the end of 1996, there has been continued strong growth in the Israeli mobile telephone
market. Market data from industry sources indicates that the total market size was
approximately 7.2 million subscribers at December 31, 2004, representing nearly
105% of the Israeli population.

In
an auction process completed in December 2001, the Ministry of Communications awarded
us the two additional bands of spectrum for which we had submitted bids: one band of GSM
1800 spectrum and one band of UMTS third generation spectrum. Cellcom was also awarded a
band of GSM 1800 spectrum in the auction and began providing GSM 1800 services in the
second half of 2002. Cellcom and Pelephone were also each awarded one band of UMTS third
generation spectrum in the auction.

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

| | High
Mobile Phone Usage.Israeli usage of mobile phones is relatively high compared to Western
Europe.
|- | -----------------------------------------------------------------------------------------------------

| | 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.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 22 -

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| | 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, 2004 of 105%, representing
approximately 7.2 million subscribers, although 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Six
Different Mobile Telephone Technologies. The four mobile telephone licensees in
Israel have systems based on six technologies. Pelephone uses both the N-AMPS analog and
the CDMA and CDMA1x digital systems and Cellcom uses both D-AMPS and GSM systems. MIRS
uses an iDEN system. We are currently one of two network operators using a GSM digital
system. GSM is an advanced, internationally accepted technology used by approximately 1.25 billion
people worldwide as of December 31, 2004.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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

Our
aim is to continue to increase profitability and to maintain subscriber growth.  To achieve
this objective, we are pursuing the following strategies:

| | Achieve
Leadership in 3G Services. We believe that demand for 3G services will provide an
important source of future mobile subscriber growth in Israel. As a result, we intend to
leverage our brand and our outstanding reputation for network quality 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.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. 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 and the
quality of our network.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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:

| | 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.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
2004, we were named by the Israeli Management Institute as the best provider of customer
service in Israel for the third year in a row in the telecommunications market. We also
believe that we have achieved high customer loyalty, as evidenced by our customer churn
rate of 12.0% for the year ended December 31, 2004.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 23 -

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| | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Beneficial
Relationship with Hutchison. Our largest shareholder, Hutchison and its parent company, HWL, are
global leaders
in the 2G and 3G mobile telecommunications market. Hutchison has a substantial interest

in a 3G operating company in Hong Kong, and HWL has a

substantial

interest in 3G operating

companies


 in Austria, Australia, Denmark, Ireland, Italy,
Sweden and the United Kingdom. We derive benefits from the knowledge and experience of
Hutchison 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 and HWL enhances
our competitive position in the provision of 3G services by giving us access to supply of
3G handsets on favorable pricing terms.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 599.2 million in the year ended December 31, 2004. We also consider the capital
expenditures required for our 3G network to be relatively low, having incurred capital
expenditures (including license payments) of approximately US$140 million as of December
31, 2004 on our 3G network. Our 3G network currently covers approximately 85% of the
Israeli population. We intend to cover over 90% of the Israeli population by the end of
2005 at a capital expenditure of approximately US $100 million in 2005.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Strong
and Motivated Management Team. Since our inception, we have been able to attract a
number of Israeli senior managers from the telecommunications, high-tech and consumer
products industries. Our management team has a strong track record of successfully
managing our company from our start-up phase in 1998 to our position today as the leading
provider of GSM services in Israel and as we embark on the commercial launch of our 3G
network. We believe that our performance-based 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 and
customer service. 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,
such as our communication information and content services. We offer GPRS and UMTS
services as well as WAP and HSCSD.

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 by March 31, 2005 we had
approximately 20,000 3G subscribers. As of the end of 2004, our 3G network covered the
highly populated areas of Israel, including Tel Aviv and the Dan metropolitan area,
Jerusalem, Haifa, Beer Sheba, as well as smaller cities and major highways, representing
approximately 60% of the population of Israel. Our network currently covers approximately
85% of the population of Israel, and by the end of 2005, we expect that our 3G network
will cover approximately 90% of the population of Israel. 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 and HWL, we have a supply
of 3G handsets on favorable pricing terms. Initially, we are offering our 3G services with
LG handsets and Novatels 3G data cards.

- 24 -

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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.

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 the De la
Guarda performance, a lecture by Robin Sharma 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 the international
value of the brand. We use the distinctive Orange Brand logo in all our promotional
activities and advertising.

At
December 31, 2004, approximately 18% of our subscribers were business subscribers. We
are continually developing tailored value-added services to meet the special needs of
business subscribers.

We
have a license to use the Orange Brand. Under the brand license agreement, we have the
right to use the Orange Brand in connection with promoting our network services in Israel
for as long as we hold a license to operate a mobile telephone system in Israel. See
Item 4B. Information on the CompanyBusiness OverviewIntellectual
Property.

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 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 and UMTS 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 UMTS 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 9002 Standard from the Israeli
Institute of Quality and Control. ISO 9002 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 introduced tariff plans aimed at
bringing innovation to the Israeli mobile communications market. Our tariff plans
implement one or more of the following basic elements: initial airtime package for a
specified tariff each month; rewarding high usage with decreasing marginal airtime charges
as more airtime is used each month (the per minute tariff rates paid by a subscriber under
these tariff plans decline as the number of minutes used in a month by that customer
increases); charging 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; providing discounts for calls to designated numbers
within a subscribers calling circle and relating some of our rates to the time of
day that a call is placed, if the subscriber joined a specific rate plan or bought a
special rate discount package. In addition, we usually offer handset subsidies to
customers joining these tariff plans.

- 25 -

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These
plans attract mainly business customers, while most private customers prefer our
orange to go plans which are post-paid tariff plans based on the following
basic elements: no monthly payment charge; no commitment for minimum usage; no contractual
obligations for a minimum subscription period; limited handset subsidies and fixed rate
per minute in addition to call termination tariff.

The
elements of the orange to go tariff plans are applied, packaged and marketed in various
ways to create tariff packages designed to appeal primarily to the private sector and
target markets, including families, soldiers, Orthodox Jewish, Arab and Russian
communities, young adults, teens (we brand these packages b.u.) and students.

Many
of our subscribers sign up to the orange family plan. Under this plan, two to five
individuals, who subscribe as a group are given large discounts on calls made to each of
the other family members orange phones. For our orange family subscribers under the
orange to go tariff plan, we offer a fixed rate for calls made to other family
members orange phones.

We
also offer rate plans which include a uniform airtime tariff for all calls made in Israel,
both for calls within our network and for calls originating on our network and terminating
on a Bezeq fixed-line network or other cellular networks. We call these plans
fix and offer them only to designated segments in the population, such as
soldiers, students, young adults between the ages of 20-30, Orthodox Jews and teens.

In
March 2005 we started offering our private customers rate plans which include a fixed
monthly fee for a limited amount of free minutes for friends or family (for a limited
number of destinations).

We
offer our 3G customers similar rate plans to those that we offer our 2G customers but with
an additional fixed monthly fee. In all our 3G rate plans, video call minutes are charged
at the same rate as voice call minutes.

We
also offer all our customers rate plans that are based on a series of bundled offers,
which include the following elements: a monthly payment; an initial amount of peak
minutes; an initial amount of off peak minutes; a monthly refund; and credits for the use
of 3G content services. Charges for all elements change from bundle to bundle.

We
have a wide range of tariff plans for our business customers, based on one or more of the
following elements: monthly minimum payment including a bundle of minutes; discounts on
airtime tariffs between users who are registered under one business customer; monthly
minimum payment for unlimited calls between users who are registered under one business
customer; uniform tariff for all calls in Israel, both for calls within our network and
for calls originating on our network and terminating on Bezeq fixed-line network or other
cellular networks; rewarding high usage with a decreasing marginal airtime charge as more
airtime is used each month. The per minute tariff rates decline as the number of minutes
used in a month by a customer increases; Lower airtime tariffs for larger businesses.

We
offer our 3G business customers the same plans, with an additional fixed monthly 3G fee,
as well as bundled offers which are similar to those for the private market.

Our
pre-paid plan, known as Big Talk, was launched in June 2000. Under the
plan, our subscribers purchase a nationally distributed phone charge card, available in
fixed denominations. Upon purchase of the phone card or prepaying 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. Since December 2002, we offer
our pre-paid customers a limited roaming service, which includes incoming calls and SMS
only, provided that the customer is registered for this service. Since September 2004, our
pre-paid customers are offered both inbound and outbound calls on selected networks in
selected destinations based on CAMEL technology. Our pre-paid plan enables us to compete
in the growing pre-paid mobile services market. The pre-paid customers are offered a
designated tariff plan, with a peak time tariff and an off-peak time tariff.

In
addition, we offer our pre-paid customers some orange obox services. We currently do not
offer UMTS services to pre-paid customers.

We
developed several retention and churn prevention plans to retain our subscribers. Some of
these plans are based on a subscribers ranking according to financial and economic
parameters. In addition, we have developed tools to predict a subscribers potential
to churn from our network, thus enabling us to proactively approach the subscriber with an
attractive offering.

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We
believe that the combination of our tariff plans and our advanced technology and content
services provides attractive value in the Israeli mobile telephone market and that our
pricing strategy has facilitated subscriber growth.

International Roaming

Israelis
are frequent travelers. According to the Israel Central Bureau of Statistics, in 2004,
more than 3.6 million overseas departures of Israelis were recorded, and almost 1.5
million people visited Israel during 2004. 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.

At
December 31, 2004, we had open commercial roaming relationships with 330 operators in
152 countries or jurisdictions. We also have agreements with satellite operators,
providing global coverage, requiring the use of unique handsets, some of which can be used
with the standard customer SIM card. 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, 2004, we had 3G roaming agreements with operators in 12 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 who deploy GSM 1900 frequency with networks using GSM 1900. Other subscribers
who advise us of their intention to visit those countries are 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. Since the launch of our 3G network,
UMTS networks around the world are becoming gradually available to our 3G subscribers.

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. The main value-added
services we currently offer include the following:

| | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | 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 MP3 clips without
downloading them to their handset. These services include a wide range of information and
entertainment clips to view and listen to.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Live
Video Streaming. We offer our 3G customers the ability to watch live TV broadcasts of
several TV programs. The variety of programs available for our customers is in accordance
with our agreements with our content providers.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | High
Speed Data. We offer high speed data transfer through circuit switched technology
(via an infrastructure development that enables the transmission of data at a speed of up
to 43.2 Kbps, which is higher than the 14.4 Kbps speed previously available on GSM
networks), through GPRS (a technology that enables the packet transfer of data in an
always on mode, at speeds of up to 20-30 Kbps) and through UMTS (a technology
that enables the packet transfer of data in an always on mode, at speeds of
up to 384 Kbps).
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Information
and Content Services. We provide voice and text-based information and content
services. The voice-based information services are provided through IVR platforms, which
include interactive information services and radio programs. Text based information
services are provided through our current SMS and WAP technologies. Interactive
information services include services such as: news headlines, sport news and results,
weather reports in Israel and abroad, daily horoscopes and more. For purposes of these
services we have relationships with content providers.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Double
Ring. Double Ring enables our subscribers to receive calls made to their mobile
telephone on either their mobile or their fixed-line telephone.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Short
Code Dialing for Roamers. This service allows foreign GSM users roaming in Israel to
use their home services dialing codes during their stay in Israel and allows our
subscribers while roaming abroad to use the short dialing codes available on our network.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Field
Personnel Management. This service provides a comprehensive system for businesses to
manage their field personnel via our network, including dispatching, scheduling, task
assignment by real time location and confirmation back to the customer.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Business
Text Messaging Service. This service enables business customers to send SMS messages
to individuals and groups through an Internet application. By using this service,
businesses can keep in touch with internal employees and/or customers either individually
or as a group.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Personal
Voice Mail Greetings. This service enables subscribers to personalize their voice
mailbox greetings by easily applying professional, customizable pre-recorded messages.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4
U. This service enables subscribers to send a recorded greeting,
accompanied by a song or a joke selected by the subscriber, to another subscriber (on any
Israeli network) at a predetermined time.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | Song
Sending. This service allows the user to send a personalized greeting to another user
as a specially composed song with the recipients name embedded in the song.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | One
on One Games. Game arena in which two persons who play one of the games (Trivia,
Checkers, etc.), via wap and IVR and can also bet on the results of each match. The
amount of the bet is transferred from one customers bill to another.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Omail.
Mobile e-mail services that enable access to e-mail accounts (private or corporate
accounts) and other personal data (i.e. calendar, contacts, tasks and notes).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Orange
Promo. This service enables cell broadcasting in various topics: news, entertainment,
sports,     etc. This service is available only to subscribers who have a 64K SIM card.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Orange
Memo. This service enables sending voice and textual reminders from the handset to the
personal     e-mail address.
|- | --------------------------------------------------------------------------------------------------------------------------

Handsets

We
provide handsets to our contract 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. When subscribers under our orange to go and
Big Talk plans may receive handset subsidies, such subsidies are significantly
lower than those received by our subscribers who sign 36-month contracts. Subscribers who
return the handset of a competing network are entitled to a discount. In addition,
subscribers are entitled to a monthly refund, depending on their actual monthly bill and
the type of handset purchased.

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 recently
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. Because of the wide international acceptance
of GSM technology, handset manufacturers generally make their latest model handsets
available for use on GSM networks before networks based on other technology. We have begun
selling some innovative handsets with enhanced applications, including multicolor, large
screens with high resolution displays, high quality music performance and MMS
capabilities. Pursuant to the launch of our 3G network, we sell 3G handsets that enable
customers to make video calls, consume content services and use laptops with high-speed
rates of data transmission.

Customer Division

Our
Customer Division consists of Customer Service and Sales and Distribution:

Customer Service

We
aim to provide high quality customer service in Israel through quick, simple and reliable
handling of all customer needs and interactions. We invest in both technology and training
of customer service skills in order to achieve this goal. At December 31, 2004,
approximately 1,634 employees, on a full-time equivalent basis, worked in our customer
service division. Our customer service division consists of both call center services and
face-to-face service centers. Call center services are divided into different
centersgeneral, finance, network, international roaming, business, data and
pre-paidin order to provide focused and professional responses to our customer
inquiries in four languages 24 hours a day, seven days a week.

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Our
face-to-face customer service consists of 35 service points serving the customer as a
one-stop-shop in both sales and service areas.

In
addition, we give our customers various self-service channels, such as IVR, Web-Based
service and service via SMS.

Sales and Distribution

We
have developed a multi-channel approach to target the various segments of the market and
to coordinate our sales strategy. We distribute our services primarily through:

| | direct
sales through Partner-owned sales centers and business sales representatives; and
|- | ----------------------------------------------------------------------------------------

| | indirect
sales through traditional networks of specialist dealers and non-traditional networks of
retail chains and stores, which account for a majority of our sales.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Direct
Sales

Orange
Sales and Service Centers. We currently operate six Orange Brand stores which focus on
sales to individual customers. These stores are sales and service centers with a uniform
design, typically 1,100 square feet (100 square meters) in size, and offer high service
standards. The Orange Brand stores are conveniently located in highly visible locations,
such as shopping malls, in the Tel Aviv area, Jerusalem, Haifa and Beer Sheva. These
stores serve as flagship stores to help introduce the Orange Brand and our services to the
Israeli market and to generate a high level of repeat business and referrals. In the
future, we also expect these stores to become involved in the sale of advanced data
services and other technologically sophisticated applications. In addition, we have opened
27 service centers, each approximately 3,200-6,500 square feet (300-600 square meters) in
size. These centers serve as one-stop shops for direct customer service, in
which our representatives will demonstrate the use of new products and services, including
handset maintenance services.

Furthermore,
during 2004 we opened two new service centers: the first in the Diamond Exchange, which
offers a one-stop-shop service to the members of the Diamond Exchanges, and
the second in the new terminal at Ben Gurion International Airport, which offers to
passengers going abroad or returning to Israel sales, upgrades and general information
services.

Direct
Sales Force. Our sales force is comprised of sales representatives, account managers
and area managers, targeting business clients. We primarily focus on small- and
medium-sized enterprises which tend to use more airtime and yield higher margins. Small to
medium-sized businesses are serviced by a team of regional representatives and customer
account managers located in five regional offices. Large corporate customers are serviced
by a team of national representatives and customer account managers. Prominent individuals
are served by national VIP representatives. We provide our sales force with regular
training to ensure that they are capable 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. Our direct sales force is supported by a
telemarketing department which makes initial contact with prospective customers and makes
appointments for the sales representatives. The telemarketing department is another
channel for direct sales by phone.

Indirect
Sales

Traditional
Dealer Networks. On December 31, 2004, we had agreements with 48 traditional
dealers providing 70 points of sale, consisting of specialists 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 some of
them specialize in 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 January 2005 we established a department of 30
salespersons for door-to-door sales. 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. We believe that the ongoing sales success of our
existing distribution channels will continue to attract dealers to our network. Our dealer
managers visit dealers on a regular basis to provide information and training, answer
questions and solve any problems that may arise in the activation process. We pay our
dealers competitive commissions and provide handset subsidies to them. However, dealers
are not entitled to commissions for any customers that terminate their service within
60 days of activation.

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Non-Traditional
Dealer Networks. Non-traditional dealers consist of generalist retailers or specialist
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 a contract with Super-Pharm, the largest drug store chain in Israel, to sell our
network services in their stores. At December 31, 2004, our services were sold in 88
Super-Pharm stores nationwide in a variety of formats, including Partner shop-in-shops,
kiosks, wall-unit displays and at front counters. In 2004, approximately 14% of our new
subscribers were recruited through sales by Super-Pharm. Under our agreement with
Super-Pharm, in addition to Super-Pharm continuing to sell our network services in their
stores, we are cooperating with them in a new chain of stores that Super-Pharm has
established, called Super-Link, and that is dedicated to selling communications services
and equipment. Six such stores have been opened to date, and the intention is to open 10
more. The agreement between the parties was amended, effective as of January 1, 2004,
and is effective until December 31, 2005, renewable for additional extensions of one year
each, unless one of the parties provides the other party with 90 days prior notice of
termination. The agreement has received the approval of the Israeli Commissioner for
Restrictive Trade Practices. The amended agreement amends, among other things, the rate of
commissions and other remuneration to which Super-Pharm is entitled.

In
addition, we are developing our distribution network with other non-traditional dealers,
such as the Ituran chain, which sells, installs and maintains car security and tracking
systems in approximately 46 locations throughout Israel. They also sell and install our
car kits in these sites. Our agreement with Ituran terminated on March 31, 2005, and
thereafter we commenced operations with a new chain, Cellular Center for
Vehicles, which has approximately 35 locations, for the sale, installation and
maintenance of car kits. 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.

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 have purchased their handset from us or
our dealers can be charged by us 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.
Subscribers are billed monthly in arrears for airtime charges and charges per services. We
outsource the printing and sending of bills to third parties. Most of our business
customers have signed 36-month contracts.

Most
of our individual subscribers subscribe and 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 approval is not granted by the card issuer, 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.

Subscribers
are subject to periodic credit risk reviews, taking into consideration payment history,
disconnection history and new circumstances. If payment for a subscribers monthly
bill is not received within 27 days of the issue of the bill, roaming and
international call service is suspended. After 31 to 36 days, all outgoing call
service is suspended. After 45 days, all services are suspended, after 60 days,
we begin legal proceeding regarding the debt collection and ultimately, after
150 days, all services are disconnected. If the subscriber does not reinstate service
after being disconnected, we may require him to pay the residual value of his handset.

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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, 2004, we have made net capital expenditures of NIS 3,059 million
($710 million) in our network infrastructure and other related fixed assets.

Overview

The
first generation of wireless communications, based on analog technology,
provides simple voice telephony. The second generation of wireless
communications, 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 communications, which offers full interactive multimedia capabilities
at data rates of up to 384 Kbits per second, are bringing wirefree 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 wirefree telecommunications.

Infrastructure

On
December 31, 2004, our GSM network consisted of 1,520 macrobase transceiver stations
and 723 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 4,100 transmission links. Ericsson and Nokia supply our base station
controller and base transceiver station sites for our GSM and GPRS network.

On
December 31, 2004, our UMTS network consisted of macrobase transceiver base stations, all
linked to six radio network controllers. The base station subsystem is controlled by one
mobile switching center and one media gateway. The base transceiver stations, the mobile
switching center and the radio network controllers are interconnected by approximately
1,250 transmission links. Nortel Networks supplies our 3G UTRAN and core network
equipment.

In
addition, our network is interconnected with the public switched telephone network
operated by Bezeq 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 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. As
our GSM network currently covers 97% of the Israeli population, we are now selectively
expanding the capacity of our GSM network primarily in urban areas by adding
infrastructure to improve outdoor and indoor coverage. We plan to continue increasing the
capacity of our GSM network due to the growth of voice and data in the GPRS traffic.

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Our
UMTS network covers the highly populated areas of Israel, including Tel Aviv and the Dan
metropolitan area, Jerusalem, Haifa, Beer Sheba as well as smaller cities and major
highways. We are continuing to expand and improve the coverage, capacity and quality of
our UMTS network to additional areas.

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. We follow high quality standards which exceed those set forth in
our license. 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. Blocked calls are
calls that fail because access to the network is not possible due to insufficient network
resources. Dropped calls are calls that are involuntarily terminated.

With
these quality parameters in mind, we have rolled out our UMTS network, which is
co-llocated 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 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 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.

In
the December 2001 spectrum auction in Israel, the Ministry of Communications awarded
us the two bands of spectrum for which we had submitted bids: 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.

Following a possible rearrangement of spectrum in the 900 MHz band, an additional 900
MHz spectrum may be offered to operators in the future.



 If one of our competitors is allocated this additional spectrum and not
us,

our network

may face interference and we will no  longer be the sole
GSM operator operating both in the 900 MHz frequency band and in the 1800 MHz frequency
band.

Dropped Calls

Dropped
calls are calls that fail to complete when dialed or are terminated involuntarily. Since
the launch of full commercial operations, our dropped call rate has steadily improved. Our
GSM monthly dropped call rate has declined from 3.50% for January 1999 to 1.71% for
December 1999, to 1.44% for December 2000, to 1.3% for December 2001 to
1.15% for December 2002, to less than 0.9% for December 2003, and to less than
0.8% for December 2004.

Other Systems

On
December 1, 2004 we commercially launched our UMTS network with advanced applications and
services including, among others, a 3G xhtml content portal offering streaming video
services, live traffic cameras, live TV broadcasts, JAVA games, maps and directions
application, MP3 trutones download services and an e-commerce movie ticketing
application.

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We
have installed a video gateway and a streaming server, enabling us to offer our customers
a full 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:

| | erection
and operating permits from the Ministry of the Environment;
|- | --------------------------------------------------------------------

| | permits
from the Civil Aviation Authority, in certain cases; and
|- | ----------------------------------------------------------------

| | 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.

Suppliers

Our
network utilizes standard equipment, which is available from a limited number of
suppliers.

In
November 2003, we entered into a frame 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.


 One of our major GSM equipment suppliers is Ericsson and its affiliates, which
supply us 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. 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.

Interconnection

All
telecommunications providers with general licenses in Israel have provisions in their
licenses requiring them to allow interconnection of their networks with all other
telecommunications networks in Israel. Currently, our network is connected to all other
telecommunications networks operating with general licenses in Israel. Our network is
directly interconnected to the networks of the Israeli telecommunications operators 
Bezeq, Cellcom, Pelephone, MIRS, Bezeq International, Barak Golden Lines, Internet Gold,
Netvision and Exfone. Our network is indirectly interconnected to the network of Paltel
through the Bezeq network for the purpose of bilateral transfer of calls.

