----

----

| o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------------|

| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 |
|---|---------------------------------------------------------------------------------------------------------------------------------------|

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

| o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report ___________Commission file number 1-14968 |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Title of each class                                  | Name of each exchange on which registered |
|------------------------------------------------------|-------------------------------------------|
| American Depositary Shares, each representing        | The NASDAQ Global Select Market           |
| one ordinary share, nominal value NIS 0.01 per share |                                      |
| Ordinary Shares, nominal value NIS 0.01 per share*   | The NASDAQ Global Select Market           |

----

| Large Accelerated Filer o | Accelerated Filer x | Non-Accelerated Filer o |
|---------------------------|---------------------|-------------------------|

----

| 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 32  |
| ITEM 4A. UNRESOLVED STAFF COMMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 77  |
| ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 77  |
| ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 106 |
| ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 128 |
| ITEM 8. FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 135 |
| ITEM 9. THE OFFER AND LISTING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 140 |
| ITEM 10. ADDITIONAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 141 |
| ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 154 |
| ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 156 |
| ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 157 |
| ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 157 |
| ITEM 15. CONTROLS AND PROCEDURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 157 |
| ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                                                                                                               | 158 |
| ITEM 16B. CODE OF ETHICS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 158 |
| ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 159 |
| ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 159 |
| ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 159 |
| ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACOUNTANT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 160 |
| ITEM 16G. CORPORATE GOVERNANCE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 160 |
| ITEM 17. FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 160 |
| ITEM 18. FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 160 |
| ITEM 19. EXHIBITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 160 |

----

----

|                                                         |   | Year ended December 31,                                |    |
|--------------------------------------------------------------|--------|--------------------------------------------------------|---------|
|                                                         |   | 2010                                                   |    |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |   | 2014 |   |
|                                                         |   | New Israeli Shekels in millions(except per share data) |    |   |   US$ in millions (1) |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated Statement of Income Data                        |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues, net                                                |   |                                                   | 6,674   |   |   |   | 6,998 |   |   |   | 5,572 |   |   |   | 4,519 |   |   |   | 4,400 |   |   |   | 1,131 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues                                             |   |                                                   | 4,093   |   |   |   | 4,978 |   |   |   | 4,031 |   |   |   | 3,510 |   |   |   | 3,419 |   |   |   | 879 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                 |   |                                                   | 2,581   |   |   |   | 2,020 |   |   |   | 1,541 |   |   |   | 1,009 |   |   |   | 981 |   |   |   | 252 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing expenses                               |   |                                                   | 479     |   |   |   | 711 |   |   |   | 551 |   |   |   | 462 |   |   |   | 438 |   |   |   | 112 |   |
| General and administrative expenses                          |   |                                                   | 306     |   |   |   | 291 |   |   |   | 236 |   |   |   | 217 |   |   |   | 193 |   |   |   | 50 |   |
| Impairment of goodwill                                       |   |                                                   |    |   |   |   | 87 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income, net                                            |   |                                                   | 64      |   |   |   | 105 |   |   |   | 111 |   |   |   | 79 |   |   |   | 50 |   |   |   | 13 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating profit                                             |   |                                                   | 1,860   |   |   |   | 1,036 |   |   |   | 865 |   |   |   | 409 |   |   |   | 400 |   |   |   | 103 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Finance income                                               |   |                                                   | 22      |   |   |   | 33 |   |   |   | 21 |   |   |   | 29 |   |   |   | 3 |   |   |   | 1 |   |
| Finance expenses                                             |   |                                                   | 203     |   |   |   | 327 |   |   |   | 255 |   |   |   | 240 |   |   |   | 162 |   |   |   | 42 |   |
| Finance costs, net                                           |   |                                                   | 181     |   |   |   | 294 |   |   |   | 234 |   |   |   | 211 |   |   |   | 159 |   |   |   | 41 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit before income tax                                     |   |                                                   | 1,679   |   |   |   | 742 |   |   |   | 631 |   |   |   | 198 |   |   |   | 241 |   |   |   | 62 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expenses                                          |   |                                                   | 436     |   |   |   | 299 |   |   |   | 153 |   |   |   | 63 |   |   |   | 79 |   |   |   | 20 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit for the year                                          |   |                                                   | 1,243   |   |   |   | 443 |   |   |   | 478 |   |   |   | 135 |   |   |   | 162 |   |   |   | 42 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per ordinary share and per ADS                      |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic:                                                       |   |                                                   | 8.03    |   |   |   | 2.85 |   |   |   | 3.07 |   |   |   | 0.87 |   |   |   | 1.04 |   |   |   | 0.27 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                      |   |                                                   | 7.95    |   |   |   | 2.84 |   |   |   | 3.07 |   |   |   | 0.86 |   |   |   | 1.04 |   |   |   | 0.27 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares outstanding (in thousands) |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic:                                                       |   |                                                   | 154,866 |   |   |   | 155,542 |   |   |   | 155,646 |   |   |   | 155,687 |   |   |   | 155,802 |   |   |   | 155,802 |   |
| Diluted:                                                     |   |                                                   | 156,296 |   |   |   | 155,779 |   |   |   | 155,773 |   |   |   | 156,199 |   |   |   | 156,400 |   |   |   | 156,400 |   |

----

|                                                       |   | Year ended December 31,                                |    |
|------------------------------------------------------------|--------|--------------------------------------------------------|---------|
|                                                       |   | 2010                                                   |    |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |   | 2014 |   |
|                                                       |   | New Israeli Shekels in millions(except per share data) |    |   |   US$ in millions (1) |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Financial Data                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures (2)                                   |   |                                                   | 435     |   |   |   | 468 |   |   |   | 558 |   |   |   | 413 |   |   |   | 429 |   |   |   | 110 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted EBITDA (3)                                        |   |                                                   | 2,570   |   |   |   | 2,178 |   |   |   | 1,602 |   |   |   | 1,114 |   |   |   | 1,096 |   |   |   | 282 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividend per share (4)                                     |   |                                                   | 7.85    |   |   |   | 2.25 |   |   |   | 1.03 |   |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital reduction (4)                                      |   |                                                   | 9.04    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Statement of Cash Flow Data                                |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                  |   |                                                   | 1,958   |   |   |   | 1,570 |   |   |   | 1,705 |   |   |   | 1,539 |   |   |   | 951 |   |   |   | 244 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash used in investing activities                      |   |                                                   | (486    | ) |   |   | (1,085 |   |   |   | (471 | ) |   |   | (498 | ) |   |   | (431 | ) |   |   | (111 | ) |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash used in financing activities                      |   |                                                   | (1,480  | ) |   |   | (274 | ) |   |   | (1,218 | ) |   |   | (1,108 | ) |   |   | (338 | ) |   |   | (87 | ) |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Data (at year end)                           |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current assets                                             |   |                                                   | 1,830   |   |   |   | 2,308 |   |   |   | 2,120 |   |   |   | 1,703 |   |   |   | 1,817 |   |   |   | 467 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non current assets                                         |   |                                                   | 3,797   |   |   |   | 4,779 |   |   |   | 4,297 |   |   |   | 3,784 |   |   |   | 3,679 |   |   |   | 946 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Advance payment in respect of the acquisition of 012 Smile |   |                                                   | 30      |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property and equipment                                     |   |                                                   | 2,058   |   |   |   | 2,051 |   |   |   | 1,990 |   |   |   | 1,791 |   |   |   | 1,661 |   |   |   | 427 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| License and other intangible assets                        |   |                                                   | 1,077   |   |   |   | 1,290 |   |   |   | 1,217 |   |   |   | 1,167 |   |   |   | 1,079 |   |   |   | 277 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Goodwill                                                   |   |                                                   | — |   |   |   | 407 |   |   |   | 407 |   |   |   | 407 |   |   |   | 407 |   |   |   | 105 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deferred income tax asset                                  |   |                                                   | — |   |   |   | 30 |   |   |   | 36 |   |   |   | 12 |   |   |   | 14 |   |   |   | 4 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                               |   |                                                   | 5,627   |   |   |   | 7,087 |   |   |   | 6,417 |   |   |   | 5,487 |   |   |   | 5,496 |   |   |   | 1,413 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities (5)                                    |   |                                                   | 1,826   |   |   |   | 1,889 |   |   |   | 1,525 |   |   |   | 1,374 |   |   |   | 1,385 |   |   |   | 355 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term liabilities (5)                                  |   |                                                   | 3,175   |   |   |   | 4,773 |   |   |   | 4,151 |   |   |   | 3,239 |   |   |   | 3,072 |   |   |   | 790 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                          |   |                                                   | 5,001   |   |   |   | 6,662 |   |   |   | 5,676 |   |   |   | 4,613 |   |   |   | 4,457 |   |   |   | 1,145 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                 |   |                                                   | 626     |   |   |   | 425 |   |   |   | 741 |   |   |   | 874 |   |   |   | 1,039 |   |   |   | 268 |   |
|                                                       |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity           |   |                                                   | 5,627   |   |   |   | 7,087 |   |   |   | 6,417 |   |   |   | 5,487 |   |   |   | 5,496 |   |   |   | 1,413 |   |

| (1) | The NIS figures at December 31, 2014 and for the period then ended have been translated throughout this annual report into dollars using the representative exchange rate of the dollar at December 31, 2014 (USD 1 = NIS 3.889). The translation was made solely for convenience, is supplementary information, and is distinguished from the financial statements. The translated dollar figures should not be construed as a representation that the Israeli currency amounts actually represent, or could be converted into, dollars.  See also “Item 3A. Key Information – Selected Financial Data – Exchange Rate Data”. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Capital Expenditures represent additions to property and equipment and computer software.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (3)    | Adjusted EBITDA as reviewed by the Chief Operating Decision Maker (“CODM”) represents earnings before interest (finance costs, net), taxes, depreciation, amortization (including amortization of intangible assets, deferred expenses-right of use, and share based compensation expenses) and impairment charges, as a measure of operating profit. Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies. Adjusted EBITDA may not be indicative of the Company’s historic operating results nor is it meant to be predictive of potential future results. We use the term “Adjusted EBITDA” to highlight the fact that amortization includes amortization of deferred expenses – right of use and employee share-based compensation expenses; it is fully comparable to EBITDA information which has been previously provided for prior periods. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (4)    | The dividend per share was calculated in respect of the period for which it was announced. For the years ended December 31, 2013 and 2014, no dividend has been declared by the Company. During 2012, the Company declared a dividend in the amount of approximately NIS 160 million (US$ 41 million), or NIS 1.03 per share. The aggregate total dividend for 2011 was NIS 350 million or NIS 2.25 per share. The aggregate total dividend for 2010 was NIS 1,217 million or NIS 7.85 per share. Further, NIS 1,400 million or NIS 9.04 per share was distributed to shareholders in March 2010 following the reduction of the shareholders’ equity as approved by the Courts.                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (5)    | See Note 14 to the consolidated financial statements for information regarding long-term liabilities and current maturities of long-term bank loans and notes payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

|                                                              |   | Year ended December 31,         |   |
|-------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                              |   | 2010                            |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |   |   |   |
|                                                              |   | New Israeli Shekels in millions |   |   | US $ in millions (1) |   |
|                                                              |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation Between Operating Cash flow and Adjusted EBITDA    |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities, net                    |   |                            | 1,958  |   |   |   | 1,570 |   |   |   | 1,705 |   |   |   | 1,539 |   |   |   | 951 |   |   |   | 244 |   |
| Liability for employee rights upon retirement                     |   |                            | (8     | ) |   |   | 26 |   |   |   | 12 |   |   |   | 14 |   |   |   | 3 |   |   |   | 1 |   |
| Accrued interest and linkage differences on long-term liabilities |   |                            | (160   | ) |   |   | (289 | ) |   |   | (222 | ) |   |   | (213 | ) |   |   | (126 | ) |   |   | (33 | ) |
| Increase (Decrease) in accounts receivable and assets:            |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade                                                             |   |                            | 214    |   |   |   | 190 |   |   |   | (467 | ) |   |   | (566 | ) |   |   | 26 |   |   |   | 7 |   |
| Other (*)                                                         |   |                            | 34     |   |   |   | 2 |   |   |   | 16 |   |   |   | 2 |   |   |   | 7 |   |   |   | 2 |   |
| Inventories                                                       |   |                            | (57    | ) |   |   | 58 |   |   |   | (65 | ) |   |   | (5 | ) |   |   | 45 |   |   |   | 12 |   |
|                                                              |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Decrease (Increase) in accounts payable and accruals:             |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade                                                             |   |                            | 40     |   |   |   | 37 |   |   |   | 106 |   |   |   | 114 |   |   |   | (44 | ) |   |   | (10 | ) |
| Parent group-trade                                                |   |                            | (38    | ) |   |   | (70 | ) |   |   | 72 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other (*)                                                         |   |                            | (15    | ) |   |   | 54 |   |   |   | 65 |   |   |   | 17 |   |   |   | 15 |   |   |   | 3 |   |
| Decrease (Increase) in asset retirement obligation                |   |                            | (1     | ) |   |   | (1 | ) |   |   | (1 | ) |   |   | (1 | ) |   |   | (1 | ) |   |   | *** |   |
| Income tax paid                                                   |   |                            | 426    |   |   |   | 311 |   |   |   | 153 |   |   |   | 9 |   |   |   | 66 |   |   |   | 17 |   |
| Finance costs, net (**)                                           |   |                            | 177    |   |   |   | 290 |   |   |   | 228 |   |   |   | 204 |   |   |   | 154 |   |   |   | 39 |   |
|                                                              |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted EBITDA (2)                                               |   |                            | 2,570  |   |   |   | 2,178 |   |   |   | 1,602 |   |   |   | 1,114 |   |   |   | 1,096 |   |   |   | 282 |   |