We
are currently operating without any formal interconnection agreements with Bezeq. We are
not aware of any interconnect agreement that Cellcom, Pelephone or MIRS has signed 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. As of March 1, 2000, Bezeq began calculating interconnect
(call termination) fees due to us based on fees actually collected by Bezeq from its
subscribers and imposing an additional collection fee on us. Until that time, interconnect
fees were calculated on the basis of actual usage. In October 2000, a new
Interconnect Regulation became effective, stating that interconnect fees among cellular
and fixed line operators should be based upon actual usage.

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Nevertheless,
Bezeq continued calculating interconnect fees due to us based on fees actually collected
from its subscribers and imposing an additional collection fee on us. From the end of 2001
until July 2003, several proceedings took place, in which the Minister of
Communication reviewed the issue. On July 15, 2003, the Ministry of Communications decided
to decrease the deduction rate in respect of payments for using the Companys network
that Bezeq fails to collect from its customers to 1.1% from 2.5%. The decision is
effective retroactively for the period from October 2, 2000 through August 31, 2003. As
from September 1, 2003 the deduction rate was reduced to zero. Bezeq lodged an appeal with
the Jerusalem District Court against the Ministers decision. On January 6, 2004, the
Supreme Court  within the framework of Partners appeal against the District
Courts verdict in respect of previous case between the parties relating to
Bezeqs failure to collect payments from its customers for using Partners
network for calls from fixed lines to mobile lines  ruled that the Ministers
decision concerning the aforementioned deduction of 1.1% shall also apply to the period
from March 1, 2000 to October 2, 2000, and that this deduction rate shall remain in effect
or shall be amended in accordance with the outcome of the appeal lodged by Bezeq against
the aforesaid decision of the Minister. On August 9, 2004, the appeal was dismissed due to
lack of jurisdiction.

We
currently pay Bezeq an interconnection fee based on a tariff structure that came into
force on May 1, 2000.

We
have formal interconnection agreements with Cellcom, Pelephone and MIRS. The agreements
have one-year terms and are renewable for an unlimited number of additional one-year
terms. The agreements can be terminated on 90 days written notice by either party.
The interconnection agreements with Cellcom, Pelephone and MIRS do not contain any pricing
terms. The interconnection tariffs charged by Cellcom, Pelephone and MIRS are set by a
Ministry of Communications regulation that, coupled with a change to the mobile telephone
operators licenses, imposes a uniform call termination tariff for all mobile
telephone operators. Because we transfer and receive all traffic to and from Paltels
network through the Bezeq network, we pay Bezeq a transit fee for each call. In the
beginning of 2004, the Ministry of Communications amended our license and the relevant
regulations, reducing SMS termination tariffs from NIS 0.38 to NIS 0.285 effective
May 1, 2004. In November 2004, the Ministry of Communications issued regulatory
changes significantly reducing call termination tariffs, effective March 1, 2005, from NIS
0.45 to NIS 0.32, with additional reductions mandated as follows: effective March 1, 2006,
to NIS 0.29 per minute; effective March 1, 2007, to NIS 0.26 per minute; and effective
March 1, 2008, to NIS 0.22 per minute. At the same time, the Ministry of Communications
reduced SMS termination tariffs, effective March 1, 2005, from NIS 0.285 to NIS 0.05, with
an additional reduction mandated effective March 1, 2006 to NIS 0.025. We have 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.

At
the same time as it announced the regulatory changes described above, the Ministry of
Communications also indicated that it intends to start implementing a process to bring
about unification of rates for calls terminating on and off an operators network and
that it intends to hold preliminary hearings with the cellular operators in Israel on this
matter in 2005. Additionally, the Ministry of Communications announced that billing units
will be reduced from the present intervals of up to 12 second units to 1 second intervals
effective December 31, 2008. These changes, if implemented, could also adversely affect
our revenues and profits.

We
have written interconnection 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 0.25 per minute.

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Competition

There
are currently four mobile telephone network operators in Israel: Partner, Cellcom,
Pelephone and MIRS. The major beneficial shareholders of Cellcom are BellSouth, the Safra
Group and Discount Investment Corporation Ltd. Cellcom operates nationwide mobile
telephone networks based on GSM 1800 MHz, EDGE and D-AMPS technologies. 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. Our second competitor is Pelephone.
During 2004, Bezeq, the public fixed-line operator in Israel, completed its acquisition of
100% of the shares of Pelephone. Pelephone currently operates nationwide mobile telephone
networks in Israel using both the N-AMPS analog and the CDMA and CDMA1x digital systems.
During 2004, Cellcom announced commercial service over UMTS spectrum and Pelephone
announced the implementation and commercial offering of EV-DO technology. According to
published reports in May 2004, Pelephone plans to file a request with the Ministry of
Communications for a license that will enable it to launch fixed-line services. Our third
competitor is MIRS, an Enhanced Specialized Mobile Radio, or trunking,
network, which was granted a general license to operate as a mobile telephone operator on
February 5, 2001. MIRSs major shareholders are Motorola Communications (Israel)
Ltd. and Ampal Israel Ltd.

According
to the Companys estimations, at December 31, 2004, Cellcom had approximately
2,458,000 customers, representing approximately 34% of the Israeli mobile
telecommunications market; Pelephone had approximately 2,161,000 paying customers,
representing approximately 30% of the Israeli mobile telecommunications market and MIRS
had over 300,000 users, representing approximately 4% 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.

To
the extent that mobile telephones are used in lieu of fixed telephones, we also compete
with Bezeq, which has been the only incumbent fixed-line operator in Israel until
recently, when a company jointly owned by the three cable companies in Israel launched a
fixed-line telephone service on a very limited basis.

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.

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.

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.

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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. 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 service in Israel, and sets the terms by which such mobile telephone service is
provided. The regulatory framework under which we operate consists also of the Planning
and Building Law, 1965 and the Consumer Protection Law, 1981. Additional areas of Israeli
law may be relevant to our operations, including antitrust law, specifically the
Restrictive Trade Practices Law, 1988, 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 and in
which government-owned monopolies are being 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 a company jointly owned by the three cable television operators
in Israel, 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.

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

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On
November 30, 2004, following a hearing process, the Ministry of Communications published a
preliminary policy on Voice over Broadband, or VoB, services. The policy, among other
things, allows licensed third parties (VoB operators) to use the access
infrastructure of Bezeq and of the company jointly owned by the three cable companies in
Israel, to provide VoB services to customers, charging customers directly, with no need to
pay to the access owner any usage fees. The policy indicates that usage of cellular
operators infrastructure will be discussed and decided at a later date. Due to
strong reactions from Bezeq and from the company jointly owned by the three cable
companies in Israel, the Ministry of Communications re-opened the hearing process on
December 29, 2004, and responses were required to be submitted by January 30, 2005.

On
June 21, 2004 the Ministry of Communications published a draft license form, for potential
providers willing to commit to license terms and be awarded a license to provide domestic
fixed (wireline and wireless) services to customers, competing with Bezeq and the company
jointly owned by the three cable companies in Israel, 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.

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
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 on and
off an operators network and that it intends to hold preliminary hearings with the
cellular operators in Israel on this matter in 2005. For more information, see
Interconnection.

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.

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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 currently provides 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%.

New
Numbering Plan.The Ministry of Communications instructed all mobile network operators
to implement as of April 20, 2004, a new national numbering plan, which gives each mobile
operator a single prefix and adds a new digit to the beginning of each subscribers
current number. As mentioned above, the plan entered into effect on April 20, 2004 and we
implemented it successfully.

Number
Portability.A March 29, 2005 amendment to the Telecommunications Law requires the
Minister of Communications to put into place a number portability plan by September 1,
2006. The number portability plan would permit mobile network subscribers in Israel to
change operators without having to change their telephone numbers. Because this will
eliminate one of the major barriers that we believe currently prevents subscribers from
changing network operators, we expect that this will increase competition in our industry
and churn rates and may increase subscriber acquisition and retention costs.

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
is challenging. For more information see Item 3D. Risk FactorsWe operate
in a highly regulated telecommunications market which limits our flexibility to manage our
business. In particular, the regulators decisions may materially 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.

Our 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
Israeli 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. The suit is pending.

In
the December 2001 spectrum auction in Israel, we were awarded additional spectrum
(GSM (1800 MHz) spectrum and UMTS third generation (1900 MHz and 2100 MHz) spectrum).
Following the award of this spectrum, the Minister of Communications amended and extended
the license through 2022.

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The
cost of the license fees is NIS 180 million for the GSM 1800 spectrum, payable in two
installments and NIS 220 million for the UMTS third generation spectrum, payable in six
installments. To date, we have paid NIS 180 million and NIS 165 million for the GSM
1800 spectrum and the UMTS third generation spectrum, respectively. As of December 31,
2004, certain segments of the spectrum awarded had not been made available to us and
therefore were not accrued in our financial statements. For more information, see
Item 5B. Operating and Financial Review and ProspectsLiquidity and
Capital Resources.

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. Operating and Financial Review and
ProspectsLiquidity and Capital Resources.

On
February 18, 2004, the Minister of Communications appointed a tender committee for
allocating additional spectrum bands to existing and new mobile network operators. The
committee was responsible for the process of holding a tender in which the Ministry of
Communications would extend the licenses of the existing mobile network operators in order
to enable them to offer their services in the additional spectrum bands that were about to
be offered and allocated in the tender. In addition, the tender included the possibility
of granting a general license to a new mobile network operator. Under the tender, the
Ministry of Communications offered GSM 1800 MHz bands and third generation UMTS bands.
Cellcom, one of our competitors, was the sole operator to buy additional bands in the GSM
1800 MHz spectrum. Furthermore, following a possible rearrangement of spectrum in the 900
MHz band, an additional 900 MHz spectrum may be offered to operators in the future.

On
March 16, 2004 and December 23, 2004 our license was amended to allow for 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 and not the content providers liable and
accountable for any infractions of this amendment.

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

| | Our
founding shareholders and their substitutes must hold, in the aggregate, at least 26% of
each of our means of control.
|- | --------------------------------------------------------------------------------------------------------------------------

| | Israeli
entities from among our founding shareholders and their 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.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
least 10% of our board of directors must be appointed by Israeli entities, as defined
above,

among our

founding

shareholders or their substitutes, provided that if the board 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
new board 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.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This
amendment became effective on April 14, 2005 upon our notice to the Ministry of
Communications that we have met the requirements set out in the license amendment.

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.

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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:

| | observing
the provisions of the Telecommunications Law, the Wireless Telegraphy Ordinance, the
    regulations and the provisions of our license;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | 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;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | efficient
use of the spectrum allocated to us, 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 Ministry of Communications approval. We have submitted our standard agreement to
the Ministry of Communications for approval pursuant to our license. The agreement is
still under review by the Ministry of Communications.

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, 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. In May 2000, we were also granted a license from the Israeli Civil
Administration, which is responsible for administering the territories of the West Bank
and Gaza that are not under the administration of the Palestine Authority.

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.

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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:

| | voting
rights in Partner;
|- | -------------------------

| | the
right to appoint a director or managing director of Partner;
|- | ----------------------------------------------------------------

| | the
right to participate in Partner's profits; or
|- | -------------------------------------------------

| | 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 grants its holder 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.

Our
license also provides that a foreign mobile radio telephone operator, as defined below, or
its controlling corporation, must hold during the five year period commencing on the date
our license was granted by the Ministry of Communications, 25% of the voting rights and of
the rights to appoint directors or the general manager of Partner. The foreign mobile
radio telephone operator must also provide us all with the information in its possession
required for the establishment of a mobile telecommunications system and for the
provision, marketing and sale of mobile telecommunications services. Accordingly, no
transfer may occur if as a result the foreign mobile radio telephone operator, or a
controlling corporation, will hold less than 25% of the voting rights or the right to
appoint directors or the general manager in Partner. After such five-year period, this
holding may be reduced with the approval of the Ministry of Communications. On
September 14, 2003, the Ministry of Communications notified us that the undertaking
to provide information as mentioned above need no longer remain in force.

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.

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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:

| | the
principal shareholders of Partner continue to hold in the aggregate at least 26% of the
means of control of Partner;
|- | ------------------------------------------------------------------------------------------------------------------------

| | our
Articles of Association include the provisions described in this paragraph;
|- | -------------------------------------------------------------------------------

| | we
act in accordance with such provisions;
|- | ------------------------------------------

| | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Israeli
entities from among our founding shareholders and their substitutes must hold at least 5%
of our issued share capital and of each of our means of control.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
majority of our directors, and our general manager, must be citizens and residents of
Israel.
|- | -------------------------------------------------------------------------------------------------

| | 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.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | The
foreign mobile radio telephone operator, or a controlling corporation, must hold at least
25% of the voting rights and of the right to appoint directors or the General Manager of
Partner, during at least the five year period commencing on the date our license was
granted by the Ministry of Communications.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | 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:

| | We
have illegally ceased, limited or delayed any one of our services;
|- | ---------------------------------------------------------------------

| | Any
means of control in Partner or control of Partner has been transferred in contravention
of our     license;
|- | ---------------------------------------------------------------------------------------------------------------

| | 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;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
have harmed or limited competition in the area of mobile radio telephone services;
|- | -------------------------------------------------------------------------------------

| | 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
|- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 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:

| | A
change has occurred in the suitability of Partner to implement the actions and services
that are the subject of our license.
|- | ------------------------------------------------------------------------------------------------------------------------------

| | A
change in our license is required in order to ensure effective and fair competition in
the telecommunications sector.
|- | -----------------------------------------------------------------------------------------------------------------------

| | A
change in our license is required in order to ensure the standards of availability and
grade of service required of Partner.
|- | ------------------------------------------------------------------------------------------------------------------------------

| | A
change in telecommunications technology justifies a modification of our license.
|- | ----------------------------------------------------------------------------------

| | A
change in the electromagnetic spectrum needs justifies, in the opinion of the Ministry of
Communications, changes in our license.
|- | -----------------------------------------------------------------------------------------------------------------------------------

| | Considerations
of public interest justify modifying our license.
|- | ----------------------------------------------------------------

| | A
change in government policy in the telecommunications sector justifies a modification of
our license.
|- | -------------------------------------------------------------------------------------------------------

| | 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.

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

| | Office
Holder means a director, manager, company secretary or any other senior officer
that is directly subordinate to the general manager.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Controlling
Corporation means a company that has control, as defined above, of a foreign
mobile radio telephone operator.
|- | ---------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.

Discount
Investment Company Ltd., an indirect shareholder of Elbit, one of our founding Israeli
shareholders, was deemed to be an Interested Party in both Partner and Cellcom by virtue
of the special calculation described above. Accordingly, we applied for and received a
permit from the Ministry of Communications which authorized Discounts indirect
ownership of equity in both Partner and Cellcom. Our permit was also amended on
April 14, 2002 and on June 2, 2002. Our permit contains certain guidelines which
apply to Discount and the related companies PEC Israel Economic Corporation, Elron
Electronic Industries Ltd., the parent of Elbit, Elbit and IDB Development Company Ltd.,
the parent of Discount, and persons who control any one of them (collectively, the
IDB Group). Our permit establishes limits on the holdings of the IDB Group in
the equity of Cellcom and Partner. Changes in these holdings require a permit from the
Ministry of Communications, and may require Elbit to significantly reduce its holdings in
Partner. In addition, our permit limits the number of directors of Partner that may be
appointed by the IDB Group. Our permit also limits the exchange of information regarding
Partner within the IDB Group and its subsidiaries, limits the involvement of the three
directors and office holders of Discount Investment Company Ltd. who are also directors of
Cellcom in matters relating to Partner, and prohibits these directors from certain
activities within the IDB Group which would provide them with access to information about
Partner. On April 20, 2005, we purchased a material portion of the Partner shares owned by
Elbit

and as a result, Elbilts holdings in Partner
were

reduced to less than 5%.

 See Item 7B. Related Party TransactionsRepurchase of Shares from
Founding Israeli Shareholders.

- 45 -

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ISP License

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

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.

Antenna Site Permits

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.

In
addition, a new bill was proposed by the Ministry of the Environment that defines the
Ministrys powers and would replace the Pharmacists Regulations.

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.

- 46 -

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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.

Since
National Building Plan 36 was approved, some planning committees have started to require
that, as a precondition for issuing new permits for antenna sites, we submit an
undertaking to indemnify the committee against claims for depreciation in the value of
nearby properties as a result of issuing a permit to build, and the building of, antenna
sites. Our position, like that of the other mobile network operators, is that under
existing law and the National Building Plan, the planning committees have no authority to
require us to submit such an undertaking. Recently, our position received support in a
judicial decision of the District Court of Tel Aviv. However, the National Council for
Planning and Building decided to add the requirement described above to National Building
Plan 36 itself. In order for such a requirement to be included in the National Building
Plan and to become effective, it has to be approved by a Governmental Ministers Committee.
At this stage we cannot predict whether such a requirement will become effective.

In
addition, legislation is pending in the Knesset which, if enacted, would require that, as
a precondition for issuing building permits for antenna sites, we submit an undertaking to
indemnify the building and planning committee against claims for both depreciation in the
value of nearby properties and health damage that result from the issuance of a permit to
build, and the building of, antenna sites. According to the pending legislation, we would
be required to submit such an undertaking also in relation to antenna sites for which we
had obtained building permits prior to the date the pending legislation takes effect. The
pending legislation also provides that in a class action claim regarding damage to health
from any antenna sites, a defendant would have the burden of proving that the damage to
health was not caused by such sites. The pending legislation also provides absolute
liability for offenses committed and prescribes liability for officers of a company
violating such law. 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 or to alleged health damage that result from 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.

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We
have received type approval from the Ministry of Communications for 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. However, in accordance with the current
practice among mobile telephone operators in Israel, we have not obtained approvals or
exemptions from the Ministry of the Environment for the handsets we provide because, to
date, neither the Ministry of the Environment nor the Ministry of Health has issued
standards for the permitted level of radiation emissions from handsets. 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 promulgated by the Ministry of Industry and
Trade under the Consumer Protection Law.

# 4C. Organizational
Structure

We
have one wholly-owned subsidiary, Partner Future Communications 2000 Ltd., an Israeli
corporation.

We
are an indirect subsidiary of Hutchison, which holds 52.15% of our outstanding shares. Hutchison is a
leading international provider of mobile and fixed-line telecommunications services with operations in eight
countries and territories.

# 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 six to eleven 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 shorten the lease period                by six to eleven years.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 2004, we had 2,243 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).

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 8a(2)(b) to
our consolidated financial statements.

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# 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.

# 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, 2004, 2003, 2002, 2001 and 2000:

|                                                         | 2004 | 2003 | 2002 | 2001  | 2000
|-------------------------------------------------------- | ---- | ---- | ---- | ----- | ----
|
|
|
|
|Revenues (NIS million)                                   |      |      |      | 5,141 |     
|Operating profit (loss) (NIS million)                    |      |      |      | 1,019 |     
|Income (loss) before taxes (NIS million)                 |      |      |      | 759   |     
|Net income (loss) (NIS million)                          |      |      |      | 472   |     
|Capital expenditures, net (NIS million)                  |      |      |      | 601   |     
|Cash flow provided by (used in) operating activities net |      |     
|of investment activities (NIS million)                   |      |      |      | 599   |     
|Subscribers (thousands)                                  |      |      |      | 2,340 |     
|Annual churn rate (%)                                    |      |      |      | 12.0  | %   
|Average monthly usage per subscriber (in minutes)        |      |      |      | 286   |     
|Average monthly revenue per subscriber (NIS)             |      |      |      | 170   |     
|Average subscriber acquisition costs (NIS)               |      |      |      | 295   |     

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 2004, as in each of 2003
and 2002, 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:

| | interconnect
fees paid to the fixed-line and other telecommunication network operators in Israel and
    charges paid to foreign GSM network operators;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------

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| | handset
and car-kit costs;
|- | --------------------------

| | depreciation
of our network and amortization of our license;
|- | ------------------------------------------------------------

| | salaries
and related expenses, including compensation related to employee stock option plans.
|- | ---------------------------------------------------------------------------------------------

| | leases;
|- | -------

| | network
maintenance;
|- | --------------------

| | royalties
paid to the Israeli Government under our license; and
|- | ---------------------------------------------------------------

| | costs
of replacing or repairing damaged handsets.
|- | -------------------------------------------------

Selling and Marketing
Expenses

Our
principal components of selling and marketing expenses are:

| | advertising
and promotion;
|- | --------------------------

| | commissions
to dealers; and
|- | ---------------------------

| | 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:

| | salaries
and related expenses, including compensation related to employee stock option plans;
|- | ---------------------------------------------------------------------------------------------

| | professional
fees and consultancy fees;
|- | ---------------------------------------

| | insurance;
|- | ----------

| | depreciation
and amortization; and
|- | ----------------------------------

| | provision
for bad debts.
|- | ------------------------

Financial Expenses

Our principal
components of financial expenses are:

| | interest
on bank loans and senior subordinated notes;
|- | -----------------------------------------------------

| | net
hedging costs on foreign currency exposure;
|- | -----------------------------------------------

| | exchange
rate and linkage differences; and
|- | ------------------------------------------

| | factoring
costs on long term receivables.
|- | -----------------------------------------

Taxes on Income

We
recorded a tax benefit of NIS 633.0 million in 2003. The tax benefit is derived from
carry forward tax losses from prior years.

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:

| | number
of subscribers;
|- | ----------------------

| | average
monthly revenue per subscriber (ARPU);
|- | ----------------------------------------------

- 50 -

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| | average
monthly minutes of usage per subscriber (MOU);
|- | ------------------------------------------------------

| | churn
rate; and
|- | ---------------

| | subscriber
acquisition costs (SAC).
|- | -----------------------------------

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.

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 increased or decreased by 5%, our operating profit would increase or
decrease by NIS 125 million. We amortize our license by the straight-line method mainly
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 annually or 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 aging 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 94%. If we
decreased our percentage of the allowance for all aging debts by 15%, our operating profit
would increase by NIS 16 million. If we increased such percentage by 15%, our operating
profit would decrease by NIS 11 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%,
0.5% and 0.4% for the years ended December 31, 2002, 2003 and 2004, respectively.

- 51 -

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Results of Operations for
the Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

Revenues
in 2004 were NIS 5,140.7 million (US$ 1,193.3 million), up 15.1% from NIS 4,467.7 million
in 2003. This increase was due to increased revenue from services (including data and
content) and equipment, as discussed below.

Revenues
in 2004 from services increased by 12.1% to NIS 4,615.8 million (US$ 1071.4 million), as
compared to NIS 4,117.9 million in 2003. The increase was driven primarily by a 16.2
percent increase in total network minutes, offset by a 7.1% 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 11.3% from the end of 2003 to the
end of 2004. The dilution in average tariff per minute in 2004 as compared to 2003 was
caused 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
materially lower.

Revenues
in 2004 from equipment increased by 50.1% to NIS 525.0 million (US$ 121.9 million) as
compared to NIS 349.8 million in 2003. The increase was driven primarily by increased
revenue per sale and an approximately 13% growth in the number of sales to new and
upgrading subscribers in 2004 as compared to 2003.

Data
and content revenues, including SMS messages, in 2004 were NIS 351.1 million (US$ 81.5
million), or 6.8% of total revenues, up 15.6% from NIS 303.8 million, or 6.8% of total
revenues in 2003. The increase in revenues in 2004 as compared to 2003, was driven
primarily by a 32% increase in revenues from non-SMS services. Revenues from SMS services
grew by approximately 5% in 2004 as compared to 2003. SMS messages in 2004 accounted for
approximately 50% of data and content revenues as compared to approximately 55% in 2003.

Cost
of revenues in 2004 increased by 15.3% to NIS 3,615.0 million (US$ 839.1 million) from NIS
3,136.5 million in 2003.

Cost
of revenues  Services in 2004 increased by 11.5% to NIS 2,885.1 million (US$ 669.7
million) from NIS 2,586.7 million in 2003. The increase in 2004 as compared to 2003
resulted primarily from the 12.1% increase in service revenues, as the higher level of
service revenues, driven by increased minutes of use, resulted in higher variable costs
including inter-carrier termination fees and transmission.

Cost
of revenues  Equipment in 2004 increased by 32.8% to NIS 729.9 million (US$ 169.4
million) from NIS 549.7 million in 2003. The increase was driven primarily by higher
priced handsets and approximately 13% growth in the number of sales transactions to new
and upgrading subscribers.

Gross
profit for 2004 was NIS 1,525.7 million (US$ 354.2 million), 29.7% of revenues, up 14.6%
from NIS 1,331.3 million, 29.8% of revenues, in 2003.

Selling
and marketing expenses in 2004 were NIS 325.2 million (US$ 75.5 million), an increase of
3.6% from NIS 314.0 million in 2003. The increase was driven primarily by higher
distribution and advertising costs in response to increasing competition and the
introduction of our 3G network.

General
and administrative expenses in 2004 were NIS 181.1 million (US$ 42.0 million), up 11.5%
from NIS 162.4 million in 2003. The increase was driven primarily by a larger provision
for doubtful accounts resulting from the increased volume of handset sales, compensation
costs under the new stock option plan, and one-time costs incurred in the Companys
attempt to purchase a controlling interest in Matav and a write-off of legal and
accounting fees incurred in 2001 in preparing the Companys shelf registration with
the United States Securities and Exchange Commission.

- 52 -

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Operating
profit for 2004 was NIS 1,019.3 million (US$ 236.6 million), an increase of 19.2% from NIS
854.9 million in 2003. Operating profit as a percentage of revenues increased to 19.8%
from 19.1% in 2003.

Financial
expenses in 2004 were NIS 260.5 million (US$ 60.5 million), a decrease of 19.0% compared
to NIS 321.7 million in 2003. The decrease in financial expenses in 2004 compared to 2003
was driven primarily by lower bank debt levels and lower shekel interest rates offset by
the negative revaluation of U.S. dollar foreign currency hedging positions covering
foreign exchange exposure on the US$ 175 million 13% subordinated notes. The fair value of
these derivative contracts as of December 31, 2004, is a liability of NIS 55.3 million as
compared to a liability of NIS 11.5 million on December 31, 2003. The increase in the
liability is derived primarily from the strengthening of the shekel by 3.9% in Q4 2004.

Income
before taxes for 2004 was NIS 758.8 million (US$ 176.1 million), up 43.3% compared to NIS
529.6 million in 2003.

In
2004, the Company had net income of NIS 471.6 million (US$ 109.5 million), or NIS 2.56
(US$ 0.60) per ADS or per share, compared to NIS 1,162.7 million, or NIS 6.34 per ADS or
per share in 2003. The decrease in net income for 2004 compared to net income for 2003
resulted primarily from the utilization of the Companys accumulated tax loss carry
forwards and the creation of deferred tax assets in Q4 2003, in the amount of NIS 633.0
million.

During
2004, our net active subscribers increased by 237,000, or 11.3%.

As
of December 31, 2004 our net active subscriber base was 2,340,000, accounting for an
approximate market share of 32%, up from 31% at the end of 2003. The subscriber base for
2004 is comprised of 1,207,000 post-paid private subscribers (51.6% of the base) 700,000
prepaid subscribers (29.9% of the base) and 433,000 post-paid business subscribers (18.5%
of the base). Net new active subscribers in the business sector accounted for
approximately 36% of net new active subscribers in 2004.

The
annual churn rate for 2004 decreased to 12.0%, compared to 13.6% in 2003. We believe that
the decrease in chum resulted primarily from an increased level of retention activities in
2004 as compared to 2003.

Average
monthly usage per subscriber (MOU) for 2004 was 286 minutes, an increase of
3.2% from the MOU for 2003, which was 277 minutes. Average monthly revenue per subscriber
(ARPU) for 2004 was 170 NIS compared to NIS 171 in 2003, a decline of 0.6%.
The decrease in ARPU, despite the increase in MOU, is derived primarily from downward
pressure on tariffs, driven by increasing competition.

In
2004, lower handset subsidies caused the average cost of acquiring a new subscriber (SAC)
to decline from 2003. The lower handset subsidies were achieved as a result of higher
charges related to handsets in the business and private sectors. 2004 SAC was NIS 295,
compared to NIS 362 for 2003, a decline of 18.5%.

Trends

In
2005, due to a more penetrated market, we expect a lower rate of subscriber growth,
approximately 4% to 5% compared to 11.3% growth in our subscriber base in 2004. In
addition, we anticipate ARPU to decline by approximately 10%, following the reduction in
the inter-carrier termination rates. SAC levels for 2005 are expected to remain stable, at
2004 average levels. We will continue our efforts to control costs, with the goal of
maintaining EBITDA at the levels achieved in 2004, despite the reduction in inter-carrier
termination rates mandated by the Ministry of Communications.

- 53 -

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Results of Operations for
the Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002

Our
total revenues in 2003 increased to NIS 4,467.7 million, up 10.2% from NIS
4,054.6 million in 2002. Our services revenues in 2003, driven primarily by
subscriber growth of 14.5%, but offset in part by lower ARPU primarily from the decline in
interconnect rates, increased to NIS 4,117.9 million, up 9.0% from NIS
3,776.6 million in 2002. Data and content revenues, which include SMS and value-added
services, continued to grow faster than voice revenues, and in 2003 were 7.3% of total
service revenues, compared to 6.3% of service revenues in 2002. Most of the growth in data
and content revenues as compared to 2002 was from SMS services. Our equipment revenue in
2003 increased to NIS 349.8 million, up 21.5% from NIS 288.0 million in 2002.
Primarily higher levels of handset sales derived from increased retention and upgrade
activities and higher sales prices drove this increase.

Our
cost of revenues increased marginally in 2003 to NIS 3,136.5 million up 2.2% from NIS
3,069.5 million in 2002. Our cost of service revenues for 2003 was NIS
2,586.7 million, up 3.5% from NIS 2,499.5 million in 2002. In 2003, as compared
to 2002, despite the decrease in the interconnect tariffs, we incurred higher interconnect
charges due to the increased level of subscribers and usage. The increased interconnect
charges were offset by cost efficiencies, primarily relating to handset and network
maintenance and transmission costs. Our cost of equipment revenues in 2003 was NIS
549.7 million, down 3.5% from NIS 569.9 million in 2002. The decrease was the
result of lower handset costs.

Even
with subscriber growth of 14.5%, selling and marketing expenses remained relatively stable
in 2003 and were NIS 314.0 million, up 1.9% from NIS 308.1 million in 2002.

General
and administrative expenses for 2003 were NIS 162.4 million, compared to NIS
143.6 million in 2002, an increase of 13.1%. The increase in general and
administrative expenses for 2003 resulted primarily from increased insurance costs, rental
expenses and depreciation.

Operating
profit for 2003 increased to NIS 854.9 million from NIS 533.4 million in 2002,
an increase of 60.3%. Operating profit as a percentage of revenues increased to 19.1% in
2003 from 13.2% in 2002.

Financial
expenses in 2003 were NIS 321.7 million, down 27.7% from NIS 445.2 million in
2002. Financial expenses were lower in 2003 as compared to 2002, primarily due to our
lower levels of average debt, declining interest rates and a stronger Shekel versus the US
Dollar. Nevertheless, financial income from the 7.6% increase in the value of the Shekel
versus the US Dollar in 2003 was almost completely offset by hedging transactions.

In
2003, as a result of the factors described above, we recorded net income before taxes of
NIS 529.6 million, as compared to net income before taxes in 2002 of NIS 84.2
million, an increase of 529.0%. Based on these results and our estimates of our future
earnings and profitability, assessments relating to the cellular market and trends, and
the receipt of final tax assessments for the tax years through December 31, 2001
which validated the amount of the carryforward tax losses, we recorded a tax benefit of
NIS 633.0 million in Q4 2003. As of December 31, 2003 we would require
approximately NIS 1,760 million of future taxable income in order to fully realize our
deferred tax asset.

As
of December 31, 2003, our net active subscribers increased to 2,103,000, an increase
of 14.5% from our net active subscriber base of 1,837,000 as of December 31, 2002.
Our subscriber base as of December 31, 2003 accounted for an approximate market share
of 31%, up from 29% at the end of 2002. Our subscriber base comprises 1,117,000 post-paid
private subscribers (53% of the base), 639,000 prepaid subscribers (30% of the base) and
347,000 business subscribers (17% of the base). At the end of 2002, our subscriber base
consisted of 1,004,000 post-paid private subscribers (55% of the base), 541,000 prepaid
subscribers (29% of the base) and 293,000 business subscribers (16% of the base). Our
annual churn rate for 2003 was 13.6%, compared to 10.9% in 2002. The increase in churn was
driven primarily by increased churn in prepaid subscribers, rotational churn (rotational
churn occurs when an existing customer purchases a new handset and a SIM card, and then
ceases to use either the new or the old SIM card) and increasing competition.

Our
MOU remained relatively stable and declined by only 1.0% in 2003 as compared to 2002. MOU
in 2003 was 277, compared to 280 in 2002. The stability in MOU was driven primarily by
stability in the percentage breakdown of our subscriber base between business, post-paid
private and prepaid subscribers as compared to prior years. In prior years, prepaid
subscribers, with substantially lower MOU, grew faster than business and post-paid private
subscribers with higher MOU.

Our
ARPU declined by 7.0% in 2003 as compared to 2002. The decline was driven primarily by the
10% decrease, on January 1, 2003, of the interconnect rates as mandated by the Israel
Ministry of Communications. ARPU for 2003 was NIS 171, compared to NIS 183 in 2002.

- 54 -

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In
2003, lower handset subsidies caused the average cost of acquiring a new subscriber, or
SAC, to decline by 23% from 2002. 2003 SAC was NIS 362, compared to NIS 470 for 2002.

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, 2004, 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 are incurred in, or linked to, non-shekel currencies, and
our notes are 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 adverse
impact on our results, which may be material. We hedge most of our foreign currency
commitments, and we currently hedge the principal and the interest payable on our notes
(due 2010) until the expected redemption in August 2005.

Although
we have the ability to borrow under our bank credit facility in US dollars and Euro, our
borrowings are in shekels, and part of our shekel bank borrowings are linked to the
Israeli 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 Israeli 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.

# Liquidity and Capital
Resources

The
mobile telephone business is highly capital intensive, requiring significant capital to
acquire a license, 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:

| | our
operating cashflows;
|- | ------------------------

| | our
credit facility;
|- | --------------------

| | our
Notes due 2010 and our Notes due 2012; and
|- | ----------------------------------------------

| | factoring
long-term trade receivables.
|- | --------------------------------------

In
July 2000, we amended our then-current credit facility, increasing the amount
available to $750 million, subject to the meeting of defined milestones. In
August 2000, we completed an offering of $175 million aggregate principal amount
of our Notes due 2010. The net proceeds from that offering (approximately
$170.5 million after deducting commissions and offering expenses) were used mainly to
repay a portion of the outstanding indebtedness under our credit facility.

On
December 31, 2002, we again amended our credit facility, decreasing the amount
available to $710 million. The amended facility was divided into three tranches: a
$410 million multicurrency term loan facility (facility A), a $150 million
revolving multicurrency loan facility (facility B), and a $150 million shekel term
loan facility (facility C). All facilities were provided by Israeli banks and Citibank
N.A., with Bank Leumi Le-Israel B.M. as facility agent and Bank Hapoalim as a coordinating
agent.

Facilities
A and B of our credit facility could be drawn in shekels, US dollars or Euro, provided
that not less than 60% of the outstanding advances under facilities A and B, at any time,
had to be in shekels and not more than 40% of the outstanding advances under facilities A
and B could be drawn in US dollars or euros. Facility A was available to be drawn through
March 31, 2003. $383 million were drawn under Facility A. On July 28, 2004, the Board of
Directors of the Company approved the permanent reduction of Facility A by an aggregate of
$100 million. Facility B could be drawn until June 30, 2008. During 2004, Facility B was
reduced by $10 million. Both Facility A and B were scheduled to mature on June 30, 2008.
Facility C was available to be drawn through December 31, 2004 but was not utilized and
expired at the end of the availability period.  At December 31, 2004, the balances
available for drawing were approximately $138 million under Facility B, and
$17 million under Facility A. At March 31, 2005 the balances available for
drawing were approximately $140 million under Facility B, and $39 million under
Facility A.

- 55 -

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On
April 14, 2005, we entered into a new $550 million bank credit facility, replacing our
previous bank facility. The new facility includes a $450 million term loan facility and a
$100 million revolving loan facility, both maturing in six years. With effect May 1, 2005,
we exercised an option to reduce the term facility (other than an advance of approximately
$25 million carried over from the previous facility) to $150 million and change the
maturity date for both facilities to September 1, 2009. The new credit facility is secured
by a first ranking, floating charge on our assets, and those of our wholly-owned
subsidiary. 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.

On
March 31, 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. The notes owned by PFC are subject to a 90-day lock-up.

The
term of the Notes due 2012 is seven years and the principal and interest payments are
linked to the Israeli consumer price index. The annual interest on the notes is 4.25% and
will be paid 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

together with the drawing from our new credit facility to pay down most of
our previous credit facility and

 to repurchase approximately 33.3 million shares from our founding Israeli
shareholders.

We may use the balance

to redeem our Notes due 2010 and for general corporate purposes.

Another
source of our liquidity results from our factoring on a non-recourse basis most of our
long-term trade receivables resulting from sales of handsets. We record the transfer of
accounts receivable 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. During the years ended December 31, 2003
and 2004, we factored approximately NIS 296 million and NIS 332 million ($77
million), respectively, from long-term trade receivables. The resulting costs amounted to
approximately NIS 17 million and NIS 17 million ($ 4 million) for the years
ended December 31, 2003 and 2004, respectively, and are charged to Financial
expenses-net, as incurred.

We
generated positive cashflow from operations amounting to NIS 1,272.8 million
($295.5 million) in 2004, compared to NIS 1,031.5 million in 2003. The
difference was primarily due to increased operating profits in 2004 as compared to 2003.
Cashflow used in investing activities was NIS 673.6 million ($156.4 million) in 2004,
compared to NIS 376.8 million in 2003. The increase was mainly due to larger payments
for fixed assets in the amount of NIS 259.5 million (US$ 60.2 million) offset by
the proceeds from the withdrawal of the NIS 98.9 million security deposit for the
interest on our US Dollar denominated notes in 2003 and the reduction in payments for
additional spectrum, in the amount of NIS 67.4 million (US $15.6 million).

Cash
used in financing activities was NIS 598.3 million ($138.9 million) in 2004,
compared to NIS 652.3 million in 2003. The change was primarily due to reductions in
repayments of borrowings under our long-term loans.

We
expect cash flows from operations net of cash flows from investing activities in 2005 to
remain at similar levels as in 2004.

As
a result of obtaining GSM 1800 and UMTS third generation spectrum bands in the
December 2001 spectrum auction in Israel, we have payment obligations with respect to
each of those spectrum bands. We paid NIS 180 million (approximately
$42 million) for the GSM 1800 spectrum. We are also committed to pay NIS
220 million (approximately $51 million) for the UMTS third generation spectrum,
in six installments. The first four installments, totaling NIS 165 million (approximately
$38 million), were paid in February and June 2002, June 2003 and June 2004,
and the remaining two installments are payable no later than June 1, 2005 and 2006 in
amounts equal to NIS 33 million and NIS 22 million, respectively. The remaining
two installments will be paid plus interest at the rate set by the Accountant General of
the Israeli Ministry of Finance.

- 56 -

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From
January 1, 2002 to December 31, 2004, we made cumulative net capital
expenditures of approximately NIS 1,390 million, of which NIS 601 million ($140
million) was incurred in 2004. We expect that capital expenditures for our network will
continue to represent the largest portion of our total capital expenditures over the next
few years. We expect to incur approximately NIS 600 million ($ 139 million) of
capital expenditures in 2005, primarily in order to increase the coverage of our UMTS
third generation network from 60% at December 31, 2004 of the Israeli population to 90%.

We
believe that funds from our operations, together with funds available under our new credit
facility and our Notes due 2012, will provide us with enough liquidity and resources to
fund our expected capital expenditure needs, including our plans to increase the capacity
of our existing network and capital expenditures associated with our UMTS third generation
network build-out, as well as our obligations under our financing agreements, our license
payments and our other material commitments. However, the actual amount and timing of our
future requirements may differ materially from our estimates.

# 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.

# 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.

# Aggregate Contractual
Obligations

Set
forth below are our contractual obligations and other commercial commitments as of
December 31, 2004:

|                                    | Payments Due by Period (NIS in thousands)
|----------------------------------- | -----------------------------------------
|
|
|
|
|Long-Term Debt                      |                                          
|Capital Lease Obligations           |                                          
|Operating Leases                    |                                          
|Contribution to funds in respect of |                                          
|Employee rights upon retirements    |                                          
|Unconditional Purchase Obligations: |                                          
|UMTS third generation spectrum      |                                          
|Handsets                            |                                          
|Fixed Assets                        |                                          
|Other Long-Term Obligations         |                                          
|Total Contractual Cash Obligations  |                                          

- 57 -

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# ITEM 6. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES

# 6A. Directors and Senior
Management

Directors

|Name of Director                   | Age | Position
|---------------------------------- | --- | --------
|
|
|
|
|Fok Kin-ning, Canning              |     |         
|Asaf Bartfeld(1)                   |     |         
|Chan Ting Yu(2)(5)                 |     |         
|Chow Woo Mo Fong, Susan            |     |         
|Amikam Cohen                       |     |         
|Robert Donald Fullerton(3)(4)      |     |         
|Uzia Galil                         |     |         
|Erez Gissin(2)                     |     |         
|Uzi Ish-Hurwitz(1)                 |     |         
|Mordechai Keret(1)                 |     |         
|Dennis Pok Man, Lui (2)(5)         |     |         
|Khoo Chek Ngee(1)                  |     |         
|Tal Raz(2)(5)                      |     |         
|Pesach Shachar(2)                  |     |         
|Frank John Sixt                    |     |         
|Dr. Colin Tucker(1)                |     |         
|Moshe Vidman (2)(3)(4(5)           |     |         
|Prof. Ben-Zion Zilberfarb(2)(3)(4) |     |         

---

|(1) | Resigned
from the Board of Directors on April 20, 2005, following the change of the Board
of Directors composition resulting from our                repurchase
of shares from our founding Israeli shareholders
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Member
of the Executive Committee of the Board of Directors
|--- | -----------------------------------------------------------

|(3) | External
Director
|--- | -----------------

|(4) | Member
of the Audit Committee
|--- | -----------------------------

|(5) | Member
of the Compensation Committee
|--- | ------------------------------------

Fok
Kin-ning, Canninghas 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, Hutchison Global
Communications Holdings Limited and 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., the Deputy Chairman of Cheung Kong
Infrastructure Holdings Limited and Hongkong Electric 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., or Advent.

Asaf
Bartfeld has been a director of Partner since November 2004. Mr. Bartfeld is currently
the President and CEO of Delek Group Ltd, and the CEO of Delek Investments and Properties
Ltd. Prior to holding his current positions in the Delek Group he was CFO of Delek Group
Ltd. Mr. Bartfeld serves as the chairman of the board of directors of Delek Real Estate
Ltd., Gado Biochemical Industries Ltd., Delek Belron International Ltd., and is a member
of the board of directors of several other entities within the Delek Group. Mr. Bartfeld
has a B.A. degree in economics from Tel Aviv University. Mr. Bartfeld was nominated as a
director by Matav. He resigned
from the Board of Directors on April 20, 2005, following the change of the Board
of Directors composition resulting from our                repurchase
of shares from our founding Israeli shareholders.

- 58 -

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Chan
Ting Yuwas 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 Executive 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, Susanhas 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 Hutchison Global Communications Holdings Limited and a Director of Hongkong Electric
Holdings Limited, Hutchison Telecommunications International Limited, TOM Group Limited
and Hutchison Telecommunications Limited. 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.

Amikam
Cohen  See Senior Management below. Mr. Cohen was nominated as a
director by Advent

Investments Pte Ltd.

commencing April 20, 2005.

Robert
Donald Fullertonhas been a director of Partner since February 2003. He became
director of Canadian Imperial Bank of Commerce (CIBC) (formerly The Canadian Bank Of
Commerce) in 1974. He joined the Bank in 1953 and served in a variety of positions in the
branch system and the International Division, including New York. He served in the
following senior executive positions prior to becoming Chairman, President and Chief
Executive Officer in 1985, Regional General Manager International, Regional General
Manager Saskatchewan, Chief General Manager and President. During this period, he chaired
many of the board committees including the Executive Committee and the Audit Committee.
Mr. Fullerton retired as an Executive Officer in 1992 but remained on the board and
continued to chair the Executive Committee until 1999. He also retired as a director of
CIBC in February 2004. Mr. Fullerton Chairs the Audit Committees of George
Weston Limited and Husky Energy Inc., and is a member of the Audit Committee of Asia
Satellite Telecommunications Holdings Ltd. During his career he has served on the board of
directors of a large number of both Canadian and international companies including I.B.M.
Canada, Honeywell Inc., Amoco Petroleum Canada, Orange plc, Ontario Hydro, Westcoast
Energy, as well as many cultural and educational entities. He received a Bachelors
degree in Arts from the University of Toronto in 1953.

Uzia
Galilhas 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. 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 Weizman
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
Gissinhas been a director of Partner since August 1998 and is a member of the
Executive Committee. For the last 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, Mr. Gissin serves as a director

and member of the Executive Committee,

on behalf of
Advent


Investments Pte Ltd.

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Uzi
Ish-Hurwitz has been a director of Partner since February 2005. Mr. Ish-Hurwitz has
served as Chairman and CEO of Shira Computers Ltd., President and Member of the Board of
Neuromedical Systems, Inc., President and Co-founder of Indigo Graphic Systems Ltd. and
Vice President Operations of Scitex Corporation. Mr. Ish-Hurwitz also served as
Procurement Department Manager at the Ministry of Defense and as Senior Project Engineer
of GTE International Systems Ltd. Mr. Ish-Hurwitz holds a B.Sc and completed the full
course work towards a M.Sc in Electrical Engineering, from the Technion  Israel
Institute of Technology, and he has participated in the Advanced Management Program (AMP)
of Harvard University. Mr. Ish Hurwitz was nominated as a director by Elbit Ltd. He resigned
from the Board of Directors on April 20, 2005, following the change of the Board
of Directors composition resulting from our                repurchase
of shares from our founding Israeli shareholders.