| (1) | The translations of NIS amounts into US dollars appearing throughout this annual report have been made at the exchange rate on December 31, 2014, of NIS 3.889 = US$1.00 as published by the Bank of Israel, unless otherwise specified. See “Item 3A. Key Information – Selected Financial Data – Exchange Rate Data”. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (2) | Adjusted EBITDA as reviewed by the Chief Operating Decision Maker (“CODM”) represents earnings before interest (finance costs, net), taxes, depreciation, amortization (including amortization of intangible assets, deferred expenses-right of use, and share based compensation expenses) and impairment charges, as a measure of operating profit. Adjusted EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies. Adjusted EBITDA may not be indicative of the Company’s historic operating results nor is it meant to be predictive of potential future results. We use the term “Adjusted EBITDA” to highlight the fact that amortization includes amortization of deferred expenses – right of use and employee share-based compensation expenses; it is fully comparable to EBITDA information which has been previously provided for prior periods |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (**) | Finance costs, net excluding any charge for the amortization of borrowing costs that were capitalized before the launch of the cellular network. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                               |   | At December 31, |   |
|--------------------------------------------------------------------|--------|-----------------|--------|
|                                                               |   | 2012            |   |   | 2013 |   |   | 2014 |   |
|                                                               |   |            |   |   |   |   |   |   |   |
| Cellular Industry Data                                             |   |            |   |   |   |   |   |   |   |
|                                                               |   |            |   |   |   |   |   |   |   |
| Estimated population of Israel (in millions) (1)                   |   |            | 8.0    |   |   |   | 8.1 |   |   |   | 8.3 |   |
| Estimated Israeli cellular telephone subscribers (in millions) (2) |   |            | 10.2   |   |   |   | 10.1 |   |   |   | 10.3 |   |
| Estimated Israeli cellular telephone penetration (3)               |   |            | 125    | % |   |   | 125 | % |   |   | 124 | % |

|                                                                                             |   | Year ended December 31, |   |
|--------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                             |   | 2010                    |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |
|                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Partner Data                                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cellular subscribers (000’s) (at period end) (4)                                           |   |                    | 3,160  |   |   |   | 3,176 |   |   |   | 2,976 |   |   |   | 2,956 |   |   |   | 2,837 |   |
| Pre-paid cellular subscribers (000’s) (at period end) (4)                                  |   |                    | 870    |   |   |   | 894 |   |   |   | 874 |   |   |   | 823 |   |   |   | 705 |   |
|                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Post-paid cellular subscribers (000’s) (at period end) (4)                                 |   |                    | 2,290  |   |   |   | 2,282 |   |   |   | 2,102 |   |   |   | 2,133 |   |   |   | 2,132 |   |
|                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Share of total Israeli cellular subscribers (at period end) (5)                                  |   |                    | 32     | % |   |   | 32 | % |   |   | 29 | % |   |   | 29 | % |   |   | 28 | % |
| Average monthly usage per cellular subscriber (“MOU”) (mins.) (6)                    |   |                    | 366    |   |   |   | 397 |   |   |   | 450 |   |   |   | 522 |   |   |   | - |   |
| Average monthly revenue per cellular subscriber including roaming (“ARPU”) (NIS) (7) |   |                    | 148    |   |   |   | 111 |   |   |   | 97 |   |   |   | 83 |   |   |   | 75 |   |
| Churn rate for cellular subscribers (8)                                                          |   |                    | 21     | % |   |   | 29 | % |   |   | 38 | % |   |   | 39 | % |   |   | 47 | % |
| Number of fixed-lines (000’s) (9,10) (at period end)                                       |   |                    | 69     |   |   |   | 292 |   |   |   | 288 |   |   |   | 299 |   |   |   | - |   |
| ISP subscribers (000’s)(10) (at period end)                                                |   |                    | 60     |   |   |   | 632 |   |   |   | 587 |   |   |   | 583 |   |   |   | - |   |
|                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Estimated cellular coverage of Israeli population (at period end) (11)                           |   |                    | 99     | % |   |   | 99 | % |   |   | 99 | % |   |   | 99 | % |   |   | 99 | % |
|                                                                                             |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number of employees (full time equivalent) (at period end) (12)                                  |   |                    | 6,068  |   |   |   | 7,891 |   |   |   | 5,396 |   |   |   | 4,045 |   |   |   | 3,575 |   |

| (1) | The population estimates are as published by the Central Bureau of Statistics in Israel as of December 31, 2014. |
|-----|------------------------------------------------------------------------------------------------------------------|

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | We have estimated the total number of Israeli cellular telephone subscribers based on Partner subscriber data as well as information contained in published reports and public statements issued by operators and data regarding the number of subscribers porting between operators.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (3)    | Total number of estimated Israeli cellular telephone subscribers expressed as a percentage of the estimated population of Israel. The total number of estimated cellular telephone subscribers 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 cellular telephone industry, we use the term “subscriber”, unless the context otherwise requires, to indicate a telephone or a data or video device, rather than either a bill-paying network customer, who may have a number of telephones connected to the network, or a cellular telephone user who may share a single telephone with a number of other users. “Subscriber” includes our pre-paid customers. A pre-paid subscriber is recognized as such only following the actual use of his pre-paid SIM card and, as of January 2011, only once they have generated revenues in the amount of at least one shekel (excluding VAT). 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 cellular subscribers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (6)    | We have calculated our average monthly usage per cellular 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. MOU data includes total incoming minutes to subscribers of those MVNO operators which Partner hosts on its network.  Starting in 2014, in view of the continued increase in the proportion of cellular subscribers with bundled packages that include large or unlimited quantities of minutes, the Company determined that reporting MOU was no longer beneficial to understanding the results of operation, and therefore the Company ceased reporting MOU figures.                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (7)    | We have calculated our average monthly revenue per cellular subscriber by (i) dividing, for each month in the relevant year, the total cellular segment service revenues during the month by the average number of our cellular subscribers during that month, and (ii) dividing the sum of all such results by the number of months in the relevant period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (8)    | We define the “churn rate” as the total number of cellular 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. This includes cellular subscribers who have generated minute revenues only from incoming calls directed to their voice mail. Involuntary churn includes disconnections due to non-payment of bills or suspected fraudulent use, and voluntary churn includes disconnections due to subscribers terminating their use of our services.                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (9)    | Fixed-lines include Primary Rate Interface (“PRI”) lines, whereby each PRI is considered  to include 30 lines according to the number of channels, Session Initiation Protocol (“SIP”) trunks and Voice over Broadband (“VoB”) lines.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (10)   | As of the end of 2013, due to market developments, and in particular the increasing prevalence of bundled offerings in the market, the Company determined that the numbers of fixed-line and ISP subscribers no longer provided meaningful insight in the results of operation, and therefore ceased reporting these subscriber figures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (11)   | We measure cellular 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 network site. According to these coverage results, we estimate the population serviced by our network and divide this by the estimated total population of Israel. Population estimates are published by the Central Bureau of Statistics in Israel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (12)   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

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|          |   | Year ended December 31, |   |
|---------------|--------|-------------------------|--------|
|          |   | 2010                    |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |
|          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average (1)   |   |                    | 3.732  |   |   |   | 3.579 |   |   |   | 3.844 |   |   |   | 3.609 |   |   |   | 3.577 |   |
| High          |   |                    | 3.894  |   |   |   | 3.821 |   |   |   | 4.084 |   |   |   | 3.791 |   |   |   | 3.994 |   |
| Low           |   |                    | 3.549  |   |   |   | 3.363 |   |   |   | 3.700 |   |   |   | 3.471 |   |   |   | 3.402 |   |
| End of period |   |                    | 3.549  |   |   |   | 3.821 |   |   |   | 3.733 |   |   |   | 3.471 |   |   |   | 3.889 |   |

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

|                                                                                                                   |   | September2014 |   |   | October2014 |   |   | November2014 |   |   | December2014 |   |   | January2015 |   |   | February2015 |   |   | March 2015(throughMarch 4) |   |
|------------------------------------------------------------------------------------------------------------------------|--------|---------------|--------|--------|-------------|--------|--------|--------------|--------|--------|--------------|--------|--------|-------------|--------|--------|--------------|--------|--------|----------------------------|--------|
|                                                                                                                   |   |          |   |   |        |   |   |         |   |   |         |   |   |        |   |   |         |   |   |                       |   |
| High                    |   |          | 3.695  |   |        |   | 3.793  |         |   |   | 3.889        |   |   |        | 3.994  |   |         |   | 3.998  |                       |   |   | 3.966 |   |   |   | 3.987 |   |
| Low                     |   |          | 3.578  |   |        |   | 3.644  |         |   |   | 3.782        |   |   |        | 3.889  |   |         |   | 3.899  |                       |   |   | 3.844 |   |   |   | 3.984 |   |

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|   | ·        | Granting licenses and frequencies to two facility-based competitors (HOT Mobile  and Golan Telecom).  In April 2011, UMTS frequencies were awarded to Mirs Communications Ltd ("MIRS") (subsequently renamed “HOT Mobile”) and Golan Telecom Ltd. (“Golan Telecom”), which entered the cellular communications market in May 2012. HOT Mobile and Golan Telecom were awarded various benefits and leniencies, such as low minimum license fees and a reduction mechanism of the license fee (to the minimum fee set) offered to the winner based on the market share gained in the private sector over five years after being awarded the license. In order to achieve market share, these two competitors have launched aggressive tariff plans which include unlimited use packages. Recently, they have been granted substantial leniencies with respect to new frequency allocations (4G) of up to 50% discounts on frequency fees based on increasing their market share up to 5%.  They have also been granted rights to use the frequencies for longer terms than ours, and they have received a waiver of their obligation to build an independent network. |
|--------|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | ·        | Facilitating entry of MVNOs into the market.  Since 2010, the Ministry of Communications has adopted regulations to enable Mobile Virtual Network Operators (“MVNOs”) to offer telecommunications services, and it has granted licenses to 11 MVNOs.  The most recent licenses were granted in January 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   · |   Facilitating migration of customers between cellular companies.  On January 1, 2013, an amendment to the Communications Law (Telecommunications and Broadcasting), 1982 (the “Telecommunications Law”) became effective which prohibits cellular companies from linking cellular service transactions and handset-related transactions (unless the subscriber holds more than 100 lines). This amendment was added to previous amendments promulgated by the Ministry of Communications to facilitate the migration of subscribers among cellular companies and thus enhance competition, including the cancellation of exit fees before the end of a customer’s commitment period, cancellation of commitment periods and a prohibition on selling SIM-locked handsets.                                                                                                                                                                                                                                                                                                                                                                                                     |

----

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|    · | Premium services regulation. In June 2014, the Ministry of Communications published its decision regarding premium services following a public hearing.  The decision applies to certain telecommunications licensees, including the Company, and became effective as of February 15, 2015. In the decision (and its amendments) it was determined, among other things that all premium rate services may be provided through only three prefixes, two of which shall be blocked as a default. The relevant licensees would be required to announce at the beginning of each premium rate call the nature of the service and its rate and maximum cost (and that such costs are in addition to the usual charges). The subscriber will be allowed to disconnect without being charged. Our revenues may be adversely affected as a result of this decision. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    · | Unified license. In November 2014, the Ministry of Communications published its decision regarding the obligation of all existing telecommunications licensees except Bezeq and HOT Telecom to be regulated by a unified general license. The Ministry decided that existing licensees be required to conform to the unified license which would cover international Long Distance ("ILD") services, special fixed-line services, Internet Service Providers ("ISP") and network termination point ("NTP") services. The regulations setting the procedure and the requirements for the grant of a unified license became effective as of February 5, 2015. According to the MoC’s decision, the Company will need to approach the MoC with a plan for transition to a unified license according to the new regulation within 3 months of the regulation's effective date. The Company will coordinate with the MoC the period for the commencement of such transition. Such an obligation may impose additional constraints on the Company’s business and operations in the relevant segments, may facilitate the entry of existing licensees into additional telecommunications segments and may involve additional costs of compliance and implementation.                                                   |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    · | Proposed new regulations for the ILD market. In October 2013, the Ministry of Communications published a hearing regarding proposed new regulations for the ILD market. The MoC proposed allowing all general telecommunications licensees (including MVNOs) to provide international call services to international destinations included in their subscribers’ tariff plans as well as to international destinations for which the tariff is lower or equal to the tariff for a domestic call on the licensee's network ("Included Destinations"). In this hearing,  the Ministry of Communications also proposed that general licensees (such as cellular operators) would no longer be allowed to charge interconnect fees for outgoing international calls. We submitted our response to this hearing in January 2014. In October 2014, the MoC published a secondary hearing on this matter, in which it proposed that all outgoing international calls which are not to Included Destinations, shall be preceded with a voice message stating the tariff of such call and allowing the subscriber to disconnect without being charged. We submitted our response to this secondary hearing in October 2014. Our revenues may be adversely affected if the changes proposed in these hearings are adopted. |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

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|   | · | requiring us to dedicate a substantial portion of our cash flow from operations to service our debt, thereby reducing the funds available for financing ongoing operating expenses and future business development; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | increasing our vulnerability to adverse economic, industry or business conditions or increases in the consumer price index (“CPI”), particularly because a portion of our borrowings is linked to the CPI; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | increasing the likelihood of a downgrade in the rating of our Notes by the rating company; |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | increasing the risk of a substantial impairment in the value of our telecommunications assets; and |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | · | limiting our ability to obtain the additional financing we may need to serve our debt, operate, develop and expand our business on acceptable terms or at all. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1) | the Ministry of Communications does not approve the Network Sharing Agreement or require changes which would render the agreement unattractive from the Company’s perspective or would negatively affect the commercial interest of the agreement; |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | either of the parties to the agreement experiences credit or payment difficulties and cannot contribute effectively to the financing of the joint venture; |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | the elimination of network sites results in lower operational savings than expected; and |
|--------|----|------------------------------------------------------------------------------------------|

|   | 4) | the joint venture experiences management deadlock. |
|--------|----|----------------------------------------------------|