Mordechai
Kerethas been a director of Partner since April 2004. He has also been an
Executive Vice President at Arison Holdings (1998) Ltd., an Israeli investment company,
since 1993. Mr. Keret currently serves as a director at a number of companies in
which Arison Holdings or its affiliates are a shareholder, including Housing and
Construction Holdings Ltd., Eurocom Communication Ltd., Eurocom Cellular Communications
Ltd., Internet Gold  Golden Lines Ltd., D.B.S Satellite Services (1988) Ltd., Gaon
Holdings Ltd., and other companies in the Arison Group and Priortech Ltd. Mr. Keret
is an Israeli CPA and holds a B.A. degree in accounting and economics from the Tel-Aviv
University. Mr. Keret was nominated as a director by Eurocom. He resigned
from the Board of Directors on April 20, 2005, following the change of the Board
of Directors composition resulting from our                repurchase
of shares from our founding Israeli shareholders.

Dennis
Pok Man Luihas 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, an Executive Director of Hutchison Global Communications Holdings
Limited and a Director of Hutchison Telecommunications (Australia) Limited. He first
joined the

Hutchison Whampoa Limited


group in 1986 and was the managing director in charge
of the mobile telecommunications, fixed-line, multi-media, internet and paging businesses
in Hong Kong, China, Taiwan and Macau from January 1989 until 2000. Mr. Lui rejoined
the

Hutchison Whampoa Limited

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.

Khoo
Chek Ngeehas been a director of Partner since October 1997. He is a consultant
of

Hutchison Whampoa Limited

and has been a director of Hutchison Telecommunications
Limited since 1993. From 1993 to 2003, he was the Group Managing Director of Hutchison
Telecommunications Limited. From 1966 to 1993, he was with Singapore Telecommunications
Pte. Ltd., rising to the position of Vice President of Mobile Communications in 1991. Mr
Khoo holds a Bachelor of Science degree in Engineering from the London University Imperial
College of Science and Technology, and he participated in the Advanced Telecommunications
Management Program at the Center of Telecommunication Management, University of Southern
California. Mr. Khoo was nominated as a director by Advent

Investments Pte Ltd.


 He resigned
from the Board of Directors on April 20, 2005, following the change of the Board
of Directors composition resulting from our                repurchase
of shares from our founding Israeli shareholders.

Tal
Razhas been a director of Partner since November 2001 and is a member of the
Executive Committee and the Compensation Committee. Mr. Raz is serving as Vice
President Finance and Chief Financial Officer of Elron Electronic Industries Ltd. since
May 2002. Prior to joining Elron, Mr. Raz was the acting President and Chief
Executive Officer of Elbit Ltd. from October 2001. Mr. Raz was appointed Vice
President of Elbit in June 1998, and served as Chief Financial Officer of Elbit since
he joined Elbit in April 1997, having previously served in the same capacity at
Agentsoft Ltd., Jerusalem, and Paul Winston Corporation, New York. Prior thereto he was a
senior auditor at Deloitte & Touches New York office. He also serves as Chairman
of CellAct and as a board member of Elron Telesoft, A.M.T.  Advanced Metal
Technologies Ltd., RDC  Rafael Development Corporation Ltd. and Netvision.
Mr. Raz is a certified public accountant, and holds Bachelor of Arts and Master of
Arts degrees in accounting and business administration from Baruch College, New York.
Mr. Raz was nominated as a director, and as a member of the Executive Committee, by
Elbit Ltd., until April 20, 2005 and continues to serve as a director on behalf of the
Israeli founding shareholders.

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Pesach
Shacharhas 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 Hutchinson 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.

Frank
John Sixthas 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, Hutchison
Global Communications Holdings Limited and Hongkong Electric Holdings Limited and a
Director of Cheung Kong (Holdings) Limited, Hutchison Telecommunications International
Limited, Hutchison Telecommunications (Australia) Limited, Husky Energy Inc., and
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.

Dr. Colin
Tuckerhas been a director of Partner since July 2003. He is Deputy Chairman of
Hutchison 3G. Dr. Tucker was previously a Managing Director of Hutchison 3G UK
Limited and the Chief Operating Officer  International Operations for Orange plc. He
also served as the Technical Director of Orange plc. Dr. Tucker served as the
Director and General Manager of Telepoint systems at GPT Limited, and as Director of
Engineering for Plessey Telecommunication Products Ltd. He was also an Industrial
Professor at Loughborough University. Dr. Tucker was nominated as a director by
Advent. He resigned
from the Board of Directors on April 20, 2005, following the change of the Board
of Directors composition resulting from our                repurchase
of shares from our founding Israeli shareholders.

Moshe
Vidmanserves as a member of the Board of Directors and a member of Executive
Committee of the Jerusalem Foundation and of Beit Lessin (public theatre). 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. Since 2000 Mr. Vidman is the
Revlon Representative in Israel and serves as a director of the following companies:
Israel Corporation Ltd., ICL  Israel Chemical Ltd., Dead Sea Works Ltd.,
Jafora-Tabori ltd., Rosebud Medical Ltd., Ex-Libris Ltd., Bank Leumi LeIsrael Ltd.,
Melistrol and Ofer Brothers Properties (1957) Ltd. 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.

Prof.
          Ben-Zion Zilberfarbhas been a director of Partner since February 2000.
          Professor Zilberfarb is currently a professor of economics and chairman of the
          A. Meir Center for Banking at Bar-Ilan University. He is a member of the board
          of directors of Fundtech Ltd. and of Clal Finance-Provident and Study Funds,
          where he serves also as the chairman of the Investment Committee. He was the
          chairman of the board of directors of Euro-Trade Bank during 2000-2001 and of
          Karnit Insurance Company during 1998-2002. He also served as the Director
          General of the Israeli Ministry of Finance from 1998 to 1999. For many years,
he           served as a member of several governmental committees. He also served as the
          Chairman of the Investment Committee, of Bank Leumi Provident Funds and
          consultant to several financial institutions and several governmental and
          regulatory authorities including the Israel Securities Authority and the Bank
of           Israel. He received a Ph.D. in Economics from the University of Pennsylvania
and           a Bachelors degree and Master of Arts degree, both in Economics, from
          Bar-Ilan University.

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Senior Management

|Name of Officer    | Age | Position
|------------------ | --- | --------
|
|
|
|
|Amikam Cohen       |     |         
|David Avner        |     |         
|Iris Beck          |     |         
|Chaim Beker        |     |         
|Alon Berman        |     |         
|Adi Biran          |     |         
|Dan Eldar          |     |         
|Alan Gelman        |     |         
|Amnon Gideon       |     |         
|Zion Ginat         |     |         
|Yacov Kedmi (1)    |     |         
|Roly Klinger       |     |         
|Haim Romano(2)     |     |         
|Edith Shih         |     |         
|Menahem Tirosh (3) |     |         

---

|(1) | Mr.
Kedmi resigned from the company, effective December 31, 2004.
|--- | -----------------------------------------------------------------

|(2) | Mr. Romano
resigned from the company, effective June 28, 2005.
|--- | --------------------------------------------------------------

|(3) | Mr.
Tirosh resigned from the company, effective December 31, 2004.
|--- | ------------------------------------------------------------------

Amikam
Cohenhas been Partners Chief Executive Officer since the commencement of its
operations and a director in the Board of Directors of Partner since April 20, 2005. From 1996 to 1998, he was Chief Executive Officer of Elite Industries Ltd.,
one of Israels largest confectionery and coffee producers and marketers. From 1991
to 1996, Mr. Cohen was Managing Director of Strauss Dairies Ltd. From 1987 to 1990,
he was General Manager of the Refrigerator and Air Conditioner Division of Tadiran Home
Appliances Ltd. From 1978 to 1986, Mr. Cohen served in numerous capacities at the
Tadiran Telecommunications Group, including General Manager of the Public Switching
Division, General Manager of the Microelectronics Section, and Director of the entire
groups purchasing department. He holds a Bachelor of Science degree in Industrial
Management Engineering from Ben Gurion University, Beersheva, Israel.

David
Avner was appointed Deputy CEO in April 2005. 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.

Iris
Beckwas 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.

Chaim
Bekerwas 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 Univeresity.

Adi
Biranjoined 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. Mr. Biran continued till October 2003 to be an employee of Elbit
in connection with matters unrelated to Partner on which he worked prior to joining
Partner. 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.

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Dan
Eldarserves 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 Ph.D and M.A. degrees
from Harvard University and M.A. and B.A. degrees from the Hebrew University, Jerusalem.

Alan
Gelmanwas appointed Chief Financial Officer of Partner in January 2001. For the three
years prior to joining Partner, Mr. Gelman served as Chief Financial Officer and Vice
President of Barak ITC, one of Israels providers of international voice, data and
internet services. From 1994 to 1997, Mr. Gelman served as the Controller for Cellcom
Israel Ltd. Mr Gelman holds a Bachelors degree in Accounting from Queens College in
New York and an MBA from Hofstra University in New York. Mr. Gelman is licensed as a
Certified Public Accountant in the USA (New York) and in Israel. Mr. Gelman was
nominated as Chief Financial officer by Advent, with the approval of our Board, pursuant
to the relationship agreement described in Item 7B. Major shareholders and
Related Party TransactionsRelated Party TransactionsRelationship
Agreement.

Amnon
Gideonwas appointed Vice President, Human Resources in January 2001. Prior to joining
the Company, Mr. Gideon served as Manager of Human Resources at Motorola Israel Ltd.
From 1991 until 1994, Mr. Gideon served as the Executive Director of the Association
for Civil Rights in Israel. Mr. Gideon holds a Bachelors degree in Political Science
and Psychology from Bar-Ilan University and a Masters degree in Human Resource
Management from the University of Derby.

Zion
Ginat was appointed Vice President, Customers in January 2005. Mr. Ginat joined
Partner in 2002 as Deputy VP, Sales Division and in 2004 was appointed as Deputy VP,
Customer Service Division. Prior to joining Partner, Mr. Ginat served as General Manager
of Tecnomatix-Asia Pacific, VP Sales and Marketing of Tadiran Appliances Ltd. Israel and
as Managing Director of a subsidiary of Koor Trade. Mr. Ginat holds a Bachelors
degree and a Masters degree in Mechanical Engineering from Tel Aviv University.

Yacov
Kedmijoined Partner in May 1998 and served as Vice President, Marketing and in
October 2001 was appointed as Vice President, Content and Multimedia. He served in
this capacity until September 2003. From 1992 to 1994, he had been Deputy Managing
Director and Marketing Director of the Maariv daily newspaper, and before that,
Managing Director of Mei Eden, a bottled water producer. He also served for eleven years
as Marketing Director of Tabori Corporation, a producer of soft drinks, disposable
diapers, and paper products. In the four years immediately prior to joining us,
Mr. Kedmi was the principal in MPV Communications, providing marketing consulting
services to numerous Israeli companies, and was a partner in the launch of two businesses,
one with a direct marketing catalogue in which customers bid for the products, and another
producing premium gifts and promotional products. He studied management at Bar Ilan
University, Israel.

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.

Haim
Romanojoined Partner in June 1998 as Vice President, Human Resources and
Administration, in December 2000 was appointed Vice President, Customer Services and
in January 2003 was appointed Vice President, Customers Division and in
January 2004 was appointed Deputy CEO, Customers and Operation Divisions. In
that capacity he is responsible for personnel policy and management, physical facilities,
and site acquisition. From March 2004 until May 2004 Mr. Romano participated in the
Advanced Management Program of Harvard Business School. From 1996 to 1998, Mr. Romano
headed the Human Resources Division in the Israel General Security Service. Immediately
prior, he had served in the Israel Defense Forces for 24 years, the last two as head of
their Civil Personnel Department. Mr. Romano holds Masters degrees from Haifa
University and Tel Aviv University.

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Edith
Shihhas 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 group
companies. She is also the Company Secretary of Hutchison Telecommunications 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.

Menahem
Tiroshhas served Partner since May 1998 as a consultant and as Vice President,
Network Engineering and Operation. From 1996 to 1998, Mr. Tirosh was Deputy Director of
the Cellular Infrastructure Division of Motorola (Israel) Ltd. From 1969 to 1996,
Mr. Tirosh served in the Israeli Defense Forces, rising to the position of Department
Head, Communication Systems. He holds a Bachelor of Science degree in Electrical
Engineering from the Israel Institute of Technology (Technion), Haifa, Israel and a Master
of Science in Advanced Communication Engineering degree from Ben Gurian University. Mr.
Tirosh served as a full colonel in the Israeli Defense Forces Signal Corps.

Except
as disclosed above, 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, except for the Chief Financial Officer, as disclosed above, are selected by the
CEO with the approval of the Board for an indefinite term of office and may be removed by
the Board 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, 2004 was approximately NIS 29 million ($6.7 million). In 2004
options were granted to our senior management under the 2004 Employee Stock Option Plan to
purchase up to 2,150,000 of our ordinary shares at an exercise price of NIS 26.74 per
share. These options will expire in December 2014, subject to earlier expiration upon
the termination of employment under certain circumstances. 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, 2004 was
approximately NIS 0.8 million ($0.2 million).

# 6C. Board Practices

Terms of Directors

Directors
are elected at the annual shareholders meeting to serve for three years, in the case of
independent directors, 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. 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 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, with the approval of 75% of the
directors, may appoint an additional director to fill a vacancy. The Companys
Articles of Association provide that the Board may delegate all of its powers to
committees of the Board 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
subsidiary providing for benefits upon termination of employment. Officers of Partner
serve at the discretion of the Board or until their successors are appointed.

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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.

Independent Directors

The
Companies Law requires that Partner have at least two external directors on its Board of
Directors. In the interests of good corporate governance, our Board of Directors decided
that our Audit Committee should consist of three members, each qualified as an independent
director, pursuant to applicable US and other requirements, including, inter alia, the
requirements of Nasdaq. These independent directors are also qualified as external
directors, according to the Companies Law. 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.

Mr. Ben-Zion
Zilberfarb, Mr. Robert Donald Fullerton and Mr. Moshe Vidman are currently the
directors who satisfy the requirements both for independent directors under the Nasdaq
National Market and for external directors under the Companies Law.

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.

Audit Committee

The
Companies Law requires public companies, including Partner, to appoint an audit committee.
The responsibilities of our audit committee include reviewing our financial statements,
identifying irregularities in the management of the companys business and approving
related party transactions as required by law. According to the Companies Law, an audit
committee must consist of at least three board members

of which one member should be a financial expert, as defined by U.S. law,


and include all the companys
external directors. The chairman of the board, 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. Our
audit committee consists of three board members, all of which meet both Nasdaqs
definition of independent directors, and 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 four board members, of which one is an external,
independent director. The compensation committee is responsible for evaluating and
recommending to the board (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 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.

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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 required a boards resolution and
it was 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.

Internal Auditor

The
Companies Law requires the board 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, 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 an arrangement 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 extraordinary transactions, in addition to
the Board approval and any approval required by the Articles of Association, the
transaction also must be approved by the companys audit committee, 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, 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
present at the meeting, 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.

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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 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 shall be entitled to undertake in advance to
indemnify an officer or director of Partner, provided that the undertaking is restricted
to the events of a kind which the Board of Directors may anticipate at the time it makes
such undertaking at an amount which the Board of Directors determines is reasonable under
the circumstances. In addition, Partner can indemnify an officer or director for specific
occurrences retroactively.

Our
Articles of Association also provide that Partner may indemnify an officer or director of
Partner for liability or expense he incurs as a result of an action taken by him in his
capacity as an officer or director of Partner as follows:

|(1) | any
financial liability imposed on 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) | within
the framework of proceedings filed against him by Partner or on           Partners
behalf or by a third party,
| | --- | ----------------------------------------------------------------------------------------------------------------------

| | (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.
| | --- | -----------------------------------------------------------------------------------------------------------------------------

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

|(1) | a
breach of the duty of loyalty toward Partner, unless the officer or director
               acted in good faith and had reasonable grounds to assume that the action
would                not harm Partner;
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(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) | 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 imposed on such person for the benefit of a
third person by a judgment, including a settlement or arbitration decision certified by
the court for an action done in the scope of such persons duties as our director or
officer, and (b) reasonable litigation expenses, including legal fees, that were
incurred by such person or which the court obligates such person to pay in 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, provided that the
crime for which such person was convicted does not require a finding of criminal intent,
and in each case for an act committed in the capacity as our director or officer.

We
have effected a directors and officers liability insurance policy insuring our
directors and officers liability and our undertaking to indemnify them, in
respect of certain matters permitted by the Companies Law. The policy includes coverage in
respect of our and our directors and officers liability in respect of our
initial public offering and our offering of 13% senior subordinated notes due 2010.

# 6D. Employees

At
December 31, 2004, we had 3,164 employees on a full-time or full time equivalent
basis, compared with 2,768 at December 31, 2003 and 2,688 at December 31, 2002. The
number of employees for 2004, 2003 and 2002, divided by their activity, was as follows:

|                                                  | December 31
|------------------------------------------------- | -----------
|
|
|
|
|Customer service                                  |            
|Engineering                                       |            
|Sales and sales support                           |            
|Information technology                            |            
|Marketing and Content                             |            
|Finance                                           |            
|Human resources and Security and Fraud Management |            
|Remaining operations                              |            
|TOTAL                                             |            

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. Each of the participating
employees contributes an amount equal to 5% of his salary and we contribute between 5% and
15.8% of such employees salary.

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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%
or 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 depends on seniority and position. Non eligible
employees can participate by their own means and receive the same prices and coverage as
eligible employees.

# 6E. Share Ownership

As
of December 31, 2004, our directors and senior managers beneficially owned an
aggregate of 1,416,402 or approximately 0.77%, of our outstanding ordinary shares. No
individual director or senior manager beneficially owns 1% or more of our outstanding
ordinary shares.

As
of December 31, 2004, our senior managers, in the aggregate, held options to purchase
up to 3,164,292 of our ordinary shares. No individual senior manager holds options to
purchase 1% or more of our outstanding ordinary shares. Of these options, 388,334 have an
exercise price of $0.343 and will expire after the eighth anniversary date of the
commencement of the vesting schedule with respect to the options, subject to earlier
expiration upon the termination of the option-holders employment under certain
circumstances. An additional 625,958 of these options have an exercise price of between
NIS 20.45 and NIS 22.23. The remaining 2,150,000 of these options have an exercise price
of NIS 26.74.

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 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 currently authorizes the issuance of options to purchase up to 5,104,167
ordinary shares. As of December 31, 2004, options to purchase 963,223 ordinary shares
were outstanding, with exercise prices ranging from $0.343 per share to fair market value
at the date of grant. The fair market value was determined on the basis of the average
closing sale price of our ordinary shares during the 30 trading days prior to the date of
grant.

As
of December 31, 2004, options to purchase 3,945,193 ordinary shares had been
exercised under the 1998 Plan.

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 exercise price,
vesting schedule and expiration period. Options to purchase 195,751 ordinary shares
remained ungranted under the 1998 Plan as of December 31, 2004.

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.

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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, 2004, options to purchase 2,662,582 ordinary shares
were outstanding with exercise prices ranging from NIS 17.25  NIS 27.35, which
represent the fair market value as of the date of grant, measured on the basis of the
average closing sale price of our ordinary shares during the 30 trading days prior to the
date of grant.

As
of December 31, 2004, options to purchase 1,198,678 ordinary shares had been
exercised under the 2000 Plan. Options to purchase 191,570 ordinary shares remained
ungranted under the 2000 Plan as of December 31, 2004.

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.

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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 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.

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 options under the 2003 Amended Plan, out of which options to
purchase 195,000 ordinary shares were granted at an exercise price of NIS 20.45 per share,
which was less than the market value.

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As
of December 31, 2004, options to purchase 224,930 shares may be granted under the
2003 Amended Plan.

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 who have 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
9(d) 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

In
July 2004, the Companys Board of Directors approved a stock option 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 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.

Through
December 31, 2004, 5,095,500 options have been granted to Companys employees
pursuant to the 2004 Plan, of which 5,000 options have been exercised. As of December 31,
2004, 679,500 options under the 2004 Plan remain ungranted.

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%.

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# 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 April 20, 2005 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.

|Name and Address                   | Number of Ordinary Shares
Beneficially Owned | Percent of Outstanding
Ordinary Shares
Beneficially Owned
|---------------------------------- | -------------------------------------------- | ---------------------------------------------------------
|
|
|
|
|Hutchison Telecommunications       |                                              |                                                          
|International Limited (1)          |                                              |                                                          
|18/F Two Harbour Front             |                                              |                                                          
|22 Tak Fung Street                 |                                              |                                                          
|Hung Hom Kowloon                   |                                              |                                                          
|Hong Kong                          |                                              |                                                          
|Hutchison Whampoa Limited(2)       |                                              |                                                          
|22/F Hutchison House               |                                              |                                                          
|10 Harcourt Road                   |                                              |                                                          
|Central Hong Kong                  |                                              |                                                          
|Cheung Kong (Holdings) Limited (3) |                                              |                                                          
|7/F Cheung Kong Center             |                                              |                                                          
|2 Queen's Road Central             |                                              |                                                          
|Hong Kong                          |                                              |                                                          

---

|(1) | Based
on publicly available SEC filings by Hutchison Telecommunications
               International Limited, or Hutchison, Advent Investments Pte Ltd., or Advent,
               Hutchison Telecommunications International (Netherlands) B.V., or
Hutchison                (Netherlands), and Cheung Kong (Holdings) Limited, or Cheung
Kong, Hutchison, 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                approximately 62,621,184 and 16,318,920
ordinary shares of                Partner, respectively. Advent, incorporated in
Singapore, is an indirect wholly-owned                subsidiary of Hutchison, owned through a
chain of wholly-owned 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. Hutchison (Netherlands) is also an indirect wholly-owned
               subsidiary of Hutchison, 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Based
on publicly available SEC filings by Hutchison, Advent, Hutchison (Netherlands),
               and Cheung Kong,

Hutchison Whampoa Limited,

or HWL, a company listed on the Hong
Kong                Stock Exchange and traded on the London Stock Exchange, owns Partner
shares                through its direct wholly owned subsidiary Hutchison International
Limited,                which in turn directly holds 100% of Hutchison Telecommunications
Limited, which                in turn directly holds 100% of Hutchison Telecommunications
Investment Holdings                Limited, which in turn directly holds approximately
70.2% of the total                outstanding ordinary shares of Hutchison, which indirectly
owns 78,940,104 of the ordinary                shares of Partner.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Based
on publicly available SEC filings by Hutchison, 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 28,402,698 ordinary shares of Hutchison, may be
deemed to have sole                voting and dispositive power over the ordinary shares
of Partner beneficially                owned by HWL and Hutchison.
However, as stated in the Schedule                13D, pursuant to Rule 13d-4 under the
Exchange Act, Cheung Kong expressly                disclaims beneficial ownership of such
ordinary shares of Partner.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 73 -

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Changes in Major
Shareholders During the Past Three Years

At
December 31, 2001, our major shareholders included:

| |  | Matav-Cable
Systems Media Ltd. ("Matav"), which owned 2.82% of our shares directly and an additional
         12.42% of our shares through the 50.1% shareholding in Matbit Telecommunication
Systems Ltd. ("Matbit")          held by Matav's wholly owned subsidiary Matav
Investments ("Matav Investments");
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Elbit
Limited (Elbit), which owned 12.37% of our shares through the 49.9%
shareholding in Matbit held by Elbits wholly owned subsidiary Elbit.COM
Limited (Elbit.COM);


Elbit.COM was

liquidated

in 2003, following which Elbit Limited held shares directly in Partner.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | HWL,
 which owned 35.0% of our shares through a chain of wholly owned
subsidiaries as follows: the direct holder of our shares was Advent, which was owned by
Amber International Holdings Inc., which was owned by Hutchison Telecommunications
Limited, which was owned by Hutchison International Limited, which was owned by HWL.
 By virtue of interests in relation to

HWL,

Cheung
Kong (Holdings) Limited, Li Ka-Shing Unity Holdings Limited, Li Ka-Shing Unity Trustee
Company Limited as trustee of The Li Ka-Shing Unity Trust, Li Ka-Shing Unity Trustee
Corporation Limited as trustee of The Li Ka-Shing Unity Discretionary Trust and Li
Ka-Shing as owner of more than one third of the issued share capital of Li Ka-Shing Unity
Holdings Limited are each taken as interested in the Partner shares held by

HWL

by virtue of the provisions of the Securities (Disclosure of Interests)
Ordinance, Cap. 396 of the laws of Hong Kong;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Tapuz
Cellular Systems Limited Partnership (Tapuz Limited Partnership), which owned
approximately 13% of our shares and which was owned by Tapuz Cellular Systems Ltd. (Tapuz)
(1%) (the general partner), Eurocom Communications Ltd. (Eurocom) (69%) and
Hapoalim Electronic Communications Ltd., subsequently renamed Polar Communications Ltd. (Polar)
(30%) (the limited partners);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | MFS
Investment Management ("MFS"), which owned 7.22% of our shares; and
| | - | -----------------------------------------------------------------------

| |  | T.
Rowe Price Associates, Inc. ("TRP"), which owned 5.7% of our shares.
| | - | -----------------------------------------------------------------------

In
January 2002, Tapuz Limited Partnership was dissolved, and its holdings in Partner were
transferred to its partners, Eurocom, Polar and Tapuz, a wholly owned subsidiary of
Eurocom, pro rata to their previous interests in the partnership. On April 24, 2002,
Hutchison Telecommunications (Amsterdam) BV (Hutchison (Amsterdam)), an
indirect wholly owned subsidiary of HWL, acquired 5,044,667 shares
of Partner from Matav Investments and 8,734,001 shares of Partner from Matbit, which
together represented approximately 7.7% of Partners issued share capital at that
time. On December 2, 2002, the holdings of Matbit in Partner were transferred to its
shareholders, Elbit.COM and Matav Investments, pro rata their previous interests in
Matbit. During 2002, MFS and TRP reduced their holdings in Partner to less than 5% each.
On September 17, 2004, Hutchison (Amsterdam) transferred 16,318,920 shares of Partner to
Advent, which transferred them to Hutchison (Netherlands).