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|   | · | a discount at a rate of up to 50% of the amount that they will have to pay for the frequencies (each addition of 1% market share will grant a discount at a rate of 10%, up to a maximum discount at a rate of 50%, during a period of 5 years); |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the frequencies would be granted to them for longer license terms than those of the other cellular licensees-each operator received the right to use the frequencies for the period equal to the initial term of their license and a new operator such as Xphone, for a period of 20 years from the time of the grant of such license ; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a waiver of HOT and Golan Telecom's obligation to build an independent network subject to their commitment to invest in a shared network with another operator the same amount that they have committed to invest in their UMTS network. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | In April 1998, we received our license to establish and operate a cellular telephone network in Israel.                                       |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                          |
| · | In January 1999, we launched full commercial operations with approximately 88% population coverage and established a nationwide distribution. |

----

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 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 March 2008, we voluntarily delisted our ADSs from the London Stock Exchange.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | 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. These notes were redeemed in August 2005.                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In July 2001, we registered our ordinary shares for trading on the Tel Aviv Stock Exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In December 2001, the Ministry of Communications ("MoC") awarded us two bands of spectrum: one band of GSM 1800 spectrum and one band of 2100 UMTS third generation spectrum.                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In June 2002, our license was extended until February 2022.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In December 2004, we commercially launched our 3G network.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In March 2005, we completed a debt offering, raising NIS 2.0 billion in a public offering in Israel of notes due 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In April 2005, we repurchased approximately 33.3 million shares from our Israeli founding shareholders, representing approximately 18.1% of our outstanding shares immediately before the repurchase.                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In the third quarter of 2005, our Board of Directors and shareholders approved the distribution of our first cash dividend, in the amount of NIS 0.57 per share, totaling approximately NIS 86.4 million.                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In March 2006, we launched services based on the High Speed Downlink Packet Access (“HSDPA”) technology. HSDPA is a technological enhancement to our 3G services that offers subscribers the ability to access our 3G services at higher speeds. The HSDPA technology has been deployed to support up to 21 Mbps on the downlink and 5.76 Mbps on the uplink.                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In July 2006, we purchased Med-1 I.C.–1 (1999) Ltd.’s fiber-optic transmission business for approximately NIS 71 million, in order to enable us to reduce our transmission costs as well as to provide our business customers with bundled services of transmission of data and voice and fixed-line services.                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In January 2007, we were granted a domestic fixed license by the Ministry of Communications, and in February 2007 we were granted a network termination point license.                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In December 2008 and January 2009, we launched three additional non-cellular business lines: VoB telephony services, ISP services and Web VOD (video on demand).                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In October 2009, Scailex became our principal shareholder through acquiring the entire interest in the Company of our previous controlling shareholder.                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In February 2010, following the District Court’s approval, a total amount of NIS 1.4 billion or approximately NIS 9.04 per share was paid on March 18, 2010, to shareholders and ADS holders of record on March 7, 2010, as a special dividend distribution.                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | In March 2011, we acquired all of the outstanding shares of 012 Smile Telecom Ltd., a leading provider of broadband and traditional telecommunications services in Israel. The acquisition of 012 Smile supported our strategy of becoming a leading comprehensive communications group, expanding our range of services and products.                                                                                                                                                                                                                                 |

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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| · | In January 2013, S.B. Israel Telecom, an affiliate of Saban Capital Group, a private investment firm, based in Los Angeles, California, specializing in the media, entertainment and communications industries, became our principal shareholder through acquiring 30.87% of our issued and outstanding shares, principally from our previous controlling shareholder, Scailex. See “Item ‎7A Major Shareholders”.                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | In November 2013, we entered into a 15-year Network Sharing Agreement with HOT Mobile pursuant to which the parties would create a 50-50 joint venture to operate and develop a cellular network to be shared by both parties (inter alia, as a result of pooling both parties' radio access network infrastructures to create a single radio access network).  The Network Sharing Agreement has been approved by the Israeli anti-trust authorities, subject to conditions, and remains subject to the approval of the Ministry of Communications.  See "Item ‎4B.9 Our Network". |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | In July 2014, we commercially launched limited 4G services in Israel over a frequency band of only 5 MHz in the 1800 spectrum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | In March 2015, the acting Minister of Communications approved the results of the tender bid process in which we won an additional 5 MHz in the 1800 spectrum (in addition to our 10 MHz frequency bands in the 1800 spectrum).                                                                                                                                                                                                                                                                                                                                                                                |

|    - | the cellular business segment, our main business, which represents the largest portion of our total revenues. The cellular business segment includes all services provided over our cellular networks including airtime, interconnect, roaming and content services. In addition, the cellular business segment’s activities include sales of relevant equipment including cellular handsets, tablets, (including WI-FI-only tablets) laptops, datacards, modems including built-in modems in laptops and related equipment and accessories. On December 31, 2014, we had approximately 2,837 thousand cellular subscribers, representing an estimated 28% of total Israeli cellular telephone subscribers at that date. As of that date, approximately 75% of our subscriber base (approximately 2,132,000 subscribers) was represented by subscribers who subscribe to post-paid tariff plans and 25% (approximately 705,000 subscribers) by subscribers who subscribe to pre-paid tariff plans.  (For a definition of “subscriber”, see “Item ‎‎3A Selected Financial Data”); and |
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|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    - | the fixed-line business segment, which includes a number of services provided over fixed-line networks including (1) ISP services that provides access to the internet as well as home Wi-Fi networks, including VAS such as anti-virus and anti-spam filtering; and fixed-line voice communication services provided through VOB; (2) transmission services and primary rate interface ("PRI"); and (3) ILD services, outgoing and incoming international telephony, hubbing, roaming and signaling and calling card services. In addition, this segment includes sales of related equipment such as domestic routers, smartboxes, WI-FI-only tablets and related equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

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| · | High Rate of Unlimited Packages. Israeli cellular operators provide, among other price-competitive offers, a particularly high rate of unlimited voice and text packages, and various data packages consisting of relatively high volumes of data at competitive prices.                                                                                                                                                                                                                                                                                                                                                   |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | Lack of Migration Barriers.  The Israeli cellular market to date has limited migration barriers. There is full number portability. Operators are no longer able to offer beneficial packages to residential or small business customers that commit to any contract periods are prohibited from selling locked handsets and are not allowed to charge exit fees or link the sale of handsets to services.                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | Cellular Telephone Market Saturation. Since 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, 2014, of 124%, representing approximately 10.3 million subscribers out of an estimated population of approximately 8.3 million. The total number of estimated cellular telephone subscribers includes 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. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | Entrance of Additional Operators. The regulatory changes in the telecommunications industry, particularly with respect to additional entrants that include cellular operators and MVNOs, have created a high level of competition in the industry.                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | 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, maintenance and subsequent upgrades of a cellular network in a cost effective manner.                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | High Penetration of Smartphones. Published market data shows that the relatively young Israeli population has a propensity to accept and use high technology products. The level of penetration of smartphones in the Israeli market is also estimated to be one of the highest in the world.                                                                                                                                                                                                                                                                                                                              |

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| · | Pursue our Evolution intoa Diversified Multi-service Communications Group. In order to compete with the emerging comprehensive telecommunications groups, we are continuing to broaden and diversify our portfolio of products and services to evolve into a diversified multi-service communications and media service provider. Our goal is to provide a full range of telecommunications and media services which will enable customers to satisfy all their telecommunications needs through us. Our high quality network enables our customers to benefit from advanced and high quality services. In addition to our major business providing cellular telecommunications services, our services offering range includes fixed-line telephony, ISP services, transmission services, and ILD services and other accompanying telecom and media services and we also sell telecommunciations equipment such as handsets, phones, tablets, laptops, modems, data cards, domestic routers and related equipment. We also intend to further enrich our media and content offerings in order to attract new customers and increase the level of loyalty and satisfaction of our existing customer base. Our licenses to operate in various telecommunications areas enable us to provide a wide range of services that will potentially be used to create a bundle of telecom and other adjacent services which we believe will favorably affect our ability to limit churn rates, increase customer loyalty, maximize the synergy between our lines of business and generate additional streams of revenues. Upon effective implementation of the wholesale market in fixed-line telecommunications, we will strive to compete in the infrastructure market so that we may be able to provide our customers with a comprehensive package of services. These services will include an attractive alternative to multi-channel television services in the Israeli market. |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| · | Drive Customer Satisfaction through Customer Centric Strategy. We have always believed that customer satisfaction is a key concern. We place a priority on and wish to lead the market in striving for excellence in the customer experience. We do so by differentiating ourselves from our competitors through continuous examination of our customers' needs, requirements and experience so that we may offer tailored packages to the various sectors. We provide our customers with a high level of accessible customer service at our service centers, call centers and digital services.  In order to further provide high quality services to our customers and meet their needs, we have established a retail division that focuses on all of the retail interfaces with the customers. Internally, we seek to improve and align all company business model elements to deliver consistent satisfaction at each step of the customer’s experience.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

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|                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·                         | Technical Leadership and Innovation.   We strive to lead the market in technology and always to be at the technological edge. We were the first cellular company in Israel to launch an LTE (4G) network (in July 2014), with limited performance due to the use of only 5 MHz in the 1800 spectrum. Upon allocation of additional 1800 frequencies, following a 4G tender held January 2015, and obtaining the Ministry of Communication’s approval for our Network Sharing Agreement with HOT Mobile, which will allow us to share frequencies with other operators, we will be able to provide our customers with a full 4G experience. We have had and shall continue to have, a commitment to ensure the quality of our network in all its domains: cellular, fixed-line telephony, ISP and transmission and the integration of technological progress to support usage growth.  We continuously invest in our network platforms and transmission network and are preparing our network for upgrading to the next generation including LTE advance, while ensuring smooth migration from existing technologies to next generation technologies.  Based on the Network Sharing Agreement with HOT Mobile and assuming that we will receive MoC approval to put it into effect, we expect to improve the coverage and quality and to accelerate the development of our cellular network infrastructure, while reducing operating costs. We identify and invest in innovative value added services that we believe will allow us to offer our customers a wide range of services that will enrich their experience and provide solutions for their needs. |
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| ·                         | Operational Excellence. We continue to place a premium on improving operational efficiency, adjusting costs and workforce to a level appropriate for evolving market conditions.The intense competition in the Israeli telecom market requires us to further reduce costs to align them with reduced revenues. As a result, the Company continues to take measures to adjust its cost structure to changing market conditions, which includes the Network Sharing Agreement with HOT Mobile as well as measures to optimize the synergies between the Company's units while continuing to allocate resources to provide our customers with excellent customer services and a wide variety of advanced services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| ·                         | Capitalizing on Growth in Mobile Broadband. We are pursuing growth in mobile broadband to capitalize on the rapid increase in demand for ubiquitous mobile data services and devices. In this context, we are responding to the rapid growth of mobile data traffic, and adopting targeted segmentation and pricing strategies as well as taking advantage of different broadband connection modes, to deliver a valuable quality of broadband service to users.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| ·     | Company Culture. We believe that our employees are the Company's main and most significant asset and that each individual should be a key advocate of the Company's services and products. The successful execution of the Company's strategy depends on the motivation, loyalty and capabilities of our employees. Therefore we place great importance on forums that allow us to learn from our employees about their experience with the customer. Part of the Company's culture is to encourage an open discussion among all levels of employees including an open door policy of the CEO and a direct access to management. We allocate resources for the training of our employees in order to meet the continuous and changing requirements of our business and invest in their welfare by addressing their needs through various forums and modes of communication.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ·                         | Dual branding. While maintaining the Orange brand as our main brand, the Company offers services also under the 012 Smile brand. In the cellular market the Orange brand is our main premium brand while 012 mobile is our low cost brand which enables us to compete with the new entrants to the cellular market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

| · | High Quality Networks. We believe that we set high standards for network quality.  We constantly invest in upgrading our network to the most advanced software and hardware, in all network domains – Radio Network, Fixed transmission network, fixed and mobile core network platforms, underlying IP infrastructure and supporting active and passive infrastructure (such as AC/DC power system, A/C, cabling, and antennae). We also continuously add more base cellular stations to gain better, denser site grids which give better coverage and capacity, resulting in a better quality of service in terms of accessibility (i.e. setup success), retainability (i.e. drop probability) and quality (e.g. peak and average data rates and voice quality). These investments, together with the use of sophisticated network planning, optimization and monitoring tools and techniques, have produced a high quality network. |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Strong Brand Identity. Since the launch of our full commercial operations in the cellular segment, we have made a substantial investment in promoting the Orange brand as our main brand to represent high quality, innovation and excellent customer service. Our marketing activities have resulted in wide-scale recognition of the Orange brand in Israel. Following the acquisition of 012 Smile, we also offer fixed line services under the 012 Smile brand and cellular services under the 012 Mobile brand which is our low cost brand. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | Focus on Customer Experience. Since we believe that customer satisfaction is a key concern, we provide a quality customer experience through quick, simple and reliable handling of customer needs and interactions, which we have achieved through investments in technology, offering tailored packages to the various sectors, launching a new portfolio of smartphones and tablets, and new communications products as well as training of customer service skills.                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | Variety of communication products. We believe that our fixed-line telephony, ISP services, transmission services and ILD services, strengthen our position in the communications market. Offering a variety of combined mobile and fixed-line products and services will enable us to better compete with the bundled services of other players, increase customer loyalty, and serve as an additional source of revenue.                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | Strong and Motivated Management Team. We have been able to attract a number of Israeli senior managers from the telecommunications, high-tech and consumer products industries. Our management team is experienced and highly respected and, we believe, well-positioned to manage and lead the Company.                                                                                                                                                                                                                                                   |