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
increased to 52.15%.

- 74 -

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Other

On
April 18, 2005, 11,585,513 ADSs (equivalent to 11,585,513 ordinary shares or approximately
6.27% of the total outstanding ordinary shares) were outstanding and held of record by 32
registered holders in the United States. Additionally, on April 18, 2005, there were
approximately 8 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. As far as we know, there are no arrangements
that might result in a change in our control.

# 7B. Related Party
Transactions

Relationship Agreement

Our
founding shareholders and Elbit.COM entered into a Relationship Agreement in
relation to their direct and indirect holdings of our shares and the rights associated
with such holdings. When one of our founding shareholders, Tapuz, was dissolved in
January 2002 and its holdings in Partner were distributed to its partners, Eurocom
Communications Ltd., Polar Communications Ltd. and Tapuz Cellular Systems Ltd., these
parties became parties to, and assumed Tapuzs rights and obligations under, the
Relationship Agreement. The Relationship Agreement was amended on April 23, 2002,
concurrently with the sale of shares in Partner indirectly owned by Matav-Cable Systems
Media Ltd. to Hutchison Telecommunications (Amsterdam) BV.

The
founding Israeli shareholders, Matav Investments Ltd., a wholly-owned subsidiary of Matav,
and Advent Investments Pte Limited and Hutchison Telecommunications International
(Netherlands) BV, the subsidiaries of Hutchison holding Partners
shares, further amended and restated the Relationship Agreement on April 20, 2005 and,
among other changes, eliminated any obligation of the parties to vote for each
others directorship nominations. The following description relates to the
Relationship Agreement as in effect as of the date of filing of this Annual Report.

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 substitutes
hold in aggregate at least 26% of the means of control of Partner, and that our Israeli founding
shareholders or their substitutes (from among the founding shareholders and their
substitutes) hold at least 5% of the means of control of Partner. See Item 4B.
Information on the CompanyBusiness OverviewRegulationOur
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 License.
On September 14, 2003, the Ministry of Communications notified us that this
undertaking need no longer remain in force.

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.

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---



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

We
currently operate under an unwritten arrangement with Eurocom Communications Ltd., one of
our principal shareholders, pursuant to which Eurocom sells our services or distributes
handsets in connection with their sale of Nokia handsets in four outlets and with a group
of approximately 100 sales representatives who sale our services 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
also purchase a portion of our Nokia handsets from Eurocom. In the year ended
December 31, 2004, purchases from Eurocom constituted approximately 44% of all of our
handset purchases.

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

In
addition, we have agreements with Eurocom Cellular Communication Ltd., a subsidiary of
Eurocom Communications Ltd., according to which Eurocom will provide us with various
content and interactive games and the right to use certain intellectual property.
Furthermore, in 2004 we entered an agreement with Eurocom Cellular Communications for the
supply of an interface that will enable sending large quantities of SMS and MMS from
Eurocom to a handset and vice-versa.

We
have an agreement with Cellact Ltd., a subsidiary of Elbit Ltd., according to which
Cellact is directly connected to our SMS server so that Cellact may send large amounts of
SMSs to our subscribers and vice-versa.

We
have a strong relationship with Hutchison, previously one of our principal
shareholders and

now

our majority shareholder, and
HWL, Hutchisons controlling


shareholder,

and are working with them in connection with the development of products and
services for UMTS third generation mobile communications. Hutchison and

HWL

are global leaders in
UMTS third generation technology and, in particular the deployment and development of
third generation cellular networks and products and services worldwide.

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

 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, 2004, we had given notice of our participation in six 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 14(c) to
our consolidated financial statements.

For
more information, see Item 3D. Risk FactorsRisks and uncertainties in
connection with UMTS third generation technology mean that we may not make an economic
return on investment in acquiring UMTS third generation spectrum, establishing a UMTS
third generation network, or developing UMTS third generation services.

- 76 -

---

---



In
2004, we entered into an agreement with HI3G Access AB, a subsidiary of

HWL,


for the purchase of Novotel/Lucent 3G UMTS datacards.

On
September 1, 2003, we entered into a supply agreement with Elron Telesoft Ltd., a
wholly-owned subsidiary of Elron Electronics Industries Ltd. 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
2004 we entered into an agreement with Goldmind, a subsidiary of Eurocom Communications,
for the supply of content from its website through WAP.

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 the companys Chief Executive
Officer, Amikam Cohen, for the sale, installation and maintenance of car kits in
approximately 35 locations.

We
have roaming agreements with
certain members of the Hutchison and HWL group of companies. The agreements which are with
GSM, GPRS and 3GSM operators wordwide, 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
April 2005, we entered into a new $550 million 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. In addition, the new credit
facility facilitated our repurchase of shares from our founding Israeli shareholders, by
causing a release of the share pledges on these shares and by providing more flexible
covenants for permitted distributions. 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.

- 77 -

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Repurchase of Shares from
Founding Israeli Shareholders

On
April 20, 2005, we repurchased approximately 33.3 million of our shares, pursuant to an
offer that we received in February 2005 from our founding Israeli shareholders, Elbit, Eurocom,
Polar. and Matav, who together held approximately 22.5% of our outstanding shares at that time. The
purchased shares held by Elbit, Eurocom, Matav and Polar, represented approximately 18.1%
of our then outstanding shares. As a result of the repurchase of these shares, the holdings of
our largest shareholders, Hutchison Telecommunications International Limited, increased
from 42.9% to approximately 52.15% and the holdings of Elbit decreased to approximately
2.04%, the holdings of Eurocom decreased to approximately 1.5%, the holdings of Matav
decreased to approximately 1.25% and the holdings of Polar decreased to approximately
0.55%.

The
price per share at which we acquired these shares was NIS 32.2216 per share. These share
repurchases were approved by our audit committee, by our board of directors, and by our
shareholders at an extraordinary meeting of our shareholders, including the required
majority under the Companies Law for an extraordinary transaction with a controlling
shareholder.

# 7C. Interests of Experts
and Counsel

Not applicable.

- 78 -

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# ITEM 8. FINANCIAL
INFORMATION

# 8A. Consolidated
Financial Statements and Other Financial Information

Audited
financial statements for the three fiscal years ended December 31, 2004 are included
under "Item 18. Financial Statements."

Legal and Arbitration
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, particularly before the signing of the agreement in principle with
the Union of Local Authorities in Israel. 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. Currently, approximately 30% of our antenna
sites are operating without local building permits. 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.

As
of December 31, 2004, 266 criminal proceedings have been brought against us
concerning the erection of antenna sites without building permits. 135 of those
proceedings have also been brought against our officers and directors. 26 of those
proceedings have been brought against us regarding failure to comply with demolition
orders, of which five have been brought against our officers and directors and 26 have
been settled. 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. 231 of the criminal proceedings brought against us have been settled, with
Partner, but not our directors or officers, admitting guilt and paying a fine, ranging
from NIS 1,000 to NIS 80,000 per offense. The total amount of fines paid as of
December 31, 2004, is approximately NIS 2 million, with NIS 0.3 million of
that paid during 2002, NIS 0.2 million of that paid during 2003 and NIS
0.1 million of that paid during 2004. These settlements 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. 129 of the criminal proceedings involving our officers and
directors have been settled with no admission of guilt by any of the officers and
directors. In addition, currently 71 administrative demolition order proceedings have been
brought against us. Of these, 69 have been settled with the imposition of demolition
orders, the execution of which has been stayed for a period of several months to allow us
to obtain the necessary permits or to relocate the relevant antenna.

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.

On
October 28, 1999, an Israeli consumer organization lodged a claim against us,
alleging a variety of consumer complaints and requested that this claim be recognized as a
class action. On March 20, 2002, the Haifa District Court decided to strike the
claim, because the consumer organization lost, on December 31, 2001, the special
status required under Israeli law for consumer organizations to file class action claims.

- 79 -

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Another
claim, involving a substantial amount, which was filed by a private consumer who had
previously asked to join the above class action, has been brought again before the court.
The court had previously frozen the proceedings of the private consumers claim,
until a decision was made in the case filed by the consumer organization.On May 25,
2003, the private consumer filed a request to amend his motion to file a class action
claim and the proposed claim itself, and also a draft of the proposed amended motion and
claim. The motion to amend was granted, and on January 21, 2004, we submitted our
response to the certification motion.On November 24, 2004 the court decided to strike the
motion to recognize the claim as a class action.

On
April 8, 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 is estimated at approximately NIS 545 million plus additional
significant amounts related to other alleged damages. Only a preliminary hearing has taken
place, and the parties await a decision by the court with regard to our preliminary motion
to dismiss the claim.

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, and therefore no
provision has been made.

In
addition, we and our legal counsel are of the opinion that even if the request to
recognize this claim as a class action is granted, and even if the plaintiffs
arguments are accepted, the outcome of the claim will be significantly lower than the
above-mentioned amount. See Note 8b(2) to our consolidated financial statements.

On
April 13, 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. We filed our response on
October 1, 2003.

At
this stage, no hearings have taken place and unless and until the claim is recognized as a
class action, we and our legal council are unable to evaluate the probability of success
of such claim, and therefore no provision has been made. See Note 8b(3) to our
consolidated financial statements.

On
September 14, 2004, a claim was filed against us, together with a motion requesting
certification as a class action, alleging errors in client accounts, including charges in
respect of Internet access after the client requested to block the service, and in the
recording of credit balances as charges. The plaintiff claims that our clients have
suffered damages of approximately NIS 173 million over a period of two years and that we
are in violation of the Consumer Protection Law. We filed a response on March 8, 2005. 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, and therefore no provision has been made. See Note 8b(4) to our
consolidated financial statements.

Dividend Distribution
Policy

We
have never paid cash dividends to our shareholders although we may pay dividends in the
future. 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. On April
20, 2005, we repurchased approximately 33.3 million shares from our founding Israeli
shareholders, for a total purchase price of approximately NIS 1,074 million. See Item 7B. Related
Party TransactionsRepurchase of Shares from Founding Israeli Shareholders.

- 80 -

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In
the event we declare dividends in the future, we will pay those 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.

- 81 -

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# 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, 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.

The
table below sets forth, for the periods indicated, the reported high and low closing
quotations, 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
|-------------- | ------ | --------------------- | -----------------------
|
|
|
|
|2000           |        |                       |                        
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        
|2001           |        |                       |                        
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        
|2002           |        |                       |                        
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        
|2003           |        |                      
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        
|2004           |        |                      
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        

---

|* | The
data for the fourth quarter of 2004 is based on last trade reported to the London Stock
Exchange.
|- | -----------------------------------------------------------------------------------------------------

|** | Our
ordinary shares began trading on the Tel Aviv Stock Exchange on July 3, 2001.
|-- | ---------------------------------------------------------------------------------

- 82 -

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Previous Six Months

|              | Nasdaq | London Stock Exchange | Tel Aviv Stock Exchange
|------------- | ------ | --------------------- | -----------------------
|
|
|
|
|October 2004  |        |                       |                        
|November 2004 |        |                       |                        
|December 2004 |        |                       |                        
|January 2005  |        |                       |                        
|February 2005 |        |                       |                        
|March 2005    |        |                       |                        

# 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.

- 83 -

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# 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. 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 184,037,221 ordinary shares were issued and
outstanding as of December 31, 2004. All outstanding ordinary shares are validly
issued. On April 20, 2005, we repurchased approximately 33.3 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 have been cancelled. On April 20, 2005, following the
repurchase of shares, our issued and outstanding share capital was 151,353,447 ordinary
shares.

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 a dividend with respect to any
fiscal year only out of profits, in accordance with the provisions of the Companies Law.
Declaration of a dividend requires approval by an ordinary shareholders resolution,
which may decrease but not increase the amount proposed by the board of directors. 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.

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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, the declaration
of dividends 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. 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. 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 LicenseLicense Conditions.

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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, these
shares have 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 at least
twenty-one days prior to the date of the meeting is required. 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 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 License  License Conditions,
Item 4B. Information on the Company  Business Overview  Our 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

For
information on our share repurchase, see Item 7B. Related Party Transactions 
Repurchase of Shares from Founding Israeli Shareholders.

# 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 subsidiary, Partner Future Communications
2000 Ltd., except or otherwise as set forth under Item 10E. Additional
Information  Taxation.

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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 Reform

On
July 24, 2002, the Israeli Knesset enacted income tax reform legislation, commonly
referred to as the Tax Reform. The Tax Reform has introduced fundamental and
comprehensive changes into Israeli tax laws. Most of the legislative changes took effect
on January 1, 2003. The 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 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 individuals from the sale of securities traded on the Tel-Aviv
Stock Exchange). Various issues related to the 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.

Under
the 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.

General Corporate Tax
Structure

The
regular rate of corporate tax in Israel is 34%. It is scheduled to be reduced to 32% in
2006 and 30% for year 2007 and thereafter.

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.

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

| | Where
a companys equity, as calculated under the Inflationary Adjustments Law, exceeds
the depreciated cost of 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.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Where
a companys depreciated cost of fixed assets exceeds its equity, then the excess
multiplied by the applicable annual rate of inflation is added to taxable income.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 Israeli
Consumer Price Index or 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 Israeli 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

| | 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 Israeli CPI between the date of purchase and the date of
sale. The Real Gain accrued at the sale of an asset purchased on or after January 1,
2003 is taxed at a 25% rate, both for individuals and for corporations.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 34% and a marginal tax rate of up to 49% 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inflationary
Surplus, that accrued after December 31, 1993, is exempt from tax.
| | -------------------------------------------------------------------------------

| | Upon
the sale of an asset subject to capital gains tax, a tax advance of 25% of the capital
gain is payable within 30 days of the transaction. The Assessing Officer may accept
the actual amount of tax payable, if this is lower, provided that a detailed return
including a computation of the tax due is filed within that period. Capital gains are
also reportable on annual income tax returns.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Taxation
of Israeli Residents  Shareholders Subject to the Inflationary Adjustments Law.
The Inflationary Adjustments Law includes provisions concerning taxation on gains from
the sale of traded securities. These provisions apply to most corporate shareholders and
to certain individuals. There is some uncertainty as to whether those provisions also
apply to foreign corporations that hold our shares because non-resident companies are not
expressly exempt from them. A shareholder who is subject to the Inflationary Adjustments
Law will be taxed, upon the sale of his or her Shares, on the full amount of its gain at
the tax rate applicable to that shareholder (34% for a corporation and a marginal tax
rate of up to 49% for individuals). It should be noted that the Tax Reform has not
altered significantly the legal situation concerning this aspect of Israeli taxation.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | Taxation
of Israeli Residents  Other Shareholders. 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 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 or who are not subject to the Inflationary Adjustments Law.
As demonstrated below, the timing of that the shareholders purchase of the shares
will determine the tax outcomes in this regard.

Our
analysis is based partially on guidelines published by the Israeli Tax Authorities prior
to enactment of the Tax Reform concerning the tax treatment of securities traded in the
Tel Aviv Stock Exchange and on foreign stock exchanges. Accordingly, the analysis may
change should new legislation or amended guidelines be published in the future.

# Sale of shares purchased
after January 1, 2003

The
shareholder will be subject to tax at 15% 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%.

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.

| | 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 and are not subject to the
Inflationary Adjustments Law, 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Withholding
at Source from Capital Gains from Traded Securities. Under the Tax Reform, Israeli
stockbrokers have a duty to withhold tax upon the sale of traded securities. The
applicable withholding tax rate is 15% from the real gain.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dividends

We
have never paid cash dividends to our shareholders although we may pay dividends in the future.
However, the following Israeli tax consequences would
apply in the event of actual payment of any dividends on ordinary shares or ADSs.

The
distribution of dividend income, other than bonus shares (stock dividends), to Israeli
residents who purchased our Shares will generally be subject to income tax at a rate of
25% for individuals and will be exempt from income tax for 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 25% by way of
a tax withholding, unless a lower rate is stipulated by a treaty between Israel and the
shareholders country of residence.

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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%. The maximum rate of withholding tax on
dividends paid by Israeli corporation to a US corporation will be 12.5% if 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) by a holder that (a) is a resident of
the United States for purposes of the US Treaty, and (b) 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.

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 U.S. 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:

| | a
citizen or individual resident of the United States for US federal income tax purposes,
|- | -----------------------------------------------------------------------------------------

| | 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),
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | an
estate whose income is subject to US federal income taxation regardless of its source, or
|- | --------------------------------------------------------------------------------------------

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| | a
trust if (A) a US court is able to exercise primary supervision over the trusts
administration and (B) one or more United States persons have the authority to
control all of the trusts substantial decisions.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If
a partnership 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. 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

In
the event we make any distributions of cash or other property to a US holder of ordinary
shares or ADSs, the 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 is 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.

If
a US holder is an accrual method taxpayer, for taxable years beginning before 2005, it
must translate Israeli taxes into US dollars at a rate equal to the average exchange rate
for the taxable year in which the taxes accrue, but must translate taxable dividends into
US dollars at the spot rate on the date received. The difference in exchange rates may
reduce the US dollar value of the credits for Israeli taxes relative to its US federal
income tax liability attributable to a dividend. However, for taxable years beginning
after 2004, an accrual method US holder may elect to translate Israeli taxes into US
dollars using the exchange rate in effect at the time the taxes were paid. Any such
election will apply for the taxable year in which it is made and all subsequent years,
unless revoked with the consent of the Internal Revenue Service (IRS).

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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. Under recently enacted legislation, for taxable years beginning January
1, 2007, 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. The US Treasury
has expressed concerns that parties to whom ADSs are released may be taking actions that
are inconsistent with the claiming of foreign tax credit for US holders of ADSs.
Accordingly, the discussion above regarding the creditability of the Israeli withholding
tax on dividends could be affected by future actions that may be taken by the US Treasury.
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, 2009. 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. The United States Treasury and the IRS have announced their intention
to promulgate rules pursuant to which holders of shares and ADSs, among others, will be
permitted to rely on certifications from issuers to establish that dividends are treated
as qualified dividend income. 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.

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.

- 92 -

---

---



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, 2004. 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.

- 93 -

---

---



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 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.

- 94 -

---

---



# 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 to
interest rates and foreign currencies. 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 US dollars, shekels linked to the Israeli CPI and unlinked shekels. The
following table provides information derived from the financial statements about these
borrowings, as of December 31, 2004.

Non-Derivative Instruments

|                                                             | Book Value (NIS equivalent in
millions, except percentages)
|------------------------------------------------------------ | -----------------------------------------------------------
|
|
|
|
|US dollar borrowings (1)                                     |                                                            
|Long term--Notes due 2010                                    | 754                                                        
|Fixed interest rate payable on our Notes due 2010            | 13%                                                        
|NIS linked to the Israeli CPI (2)                           
|Long-term  fixed                                            | 358                                                        
|Weighted average interest rate payable on fixed rate debt    | 5.8%                                                       
|Unlinked NIS(2)                                             
|Long-term--floating                                          | 827                                                        
|Weighted average interest rate payable on floating rate debt | 4.8%                                                       
|Total                                                        | 1,939                                                      

---

|(1) | On
December 31, 2004, the closing price of our Notes due 2010 was 113.25 points.
|--- | --------------------------------------------------------------------------------

|(2) | Book
value approximates fair value at December 31, 2004.
|--- | --------------------------------------------------------

Expected Maturity Dates:

Our
credit facility was divided into three tranches: A multi-currency term loan facility of
$383 million, a revolving multi-currency loan facility of $150 million and a
fixed-term shekel loan facility of $150 million. This facility was replaced on April
14, 2005 with a new six-year facility including a $450 million term loan facility and a
$100 million revolving facility. With effect May 1, 2005, we exercised an option to reduce
the term loan facility (excluding an advance of approximately $25 million carried over
from the previous facility) to $150 million and shorten the maturity to September 1, 2009.

The
total commitments under our new facility will be reduced during each of the following
years to the following amounts:*

|                  | Dollars in Millions
|----------------- | -------------------
|
|May 1, 2005       | 175                
|September 1, 2005 | 173                
|September 1, 2006 | 166                
|September 1, 2007 | 109                
|September 1, 2008 | 50                 
|September 1, 2009 | 0                  

|* | Including
approximately $25 million advance carried over from our previous facility.
|- | ------------------------------------------------------------------------------------

- 95 -

---

---



On
August 10, 2000, we completed an offering of $175 million of unsecured senior
subordinated notes due 2010. The notes bear interest at the rate of 13% per annum, which
is payable semi-annually on each February 15 and August 15, commencing
February 15, 2001. We intend to redeem these notes on August 15, 2005.

Foreign Exchange

Substantially
all of our revenues and a majority of our operating expenses are denominated in shekels.
However, through December 31, 2004, 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, and
our notes are denominated in US dollars and require US dollar interest payments. 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 most of our foreign
currency commitments, and we currently hedge the principal payable on our notes due 2010
until the anticipated redemption in August 2005.