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|   |   · | ISP services. As an internet service provider, we offer our customers ISP services and (as a reseller) we also offer the broadband infrastructure component (currently bought at regular retail prices from the Infrastructure owners). Our ISP services offering includes email accounts, home Wi-Fi networking as well as additional value added services. Furthermore, we offer an advanced set of communications services that house web servers and related software and provide connectivity to the Internet for business customers.                                                                                                     |
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|   |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   · | ILD services. As an international long distance provider, we offer our residential and business customers international telephony services including direct international dialing services, international and domestic pre-paid and post-paid calling cards, and call-back services. In addition, we offer our business customers international toll-free numbers and an international cellular service that offers fixed rates on calls from anywhere in the world. As an international long distance provider, we also provide hubbing traffic routing between network operators for termination of long distance calls outside of Israel.   |
|   |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   · | Transmission. We provide fixed-line transmission and data capacity services. Our fixed-line capacity also includes capacity which we lease from other land-line telecommunications service providers. The services we offer include primarily connectivity services by which we provide high quality, dedicated, point-to-point connection for business customers and telecommunications providers, as well as fixed-line services to business customers.                                                                                                                                                                                      |
|   |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   · | VoB. This service allows users to make and receive telephone calls over the Internet through an internet connection. We offer traditional voice services to residential and business customers throughout Israel. Our service includes Quality of Service, which ensures high quality voice transmission regardless of the load on the internet connection, and a home gateway which is unique in the Israeli market for its range of sophisticated functionalities, including call “hijack” between the customer’s Orange fixed and Orange mobile telephone lines and a variety of domestic dialing for business customers. |

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|   | · | ISO 9001:2008, which focuses on fulfillment of clients and legal requirements;                              |
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|   |   |                                                                                                        |
|   | · | ISO 14001:2004, which coordinates our commitment to habitat and environment; and                            |
|   |   |                                                                                                        |
|   | · | OHSAS 18001:2007, which directs our efforts to provide a safe and healthy work environment at our premises. |

|   | · | A team of representatives and customer account managers that support small to medium-sized businesses.                                                                                                   |
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|   |   |                                                                                                                                                                                                     |
|   | · | A team of corporate representatives and customer account managers who support large corporate customers.                                                                                                 |
|   |   |                                                                                                                                                                                                     |
|   | · | A Small Medium Enterprises ("SME") sales-force team located in regional offices focuses on individual and small business customers.                                                                      |
|   |   |                                                                                                                                                                                                     |
|   | · | A telemarketing department conducts direct sales by phone (to private and business customers), initiates contacts with prospective customers and coordinates appointments for the sales representatives. |

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| · | Prohibition on exchange of information that is not required for the activities of the JV; |
|--------|-------------------------------------------------------------------------------------------|

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| · | Limitations with respect to serving as an officer or employee in either Partner or Hot Mobile concurrent with serving as an officer or employee of the JV and certain cooling off periods were set in case of transition of officers and employees from the JV to the companies. However, this should not prevent the JV from employing employees or officers, that are currently serving as employees or officers in the companies; |
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| · | Rules regarding the administration and documentation of the meetings of the JV organs were set; |
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| · | Either of the companies shall be allowed, at any time and at its sole discretion, to engage in an agreement with a third party for the provision of cellular telecommunications services that involves use of the core network of that company. All of the rights and obligations deriving from such service agreement shall apply solely to that company and the JV shall not be a party to such service agreement and will not be entitled to payments payable pursuant to it; |
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| · | After a period of seven years from the date of the Commissioner's approval or after a period of six years from the issue date of all the approvals of the Ministry of Communications, whichever is earlier, the Commissioner shall be allowed to notify the companies of the cancellation of his resolution, if he has concluded that the establishment of the JV, its existence or operations are liable to be substantively detrimental to the competition ("Cancellation Notice"). If a Cancellation Notice is issued, a graduated layout of dismantling the JV activity was set in the Commissioner resolution, as follows: |
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|   | a. | at the end of two years after the issuance of the Cancellation Notice, the JV shall cease all activity apart from the management, maintenance and operation of the passive network. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | at the end of five years after the issuance of the Cancellation Notice, the companies shall dismantle the JV and shall separate their assets fully and entirely. |
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|   | · | Our radio access network domain consist of 2,067 macro GSM base transceiver stations, 82 micro GSM base transceiver stations and 427 indoor GSM transceiver stations, all linked to 7 base station controllers. |
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|   | · | 2,063 macro UMTS base transceiver base stations (eNodesBs), 40 micro UMTS base transceiver stations and 689 indoor UMTS transceiver stations, all linked to 21 radio network controllers. |
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|   | · | 1,057 macro LTE base transceiver base stations (eNodesBs), 2 micro LTE base transceiver stations and 68 indoor LTE transceiver stations. |
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| · | erection and operating permits from the Ministry of Environmental Protection; |
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|   |                                                                          |
| · | permits from the Civil Aviation Authority, in certain cases; and              |
|   |                                                                          |
| · | permits from the Israeli Defense Forces.                                      |

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| Estimated Market Shares* |   | 2010   |   |   | 2011   |   |   | 2012   |   |   | 2013   |   |   | 2014   |   |
|--------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Partner                  |   |   | 32     | %      |   |   | 32     | %      |   |   | 29     | %      |   |   | 29     | % |   |   | 28 | % |
| Cellcom                  |   |   | 34     | %      |   |   | 34     | %      |   |   | 32     | %      |   |   | 31     | % |   |   | 29 | % |
| Pelephone                |   |   | 29     | %      |   |   | 29     | %      |   |   | 28     | %      |   |   | 26     | % |   |   | 25 | % |
| HOT Mobile               |   |   | 5      | %      |   |   | 5      | %      |   |   | 8      | %      |   |   | 8      | % |   |   | 10 | % |
| Golan Telecom and others |   |   | -      |   |   |   | -      |   |   |   | 3      | %      |   |   | 6      | % |   |   | 8 | % |

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|   | · | the maximum interconnect tariff payable by a telecommunications operator to a cellular operator for the completion of a call in its cellular network was reduced from the tariff of NIS 0.251 per minute to NIS 0.0687 per minute effective January 1, 2011; to NIS 0.0634 per minute effective January 1, 2012; to 0.0591 per minute effective January 1, 2013; and to NIS 0.0555 per minute effective January 1, 2014; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | · | the maximum interconnect tariff payable by a telecommunications operator to a cellular operator for sending an SMS message to its cellular network was reduced from the tariff of NIS 0.0285 to NIS 0.0016 effective January 1, 2011; to NIS 0.0015 effective January 1, 2012; to NIS 0.0014 effective January 1, 2013; and to NIS 0.0013 effective January 1, 2014.                                                         |

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|   | o | The MoC encourages and will continue to encourage passive sharing of network sites and masts only, and active sharing of antennas only (no sharing of spectrum) among all operators; |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | In general, the MoC sees an advantage to active sharing on a multi-operator core network (MOCN) format (sharing of antennas, spectrum and radio equipment) over active sharing using a multi-operator radio access network (MORAN) format (sharing of antennas and radio equipment without sharing of spectrum), considering the need to increase the efficient use of the spectrum of frequencies. Nevertheless, the MoC is not ruling out the possibility that, under special circumstances, it might deem it appropriate to approve an agreement under a MORAN format; |
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|   | o | In general, the MoC will allow the sharing of transmission from cell sites to the centralized radio base stations in a bandwidth-sharing configuration. However, under exceptional conditions and at the MoC’s discretion, it might allow sharing of transmission from the cell sites to the centralized radio base stations in other cases as well; |
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|   | o | When examining individual network-sharing agreements, the MoC will take into account the considerations specified in the policy document which relate to four key aspects: the existing level of competition and the potential for harm to the competition, the existing and expected inventory of frequencies and how efficiently the frequencies are being used, survivability and redundancy of the networks from the national perspective, and ensuring the level of telecommunications services over time; |
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|   | ·             | Roaming fees. The Ministry of Communications is evaluating the cost of roaming and may introduce new regulations that would limit fees charged by Israeli cellular companies for calls made by the customers of foreign network operators while they are in Israel and using our network, as well as for calls made by our own customers using their handsets abroad. The Ministry of Communications has requested additional and more specific international roaming data from the cellular companies. Because we consider roaming charges to be a significant source of revenue, such regulatory limits could adversely affect our revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|   | ·             | Roaming Services. In August 2014, the Ministry of Communications published a hearing aimed at increasing competition in roaming services abroad currently provided by cellular licensees. As part of the hearing, the Ministry proposed to enable every cellular subscriber to receive roaming services abroad from operators which are not his cellular provider (on top of his cellular operator) while keeping his cellular number. These alternative roaming providers include other cellular licensees, MVNOs, ISPs, ILD licensees and fixed telephony licensees. The Ministry of Communications also suggested determining various measures intended to improve transparency and to limit subscriber payments only to the exact volume of services consumed. Such measures include: All roaming calls abroad (incoming and outgoing) would be billed using time units of 1 second; All roaming data sessions would be billed using volume units of 1KB; The billable duration of all voice calls would be from the second in which the call was connected and until it ended (explicitly excluding any wait period from pushing the "call" button until the call is connected). Because we consider roaming charges to be a significant source of revenue, such regulatory limits could adversely affect our revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |  ·  | Internet video services. The Ministry of Communications and the Council for Cable TV and Satellite Broadcasting have published a public hearing in order to determine whether there is a need to regulate the provision of video services over the internet which might compete with multiple channel television services. In October 2011, the Ministry of Communications published its recommendations that included conditions for the adoption of suitable regulation and monitoring of television broadcasts over the internet and the establishment of a continuing implementation team in order to update the existing regulation in the existing broadcasting market and to apply regulation to television broadcasts over the internet. In February 2014, the Minister of Communications appointed a public committee (the "Schejter Committee") for the evaluation of the regulation of commercial broadcasting in Israel. The committee's scope of evaluation includes, inter alia, future regulation of new entrants that shall distribute audio-visual content over the internet Such internet video regulation may affect the Company's launch of television services. The committee published a hearing in March 2014, which the Company submitted a response to in April 2014. In August 2014, the committee published an interim report and a questionnaire and requested the public's response. In its interim report the committee proposed, among others things, that new audio visual services (provided over the Internet) would not be subject to the regulatory regime and a license requirement applicable to multi-channel television licensees, for an interim period to be decided upon. After such (unspecified) interim period, regulatory provisions would be gradually applied to audio visual services (provided over the Internet) in accordance with their level of income or number of subscribers. In its questionnaire the committee raised various questions, including: (1) the level of income or number of subscribers which would warrant regulation of new audio visual services (provided over the Internet); (2) whether the broadcasting licensees should be obligated to sell the channels that they broadcast to the new service providers (Must Sell). In addition, the committee is examining the application of certain "new entrant" protections to new audio visual service suppliers (provided over the Internet). If the committee decides not to recommend such protections, then Partner may not be able to penetrate this market and to successfully launch its TV services. The Company submitted its response to the interim report in September 2014. |

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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | Frequency fees. The Ministry of Communications is conducting a re-assessment of the frequency fees set forth in the law in order to support effective allocation and the utmost utilization of the frequencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | · | Roaming services during emergencies. In September 2012, the Ministry of Communications published a hearing with respect to roaming during a state of emergency or during a significant continuous malfunction in which the Ministry of Communications considers determining that under certain conditions, upon the Minister of Communications’ instruction, cellular operators that have their own network infrastructure, will be required to provide roaming services to the subscribers of other cellular operators that have network infrastructure, whose network has been rendered non-functioning for a significant amount of time following an event resulting from a state of emergency, a telecommunications crisis or during a significant continuous malfunction. The Company submitted its response to the hearing in October 2012. The revenues of the Company would be adversely affected if these proposed new regulations are adopted.                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | · | Intervention in international call market. In October 2013, the Ministry of Communications published a hearing regarding new regulation of the international call market. In the hearing, it was proposed by the Ministry to allow all general licensees (including MVNOs) to provide international call services to their subscribers, with respect to the international destinations which are included in their subscribers' tariff plans and to international destinations for which the tariff is lower or equal to the tariff of a call on the licensee's network ("Included Destinations"). The Ministry of Communications also proposed in the hearing that the general licensees (such as cellular operators) would not be allowed to collect an interconnect fee for outgoing international calls. The Company submitted its response to the hearing in January 2014. In October 2014, the Ministry published a secondary hearing on this matter, in which it proposed that all outgoing international calls which are not to Included Destinations, shall be preceded with a voice message stating the tariff of such call and allowing the subscriber to disconnect without being charged. The Company submitted its response to this secondary hearing in October 2014. The revenues of the Company may be adversely affected if the changes proposed in these hearings are adopted. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | · | Imposition of financial sanctions. The Ministry of Communications' supervision department has served the Company with a number of supervision reports for alleged claims of breach of our license or the Telecommunications Law to which the Company has submitted its responses. If the Ministry of Communications imposes financial sanctions for the alleged breaches of the license or the Telecommunications Law, this could have an adverse effect on our financial condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | Operational Continuity during a State of Emergency. In June 2014, the Ministry of Communications published a hearing regarding operational continuity during a state of emergency, which determines, among other things, that certain telecommunications licensees, including the Company, must formulate a plan to be approved by the board of directors, that would guarantee the ability of the licensee to operate continuously and limit the impact on the supply of telecommunications services during a state of emergency. In order to guarantee operational continuity, it was proposed as part of the hearing to determine various provisions with respect to network back-up, electrical and energy infrastructure, customer service operations and information technology security. For example, it was proposed that the network will be planned with no single point of failure and that the licensee will have independent capabilities to supply electrical power through independent generators to at least 3% of all its cellular sites. The Ministry of Communications published its decision on March 1, 2015. The Company believes that the decision will have no material affect on the Company's business. |

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | Filtering of Offensive Websites and Content. In August 2014, the Ministry of Communications published a hearing regarding proposed amendments to telecommunications licenses granted to various operators, including the Company and its subsidiaries. According to the Telecommunications Law, ISP and cellular licensees, are required to provide a service for filtering of offensive websites and content at no additional cost to the subscriber. The Law also includes provisions which oblige said licensees to inform their subscribers of the dangers of internet use (including offensive websites and content).As part of the hearing, it is proposed to amend the ISP and cellular licenses to include additional requirements to the existing requirements described above. The proposed amendments include, among others, the following matters: (1) detailed specifications of the filtering service; (2) requirements regarding the informational leaflet to be provided to the subscriber; and (3) an obligation to offer filtering software to be installed on any type of terminal equipment. In October  2014, the Company filed its written position seeking to limit the impact of the proposed amendments.                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | · | Consumer Protection-Call Centers. In August 2014, the Ministry of Communications published a hearing regarding proposed amendments to telecommunications licenses granted to various operators, including the Company and its subsidiaries. As part of the hearing, it is proposed to amend the licenses with respect to the quality of service of the licensees' call centers. The amendments include, among others, the following matters: the maximum response times for each call and the average daily response times; recording requirement regarding a billing inquiry, termination of all services or termination of a single service calls; and requirement to issue and to publish on the licensees' websites detailed weekly reports that will include complete data in relation to their conduct regarding response times.  The Company submitted its response to the hearing in October 2014. In parallel to the hearing, the Ministry of Communications published a draft memorandum with respect to the Telecommunications Law, according to which a subscriber will be able to sue for a fixed amount of compensation in case a licensee fails to meet the proposed response times and for compensation in case of an over charge in the monthly bill, both without proving damages. The Company submitted its response to the draft memorandum in October 2014. These amendments may have an adverse affect on the Company's results of operations. |

|   |
|--------|

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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | Cellular Network Coverage Amendments. In July 2014, The Ministry of Communications and the Civil Administration in Judea and Samaria published a hearing regarding a proposed amendment to general licenses for the provision of cellular services (MRT), granted to five operators including the Company. As part of the hearing, it is proposed to amend the operators' licenses and to materially intensify the requirements set in the licenses with respect to the coverage and service quality of the operators' 2G and 3G networks deployed in Israel and in the Judea and Samaria area, as follows: · Minimum coverage requirements - will be set out in terms of population, territory, settlements    and roads and railroad track paths; · Quality of service requirements - will be set out in terms of the percentage of blocked and    dropped calls, the minimum level of reception and the minimal speed for uploading    and downloading data. The Company submitted its response to the hearing in September 2014 and the MoC's officials conducted another hearing in the Company's offices in December 2014. The revenues of the Company may be adversely affected by the results of the hearing. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | · | Premium Service provided at Regular Tariffs. In December 2014, the Ministry of Communications published its decision following a public hearing, stating that a fixed-line operator shall be entitled to provide a premium service provided for regular telephone call tariffs ("Regular Premium Service") as an internal network call (using a network access code) or using a standard fixed-line telephone number. Cellular operators shall be entitled to provide the Regular Premium Service only as an internal network call (using a network access code). The Company's revenues may be adversely affected as a result of this decision.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|   | A. | Sale of wholesale services: |
|--------|----|-----------------------------|

|   | i.     | The two wireline infrastructure operators that provide retail telecommunication services will be required to offer wholesale services to the other telecommunication providers, that will offer services on the owners’ infrastructure (the wholesale market), based on non-discriminatory conditions.                                                                                                                                                                                                                       |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | ii.    | The wholesale services tariffs and the terms of agreement shall be determined through negotiations between the two wireline infrastructure operators and the service providers. An infrastructure owner that reaches an agreement with such other provider shall be required to offer the same terms, without discrimination, to all other providers. Affiliates of the infrastructure owner shall also be allowed to purchase wholesale services as long as these will be provided without discrimination to all other providers. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | iii.   | The Ministry of Communications shall intervene and set the wholesale tariffs and said terms of agreement, in case an agreement has not been reached between the parties within 6 months from the date of the publication of the policy document or if the agreement between the parties includes tariffs or terms that are unreasonable, may harm the competition, may harm the public welfare or may harm the interest of the service provider.                                                                                   |

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|   | B. | Structural Separation |
|--------|----|-----------------------|

|   | i.     | Within 9 months of a signed agreement between said parties, the structural separation between the fixed-line infrastructure owner and its international call provider and internet service provider (ISP) affiliates shall be abolished and replaced by an accounting separation.                                                                                                                                                                            |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | ii.    | The Minister of Communications shall consider providing leniencies or abolishing the structural separation (and replacing it with an accounting separation) between the fixed-line infrastructure owner and its affiliated cellular operator, in accordance with the development of the wholesale market and the pace of development of competition based on packaged services that combine fixed-line services and cellular services in the private sector. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | iii.   | In case a proper and appropriate wholesale market does not develop within 24 months from the date of the publication of the policy document, the Minister of Communications shall act to impose a structural separation in the fixed-line infrastructure owners, between the infrastructure and the services provided through this infrastructure to the end-customers.                                                                                      |

|   | C. | Supervision over Bezeq Tariffs Within 6 months from the date such an agreement is signed between the said parties, the Ministry of Communications shall act to change the manner of supervision over Bezeq tariffs so that the supervision shall be done by setting a maximum tariff. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Television Broadcasts |
|--------|----|-----------------------|

|   | i.     | The Ministry of Communications shall examine imposing a requirement to offer unbundled television services that are included in services packages that include telecommunication services (fixed-line and mobile) or broadband access services, which means a requirement to provide them at the same tariff as part of a service package or separately. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                     |
|   | ii.    | The abolishing of the structural separation with respect to multi-channel television shall be done if there is a reasonable possibility to provide a basic package of television services through the internet by service providers that do not own fixed-line infrastructure.                                                                           |

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| · | Our founding shareholders and their approved substitutes must hold, in the aggregate, at least 26% of each of our means of control. Furthermore, the maintenance of at least 26% of our means of control by our founding shareholders and their approved substitutes allows Partner to be protected from a license breach that would result from a transfer of shares for which the authorization of the Ministry of Communications was required, but not obtained.                                                                                                                            |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| · | Israeli entities from among our founding shareholders and their approved substitutes must hold at least 5% of our issued and outstanding 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 individuals who are 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, provided that if the Board of Directors is comprised of up to 14 members, only one such director must be so appointed, and if the Board of Directors is comprised of between 15 and 24 members, only two such directors must be so appointed.                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| · | Matters relating to national security shall be dealt with only by a Board of Directors committee that has been formed for that purpose. The committee includes at least 4 members, of which at least one is an external director. Only directors with the required clearance and those deemed appropriate by Israel’s General Security Service may be members of this committee. Resolutions approved by this committee shall be deemed adopted by the Board of Directors.                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| · | The Ministry of Communications shall be entitled to appoint an observer to the Board of Directors and its committees, subject to certain qualifications and confidentiality undertakings.                                                                                                                                                                                                                                                                                                                                                                                                      |

| · | 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 |
|   |                                                                                                                                                                                                                                                                        |
| · | using the spectrum allocated to us efficiently, compared to alternative applications.                                                                                                                                                                                       |

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| · | voting rights in Partner; |
|--------|---------------------------|

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|   |                                                                                                    |
|--------|---------------------------------------------------------------------------------------------------------|
| · | 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. |

| · | the founding shareholders or their approved substitutes of Partner continue to hold in the aggregate at least 26% of the means of control of Partner;                                                  |
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|   |                                                                                                                                                                                                   |
| · | 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 other than external directors. |

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| · | Founding shareholders or their approved substitutes must hold at least 26% of the means of control of Partner.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | Israeli entities from among our founding shareholders and their approved substitutes must hold at least 5% of our issued share capital and of each of our means of control.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | 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 MoC, 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.                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | 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.                                                                                                                                                                                                                                                                                                                                                             |

| · | 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; |

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 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.13e-Our Mobile Telephone License-Our Permit Regarding Cross Ownership.” |

| · | 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.                                                                   |

| · | “Office Holder” means a director, manager, company secretary or any other senior officer that is directly subordinate to the general manager.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| · | “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 matter of issuance of means of control in a corporation or decisions in the matters of sale or liquidation of most businesses of the corporation, or fundamental changes of these businesses. |

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|   |                                                                                                                                                             |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | “Controlling Corporation” means a company that has control, as defined above, of a foreign mobile radio telephone operator.                          |
|   |                                                                                                                                                             |
| · | “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. |

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|                                                                           |   | Year ended December 31, |   |
|--------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                           |   | 2012                    |   |   | 2013 |   |   | 2014 |   |
|                                                                           |   |                    |   |   |   |   |   |   |   |
| Revenues (NIS million)                                                         |   |                    | 5,572  |   |   |   | 4,519 |   |   |   | 4,440 |   |
| Operating profit (NIS million)                                                 |   |                    | 865    |   |   |   | 409 |   |   |   | 400 |   |
| Income before taxes (NIS million)                                              |   |                    | 631    |   |   |   | 198 |   |   |   | 241 |   |
| Profit for the Year (NIS million)                                              |   |                    | 478    |   |   |   | 135 |   |   |   | 162 |   |
| Capital expenditures (NIS million)                                             |   |                    | 558    |   |   |   | 413 |   |   |   | 429 |   |
| Cash flows from operating activities (NIS million)                             |   |                    | 1,705  |   |   |   | 1,539 |   |   |   | 951 |   |
| Cash flows from investing activities (NIS million)                             |   |                    | (471   | )  |   |   | (498 | )  |   |   | (431 | )  |
| Cash flow from operating activities net of investment activities (NIS million) |   |                    | 1,234  |   |   |   | 1,041 |   |   |   | 520 |   |
| Cellular Subscribers (end of period, thousands)                                |   |                    | 2,976  |   |   |   | 2,956 |   |   |   | 2,837 |   |
| Annual cellular churn rate (%)                                                 |   |                    | 38     | % |   |   | 39 | % |   |   | 47 | % |
| Average monthly revenue per cellular subscriber (ARPU) (NIS)                   |   |                    | 97     |   |   |   | 83 |   |   |   | 75 |   |

----

----

----

|                    |   | As of December 31, |   |
|-------------------------|--------|--------------------|--------|
|                    |   | 2012               |   |   | 2013 |   |   | 2014 |   |
| Terminal growth rate    |   | (negative 0.2%)    |   |   | (negative 0.3%) |   |   | (negative 0.2%) |   |
| After-tax discount rate |   |               | 11.7   | % |   |   | 11.7 | % |   |   | 10.5 | % |
| Pre-tax discount rate   |   |               | 15.7   | % |   |   | 15.8 | % |   |   | 14.3 | % |

----

----

|   | · | Payments to transmission, communication and content providers |
|--------|--------|---------------------------------------------------------------|

|   | · | Cost of equipment and accessories |
|--------|--------|-----------------------------------|

|   | · | Depreciation and amortization |
|--------|--------|-------------------------------|

|   | · | Wages, employee benefits expenses and car maintenance |
|--------|--------|-------------------------------------------------------|

|   | · | Operating lease, rent and overhead expenses         |
|--------|--------|-----------------------------------------------------|
|   |   |                                                |
|   | · | Network and cable maintenance                       |
|   |   |                                                |
|   | · | Costs of handling, replacing or repairing equipment |

|   | · | Car kit installation, IT support, and general operating expenses |
|--------|--------|------------------------------------------------------------------|
|   |   |                                                             |
|   | · | Amortization of rights of use                                    |

|   | · | Payments to internet service providers (“ISPs”) |
|--------|--------|-------------------------------------------------------------|

----

|   | · | Wages, employee benefits expenses and car maintenance |
|--------|--------|-------------------------------------------------------|
|   |   |                                                  |
|   | · | Selling commissions, net                              |
|   |   |                                                  |
|   | · | Advertising and marketing                             |
|   |   |                                                  |
|   | · | Depreciation and amortization                         |
|   |   |                                                  |
|   | · | Operating lease, rent and overhead expenses           |
|   |   |                                                  |

|   | · | Wages, employee benefits expenses and car maintenance |
|--------|--------|-------------------------------------------------------|

|   | · | Bad debts and allowance for doubtful accounts |
|--------|--------|-----------------------------------------------|

|   | · | Professional fees                 |
|--------|--------|-----------------------------------|
|   |   |                              |
|   | · | Credit card and other commissions |
|   |   |                              |
|   | · | Depreciation                      |

|   | · | Unwinding of trade receivables                          |
|--------|--------|---------------------------------------------------------|
|   |   |                                                    |
|   | · | Capital gain (loss) from sale of property and equipment |

|   | · | Interest expenses |
|--------|--------|-------------------|

|   | · | Net foreign exchange rate gains (losses)              |
|--------|--------|------------------------------------------------------------|
|   |   |                                                       |
|   | · | Fair value loss from derivative financial instruments, net |

|   | · | Linkage expenses to CPI |
|--------|--------|-------------------------|

----

|   | · | Interest income from cash equivalents |
|--------|--------|---------------------------------------|

|   | · | Number of subscribers |
|--------|--------|-----------------------|

|   | · | Average monthly revenue per subscriber (ARPU) |
|--------|--------|-----------------------------------------------|

|   | · | Churn rate |
|--------|--------|------------|

| (1) | Estimating service revenues earned but not yet billed |
|-----|-------------------------------------------------------|

| (2)    | Assessing the useful lives of assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |  The useful economic lives of the Company's assets are an estimate determined by management. The Group defines useful economic life of its assets in terms of the assets' expected utility to the Group. This estimation is based on assumptions of future changes in technology or changes in the Group's intended use of these assets, and experience of the Group with similar assets, and legal or contract periods where relevant. The assets estimated economic useful lives are reviewed, and adjusted if appropriate, at least annually.  |
| (3)    | Assessing the recoverable amount for impairment tests of assets with finite useful economic lives                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