We
are exposed from time to time to movements in foreign currency exchange rates on
short-term liabilities to suppliers, denominated in US dollars or euros. 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
enter into foreign currency forward transactions and purchases and write foreign currency
options in order to protect ourselves against the risk that the eventual dollar cash flows
resulting from the existing assets and liabilities will be affected by changes in exchange
rates. The writing of such options is part of a comprehensive hedging strategy and is
designed to effectively swap the currencies relating to existing assets and liabilities.
Each of the options written is combined with purchase of an option for the same period and
the same notional amount. We do not hold or issue derivative financial instruments for
trading purposes.

The
transactions are mainly designated to hedge the cash flows related to payments of dollar
interest on notes payable as well as those related to anticipated 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 of December
31, 2004 | Maturing in
2005 | Fair Value at
December 31, 2004
|------------------------------------------------------------ | ----------------------- | ---------------- | -------------------------------
|
|Forward transactions  for the exchange of: Dollars into NIS | 1,094                   | 1,094            | (55.3)                         
|Embedded derivatives  : Dollars into NIS                    | 132                     | 132              | (1.6)                          

- 96 -

---

---



# 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. We carried out an evaluation under
the supervision and with the participation of management, including our chief executive
officer and chief financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures as of December 31, 2004. 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. Based upon
our evaluation, our chief executive officer and chief financial officer concluded that the
disclosure controls and procedures were effective as of December 31, 2004 were effective
to provide reasonable assurance that information required to be disclosed in the reports
we file and submit under the Securities Exchange Act is recorded, processed, summarized
and reported as and when required.

(b)
Internal Control Over Financial Reporting. There were no changes in our internal
control over financial reporting that occurred during the year ended December 31,
2004 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 Mr. Robert Donald Fullerton is an audit
committee financial expert as defined in Item 16A of Form 20-F. Mr. Fullerton
and each of the other 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 Chief Executive Officer, President,
Chief Financial Officer and Corporate Controller. 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, 2004, 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 2004 and 2003.

|                       | 2004 (NIS thousands) | 2003 (NIS thousands)
|---------------------- | -------------------- | --------------------
|
|
|
|
|Audit Fees (1)         |                      |                     
|Audit-related Fees (2) |                      |                     
|Tax Fees (3)           |                      |                     
|TOTAL                  |                      |                     

---

|(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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 97 -

---

---



|(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 audit-related fees
in 2004 include                also fees for due diligence in respect of the Matav
transaction which was                ultimately not consummated.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Tax
Fees include fees billed for tax compliance services, including the
               preparation of original and amended 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; and tax planning services.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Audit Committee
Pre-approval Policies and Procedures

Our
Audit Committee has not adopted any pre-approval policies and procedures.

# 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 U.S. Securities Exchange Act of 1934, purchased any of our shares during 2004.

# 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 - 2         
|CONSOLIDATED FINANCIAL STATEMENTS:                                                    
|Balance sheets as of December 31, 2003 and 2004                                        | F - 3 - F - 4 
|Statements of operations for the years ended December 31, 2002, 2003 and 2004          | F - 5         
|Statements of changes in shareholders' equity (capital deficiency) for the years ended
|December 31, 2002, 2003 and 2004                                                       | F - 6         
|Statements of cash flows for the years ended December 31, 2002, 2003 and 2004          | F - 7 - F - 8 
|Notes to financial statements                                                          | F - 9 - F - 41

- 98 -

---

---



# 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
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 |  | Form
of Deposit Agreement including Form of ADR Certificate
|--------- |  | -----------------------------------------------------------

|*2.(b).1 |  | Form
of Indenture between Partner and The Bank of New York, as trustee, including form of note
|-------- |  | ----------------------------------------------------------------------------------------------

|2.(b).2 |  | Form
of  Indenture between Partner and the Trust Company of Igud 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).3 |  | Bank
Facility dated August 13, 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).10 |  | Interconnect
Agreement with Cellcom dated February 15, 1999
|---------- |  | -----------------------------------------------------------

|**4.(a).11 |  | Interconnect
Agreement with Pelephone dated May 1, 1999
|---------- |  | -------------------------------------------------------

|*4.(a).12 |  | Amending
and Rescheduling Agreement dated July 9, 2000
|--------- |  | ------------------------------------------------------

|***4.(a).15 | Amendment
No. 1 to License from the Israeli Ministry of Communications issued May 11, 1999
|----------- | ------------------------------------------------------------------------------------------

|***4.(a).16 | Amendment
No. 2 to License from the Israeli Ministry of Communications issued September 29, 1999
|----------- | ------------------------------------------------------------------------------------------------

|***4.(a).17 | Amendment
No. 3 to License from the Israeli Ministry of Communications issued October 3, 1999
|----------- | ---------------------------------------------------------------------------------------------

|***4.(a).18 | Amendment
No. 4 to License from the Israeli Ministry of Communications issued June 28, 2000
|----------- | -------------------------------------------------------------------------------------------

|***4.(a).19 | Amendment
No. 5 to License from the Israeli Ministry of Communications issued September 10, 2000
|----------- | ------------------------------------------------------------------------------------------------

|***4.(a).20 | Amendment
No. 6 to License from the Israeli Ministry of Communications issued March 19, 2001
|----------- | --------------------------------------------------------------------------------------------

|+4.(a).21 |  | Amendment
No. 7 to License from the Israeli Ministry of Communications issued September 23, 2001
|--------- |  | ------------------------------------------------------------------------------------------------

|+4.(a).22 |  | Amendment
No. 8 to License from the Israeli Ministry of Communications issued December 27, 2001
|--------- |  | -----------------------------------------------------------------------------------------------

|+4.(a).23 |  | Amendment
No. 9 to License from the Israeli Ministry of Communications issued March 13, 2002
|--------- |  | --------------------------------------------------------------------------------------------

|+4.(a).24 |  | Amendment
No. 10 to License from the Israeli Ministry of Communications issued April 14, 2002
|--------- |  | ---------------------------------------------------------------------------------------------

|+4.(a).26 |  | Amendment
No. 11 to License from the Israeli Ministry of Communications issued April 25, 2002
|--------- |  | ---------------------------------------------------------------------------------------------

|++4.(a).27 |  | Amendment
No. 12 to License from the Israeli Ministry of Communications issued June 26, 2002
|---------- |  | --------------------------------------------------------------------------------------------

|++4.(a).28 |  | Amendment
No. 13 to License from the Israeli Ministry of Communications issued June 30, 2002
|---------- |  | --------------------------------------------------------------------------------------------

|++4.(a).29 |  | Amendment
No. 14 to License from the Israeli Ministry of Communications issued September 11, 2002
|---------- |  | -------------------------------------------------------------------------------------------------

|++4.(a).30 |  | Amendment
No. 15 to License from the Israeli Ministry of Communications issued October 24, 2002
|---------- |  | -----------------------------------------------------------------------------------------------

|++4.(a).31 |  | Amendment
No. 16 to License from the Israeli Ministry of Communications issued November 26, 2002
|---------- |  | ------------------------------------------------------------------------------------------------

|++4.(a).32 |  | Amendment
No. 17 to License from the Israeli Ministry of Communications issued February 2, 2003
|---------- |  | -----------------------------------------------------------------------------------------------

|+++4.(a).33 | Amendment
No. 18 to License from the Israeli Ministry of Communications issued May 29, 2003
|----------- | -------------------------------------------------------------------------------------------

|+++4.(a).34 | Amendment
No. 19 to License from the Israeli Ministry of Communications issued July 31, 2003
|----------- | --------------------------------------------------------------------------------------------

|+++4.(a).35 | Amendment
No. 20 to License from the Israeli Ministry of Communications issued October 8, 2003
|----------- | ----------------------------------------------------------------------------------------------

|+++4.(a).36 | Amendment
No. 21 to License from the Israeli Ministry of Communications issued October 9, 2003
|----------- | ----------------------------------------------------------------------------------------------

|+++4.(a).37 | Amendment
No. 22 to License from the Israeli Ministry of Communications issued March 16, 2004
|----------- | ---------------------------------------------------------------------------------------------

|+++4.(a).38 | Amendment
No. 23 to License from the Israeli Ministry of Communications issued March 21, 2004
|----------- | ---------------------------------------------------------------------------------------------

|4.(a).39 | Amendment
No. 24 to License from the Israeli Ministry of Communications issued May 9, 2004
|-------- | ------------------------------------------------------------------------------------------

- 99 -

---

---



|4.(a).40 |  | Amendment
No. 25 to License from the Israeli Ministry of Communications issued July 4, 2004
|-------- |  | -------------------------------------------------------------------------------------------

|4.(a).41 |  | Amendment
No. 26 to License from the Israeli Ministry of Communications issued July 11, 2004
|-------- |  | --------------------------------------------------------------------------------------------

|4.(a).42 |  | Amendment
No. 27 to License from the Israeli Ministry of Communications issued August 8, 2004
|-------- |  | ---------------------------------------------------------------------------------------------

|4.(a).43 |  | Amendment
No. 28 to License from the Israeli Ministry of Communications issued November 30, 2004
|-------- |  | ------------------------------------------------------------------------------------------------

|4.(a).44 |  | Amendment
No. 29 to License from the Israeli Ministry of Communications issued December 16, 2004
|-------- |  | ------------------------------------------------------------------------------------------------

|4.(a).45 |  | Amendment
No. 30 to License from the Israeli Ministry of Communications issued December 23, 2004
|-------- |  | ------------------------------------------------------------------------------------------------

|4.(a).46 |  | Amendment
No. 31 to License from the Israeli Ministry of Communications issued March 9, 2005.
|-------- |  | ---------------------------------------------------------------------------------------------

|+4.(a).47 |  | Amending
Agreement to the Facility Agreement dated January 8, 2002
|--------- |  | ------------------------------------------------------------------

|+4.(a).48 |  | Amending
Agreement to the Facility Agreement dated January 30, 2002
|--------- |  | -------------------------------------------------------------------

|+4.(a).49 |  | Amending
Agreement to the Facility Agreement dated February 6, 2002
|--------- |  | -------------------------------------------------------------------

|+4.(a).50 |  | Amending
Agreement to the Facility Agreement dated February 28, 2002
|--------- |  | --------------------------------------------------------------------

|+4.(a).51 |  | Amending
Agreement to the Facility Agreement dated March 14, 2002
|--------- |  | -----------------------------------------------------------------

|+4.(a).52 |  | Amending
Agreement to the Facility Agreement dated March 24, 2002
|--------- |  | -----------------------------------------------------------------

|+4.(a).53 |  | Amending
Agreement to the Facility Agreement of April 2002
|--------- |  | ----------------------------------------------------------

|+4.(a).54 |  | Amending
Agreement to the Facility Agreement dated April 24, 2002
|--------- |  | -----------------------------------------------------------------

|++4.(a).55 |  | Amending
Agreement to the Facility Agreement dated December 31, 2002
|---------- |  | --------------------------------------------------------------------

|4.(a).56 |  | Facility
Agreement dated April 14, 2005
|-------- |  | ---------------------------------------

|#+++4.(a).57 | Purchase
Agreement with Nortel Networks ISRAEL (Sales and Marketing) Ltd. Dated November 12, 2003.
|------------ | --------------------------------------------------------------------------------------------------

|4.(a).58 |  | Share
Buy Back Agreement dated February 7, 2005
|-------- |  | -----------------------------------------------

|6. |  | See
Note 1q to our financial statements for information explaining how earnings (loss) per
share                 information was calculated.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|8. |  | List
of Subsidiaries
|-- |  | --------------------

|12.(a).1 |  | Certification
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 the Sarbanes Oxley Act of
2002.
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.(a).2 |  | Certification
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 the Sarbanes Oxley Act of
2002.
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.(a).1 |  | Certification
of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|14.(a).1 |  | Consent
of Kesselman & Kesselman
|-------- |  | --------------------------------

---

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

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

|*** | 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.
|--- | --------------------------------------------------------------------------------------------------------

|# | Confidential
treatment requested.
|- | ---------------------------------

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

- 100 -

---

---



# 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, stored or processed. Fixed
transmitter/receiver equipment in                   each cell of a mobile
|----------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Base TransceiverStation ("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 and perform 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 unique code 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 suspected fraudulent use, or voluntarily, as
customers switch to                   competing networks, relocate outside the network's
service area, or cease using mobile                   telephones permanently or
temporarily.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Closed User Group |  | A group of users with a special mutual relationship (such as working for the same
company or                   department within a company).
|----------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|D-AMPS |  | Digital
Advanced Mobile Phone System; a digital cellular system first implemented in the United
                  States and intended initially to permit gradual upgrading of AMPS
networks.
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Digital Technology |  | A
technology in which a signal is converted to a stream of numbers which are in turn
stored,         processed or transmitted in a binary (on-off) manner.
|------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|Dropped call |  | When a mobile phone call is involuntarily terminated.
|------------ |  | -----------------------------------------------------

|Dual band handsets |  | Handsets that operate on two bands, for example, GSM 900 and GSM 1800.
|------------------ |  | ----------------------------------------------------------------------

|GPRS |  | General
Packet Radio Services (GPRS) is a packet-based wireless communication service that
                  enables data rates from 56 up to 114 Kbps and continuous connection to
the Internet for mobile                   phone and computer users. GPRS is based on
Global System for Mobile (GSM) communication.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|GSM |  | The
Global System for Mobile Communications, a comprehensive digital standard for the
operation                   of all elements of a cellular telephone 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 of mobile 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 GSM standard and relations between GSM operators.
|--------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 101 -

---

---



|HSCSD |  | High
Speed Circuit Switched Data is an infrastructure development which enables the
transmission                   of data at higher speeds than the 9600 Bps speed
previously available on GSM networks.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Intelligent Network ("IN") |  | Network architecture that centralizes the processing of calls and billing
information of calls.
|-------------------------- |  | -----------------------------------------------------------------------------------------------

|Microcells |  | A
base transceiver station of limited range and capacity intended to serve a relatively
small                   area, such as a building or mall.
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|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 to other networks.
|------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|PLMN |  | A
Public Land Mobile Network, or a mobile telephone network which is available for use by
the                   public.
|---- |  | -----------------------------------------------------------------------------------------------------------------------

|PSTN Roaming |  | A
Public Switched Telephone Network, or the fixed (landline) telephone network.
          The mobile telephone feature that permits subscribers of one network to use
their mobile                   telephones and telephone numbers when in another
operator's network.
|------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|SIM roaming |  | The use of a GSM customer's SIM in a different handset while roaming in a network
that operates                   on a frequency band or system incompatible with the
subscriber's own GSM handset.
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|SMS |  | Short
message service, a service which enables mobile telephone users to send and receive
                  written messages on their handsets.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

|Subscriber
Identity Module |  | SIM or SIM Card; a small card or chip provided to each GSM network
subscriber that is inserted                                  into a GSM handset. The SIM
is a computer processor that uniquely identifies a GSM network
                  subscription and stores the subscriber's personal phone book, sent and
received text messages,                   network security codes and other programs that
enable addition network features.
|-------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Switch |  | Element
of a telephone network which connects telephone calls to and from one user or another on
                  the same or other networks.
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|TDMA |  | Time
Division Multiple Access; a method by which many users can share a single digit radio
                  channel by dividing it into a number of repeating part-time channels to
which each user has                   access in turn.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|UMTS |  | Universal
Mobile Telecommunications System, the "third generation" of mobile telecommunications
                 standard also referred to as 3G.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|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 user group 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.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------

- 102 -

---

---



# PARTNER COMMUNICATIONS
COMPANY LTD.

(An Israeli Corporation)

2004 ANNUAL REPORT



---

---



# PARTNER COMMUNICATIONS COMPANY
LTD.

(An Israeli Corporation)

2004 ANNUAL REPORT

TABLE OF CONTENTS

|                                                                                       | Page          
|-------------------------------------------------------------------------------------- | --------------
|
|
|
|
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                | F - 2         
|CONSOLIDATED FINANCIAL STATEMENTS:                                                    
|Balance sheets as of December 31, 2003 and 2004                                        | F - 3 - F - 4 
|Statements of operations for the years ended December 31, 2002, 2003 and 2004          | F - 5         
|Statements of changes in shareholders' equity (capital deficiency) for the years ended
|December 31, 2002, 2003 and 2004                                                       | F - 6         
|Statements of cash flows for the years ended December 31, 2002, 2003 and 2004          | F - 7 - F - 8 
|Notes to financial statements                                                          | F - 9 - F - 41

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 audited the consolidated
balance sheets of Partner Communications Company Ltd. and its subsidiary (collectively
the Company) as of December 31, 2003 and 2004 and the related
consolidated statements of operations, changes in shareholders equity (capital
deficiency) and cash flows for each of the three years in the period ended
December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States), and
with auditing standards generally accepted in Israel, including those prescribed by the
Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards require that we
plan and perform the audits 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 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 the Company as of December 31, 2003 and 2004 and
the consolidated results of operations, changes in shareholders equity (capital
deficiency) and cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted in the
United States.

|Tel-Aviv, Israel                         
    February 7, 2005,                    
    except Note 15 for which the date is
    April 20, 2005 |  | Kesselman & Kesselman
Certified Public Accountants (Israel)
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------

F - 2

---

---



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

|                                                             | December 31
|------------------------------------------------------------ | -----------
|
|
|
|
|A s s e t s                                                  |            
|CURRENT ASSETS:                                              |            
|Cash and cash equivalents                                    |            
|Accounts receivable (note 13):                               |            
|Trade                                                        |            
|Other                                                        |            
|Inventories                                                  |            
|Deferred income taxes (note 10)                              |            
|                                                             |            
|T o t a l   current assets                                   |            
|                                                             |            
|INVESTMENTS AND LONG-TERM RECEIVABLES:                       |            
|Accounts receivable - trade (note 13)                        |            
|Funds in respect of employee rights upon retirement (note 7) |            
|                                                             |            
|                                                             |            
|                                                             |            
|FIXED ASSETS,net of accumulated depreciation and             |            
|amortization (note 3)                                        |            
|                                                             |            
|LICENSE AND DEFERRED CHARGES,                                |            
|net of accumulated amortization (note 4)                     |            
|                                                             |            
|DEFERRED INCOME TAXES(note 10)                               |            
|                                                             |            
|T o t a l   assets                                           |            
|                                                             |            

Date
of approval of the financial statements: February 7, 2005

|
Amikam CohenChief Executive Officer | 
Alan GelmanChief Financial Officer | 
Ben-Zion ZilberfarbDirector
|-------------------------------------------------- | ------------------------------------------------- | ------------------------------------------

F - 3

---

---



|                                                       | December 31
|------------------------------------------------------ | -----------
|
|
|
|
|Liabilities and shareholders' equity                   |            
|CURRENT LIABILITIES:                                   |            
|Current maturities of long-term bank loans (note 5)    |            
|Accounts payable and accruals:                         |            
|Trade                                                  |            
|Other (note 13)                                        |            
|                                                       |            
|T o t a l    current liabilities                       |            
|                                                       |            
|LONG-TERM LIABILITIES:                                 |            
|Bank loans, net of current maturities (note 5)         |            
|Notes payable (note 6)                                 |            
|Liability for employee rights upon retirement (note 7) |            
|Asset retirement obligations (note 13)                 |            
|                                                       |            
|T o t a l    long-term liabilities                     |            
|                                                       |            
|COMMITMENTS AND CONTINGENCIES(note 8)                  |            
|                                                       |            
|T o t a l    liabilities                               |            
|                                                       |            
|SHAREHOLDERS' EQUITY(note 9):                          |            
|Share capital - ordinary shares of NIS 0.01 par        |            
|value: authorized - December 31, 2003 and 2004 -       |            
|235,000,000 shares; issued and outstanding -           |            
|December 31, 2003 - 182,695,574 shares and             |            
|December 31, 2004 - 184,037,221 shares issued          |            
|Less - receivables in respect of shares                |            
|Capital surplus                                        |            
|Deferred compensation                                  |            
|Accumulated deficit                                    |            
|                                                       |            
|T o t a l    shareholders' equity                      |            
|                                                       |            
|                                                       |            
|                                                       |            

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

F - 4

---

---



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

|                                     | Year ended December 31
|------------------------------------ | ----------------------
|
|
|
|
|REVENUES- net:                       |                       
|Services                             |                       
|Equipment                            |                       
|                                     |                       
|                                     |                       
|COST OF REVENUES:                    |                       
|Services                             |                       
|Equipment                            |                       
|                                     |                       
|                                     |                       
|                                     |                       
|GROSS PROFIT                         |                       
|SELLING AND MARKETING EXPENSES       |                       
|GENERAL AND ADMINISTRATIVE EXPENSES  |                       
|                                     |                       
|OPERATING PROFIT                     |                       
|FINANCIAL EXPENSES,net (note 13)     |                       
|LOSS ON IMPAIRMENT OF INVESTMENTS    |                       
|IN NON-MARKETABLE SECURITIES(note 2) |                       
|                                     |                       
|INCOME BEFORE TAX                    |                       
|TAX BENEFIT (TAX EXPENSES)(note 10)  |                       
|                                     |                       
|NET INCOME FOR THE YEAR              |                       
|                                     |                       
|EARNINGS PER SHARE ("EPS"):          |                       
|Basic                                |                       
|                                     |                       
|Diluted                              |                       
|                                     |                       
|WEIGHTED AVERAGE NUMBER OF           |                       
|SHARES OUTSTANDING:                  |                       
|Basic                                |                       
|                                     |                       
|Diluted                              |                       
|                                     |                       

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

F - 5

---

---



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

|                                                     | Share capital |  |  |             |  | 
|---------------------------------------------------- | ------------- |  |  | ----------- |  | 
|
|
|
|
|New Israeli Shekels:                                 |               |  |  |             |  | 
|BALANCE AT DECEMBER 31, 2001                         |               |  |  | 178,924,585 |  | 
|CHANGES DURING THE YEAR ENDED DECEMBER 31,           |               | 
|2002:                                                |               | 
|Exercise of options granted to employees             |               |  |  | 2,670,637   |  | 
|Amortization of deferred compensation related        |               | 
|to employee stock option grants net of               |               | 
|deferred compensation with respect to stock          |               | 
|options forfeited                                    |               |  |  |             |  | 
|Net income                                           |               |  |  |             |  | 
|                                                     |               |  |  |             |  | 
|BALANCE AT DECEMBER 31, 2002                         |               |  |  | 181,595,222 |  | 
|CHANGES DURING THE YEAR ENDED DECEMBER 31,           |               | 
|2003:                                                |               | 
|Exercise of options granted to employees             |               |  |  | 1,100,352   |  | 
|Income tax benefit in respect of exercise of         |               | 
|options granted to employees                         |               |  |  |             |  | 
|Deferred compensation related to employee stock      |               | 
|option grants                                        |               |  |  |             |  | 
|Amortization of deferred compensation related        |               | 
|to employee stock option grants net of               |               | 
|deferred compensation with respect to stock          |               | 
|options forfeited                                    |               |  |  |             |  | 
|Net income                                           |               |  |  |             |  | 
|                                                     |               |  |  |             |  | 
|BALANCE AT DECEMBER 31, 2003                         |               |  |  | 182,695,574 |  | 
|CHANGES DURING THE YEAR ENDED DECEMBER 31,           |               | 
|2004:                                                |               | 
|Exercise of options granted to employees             |               |  |  | 1,341,647   |  | 
|Income tax benefit in respect of exercise of         |               | 
|options granted to employees                         |               |  |  |             |  | 
|Deferred compensation related to employee stock      |               | 
|option grants                                        |               |  |  |             |  | 
|Amortization of deferred compensation related to     |               | 
|employee stock option grants net of deferred         |               | 
|compensation with respect to stock options forfeited |               |  |  |             |  | 
|Net income                                           |               |  |  |             |  | 
|                                                     |               |  |  |             |  | 
|BALANCE AT DECEMBER 31, 2004                         |               |  |  | 184,037,221 |  | 
|                                                     |               |  |  |             |  | 
|Convenience translation into u.s. dollars(note 1a):  |               | 
|BALANCE AT JANUARY 1, 2004                           |               |  |  | 182,695,574 |  | 
|CHANGES DURING THE YEAR ENDED DECEMBER 31,     2004: |               | 
|Exercise of options granted to employees             |               |  |  | 1,341,647   |  | 
|Income tax benefit in respect of exercise of         |               | 
|options granted to employees                         |               |  |  |             |  | 
|Deferred compensation related to employee stock      |               | 
|option grants                                        |               |  |  |             |  | 
|Amortization of deferred compensation related to     |               | 
|employee stock option grants net of deferred         |               | 
|compensation with respect to stock options forfeited |               |  |  |             |  | 
|Net income                                           |               |  |  |             |  | 
|                                                     |               |  |  |             |  | 
|BALANCE AT DECEMBER 31, 2004                         |               |  |  | 184,037,221 |  | 
|                                                     |               |  |  |             |  | 