----

| (4) | Assessing the recoverable amount of goodwill for annual impairment tests |
|-----|--------------------------------------------------------------------------|

| Terminal growth rate    |   | (negative 0.2%) |   |
|-------------------------|--------|-----------------|--------|
| After-tax discount rate |   |            | 10.5   | % |
| Pre-tax discount rate   |   |            | 14.3   | % |

| (5) | Assessing allowance for doubtful accounts |
|-----|-------------------------------------------|

----

| (6) | Considering uncertain tax positions |
|-----|-------------------------------------|

| (1) | Considering the likelihood of contingent losses and quantifying possible settlements: |
|-----|---------------------------------------------------------------------------------------|

| (2) | Considering sales with multiple deliverables |
|-----|----------------------------------------------|

|                                                               |   | New Israeli Shekels          |   |
|--------------------------------------------------------------------|--------|------------------------------|--------|
|                                                               |   | Year ended December 31, 2014 |   |
|                                                               |   | In millions                  |   |
|                                                               |   | Cellular segment             |   |   | Fixed-line segment |   |   | Elimination |   |   | Consolidated |   |
| Segment revenue - Services                                         |   |                         | 2,592  |   |   |   | 816 |   |   |   |   |   |   | 3,408 |   |
| Inter-segment revenue - Services                                   |   |                         | 26     |   |   |   | 188 |   |   |   | (214 | ) |   |   |   |   |
| Segment revenue - Equipment                                        |   |                         | 938    |   |   |   | 54 |   |   |   |   |   |   |   | 992 |   |
| Total revenues                                                     |   |                         | 3,556  |   |   |   | 1,058 |   |   |   | (214 | ) |   |   | 4,400 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment cost of revenues - Services                                |   |                         | 1,963  |   |   |   | 692 |   |   |   |   |   |   |   | 2,655 |   |
| Inter-segment cost of  revenues- Services                |   |                         | 185    |   |   |   | 29 |   |   |   | (214 | ) |   |   |   |   |
| Segment cost of revenues - Equipment                               |   |                         | 727    |   |   |   | 37 |   |   |   |   |   |   |   | 764 |   |
| Cost of revenues                                                   |   |                         | 2,875  |   |   |   | 758 |   |   |   | (214 | ) |   |   | 3,419 |   |
| Gross profit                                                       |   |                         | 681    |   |   |   | 300 |   |   |   |   |   |   |   | 981 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                 |   |                         | 509    |   |   |   | 122 |   |   |   |   |   |   |   | 631 |   |
| Other income, net                                                  |   |                         | 49     |   |   |   | 1 |   |   |   |   |   |   |   | 50 |   |
| Operating profit                                                   |   |                         | 221    |   |   |   | 179 |   |   |   |   |   |   |   | 400 |   |
| Adjustments to presentation of Adjusted EBITDA                     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      –Depreciation and amortization |   |                         | 534    |   |   |   | 155 |   |   |   |   |   |   |   | 689 |   |
|     –Other                               |   |                         | 7      |   |   |   | * |   |   |   |   |   |   |   | 7 |   |
| Adjusted EBITDA                                                    |   |                         | 762    |   |   |   | 334 |   |   |   |   |   |   |   | 1,096 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation of Adjusted EBITDA to profit before income tax      |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization      |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 689 |   |
|     -  Finance costs, net            |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 159 |   |
|     -  Other                         |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 7 |   |
| Profit before income tax                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 241 |   |

----

|                                                               |   | New Israeli Shekels          |   |
|--------------------------------------------------------------------|--------|------------------------------|--------|
|                                                               |   | Year ended December 31, 2013 |   |
|                                                               |   | In millions                  |   |
|                                                               |   | Cellular segment             |   |   | Fixed-line segment |   |   | Elimination |   |   | Consolidated |   |
| Segment revenue - Services                                         |   |                         | 2,876  |   |   |   | 908 |   |   |   |   |   |   | 3,784 |   |
| Inter-segment revenue - Services                                   |   |                         | 31     |   |   |   | 177 |   |   |   | (208 | ) |   |   |   |   |
| Segment revenue - Equipment                                        |   |                         | 703    |   |   |   | 32 |   |   |   |   |   |   |   | 735 |   |
| Total revenues                                                     |   |                         | 3,610  |   |   |   | 1,117 |   |   |   | (208 | ) |   |   | 4,519 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment cost of revenues - Services                                |   |                         | 2,070  |   |   |   | 747 |   |   |   |   |   |   |   | 2,817 |   |
| Inter-segment cost of  revenues- Services                |   |                         | 175    |   |   |   | 33 |   |   |   | (208 | ) |   |   |   |   |
| Segment cost of revenues - Equipment                               |   |                         | 664    |   |   |   | 29 |   |   |   |   |   |   |   | 693 |   |
| Cost of revenues                                                   |   |                         | 2,909  |   |   |   | 809 |   |   |   | (208 | ) |   |   | 3,510 |   |
| Gross profit                                                       |   |                         | 701    |   |   |   | 308 |   |   |   |   |   |   |   | 1,009 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                 |   |                         | 544    |   |   |   | 135 |   |   |   |   |   |   |   | 679 |   |
| Other income, net                                                  |   |                         | 77     |   |   |   | 2 |   |   |   |   |   |   |   | 79 |   |
| Operating profit                                                   |   |                         | 234    |   |   |   | 175 |   |   |   |   |   |   |   | 409 |   |
| Adjustments to presentation of Adjusted EBITDA                     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      –Depreciation and amortization |   |                         | 545    |   |   |   | 155 |   |   |   |   |   |   |   | 700 |   |
|     –Other                               |   |                         | 5      |   |   |   | * |   |   |   |   |   |   |   | 5 |   |
| Adjusted EBITDA                                                    |   |                         | 784    |   |   |   | 330 |   |   |   |   |   |   |   | 1,114 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation of Adjusted EBITDA to profit before income tax      |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization      |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 700 |   |
|     -  Finance costs, net            |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 211 |   |
|     -  Other                         |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 5 |   |
| Profit before income tax                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 198 |   |

----

----

----

----

----

----

|                                                               |   | New Israeli Shekels          |   |
|--------------------------------------------------------------------|--------|------------------------------|--------|
|                                                               |   | Year ended December 31, 2012 |   |
|                                                               |   | In millions                  |   |
|                                                               |   | Cellular segment             |   |   | Fixed-line segment |   |   | Elimination |   |   | Consolidated |   |
| Segment revenue - Services                                         |   |                         | 3,564  |   |   |   | 1,076 |   |   |   |   |   |   | 4,640 |   |
| Inter-segment revenue - Services                                   |   |                         | 28     |   |   |   | 134 |   |   |   | (162 | ) |   |   |   |   |
| Segment revenue - Equipment                                        |   |                         | 896    |   |   |   | 36 |   |   |   |   |   |   |   | 932 |   |
| Total revenues                                                     |   |                         | 4,488  |   |   |   | 1,246 |   |   |   | (162 | ) |   |   | 5,572 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment cost of revenues - Services                                |   |                         | 2,351  |   |   |   | 861 |   |   |   |   |   |   |   | 3,212 |   |
| Inter-segment cost of  revenues- Services                |   |                         | 134    |   |   |   | 28 |   |   |   | (162 | ) |   |   |   |   |
| Segment cost of revenues - Equipment                               |   |                         | 787    |   |   |   | 32 |   |   |   |   |   |   |   | 819 |   |
| Cost of revenues                                                   |   |                         | 3,272  |   |   |   | 921 |   |   |   | (162 | ) |   |   | 4,031 |   |
| Gross profit                                                       |   |                         | 1,216  |   |   |   | 325 |   |   |   |   |   |   |   | 1,541 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                 |   |                         | 584    |   |   |   | 203 |   |   |   |   |   |   |   | 787 |   |
| Other income, net                                                  |   |                         | 110    |   |   |   | 1 |   |   |   |   |   |   |   | 111 |   |
| Operating profit                                                   |   |                         | 742    |   |   |   | 123 |   |   |   |   |   |   |   | 865 |   |
| Adjustments to presentation of Adjusted EBITDA                     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      –Depreciation and amortization |   |                         | 562    |   |   |   | 164 |   |   |   |   |   |   |   | 726 |   |
|     –Other                               |   |                         | 10     |   |   |   | 1 |   |   |   |   |   |   |   | 11 |   |
| Adjusted EBITDA                                                    |   |                         | 1,314  |   |   |   | 288 |   |   |   |   |   |   |   | 1,602 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation of Adjusted EBITDA to profit before income tax      |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization      |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 726 |   |
|     -  Finance costs, net            |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 234 |   |
|     -  Other                         |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 11 |   |
| Profit before income tax                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 631 |   |

----

----

----

----

|                                                                                                                                                                                                                                                                                                                                                                                     |   | Three months ended |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|
| NIS in millions                                                                                                                                                                                                                                                                                                                                                                          |   | March 31           |   |   | June 30 |   |   | Sept. 30 |   |   | Dec. 31 |   |
|                                                                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |   |   |   |   |
| Service Revenues                                                                                                                                                                                                                                                                                                                                                                         |   |               |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2012                                                               |   |               | 1,241  |   |   |   | 1,213 |   |   |   | 1,150 |   |   |   | 1,036 |   |
| 2013                                                               |   |               | 961    |   |   |   | 950 |   |   |   | 951 |   |   |   | 922 |   |
| 2014                                                                                                                                                                                                                                                                                                                                                                                     |   |               | 876    |   |   |   | 862 |   |   |   | 862 |   |   |   | 808 |   |

----

|                   | Linkage terms (principal and interest) |   | Annual interest rate |   | Interest payment terms |   | Original issuance date |
|------------------------|----------------------------------------|--------|----------------------|--------|------------------------|--------|------------------------|
| Notes payable series B | CPI                                    |   | 3.4% CPI adj.        |   | Semi-annual            |   | November 2009          |
| Notes payable series C | CPI                                    |   | 3.35% CPI adj.       |   | Semi-annual            |   | April 2010             |
| Notes payable series D |                                   |   | 'Makam'(*) plus 1.2% |   | Quarterly              |   | April 2010             |
| Notes payable series E |                                   |   | 5.5% fixed           |   | Semi-annual            |   | April 2010             |

| Period                               |   | Interest rate |   |
|--------------------------------------|--------|---------------|--------|
| October 1, 2014 to December 30, 2014 |   |          | 1.42   | % |
| July 1, 2014 to September 30, 2014   |   |          | 1.88   | % |
| March 31, 2014 to June 30, 2014      |   |          | 1.86   | % |
| December 31, 2013 to March 30, 2014  |   |          | 2.13   | % |

----

|                       |   | 2015                            |   |   | 2016   |   |   | 2017   |   |   | 2018 to 2019 |   |   | 2020to2021 |   |   | Total undiscounted |   |   | Less offering expenses and discounts |   |   |   Total discounted |   |
|----------------------------|--------|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------------|--------|--------|------------|--------|--------|--------------------|--------|--------|--------------------------------------|--------|--------|------------------------------|--------|
|                       |   | New Israeli Shekels in millions |   |
| Notes payable series B (*) |   |                            | 122    |   |   |   | 122    |   |   |   |         |   |   |       |   |   |               |   |   | 244                                  |   |   |                         | (1     | ) |   |   | 243 |   |
| Notes payable series C (*) |   |                            |   |   |   |   | 234    |   |   |   | 234          |   |   |       | 234    |   |               |   |   |                                 |   | 702    |                         |   |   | (1 | ) |   |   | 701 |   |
| Notes payable series D     |   |                            |   |   |   |   |   |   |   |   | 109          |   |   |       | 218    |   |               |   | 219    |                                 |   |   | 546                          |   |   |   | (4 | ) |   |   | 542 |   |
| Notes payable series E     |   |                            | 187    |   |   |   | 187    |   |   |   | 187          |   |   |       |   |   |               |   |   |                                 |   |   | 561                          |   |   |   | (5 | ) |   |   | 556 |   |
|                       |   |                            | 309    |   |   |   | 543    |   |   |   | 530          |   |   |       | 452    |   |               |   | 219    |                                 |   |   | 2,053                        |   |   |   | (11 | ) |   |   | 2,042 |   |