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

F - 6

---

---



(Continued)  1

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

|                                                     | Year ended December 31
|---------------------------------------------------- | ----------------------
|
|
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                       
|Net income for the year                              |                       
|Adjustments to reconcile net income to net cash      |                       
|provided by operating activities:                    |                       
|Depreciation and amortization                        |                       
|Loss on impairment of investments in                 |                       
|non-marketable securities                            |                       
|Amortization of deferred compensation related        |                       
|to employee stock option grants, net                 |                       
|Liability for employee rights upon retirement        |                       
|Deferred income taxes                                |                       
|Income tax benefit in respect of exercise of options |                       
|granted to employees                                 |                       
|Accrued interest, exchange and linkage               |                       
|differences on (erosion of) long-term liabilities    |                       
|Erosion of (accrued interest and exchange            |                       
|differences on) security deposit                     |                       
|Amount carried to deferred charges                   |                       
|Capital loss (gain) on sale of fixed assets          |                       
|Changes in operating asset and liability items:      |                       
|Decrease (increase) in accounts receivable:          |                       
|Trade                                                |                       
|Other                                                |                       
|Increase (decrease) in accounts payable and          |                       
|accruals:                                            |                       
|Trade                                                |                       
|Other                                                |                       
|Increase in asset retirement obligations             |                       
|Decrease (increase) in inventories                   |                       
|                                                     |                       
|Net cash provided by operating activities            |                       
|                                                     |                       
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                       
|Purchase of fixed assets                             |                       
|Proceeds from sale of fixed assets                   |                       
|Withdrawal of security deposit                       |                       
|Purchase of additional spectrum                      |                       
|Funds in respect of employee rights upon retirement  |                       
|                                                     |                       
|Net cash used in investing activities                |                       
|                                                     |                       

F - 7

---

---



(Concluded)  2

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

|                                                    | Year ended December 31
|--------------------------------------------------- | ----------------------
|
|
|
|
|CASH FLOWS FROM FINANCING ACTIVITIES:               |                       
|Proceeds from exercise of stock options granted to  |                       
|employees                                           |                       
|Long-term bank loans received                       |                       
|Repayment of long-term bank loans                   |                       
|                                                    |                       
|Net cash provided by (used in) financing activities |                       
|                                                    |                       
|INCREASE (DECREASE) IN CASH AND CASH                |                       
|EQUIVALENTS                                         |                       
|CASH AND CASH EQUIVALENTS AT                        |                       
|BEGINNING OF YEAR                                   |                       
|                                                    |                       
|CASH AND CASH EQUIVALENTS AT                        |                       
|END OF YEAR                                         |                       
|                                                    |                       
|SUPPLEMENTARY DISCLOSURE OF CASH                    |                       
|FLOW INFORMATION- cash paid during the year:        |                       
|Interest                                            |                       
|                                                    |                       
|Advances to income tax authorities                  |                       
|                                                    |                       

# Supplementary
information on investing and financing activities not involving cash flows

At December 31, 2002, 2003 and 2004,
trade payables include NIS 117,406,000, NIS 65,681,000 and NIS 81,795,000 ($
18,987,000), respectively, in respect of acquisition of fixed assets. In addition, at
December 31, 2003 and 2004 trade payables include NIS 7.2 million and NIS 13.8 million
($3.2 million) in respect of acquisition of additional spectrum, respectively, and at
December 31, 2003 and 2004, shareholders equity include NIS 4.4 million and NIS 2.3
million ($0.5 million) receivable in respect of shares issued, respectively. These
balances are recognized in the cash flow statements upon payment.

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

F - 8

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

# NOTE 1 
SIGNIFICANT ACCOUNTING POLICIES

| | a. | General:
| | -- | --------

| | Nature
of operations:
| | ---------------------

| | 1) | Partner
Communications Company Ltd. (the Company) operates a mobile
          telecommunications network based upon the Global System for Mobile
          Communications (GSM) Standard in Israel. The
          Company launched its 3G network on December 1, 2004.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | 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 and deferred charges. 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 2017. During June
2002, the Minister of Communications amended and further extended the license through
2022. As to the change in estimate of the useful life of the license see  note f(1)
below.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
consideration for the above additional spectrum the Company paid NIS 180 million ($41
million) for the 2G spectrum, and is committed to pay NIS 220 million ($51 million) for
the 3G spectrum in six installments through 2006, of which approximately NIS
165 million (approximately $38 million) was paid as of December 31, 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | a. | General(continued):
| | -- | -------------------

| | 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, 2004 and for the year then ended have been translated into
dollars using the representative exchange rate of the dollar at December 31, 2004 ($1 =
NIS 4.308). 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).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Principles
of consolidation:
| | -- | ----------------------------

| | 1) | The
consolidated financial statements include the accounts of the Company and           its
wholly-owned subsidiary (together  the Group).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | 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, first-out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, see note 2.
| | ---------------------------------------------------------------------------------------

F - 10

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | e. | Fixed
assets:
| | -- | -------------

| | 1) | These assets are stated at cost.
| | -- | --------------------------------

| | 2) | 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.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2004, costs incurred relating to the 3G network, prior to the launch of the network, in
the                   amount of NIS 23.4 million ($5.4 million) were capitalized.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | 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      
|Vehicles                             | 20         
|Office furniture and equipment       | 7-15       

| | Leasehold
improvements are amortized by the straight-line method over the term of the lease, or the
estimated useful life of the improvements, whichever is shorter.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | *As
of December 31, 2004, the Company invested approximately NIS 370 million ($ 86 million)
in the 3G network. Depreciation of the costs relating to the 3G network commenced as of December
1, 2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company terminated the lease agreement for one of its headquarter buildings in March
2003, in favor of a new building (see note 8a(2)b) and abandoned part of its leasehold
improvements. Following the decision to abandon the leasehold improvements, in October
2002, the un-amortized balance of the existing leasehold improvements was amortized on a
straight-line basis as of October 1, 2002  over the period of 6 months ending March
31, 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5) | 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 5 to 7 years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | f. | License
and deferred charges:
| | -- | -----------------------------

| | 1) | 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 as follows: as of January 1, 2002
 over the period ending in 2017; as of April 1, 2002  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 years 2002, 2003 and 2004  NIS 7
million, NIS 10 million and NIS 8 million ($ 2 million) interest costs were capitalized
to the cost of the license, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | Deferred
charges:
| | -- | -----------------

| | a) | Costs
relating to the obtaining of long-term credit lines are amortized using           the
effective interest rate determined for the borrowing transactions.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Issuance
costs relating to Notes payable (see note 6) are amortized using the           effective
interest rate stipulated for the Notes.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -------------------------------------------------------------------------

F - 12

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. It is effective prospectively for all arrangements entered into in fiscal periods
beginning after June 15, 2003. EITF Issue 00-21 addresses when and, if so, how an
arrangement involving multiple deliverables should be divided into separate units of
accounting. The Company adopted EITF Issue 00-21 in the year ended December 31, 2003. The adoption
 had no impact on its financial position and results of operations. 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2002, 2003 and 2004 totaled NIS 17,752,000, NIS 15,601,000
and NIS 21,256,000 ($ 4,934,000) (see  note 13a), respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
cash and cash equivalents as of December 31, 2004 are deposited mainly with leading
Israeli banks. Therefore, in the opinion of the Company, the credit risk inherent in
these balances is remote.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the reported periods, the Company factored most of its long-term trade receivables resulting from sales of handsets.
The factoring is 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 are charged to financial expenses-net, as incurred. During
the years ended December 31, 2002, 2003 and 2004, the Company factored NIS
209,568,000, NIS 295,827,000 and NIS 331,611,000 ($76,976,000), respectively, from
long-term trade receivables.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | l. | Handsets
warranty obligations
| | -- | -----------------------------

| | 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. The annual provision is calculated at the rate of 1.5%-3.5% of the cost of
the handsets sold, see note 13c.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | m. | Advertising
expenses
| | -- | --------------------

| | Advertising
expenses are charged to the statement of operations as incurred. Advertising expenses for
the years ended December 31, 2002, 2003 and 2004 totaled NIS 96,061,000, NIS
99,061,000 and NIS 115,909,000 ($ 26,906,000), 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 10d). 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 12).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 14

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | r. | Stock
based compensation
| | -- | ------------------------

| | The
Company accounts 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 discloses pro forma data assuming the group had accounted for employee stock
option grants using the fair value-based method defined in FAS 123. As to the Recently
issued revised FAS 123, see t. below.  Compensation cost for employee stock
                  option plans is charged to shareholders equity, on the date of grant of the options, under
                  deferred compensation costs and is then amortized over the vesting period using the accelerated
                  method of amortization.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted average fair value of options granted using the Black & Scholes
option-pricing model during 2002, 2003 and 2004 is NIS 16.68, NIS 26.96 and NIS 18.98 ($4.41),
 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 0%; expected volatility of 69%, 62% and 55%, respectively; risk-free interest
rate in NIS terms: 2002  7.7%, 2003-4.5%, 2004  4%; weighted expected life:
the 1998 plan  2002  9 years; the 2000 plan  9 years; the 2004 plan
 5 years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | 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:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | Year ended December 31,
|------------------------------------ | -----------------------
|
|
|
|
|Net income, as reported              |                        
|Add: stock based employee            |                        
|compensation expense-net,            |                        
|included  in reported net income     |                        
|(2003 and 2004-net of income         |                        
|taxes)                               |                        
|Deduct: stock based employee         |                        
|compensation expense-net,            |                        
|determined under fair value          |                        
|method for all awards (2003 and 2004 |                        
|-net of income taxes)                |                        
|                                     |                        
|Pro-forma net income                 |                        
|                                     |                        
|Earning per share:                   |                        
|Basic - as reported                  |                        
|                                     |                        
|Basic - pro forma                    |                        
|                                     |                        
|Diluted - as reported                |                        
|                                     |                        
|Diluted - pro-forma                  |                        
|                                     |                        

| | s. | Asset
retirement obligations
| | -- | ----------------------------

| | The
Company has adopted as of January 1, 2003 FAS 143 Accounting for Asset Retirement
Obligations (FAS 143). 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 13d.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 16

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | t. | Recently
issued accounting pronouncements:
| | -- | ------------------------------------------

| | 1) | FAS
123 (revised 2004) Share-based Payment
| | -- | ------------------------------------------

| | 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. This Statement 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 will be effective as of the beginning
of the first interim or annual reporting period that begins after June 15, 2005
(July 1, 2005 for the Company). Early adoption of FAS 123R is encouraged. 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company estimates that the cumulative effect of adopting FAS 123R as of its adoption date
by the Company (July 1, 2005), based on the awards outstanding as of December 31, 2004,
will not be material. This estimate does not include the impact
of additional awards, which may be granted, or forfeitures, which may occur subsequent to
December 31, 2004 and prior to our adoption of FAS 123R. The Company expects that
upon the adoption of FAS 123R, it will apply the modified prospective
application transition method, as permitted by the Statement. Under such transition
method, upon the adoption of FAS 123R, the Companys financial statements for
periods prior to the effective date of the Statement will not be restated. The impact of
this statement on the Company in 2005 will not be material. The impact in 2006 and beyond
will depend upon various factors, among them  the Companys future compensation
strategy.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | FAS
151 Inventory Costs  an amendment of ARB 43, Chapter 4
| | -- | -----------------------------------------------------------

| | In
November 2004, the FASB issued FAS No. 151, Inventory Costs  an amendment
of ARB43, Chapter 4(FAS 151). This Statement amends the guidance in ARB
No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material. This
Statement requires that those items be recognized as current-period charges. In addition,
this Statement requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This Statement
will be effective for inventory costs incurred during fiscal years beginning after June
15, 2005 (January 1, 2006 for the Company). Earlier application of FAS 151 is permitted.
The provisions of this Statement shall be applied prospectively. The Company does not
expect this Statement to have a material effect on the Companys financial
statements or its results of operations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | 3) | FAS
153 Exchanges of Nonmonetary Assets  An Amendment of APB Opinion No.           29
| | -- | --------------------------------------------------------------------------------------

| | In
December 2004, the FASB issued FAS No. 153, Exchanges of Nonmonetary Assets  AnAmendment of APB Opinion No. 29(FAS 153).  FAS 153 amends APB Opinion
No. 29, Accounting for Nonmonetary Transactions (Opinion 29). The amendments made by FAS
153 are based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. Further, the amendments eliminate the
exception for nonmonetary exchanges of similar productive assets and replace it with a
general exception for exchanges of nonmonetary assets that do not have commercial
substance. The provisions in FAS 153 are effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005 (July 1, 2005 for the Company).  Early
application of the FAS 153 is permitted. The provisions of this Statement shall be
applied prospectively. The Company does not expect the adoption of FAS 153 to have a
material effect on the Companys financial statements or its results of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 2 
INVESTMENTS IN NON-MARKETABLE SECURITIES

| | The
Company and its subsidiary have entered into agreements with a number of technological
companies in the early stages of development of cellular products (hereafter  the
start-up companies). Under the agreements, the Group is to supply infrastructure and
support services which the start-up companies need to develop their products, in
consideration of options and shares in those companies. In some cases, the Group is also
entitled to royalties on future sales of the products of the start-up companies. Based on
the financial position of the companies, management is of the opinion that the fair value
of the securities granted to the Group, on the grant date and as of December 31, 2004 is
not material.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Groups holdings in the start-up companies (current and fully diluted) do not exceed
15% of the share capital of any one of them and does not give the Group significant
influence over any one of them. Therefore, the investments therein are presented on a
cost basis.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2003, the Company recorded an impairment loss of approximately NIS 3.5 million (2002
 approximately NIS 4.1 million), in respect of the above investments. As of
December 31, 2003 and 2004, the balance of these investments was fully impaired.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 18

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 3  FIXED
ASSETS:

| | a. | Composition
of fixed assets  net, is as follows:
| | -- | -------------------------------------------------

|                                                  | December 31
|------------------------------------------------- | -----------
|
|
|
|
|Communications network                            |            
|Computers, hardware and software for              |            
|information systems                               |            
|Office furniture and equipment                    |            
|Vehicles                                          |            
|Leasehold improvements                            |            
|Cellular telephones - base stock                  |            
|                                                  |            
|                                                  |            
|Communications network - construction in progress |            
|(see note 1a(2))                                  |            
|                                                  |            
|                                                  |            
|Less - accumulated depreciation and amortization  |            
|                                                  |            
|                                                  |            
|                                                  |            

| | Depreciation
and amortization in respect of fixed assets totaled NIS 446,970,000, NIS 469,205,000 and
NIS 482,390,000 ($111,976,000) for the years ended December 31, 2002, 2003 and 2004,
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
|------------------------------------------------ | -----------
|
|
|
|
|Communications network                           |            
|Computers, hardware and software for information |            
|systems                                          |            
|                                                 |            
|                                                 |            
|L e s s - accumulated depreciation               |            
|                                                 |            
|Depreciated balance                              |            
|                                                 |            

| | c. | As
to pledges on the fixed assets  see note 11.
| | -- | ------------------------------------------------

F - 19

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 4  LICENSE
AND DEFERRED CHARGES:

|                                  | December 31
|--------------------------------- | -----------
|
|
|
|
|License (note 1a(2))              |            
|Less - accumulated amortization   |            
|                                  |            
|                                  |            
|                                  |            
|Deferred charges - in respect of: |            
|Obtaining long-term credit lines  |            
|Notes payable                     |            
|                                  |            
|                                  |            
|Less - accumulated amortization   |            
|                                  |            
|                                  |            
|                                  |            
|                                  |            
|                                  |            

| | * | As
of December 31, 2003 NIS 153,773,000 in respect of 3G band spectrum were not amortized,
see also note 1f(1).
| | - | ---------------------------------------------------------------------------------------------------------------

| | License
amortization expenses for the years ended December 31, 2002, 2003 and 2004 totaled NIS
62,042,000, NIS 58,408,000 and NIS 63,931,000 ($ 14,840,000), respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amortization
expenses on deferred charges for the years ended December 31, 2002, 2003 and 2004 totaled
NIS 7,187,000 NIS 9,258,000 and NIS 11,901,000 ($ 2,762,000), respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
expected license amortization expenses for the next five years are as follows:
| | ----------------------------------------------------------------------------------

|                        | NIS | Convenience
translation into
dollars
|----------------------- | --- | ------------------------------------
|
|
|
|
|Year ended December 31: |     |                                     
|2005                    |     |                                     
|2006                    |     |                                     
|2007                    |     |                                     
|2008                    |     |                                     
|2009                    |     |                                     

F - 20

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 5  LONG-TERM
BANK LOANS

| | In
December 2002, the Company entered into an Amending Agreement in connection with its
primary secured bank credit facility, with Bank Leumi B.M., Bank Hapoalim B.M., Israel
Discount Bank Ltd., The First International Bank of Israel Ltd., United Mizrahi Bank
Ltd., Mercantile Discount Bank Ltd. and Citibank N.A., which amends the bank facility
agreement dated August 1998 between the Company and the above mentioned banks, as amended
from time to time.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
amended facility is divided into three tranches: A multi-currency term loan facility of
$410 million (Facility A), a revolving multi-currency loan facility of $150
million (Facility B) and a fixed-term NIS loan facility of $150 million (Facility
C).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Facility
A was available to be drawn through March 31, 2003, from the said amount; $ 383 million
have been drawn. On July 28, 2004, the Board of Directors of the Company approved the
permanent reduction of the long-term bank facility A by an aggregate of $100 million. The
amount drawn from facility A is to be repaid in quarterly installments with a final
maturity of June 30, 2008. Facility B may be drawn and repaid until June 30, 2008. During
2004, the Facility was reduced by $10 million. Facility C was available to be drawn
through December 31, 2004. The facility was not utilized and  expired at the end
of the availability period.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
bank facility is a dollar denominated facility and it may be drawn in different
currencies, see c. below.
| | -------------------------------------------------------------------------------------------------------------

| | a. | Status
of the facility at December 31, 2004 is as follows:
| | -- | ----------------------------------------------------------

|           | The total
facility | Amounts
drawn | Amounts
available for
drawing
|---------- | ------------------ | ------------- | -----------------------------
|
|
|
|
|Facility A |                    |               |                              
|Facility B |                    |               |                              
|           |                    |               |                              
|           |                    |               |                              
|           |                    |               |                              

| | b. | The
amounts outstanding, classified by linkage terms and interest rates, are as
          follows:
| | -- | --------------------------------------------------------------------------------------------------

|                               | December 31, | December 31
|------------------------------ | ------------ | -----------
|
|
|
|
|
|In NIS - linked to the Israeli |              |            
|consumer price index (CPI) (1) |              |            
|In NIS - unlinked (2)          |              |            
|                               |              |            
|                               |              |            
|Less - current maturities      |              |            
|                               |              |            
|                               |              |            
|                               |              |            

| | (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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 21

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. 
(An Israeli Corporation) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5  LONG-TERM BANK LOANS(continued):

| | c. | Facilities
A and B, may be drawn in NIS, US dollars or Euros, provided that not           less than
60% of the outstanding Facilities A and B shall, at any time, be in           NIS.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | There
is a range of options as to how interest is calculated on borrowings           under the
amended facility. These options include rates based on LIBOR, the bond           rate,
fixed linked rate, fixed unlinked rate, on-call rate and prime rate. The           margin
for facility A and B is 0.90% per annum and can be reduced to 0.45% on
          fulfillment of some terms specified in the agreement.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | The
total commitments under the Facilities will be reduced during each of the
               following years to the following amounts:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------

|              | Dollars in millions
|------------- | -------------------
|
|
|
|
|December 2005 |                    
|2006          |                    
|2007          |                    
|June 30, 2008 |                    

| | f. | Under
the amended 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. The Company           believes that it is
in compliance with all covenants stipulated by the amended           facility. Under the
amended facility, the Company has undertaken not to transfer           any amounts,
including dividends, to its shareholders, except in cases specified           in the
Agreement.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | g. | As
to pledges to secure loans and liabilities and other restrictions placed           with
respect thereto, see note 11.
| | -- | ------------------------------------------------------------------------------------------------------------------------

# NOTE 6  NOTES
PAYABLE

| | On
August 10, 2000, the Company completed an offering of $ 175 million of unsecured Senior
Subordinated Notes due 2010, which have been issued at their dollar par value. The Notes
have been registered under the U.S. Securities Act of 1933. The net proceeds from the
offering (approximately $ 170.5 million after deducting commissions and offering
expenses) were used mainly to repay a portion of the indebtedness under the credit
facility.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Notes bear dollar interest at the rate of 13% per annum which are payable semi-annually
on each February 15 and August 15, commencing February 15, 2001. The Company may
redeem 100% of the aggregate principal amount of the Notes beginning August 15, 2005, at
the following redemption price:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    | Redemption price
|------------------- | ----------------
|
|
|
|
|August 15:          |                 
|2005                |                 
|2006                |                 
|2007                |                 
|2008 and thereafter |                 

F - 22

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6  NOTES PAYABLE
(continued)

| | On
December 31, 2004, the Notes closing price was 113.25 points.
| | ----------------------------------------------------------------

| | Commission
fees and offering expenses in respect of the Notes totaled approximately NIS 22
million. These expenses are presented as deferred charges and the amortization in respect
thereof is included in financial expenses, net.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 7  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, 2002, 2003 and
               2004 were approximately NIS 24 million, NIS 20 million and NIS 27
million                (approximately $ 6 million), respectively.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Cash
flows information regarding the companys liability for employee           rights
upon retirement:
| | -- | -------------------------------------------------------------------------------------------------------

| | 1. | The
Company expects to contribute NIS 21 million ($ 4.9 million) in respect of
               severance pay in 2005.
| | -- | --------------------------------------------------------------------------------------------------------------------

| | 2. | 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 how will cease working for the Company before
                               their normal retirement age.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 23