----

|        | Linkage terms (principal and interest) |   | Annual interest rate |   | Interest payment terms |   | Original reception date |
|-------------|----------------------------------------|--------|----------------------|--------|------------------------|--------|-------------------------|
| Borrowing A | CPI                                    |   | 2.75% CPI adj.       |   | Semi-annual            |   | November 2010           |
| Borrowing C |                                   |   | 5.7% fixed           |   | Annual                 |   | June 2010               |
| Borrowing D |                                   |   | 5.7% fixed           |   | Annual                 |   | June 2010               |
| Borrowing E |                                   |   | Prime minus 0.025%   |   | Quarterly              |   | May 2011                |
| Borrowing F | CPI                                    |   | 3.42% CPI adj.       |   | Quarterly              |   | April 2011              |
| Borrowing G |                                   |   | 3.08% fixed          |   | Quarterly              |   | November 2014           |
| Borrowing H |                                   |   | 2.93% fixed          |   | Quarterly              |   | November 2014           |

|                 |   | 2016                            |   |   | 2017   |   |   | 2018 to 2019 |   |   | 2020to2021 |   |   | 2022   |   |   | Total  |   |
|----------------------|--------|---------------------------------|--------|--------|--------|--------|--------|--------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|
|                 |   | New Israeli Shekels in millions |   |
| Bank borrowing A (*) |   |                            | 177    |   |   |   | 177    |         |   |   | 178        |   |   |   |   |   |   |   |   |   | 532 |   |
| Bank borrowing C     |   |                            |   |   |   |   |   |         |   |   | 50         |   |   |   | 25     |   |   |   |   |   |   | 75 |   |
| Bank borrowing D     |   |                            |   |   |   |   |   |         |   |   | 50         |   |   |   | 25     |   |   |   |   |   |   | 75 |   |
| Bank borrowing E     |   |                            |   |   |   |   |   |         |   |   | 152        |   |   |   |   |   |   |   |   |   |   | 152 |   |
| Bank borrowing F (*) |   |                            |   |   |   |   |   |         |   |   | 199        |   |   |   |   |   |   |   |   |   |   | 199 |   |
| Bank borrowing G     |   |                            |   |   |   |   |   |         |   |   | 40         |   |   |   | 40     |   |   |   | 20 |   |   |   | 100 |   |
| Bank borrowing H     |   |                            |   |   |   |   |   |         |   |   | 40         |   |   |   | 40     |   |   |   | 20 |   |   |   | 100 |   |
|                 |   |                            | 177    |   |   |   | 177    |         |   |   | 709        |   |   |   | 130    |   |   |   | 40 |   |   |   | 1,233 |   |

|   | Principal prepayments made during 2014 and early 2015:                                                                                                                                                                                                |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                  |
|   | Borrowing D: During April 2014, the Company prepaid a portion of the principal outstanding of the loan in the amount of NIS 100 million which were due originally in four equal annual payments from June 9, 2014 to June 9, 2017.                    |
|   |                                                                                                                                                                                                                                                  |
|   | Borrowing A: During January 2015, the Company prepaid a portion of the principal outstanding of the loan in the amount of NIS 177 million which was due originally in December 2016 and paid a prepayment fee of NIS 6 million due to the prepayment. |

----

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The Company paid prepayment fees in 2013 and 2014 in a total amount of NIS 17 million and NIS 6 million, respectively. The fees were recorded in interest costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | New borrowings received during 2014:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | Borrowing G: On November 24, 2014, the Company received a long-term loan from a leading Israeli commercial bank in the principal amount of NIS 100 million for a period of 8 years, bearing an annual fixed interest at the rate of 3.08%. The principal is payable in 20 equal quarterly installments commencing in February 2018. The interest is payable on a quarterly basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | Borrowing H: On November 24, 2014, the Company received a long-term loan from a leading Israeli commercial bank in the principal amount of NIS 100 million for a period of 8 years, bearing an annual fixed interest at the rate of 2.93%. The principal is payable in 20 equal quarterly installments commencing in February 2018. The interest is payable on a quarterly basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | New borrowing received in 2015 (subsequent to balance sheet date):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | Borrowing I: On January 14, 2015, the Company received a long-term loan from a leading Israeli commercial bank in the principal amount of NIS 120 million for a period of 6 years, bearing an annual fixed interest at the rate of 3.17%. The principal is payable in 12 equal installments commencing in April 2018. The interest is payable on a quarterly basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | Borrowing J: On January 14, 2015, the Company received a long-term loan from a leading Israeli commercial bank in the principal amount of NIS 80 million for a period of 6 years, bearing an annual fixed interest at the rate of 2.75%. The principal is payable in 22 equal installments commencing in October 2015. The interest is payable on a quarterly basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | Off balance sheet deferred loan commitments in favor of the Company:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | On May 27, 2014, the Company engaged in a loan agreement with a group of institutional corporations ("Lenders"), according to which on December 28, 2016 the Lenders will provide the Company a loan in the principal amount of NIS 250 million. The loan will bear unlinked interest at the rate of 4.95% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | On November 27, 2014, the Company engaged in a loan agreement with a group of institutional corporations ("Lenders"), according to which on December 26, 2017 the Lenders will provide the Company a loan in the principal amount of NIS 100 million. The loan will bear unlinked interest at the rate of 4.44% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2018.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | On November 30, 2014, the Company engaged in a loan agreement with a group of institutional corporations ("Lenders"), according to which on December 26, 2017 the Lenders will provide the Company a loan in the principal amount of NIS 100 million. The loan will bear unlinked interest at the rate of 4.34% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2018. All of the off-balance sheet deferred loan commitments include provisions which allow the lenders to not provide the loans should any of the events of default defined for our existing loans occur prior to the date for providing the deferred loans. These events of default include a material adverse change in the Company's business and non-compliance with the financial covenants set forth below, as well as other customary terms. See "Item ‎3D.2b Our level of indebtedness could adversely affect our business, profits and liquidity. Furthermore, the continued decline in cash flow and difficulties in generating sustainable cash flow may impair our ability to repay our debt and reduce the level of indebtedness". |

|   | (1) | The ratio of (a) the amount of all financial obligations of the Company including bank guarantees that the Company has undertaken (“Total Debt”) to (b) EBITDA less Capital Expenditures shall not exceed 6.5 (the ratio as of December 31, 2013 and 2014, was 5.2 and 5.1, respectively); and |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (2) | The ratio of (a) Total Debt to (b) the EBITDA of the Company shall not exceed 4 (the ratio as of December 31, 2013 and 2014, was 3.2 and 3.1, respectively). |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Current Portion Payable in 2015 as of December 31, 2014 |   | NIS in millions |   |
|---------------------------------------------------------|--------|-----------------|--------|
|                                                    |   |            |   |
| Principal on notes payable                              |   |            | 309    |   |
|                                                    |   |            |   |   |
| Accrued interest on notes payables                      |   |            | 71     |   |
| Accrued interest on long term bank loans                |   |            | 39     |   |
| Total                                                   |   |            | 419    |   |

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|   | · | Cash on hand; |
|--------|--------|---------------|

|   | · | Operating cash flows, net of cash flow used for investing activities |
|--------|--------|----------------------------------------------------------------------|
|   |   |                                                                 |
|   | · | Off balance sheet loan commitments.                                  |

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|                                                                                                        |   | Payments due by period (NIS in millions) |   |
|-------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
| Contractual Obligations                                                                                     |   | Total                                    |   |   | 2015 |   |   | 2016-2017 |   |   | 2018-2019 |   |   | 2020 and thereafter |   |
|                                                                                                        |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes Series B*                                                                                             |   |                                     | 256    |   |   |   | 130 |   |   |   | 126 |   |   |   | - |   |   |   | - |   |
| Notes Series C*                                                                                             |   |                                     | 774    |   |   |   | 24 |   |   |   | 508 |   |   |   | 242 |   |   |   | - |   |
| Notes Series D*                                                                                             |   |                                     | 586    |   |   |   | 8 |   |   |   | 125 |   |   |   | 229 |   |   |   | 224 |   |
| Notes Series E*                                                                                             |   |                                     | 623    |   |   |   | 218 |   |   |   | 405 |   |   |   |   |   |   |   | - |   |
| Long term bank borrowings*                                                                                  |   |                                     | 1,398  |   |   |   | 39 |   |   |   | 427 |   |   |   | 753 |   |   |   | 179 |   |
|                                                                                                        |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Leases                                                                                            |   |                                     | 1,123  |   |   |   | 226 |   |   |   | 377 |   |   |   | 231 |   |   |   | 289 |   |
| Trade payables                                                                                              |   |                                     | 804    |   |   |   | 804 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Payables in respect of employees                                                                            |   |                                     | 81     |   |   |   | 81 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other payables                                                                                              |   |                                     | 36     |   |   |   | 36 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Contribution to defined benefit plan                                                                        |   |                                     | 15     |   |   |   | 15 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Commitments to pay for inventory purchases                                                                  |   |                                     | 554    |   |   |   | 554 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Commitments to pay for property, equipment purchases and software elements purchases (capital expenditures) |   |                                     | 23     |   |   |   | 23 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Commitments to pay for rights of use                                                                        |   |                                     | 322    |   |   |   | 27 |   |   |   | 92 |   |   |   | 102 |   |   |   | 101 |   |
| Commitments to pay for transmission services (See note 16(6) to the consolidated financial statements)      |   |                                     | 140    |   |   |   | 69 |   |   |   | 71 |   |   |   | - |   |   |   | - |   |
|                                                                                                        |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Contractual Cash Obligations                                                                          |   |                                     | 6,735  |   |   |   | 2,254 |   |   |   | 2,131 |   |   |   | 1,557 |   |   |   | 793 |   |

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| Name of Director                         |   | Age    |   | Position                                |
|------------------------------------------|--------|--------|--------|-----------------------------------------|
|                                     |   |   |   |                                    |
| Adam Chesnoff*                           |   | 49     |   | Chairman of the Board of Directors      |
| Elon Shalev*                             |   | 63     |   | Vice-Chairman of the Board of Directors |
| Dr. Michael J. Anghel (1)(2)(3)(4)  |   | 76     |   | Director                                |
| Barry Ben Zeev (1)(2)(3)(4)         |   | 63     |   | Director                                |
| Fred Gluckman*                           |   | 44     |   | Director                                |
| Sumeet Jaisinghani*                      |   | 30     |   | Director                                |
| Osnat Ronen (5) (6)                 |   | 52     |   | Director                                |
| Yoav Rubinstein*                         |   | 41     |   | Director                                |
| Arieh Saban*                             |   | 68     |   | Director                                |
| Arik Steinberg (1)(2)(4)            |   | 50     |   | Director                                |
| Ori Yaron*                               |   | 49     |   | Director                                |

|   | (1) | Member of the Audit Committee. |
|--------|-----|--------------------------------|

|   | (2) | Member of the Compensation Committee. |
|--------|-----|---------------------------------------|

|   | (3) | External Director under the Israeli Companies Law. (See "Item ‎6C Board Practices") |
|--------|-----|-------------------------------------------------------------------------------------------|

|   | (4)    | Independent Director under NASDAQ rules and under the Israeli Companies Law. |
|--------|--------|------------------------------------------------------------------------------|
|   |   |                                                                         |
|   | (5)    | Independent Director under NASDAQ rules                                      |
|   |   |                                                                         |
|   | (6)    | Appointed by the Israeli founding shareholders                               |

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| Name of Officer      |   | Age    |   | Position                                                                                     |
|----------------------|--------|--------|--------|----------------------------------------------------------------------------------------------|
|                 |   |   |   |                                                                                         |
| Haim Romano          |   | 60     |   | Chief Executive Officer                                                                      |
| Itzik Benbenishti    |   | 50     |   | Deputy Chief Executive Officer                                                               |
| Ziv Leitman          |   | 56     |   | Chief Financial Officer                                                                      |
| Roly Klinger1   |   | 55     |   | Vice President, Legal & Regulatory Affairs, Business Development and Corporate Secretary |
| Einat Rom            |   | 49     |   | Vice President, Human Resources & Administration                                         |
| Menahem Tirosh       |   | 63     |   | Chief Operating Officer                                                                      |
| Guy Emodi            |   | 51     |   | Vice President, Economics & Planning, Corporate Strategy and Operator Relations          |
| Ronit Rubin2    |   | 50     |   | Vice President, Business Customer Division                                                   |
| Zvika Shenfeld       |   | 42     |   | Vice President, Retail Division                                                              |
| Atara Litvak Shacham |   | 43     |   | Vice President Marketing and Growth Engines Division                                         |
| Amalia Glaser        |   | 50     |   | Spokesman and VP Communications and Corporate Responsibility Division                        |

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| Details of the Compensation Recipient                                                                                                                  |   | Compensation for services(the compensation amounts are displayed in terms of cost forthe Company)(NIS thousands) |   |                           | Other compensation & vehicle (the compensation amounts are displayed in terms of cost for the Company)(NIS thousands) |         |   | Total(NIS thousands)     |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|---------------------------------------------------------------------------------------------------------------------------|--------------|--------|--------------------------|--------|
| Name                                                                                                                                                   |   | Position                                                                                                         |   | Payroll & Related expenses |                                                                                                                      | Annual Bonus |   | Share based payments(12) |   |   | Other |   |   |   |   |
| Haim Romano                                                                                                                                            |   | Chief Executive Officer                                                                                          |   |                           | 2,417                                                                                                                     |         | 0(1)   |                     |   | 747(2) |   |   |   | 154(3) |   |   |   | 3,318 |   |
| Menahem Tirosh                                                                                                                                         |   | Chief Operating Officer                                                                                          |   |                           | 1,396                                                                                                                     |         | 132    |                     |   | 150(4) |   |   |   | 583(5) |   |   |   | 2,261 |   |
| Ziv Leitman                         |   | Chief Financial Officer                                                                                          |   |                           | 1,314                                                                                                                     |         | 118    |                     |   | 90(6) |   |   |   | 716(7) |   |   |   | 2,238 |   |
| Roly Klinger                        |   | Vice President, Legal & Regulatory Affairs, Business Development and Corporate Secretary                     |   |                           | 1,074                                                                                                                     |         | 109    |                     |   | 136(8) |   |   |   | 564(9) |   |   |   | 1,883 |   |
| Ronit Robin                                                                                                                                            |   | Vice President, Business Customers Division (formerly VP Information Technology)                                 |   |                           | 1,141                                                                                                                     |         | 103    |                     |   | 154(10) |   |   |   | 482(11) |   |   |   | 1,880 |   |

| (1)    | In December 2014, the CEO, Mr. Haim Romano, notified the Company that he irrevocably waives any right to the annual bonus (of NIS 2 million) that he was entitled to under his management agreement according to which he provides his management services as the Company's CEO. Mr. Haim Romano has requested that the sum of the bonus that he was entitled to be awarded to the Company's employees and the Company's organs have approved this request.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (2)    | In 2011, 800,000 share options were granted to Mr. Haim Romano with a vesting period over three years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 3.6 million. As of March 9, 2015, the share price was NIS 15.20, whereas the option exercise price (dividend adjusted) is NIS 37.16. As long as the option exercise price is higher than the market share price, the grant has no actual value for Mr. Haim Romano. In 2013, an additional 150,000 share options were granted to Mr. Haim Romano with a vesting period over three years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 1 million. As of March 9, 2015, the share price was NIS 15.20 whereas the option exercise price (dividend adjusted) is NIS 23.61. As long as the option exercise price is higher than the market share price, the grant has no actual value for Mr. Haim Romano. In March 2015, an additional 150,000 share options were granted to Mr. Haim Romano with a vesting period over three years at an exercise price of 14.72. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.56 million. No expense was recorded with respect to this option allocation during the year 2014. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (3)    | Vehicle expenses only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (4)    | In 2012, 220,000 share options were granted to Mr. Menahem Tirosh with a vesting period over three years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.7 million. As of March 9, 2015, the share price was NIS 15.20 whereas the option exercise price (dividend adjusted) is NIS 33.5. As long as the option exercise price is higher than the market share price, the grant has no actual value for Mr. Menahem Tirosh. In 2014, an additional 68,600 share options and 29,130 restricted shares were granted to Mr. Menahem Tirosh with a vesting period over four years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.4 million and the fair value of the restricted shares was approximately NIS 0.7 million. As of March 9, 2015, the share price was NIS 15.20 whereas the option exercise price of the options (dividend adjusted) is NIS 25.95. As long as the option exercise price is higher than the market share price, the grant of the options has no actual value for Mr. Menahem Tirosh; however a restricted share has the value of the share price.                                                                                                                                                                                               |