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 8 
COMMITMENTS AND CONTINGENCIES:

| | a. | Commitments:
| | -- | ------------

| | 1) | Royalty
Commitments
| | -- | -------------------

| | The
Company is committed to pay royalties to the Government of Israel on its income
from cellular services as defined in the Regulations (see below), 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). The principal
change to the old regulations was the reduction of the percentage of royalties payable by
mobile phone companies from 8% to 5% in 2001, 4.5% in 2002 , 4% in 2003 and 3.5% in 2004
and thereafter. In addition, the basis in respect of which the royalties are paid has
been expanded (as described above). As mentioned in note 1a(4), the rate of royalty
payments paid by cellular operators will be reduced annually by 0.5%, starting January
1st 2006, to a level of 1%.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
royalty expenses for the years ended December 31, 2002, 2003 and 2004 were approximately
NIS 117,281,000, NIS 119,387,000 and NIS 120,131,000 ($ 27,886,000), respectively,
and are included under cost of services revenues.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | 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.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 additional years (including the original lease periods). The
rental payments                fees are partly linked to the dollar and are partly linked
to the Israeli CPI.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d) | Operating
lease agreements in respect of vehicles are for periods of three                years.
The rental payments are linked to the Israeli CPI.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------

F - 24

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. (An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8  COMMITMENTS AND
CONTINGENCIES(continued):

| | e) | The
minimum projected rental payments (based upon agreements in force as of
          December 31, 2004) for the next five years, at rates in effect at December 31,
          2004, are as follows:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | NIS | Convenience
translation
into dollars
|----------------------- | --- | ------------------------------------
|
|
|
|
|Year ended December 31: |     |                                     
|2005                    |     |                                     
|2006                    |     |                                     
|2007                    |     |                                     
|2008                    |     |                                     
|2009                    |     |                                     
|2010 and thereafter     |     |                                     
|                        |     |                                     
|                        |     |                                     
|                        |     |                                     

| | f) | The
rental expenses for the years ended December 31, 2002, 2003 and 2004 were
               approximately NIS 113 million, NIS 163 million, and NIS 176 million ($ 41
               million), respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | At December 31,
2004, the Company is committed to acquire fixed assets (including the first phase of the Nortel
agreement), as described above, for approximately NIS 141 million (approximately $ 33 million).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | At
December 31, 2004, the Company is committed to acquire handsets for approximately NIS 128
million (approximately $ 30 million).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------

| | 5) | As to the Companys
commitment to pay NIS 69 million (approximately $ 16 million) regarding the award of the new
spectrum, see note 1a
| | -- | --------------------------------------------------------------------------------------------------------------------------------------

| | 6) | As to cost
sharing agreement with Hutchison Telecommunications Limited, see note 14c.
| | -- | -------------------------------------------------------------------------------------

| | b. | Contingencies:
| | -- | --------------

| | 1) | On
October 28, 1999, an Israeli consumer organization lodged a claim against           the
Company, alleging a variety of consumer complaints and requested that this
          claim be recognized as a class action.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 20, 2002, the Haifa District Court decided to strike the claim, because the
consumer organization lost, on December 31, 2001, a special status required under Israeli
law for consumer organizations to file class action claims.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Another
claim, involving a substantial amount, which was filed by a private consumer who had
previously asked to join the above class action, has been brought again before the court.
The court had previously frozen the proceedings of the private consumers claim,
until a decision was made in the case filed by the consumer organization.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 25

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8  COMMITMENTS AND
CONTINGENCIES(continued):

| | On
May 25, 2003, the private consumer filed a request to amend his motion to file a class
action claim and the proposed claim itself, and also a draft of the proposed amended
motion and claim. The motion to amend was granted and on January 21, 2004, the Company
has submitted its response to the certification motion.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 24, 2004, the court decided to strike the motion to recognize the claim as a
class action.
| | ------------------------------------------------------------------------------------------------------

| | 2) | 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. Only preliminary hearings have taken place and the
          parties await a decision by the court with regard to a preliminary motion to
          dismiss the claim, which was submitted by 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition the Company and its legal council are of the opinion that even if the request to
recognize this claim as a class action is granted, and even if the plaintiffs
arguments are accepted, the outcome of the claim will be significantly lower than the
abovementioned amount.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | 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. The Company  filed its response
on           October 1, 2003.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At this stage, no hearings have taken place 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | On September 14, 2004, a claim was filed against the Company, together with a motion to recognize this claim as a
    class action, alleging errors in client accounts, including charges in respect of Internet access after the client
        requested to block the service, and in the recording of credit balances as charges.  The plaintiff claims that
    Partner clients have suffered damages of approximately NIS 173 million over a period of two years and that Partner
          is in violation of the Consumer Protection Law.  The Company has not yet filed a response. At this stage, no
   hearings have taken place 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.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 26

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8  COMMITMENTS AND
CONTINGENCIES(continued):

| | 5) | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6) | 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.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7) | On
July 15, 2003, the Ministry of Communications decided to decrease the           deduction
rate in respect of payments that Bezeq The Israel           Communication
Corp. Limited fails to collect from its customers for using the           Companys
network to 1.1% from 2.5%. The decision is effective           retroactively for the
period from October 2, 2000 and through August 31, 2003.           As from September 1,
2003 the deduction rate was cancelled altogether.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Bezeq
lodged an appeal with the Jerusalem District Court against the Ministers decision.
| | -----------------------------------------------------------------------------------------

| | On
January 6, 2004, the Supreme Court  within the framework of Partners appeal
against the District Courts verdict in respect of previous case between the
parties, that related to Bezeqs failure to collect payments from its customers for
using the Companys network for calls from fixed lines to mobile lines  ruled
that the Ministers decision concerning the aforementioned deduction of 1.1% shall
also apply to the period from March 1, 2000 to October 2, 2000, and that this
deduction rate shall remain in effect or shall be amended in accordance with the outcome
of the appeal lodged by Bezeq against the aforesaid decision of the Minister.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 9, 2004, the appeal was dismissed due to lack of jurisdiction. As a result of the
dismissal of the appeal the Company has recognized as financial income an amount of NIS
19.5 million, which after tax resulted in an increase of the Companys net income of NIS
12.5 million.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 27

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 9 
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, 2004, the closing price per ADR on the Nasdaq  NM was
$8.59; the Companys shares were quoted on that date on the LSE at GBP4.35 ($8.39),
and on the TASE at NIS 36.98 ($8.58).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Employee
stock option plans:
| | -- | ----------------------------

| | 1) | 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, 2004  5,505,557
options have been granted pursuant to the 1998 Plan,           of which 3,945,193 options
have been exercised and 597,141 options have been           forfeited (options forfeited
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, 2004  195,751 options of the 1998 Plan remain ungranted.
| | ----------------------------------------------------------------------------

F - 28

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9  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, 2004  5,317,555 options were
granted pursuant to the 2000 Plan, of which 1,198,678 options have been exercised,
1,382,833 options were forfeited and 74,000 expired (options forfeited and expired
were available for subsequent grants). As of December 31, 2004  191,570
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, 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. As of December 31, 2004 224,930
options of the 2003 amended Plan remain ungranted.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 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           fixed by the Employee Stock Option Committee and will not exceed ten years
from           the date of option grant.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 29

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. (An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9  SHAREHOLDERS
EQUITY(continued):

| | Through
December 31, 2004  5,095,500 options have been granted to Companys employees
pursuant to the 2004 Plan, of which 5,000 options have been exercised. As of December 31,
2004  679,500 options of the 2004 Plan remain ungranted.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 exchange, the Company will defer the deduction of such taxable income as an
expense, for a period of 4 years from the date it commences paying income taxes.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
agreement applies only to employees who have joined the agreement, and relate to (1)
options that were exercised by December 31, 2002; and/or (2) options that vest by
December 31, 2003 and are 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 30

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9  SHAREHOLDERS
EQUITY(continued):

| | 2) | Following
is a summary of the status of the plans as of December 31, 2002, 2003           and 2004
and the changes therein during the years ended on those dates:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | Year ended December 31
|---------------------------------- | ----------------------
|
|
|
|
|Balance outstanding at beginning   |                       
|of year                            |                       
|Changes during the year:           |                       
|Granted**                          |                       
|Exercised                          |                       
|Forfeited                          |                       
|Expired                            |                       
|                                   |                       
|Balance outstanding at end of year |                       
|                                   |                       
|Options exercisable at end of year |                       
|                                   |                       

| | * | Includes
options under the 1998 Plan, the exercise price of which is weighted based on the
applicable dates NIS  dollar exchange rate.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | ** | 2002
 at market value, 2003 and 2004  below market value.
| | -- | -----------------------------------------------------------

The following table summarizes
information about options outstanding at December 31, 2004:

|Options outstanding | Options exercisable
|------------------- | -------------------
|
|
|
|
|1.478               |                    
|17.25-22.23         |                    
|26.74               |                    
|27.35               |                    
|                    |                    
|1.478 - 27.35       |                    
|                    |                    

| | c. | Dividends
| | -- | ---------

| | As
to restrictions with respect to cash dividend distributions, see note 5f.
| | ----------------------------------------------------------------------------

F - 31

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 10  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 subsidiary is taxed at the regular rate. Through to December 31,
2004, the corporate tax was 36%. In July 2004, an amendment 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 the following manner: the rate for 2004 will be
35%, in 2005  34%, in 2006  32%, and in 2007 and thereafter  30%. The
effect of the Amendment is included in the financial statements for the year 2004,
resulting in an increase in the Companys deferred income tax expenses, by NIS 34.5 million.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Losses
carried forward to future years
| | -- | --------------------------------------

| | At
December 31, 2004, the Group had carryforward losses of approximately NIS 712
million (approximately $ 165 million). The carryforward tax losses are linked to the
Israeli CPI and can be utilized indefinitely.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2003 and 2004, are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | December 31
|----------------------------------- | -----------
|
|
|
|
|In respect of carryforward tax      |            
|losses (see c. above)               |            
|Subscriber acquisition costs        |            
|Allowance for doubtful accounts     |            
|Provisions for employee rights      |            
|Depreciable fixed assets            |            
|Amortized license                   |            
|Options granted to employees        |            
|Other                               |            
|                                    |            
|                                    |            
|Valuation allowance - in respect of |            
|carryforward tax losses and         |            
|deductions that may not be utilized |            
|                                    |            
|                                    |            
|                                    |            

F - 32

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10  TAXES ON INCOME(continued):

| | The
changes in the valuation allowance for the years ended December 31, 2002, 2003, and 2004,
are as follows:
| | -------------------------------------------------------------------------------------------------------------

|                             | 2002 | 2003 | 2004 | 2004   
|---------------------------- | ---- | ---- | ---- | -------
|
|
|
|
|Balance at beginning of year |      |      |      | 745,703
|Utilization during the year  |      |      |      | (30,410
|Change during the year       |      |      |      | 107,779
|                             |      |      |      |        
|Balance at end of year       |      |      |      | 823,072
|                             |      |      |      |        

| | The
Company analyzes its deferred tax asset with regard to potential realization. The Companys
determination of the realizability of its net deferred tax asset involves considering all
available evidence, both positive and negative, regarding the likelihood of sufficient
future income. The methodology used involves estimates of future income, which assumes
ongoing profitability of its business. These estimates of future income are projected
through the life of the deferred tax asset using assumptions which management believes to
be reasonable.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2002, the Company had carryforward tax losses of approximately NIS 2,000
million and timing differences of approximately NIS 300 million. The Company did not have
a substantial record of utilization of the carryforward tax losses (the Company had its
first net income during 2002), and the Company had not been assessed for tax purposes
since incorporation. Consequently, managements assessment was, that a full
valuation allowance should be established.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Based
on the methodology described above, the Companys updated estimates of its future
earnings and profitability, assessments relating to the cellular market and trends, and
the receipt of final tax assessments for the tax years through December 31, 2001, which
validated the amount of the carryforward tax losses, the Company concluded that a
valuation allowance is no longer necessary. Accordingly, a valuation allowance of
approximately NIS 653 million was reversed during 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
carryforward tax losses are linked to the Israeli CPI and can be utilized indefinitely.
| | -------------------------------------------------------------------------------------------

| | During
2003 and 2004, the Company utilized NIS approximately 450 million and approximately NIS
700 million ($ 162 million) of its carryforward tax losses, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2004, the Company would require approximately NIS 705 million of future
taxable income in order to fully realize the carryforward tax losses assets.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 33

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10  TAXES ON INCOME(cont.):

| | 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
|---------------------------------------------- | ----------------------
|
|
|
|
|Income before taxes on income,                 |                       
|as reported in the income statements           |                       
|                                               |                       
|Theoretical tax expense                        |                       
|Increase in taxes resulting from adjustment to |                       
|deferred tax balances due to changes in        |                       
|tax rates, see b above                         |                       
|Difference between the basis of measurement    |                       
|of income reported for tax purposes and        |                       
|the basis of measurement of income for         |                       
|financial reporting purposes - net             |                       
|Decrease in taxes in respect of valuation      |                       
|allowance reversal                             |                       
|Decrease in taxes resulting from utilization,  |                       
|in the reported year, of carryforward          |                       
|tax losses for which deferred taxes            |                       
|were not created in previous years             |                       
|Other                                          |                       
|                                               |                       
|Taxes on income for the reported year          |                       
|                                               |                       

| | f. | Tax
assessments:
| | -- | ----------------

| | 1) | The
Company has received final assessment through the year ended           December 31,
2001.
| | -- | ---------------------------------------------------------------------------------------------

| | 2) | The
subsidiary has not been assessed for tax purposes since incorporation.
| | -- | --------------------------------------------------------------------------

# NOTE 11 
LIABILITIES SECURED BY PLEDGES AND RESTRICTIONS PLACEDIN RESPECT OF LIABILITIES

| | At
December 31, 2004, balances of liabilities of the Company in the amount of NIS 1,185
million ($ 275 million), are secured by fixed charges on the fixed assets (including
leasehold rights), share capital and insurance rights, and by floating charges on the
assets. The Company has also undertaken under the facility agreement not to register any
further charges on its assets, with certain exceptions (see  note 5).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 34

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. (An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 12  FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT:

| | a. | Linkage
of monetary balances:
| | -- | -----------------------------

| | 1) | As
follows:
| | -- | -----------

|                             | December 31, 2004
|---------------------------- | -----------------
|
|
|
|
|NIS:                         |                  
|Assets                       |                  
|                             |                  
|Liabilities                  |                  
|                             |                  
|Convenience translation into |                  
|dollars:                     |                  
|Assets                       |                  
|                             |                  
|Liabilities                  |                  
|                             |                  

| | 2) | Data
regarding the dollar exchange rate and the Israeli CPI:
| | -- | ------------------------------------------------------------

|                                     | Exchange
rate of one
dollar | Israeli
CPI*
|------------------------------------ | --------------------------- | ------------
|
|
|
|
|At December 31:                      |                             |             
|2004                                 |                             |             
|2003                                 |                             |             
|2002                                 |                             |             
|2001                                 |                             |             
|Increase (decrease) during the year: |                             |             
|2004                                 |                             |             
|2003                                 |                             |             
|2002                                 |                             |             

| | * | Based
on the index for the month ending on each balance sheet date, on the basis of 1993
average = 100.
| | - | -------------------------------------------------------------------------------------------------------

F - 35

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12  FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT(continued):

| | b. | Derivative
financial instrument  foreign exchange risk management
| | -- | ------------------------------------------------------------------

| | The
Company enters into foreign currency forward transactions and purchases and writes
foreign currency options in order to protect itself against the risk that the eventual
dollar cash flows resulting from the existing assets and liabilities will be affected by
changes in exchange rates. The writing of such options is part of a comprehensive hedging
strategy and is designed to effectively swap the currencies relating to existing assets
and liabilities. Each of the options written is combined with purchase of an option for
the same period and the same notional amount. The Company does not hold or issue
derivative financial instruments for trading purposes.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
transactions are designated to hedge the cash flows related to payments of dollar
interest on notes payable as well as those related to anticipate 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
the counterparties to the foreign currency options and forward transactions are Israeli
banks, the Company considers the inherent credit risks remote.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
notional amounts of foreign currency derivatives as of December 31, 2003 and 2004 are as
follows:
| | -----------------------------------------------------------------------------------------------------

|                                 | December 31
|-------------------------------- | -----------
|
|
|
|
|Currency options purchased - for |            
|the exchange of dollars into NIS |            
|                                 |            
|Currency options written - for   |            
|the exchange of dollars into NIS |            
|                                 |            
|Forward transactions for the     |            
|exchange of dollars into NIS     |            
|                                 |            
|Embedded derivatives -           |            
|dollars into NIS                 |            
|                                 |            

| | * | On
August 2004, the Company entered into a forward transaction that hedges the Notes payable
principal ($ 175 million) until August 2005.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | The
derivatives financial instruments are for a period of up to one year. As of December 31,
2004, the remaining contractual lives are for periods up to one year.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 36

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. (An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12  FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT(continued):

| | c. | Fair
value of financial instruments
| | -- | -----------------------------------

| | The
financial instruments of the Company as of December 31, 2004 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 6.
| | -----------------------------------------------------

| | The
fair value of derivatives as of December 31, 2004, is a liability of approximately NIS
55.3 million (approximately $12.8 million) (December 31, 2003  approximately NIS
11.5 million).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 13 
SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

| | a. | Accounts
receivable:
| | -- | --------------------

|                                              | December 31
|--------------------------------------------- | -----------
|
|
|
|1) Trade (current and long-term)              |            
|The item is presented after the deduction of: |            
|(a)  Deferred interest income*                |            
|                                              |            
|(b)  Allowance for doubtful accounts          |            
|                                              |            

| | * | Long-term
trade receivables (including current maturities) as of December 31, 2003 and 2004 in the
amount of NIS 26,275,000 and NIS 184,706,000 ($ 42,875,000), 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 to the date of the transaction (5%  5.9%)  (2003  6.3% - 10%).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | Other:
| | -- | ------

|                        | December 31
|----------------------- | -----------
|
|
|
|Government institutions |            
|Prepaid expenses        |            
|Sundry                  |            
|                        |            
|                        |            
|                        |            

F - 37

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. (An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13  SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION(continued):

| | b. | Accounts
payable and accruals  other:
| | -- | --------------------------------------

|                                          | December 31
|----------------------------------------- | -----------
|
|
|
|Employees and employee institutions       |            
|Provision for vacation and recreation pay |            
|Government institutions                   |            
|Income received in advance                |            
|Accrued interest on long-term liabilities |            
|Derivative instruments                    |            
|Handsets warranty                         |            
|Sundry                                    |            
|                                          |            
|                                          |            
|                                          |            

| | c. | Provision
for warranty - the changes in the provision for warranty for the years ended December 31,
                  2002, 2003, and 2004, are as follows:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | 2002 | 2003 | 2004 | 2004 
|--------------------------------- | ---- | ---- | ---- | -----
|
|
|
|
|Balance at beginning of year      |      |      |      |      
|Product warranties issued for new |      |     
|sales                             |      |      |      | 2,589
|Changes in accrual in respect of  |      |     
|pre-existing warranties           |      |      |      |      
|                                  |      |      |      |      
|Balance at end of year            |      |      |      | 2,589
|                                  |      |      |      |      

| | d. | Asset
retirement obligations  the changes in the asset retirement           obligations
for the years ended December 31, 2004 and 2003, are as follows:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | December 31
|----------------------------------------- | -----------
|
|
|
|
|Balance at January 1,                     |            
|Liability incurred during the year        |            
|Liability settled during the year         |            
|Accretion expenses                        |            
|Revision in the estimates during the year |            
|                                          |            
|Balance at December 31,                   |            
|                                          |            

F - 38

---

---



PARTNER COMMUNICATIONS
COMPANY LTD. (An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13  SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION(continued):

| | e. | Financial
expenses, net:
| | -- | ------------------------

|                            | Year ended December 31
|--------------------------- | ----------------------
|
|
|
|
|Financial income            |                       
|Financial expenses          |                       
|Derivative instruments      |                       
|Exchange rate differences   |                       
|CPI Linkage differences     |                       
|Factoring costs             |                       
|Less - capitalized interest |                       
|                            |                       
|                            |                       
|                            |                       

| | f. | 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
|------------------------------------------ | ----------------------
|
|
|
|Net income used for the computation of     |                       
|basic and diluted EPS  (in thousands)      |                       
|                                           |                       
|Weighted average number of shares used     |                       
|in computation of basic EPS                |                       
|A d d - net additional shares from assumed |                       
|Exercise of employee stock options         |                       
|                                           |                       
|Weighted average number of shares used in  |                       
|computation of diluted EPS                 |                       
|                                           |                       

F - 39

---

---



PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 14 
TRANSACTIONS AND BALANCES WITH RELATED PARTIES:

| | a. | Transactions
with related parties:
| | -- | ----------------------------------

|                                                                        | Year ended December 31
|----------------------------------------------------------------------- | ----------------------
|
|
|
|Purchase of fixed assets from related party                             |                       
|                                                                        |                       
|Acquisition of handsets from related                                    |                       
|parties                                                                 |                       
|                                                                        |                       
|Financial expenses, mainly in respect    of the Facility agreement, net |                       
|                                                                        |                       
|Selling commissions and maintenance     expenses                        |                       
|                                                                        |                       

| | b. | Balances
with related parties:
December
31
| | -- | ------------------------------------------

|                          | 2003 | 2004 | 2004
|------------------------- | ---- | ---- | ----
|
|
|
|
|Cash and cash equivalents |      |      |     
|                          |      |      |     
|Current liabilities       |      |      |     
|                          |      |      |     
|Long-term liabilities     |      |      |     
|                          |      |      |     

| | 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, 2004, the Company had given notice of its participation in 6 projects.
The                   Companys expected share in these projects in financial terms
(including its share of joint                   expenses and liabilities) is not material.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 40

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---



PARTNER COMMUNICATIONS
COMPANY LTD. (An Israeli Corporation)NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

# NOTE 15 
SUBSEQUENT EVENTS:

| | 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. Of these notes approximately NIS 36.5 million were purchased by Partner Future
Communications 2000 Ltd., (PFC) a wholly owned subsidiary of the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
net proceeds from the offering (received on April 3, 2005) are approximately NIS 1,927
million (approximately $442 million) after deducting the notes purchased by PFC,
commissions and offering expenses.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
principal amount of the Notes is payable in 12 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 April 14, 2005 the Company entered into a new $550 million bank credit facility. The facility is divided into two
tranches: a six year $450 million term loan facility and a six year $100 million revolving loan facility, and is
secured by a first ranking floating charge on the Companys assets.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel Discount Bank Ltd. are providing the facility, in which
United Mizrahi Bank Ltd. is also participating. The new credit facility replaced the Companys previous facility.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | With effect May 1, 2005, the Company exercised an option to reduce the term facility to $150 million (in addition to an advance of
approximately $25 million  carried over from the Companys previous facility), and to change the final
maturity date of both facilities to September 1, 2009.  As a result, the total maximum availability under the new
credit facility will be approximately $275 million.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 41

---

---



# 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/ Alan Gelman
Alan GelmanChief Financial Officer
April 22, 2005
| |  | ----------------------------------------------------------------------------------------------------------------------

| |  | BY: /S/ Amikam Cohen
Amikam CohenChief Executive Officer
April 22, 2005
| |  | -------------------------------------------------------------------------------------



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---