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| (5)    | “Other compensation” includes expenses for retirement that were accumulated during the reporting period of this annual report and will be paid only upon retirement, as well as retention expenses in the amount of NIS 1,000,000, out of which NIS 500,000 were accumulated during 2013 and were paid in February 2014, and an additional amount of NIS 500,000 were accumulated during the reporting period and were paid in February 2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (6)    | In 2012 50,000 share options were granted to Mr. Ziv Leitman with a vesting period of two years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.2 million. As of March 9, 2015, the share price was NIS 15.20 whereas the option exercise price (dividend adjusted) is NIS 13.23. In 2014, an additional 68,600 share options and 29,130 restricted shares were granted to Mr. Ziv Leitman with a vesting period over four years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.4 million and the fair value of the restricted shares was approximately NIS 0.7 million. As of March 9, 2015, the share price was NIS 15.20 whereas the option exercise price (dividend adjusted) is NIS 25.95. As long as the option exercise price is higher than the market share price, the grant of the options has no actual value for Mr. Ziv Leitman; however a restricted share has the value of the share price.                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (7)    | “Other compensation” includes expenses for retirement that were accumulated during the reporting period of this annual report and will be paid only upon retirement, as well as retention expenses in the amount of NIS 700,000, out of which NIS 350,000 were accumulated during 2013 and were paid in February 2014, and an additional amount of NIS 350,000 were accumulated during the reporting period and were paid in February 2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (8)    | In 2012, 50,000 share options were granted to Ms. Roly Klinger with a vesting period of two years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.3 million. As of March 9, 2015, the share price was NIS 15.20 whereas the option exercise price (dividend adjusted) is NIS 22.32. As long as the option exercise price is higher than the market share price, the grant of the options has no actual value for Ms. Roly Klinger. In 2014, an additional 68,600 share options and 29,130 restricted shares were granted to Ms. Roly Klinger with a vesting period over four years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.4 million and the fair value of the restricted shares was approximately NIS 0.7 million. As of March 9, 2015, the share price was NIS 15.20 whereas the option exercise price (dividend adjusted) is NIS 25.95. As long as the option exercise price is higher than the market share price, the grant of the options has no actual value for Ms. Roly Klinger; however a restricted share has the value of the share price. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (9)    | “Other compensation” includes expenses for retirement that were accumulated during the reporting period of this annual report and will be paid only upon retirement, as well as retention expenses in the amount of NIS 700,000, out of which NIS 350,000 were accumulated during 2013 and were paid in February 2014, and an additional amount of NIS 350,000 were accumulated during the reporting period and were paid in February 2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

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| (10)   |  In 2010, 300,000 share options were granted to Ms. Ronit Rubin with a vesting period over four years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 5.9 million. As of March 9, 2015, the share price was NIS 15.20 whereas the option exercise price (dividend adjusted) is NIS 57.47. As long as the option exercise price is higher than the market share price, the grant has no actual value for Ms. Ronit Rubin. In 2012, an additional 50,000 share options were granted to Ms. Ronit Rubin with a vesting period of two years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.2 million. None of these options remained outstanding as of December 31, 2014. In 2014, an additional 68,600 share options and 29,130 restricted shares were granted to Ms. Ronit Rubin with a vesting period over four years. The theoretical fair value of the share options (according to Black-Scholes model) as measured on the day of the grant was approximately NIS 0.4 million and the fair value of the restricted shares was approximately NIS 0.7 million. As of March 9, 2015, the share price was NIS 15.20 whereas the option exercise price (dividend adjusted) is NIS 25.95. As long as the option exercise price is higher than the market share price, the grant of the options has no actual value for Ms. Ronit Rubin; however a restricted share has value of the share price. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (11)   | “Other compensation” includes expenses for retirement that were accumulated during the reporting period of this annual report and will be paid only upon retirement, as well as retention expenses in the amount of NIS 700,000, out of which NIS 350,000 were accumulated during 2013 and were paid in February 2014, and an additional amount of NIS 350,000 were accumulated during the reporting period and were paid in February 2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (12)   | These sums represent the relative portion of the expenses of all option and restricted share allocations recorded during the year 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

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|   | – | In order to comply with the conditions and restrictions imposed on us by the Ministry of Communications, including in our mobile license, in relation to ownership or control over us, under certain events specified in our Articles of Association, the Board of Directors may determine that certain ordinary shares are dormant shares. Consequently, we received an exemption from NASDAQ with respect to its requirement (now under NASDAQ Rule 5640) 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. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | – | As permitted under Israeli Companies Law, the Company’s Board of Directors generally proposes director nominees for shareholder approval. The conditions of NASDAQ Rule 5605(e), that director nominees must either be selected or recommended to the Board by the independent directors or a nomination committee comprised solely of independent directors, are thus not satisfied. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | – | We received an exemption from the requirement set out in NASDAQ Rule 5635(c) that listed companies receive shareholder approval when certain stock option or purchase plans are to be established or materially amended, or certain other equity compensation arrangement made or materially amended. This exemption was granted based on the fact that the NASDAQ requirement is inconsistent with applicable Israeli legal requirements, according to which the establishment or amendment of such a plan requires the approval of the company’s Board of Directors and approval of the shareholders’ meeting would only be required for the grant of equity compensation to the Chief Executive Officer, directors or controlling partners. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | – | In compliance with the Israeli Companies Law, which requires that at least two members of the Board of Directors satisfy the conditions of “external directors”, two of our eleven directors are external directors.  Additionally, one of our directors satisfies the conditions of an Israeli independent director ("bilty taluy"). Such external directors also satisfy the NASDAQ criteria for “independent directors”.  However, the requirement of NASDAQ Rule 5605(b), that a majority of the Board of Directors be comprised of independent directors, is thus not satisfied.                                                                                                                     |

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| 1) | financial liability incurred by, or imposed upon the Office Holder in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by an authorized court. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2) | reasonable legal expenses, including attorney fees, incurred by the Office Holder or which he was ordered to pay by an authorized court in the context of a proceeding filed against him by Partner or on Partner’s behalf or by a third party, in a criminal proceeding in which he was acquitted or in a criminal proceeding in which he was convicted of an offense which does not require criminal intent. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|      3) | reasonable legal expenses, including attorney fees, incurred by the Office Holder due to an investigation or proceeding conducted against him by an authority authorized to conduct such investigation or proceeding and which ended without filing of an indictment against him and without the imposition of a financial liability as a substitute for a criminal proceeding or that was ended without filing of an indictment against him but for which he was subject to a financial liability as a substitute for a criminal proceeding relating to an offense which does not require criminal intent, within the meaning of the relevant terms under the law or in connection with a financial sanction(“itzum caspi”). |
|-----------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|        4) | payment to an injured party as a result of a violation set forth in Section 52.54(a)(1)(a) of the Israeli Securities Law, including by indemnification in advance or expenses incurred in connection with a proceeding (“halich”) under Chapters H3, H4 or I1 of the Israeli Securities Law, or under Chapter 4 of Part 9 of the Israeli Companies Law, in connection with any affairs, including reasonable legal expenses, which term includes attorney fees, including by indemnification in advance.” |
|-----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (1) | a breach of the duty of loyalty toward us, unless the Office Holder acted in good faith and had reasonable grounds to assume that the action would not harm Partner’s interest; |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | a breach of the duty of care done intentionally or recklessly (“pzizut”) other than if made only by negligence; |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

| (3) | an act intended to unlawfully yield a personal profit; |
|-----|--------------------------------------------------------|

| (4) | a fine, a civil fine (“knas ezrahi”), a financial sanction (“itzum kaspi”) or a penalty (“kofer”) imposed on him; and |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | a Proceeding (“halich”). |
|-----|--------------------------------------|

----

|        (1) | The breach of the duty of care towards the Company or towards any other person; |
|-------------------------------------|---------------------------------------------------------------------------------|

|        (2) | The breach of the duty of loyalty towards the Company provided that the Office Holder has acted in good faith and had reasonable grounds to assume that the action would not harm the Company; |
|-------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|        (3) | A financial liability imposed on him in favor of another person;                                                                                                                                                                                                                                                                                                                                                                          |
|------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        (4) | A payment which the office holder is obligated to pay to an injured party as set forth in section 52.54(a)(1)(a) of the Securities Law and expenses that the Office Holder incurred in connection with a proceeding under Chapters H3, H4 or I1 of the Securities Law, or under Chapter 4 of Part 9 of the Israeli Companies Law, in connection with any affairs, including reasonable legal expenses, which term includes attorney fees. |

|        (5) | Any other matter in respect of which it is permitted or will be permitted under any law to insure the liability of an Office Holder in the Company. |
|------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|                       |   | At December 31, |   |
|----------------------------|--------|-----------------|--------|
|                       |   | 2012            |   |   | 2013 |   |   | 2014 |   |
|                       |   |            |   |   |   |   |   |   |   |
| Customer service*          |   |            | 3,107  |   |   |   | 2,115 |   |   |   | 1,786 |   |
| Engineering                |   |            | 387    |   |   |   | 315 |   |   |   | 311 |   |
| Sales and sales support*   |   |            | 808    |   |   |   | 653 |   |   |   | 607 |   |
| Information technology     |   |            | 372    |   |   |   | 315 |   |   |   | 307 |   |
| Marketing and Content      |   |            | 82     |   |   |   | 65 |   |   |   | 54 |   |
| Finance                    |   |            | 135    |   |   |   | 95 |   |   |   | 102 |   |
| Human resources            |   |            | 143    |   |   |   | 115 |   |   |   | 119 |   |
| Operations & Logistics |   |            | 266    |   |   |   | 298 |   |   |   | 180 |   |
| Remaining operations       |   |            | 95     |   |   |   | 74 |   |   |   | 109 |   |
| TOTAL                      |   |            | 5,396  |   |   |   | 4,045 |   |   |   | 3,575 |   |

----

| From day onwards                                                                                                                                                                                                                                                                                                           |   |   | Employee provisions |   |   | Employer provisions |   |   | Employer provisions for compensation |   |   | Total |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------------|--------|--------|---------------------|--------|--------|--------------------------------------|--------|--------|-------|--------|
| 1.1.2011                                                    |   |   |                | 3.33   | %      |                |   | 3.33   | %                                    |   |   | 3.34  | %      |   |   | 10 | % |
| 1.1.2012                                                    |   |   |                | 4.16   | %      |                |   | 4.16   | %                                    |   |   | 4.18  | %      |   |   | 12.5 | % |
| 1.1.2013                                                    |   |   |                | 5      | %      |                |   | 5      | %                                    |   |   | 5     | %      |   |   | 15 | % |
| 1.1.2014                                                    |   |   |                | 5.5    | %      |                |   | 6      | %                                    |   |   | 6     | %      |   |   | 17.5 | % |

----

| Weighted average exercise price(NIS) |   |   | Number of outstanding optionsheld |   |      | Option expiration Year |   |
|--------------------------------------|--------|--------|-----------------------------------|--------|-----------|------------------------|--------|
|                                 | 53.44  |   |                              |   | 5,000     |                   |   |   | 2017 |   |
|                                 | 47.39  |   |                              |   | 230,000   |                   |   |   | 2019 |   |
|                                 | 41.23  |   |                              |   | 1,199,750 |                   |   |   | 2020 |   |
|                                 | 41.55  |   |                              |   | 1,013,750 |                   |   |   | 2021 |   |
|                                 | 26.40  |   |                              |   | 471,500   |                   |   |   | 2022 |   |
|                                 | 23.61  |   |                              |   | 150,000   |                   |   |   | 2023 |   |
|                                 | 38.68  |   |                              |   | 3,070,000 |                   |   | TOTAL |   |
|                                 |   |   |                              |   |      |                   |   |   |   |   |

----

----

|                                                     |   | Through December 31, 2014 |       |
|----------------------------------------------------------|--------|---------------------------|------------|
|                                                     |   | Number of options         |       |   | Number of restricted shares |   |
| Granted                                                  |   |                      | 23,585,385 |   |   |   | 1,594,850 |   |
| Shares issued upon exercises                             |   |                      | (6,055,350 | ) |   |   |   |   |
| Cancelled upon net exercises, expiration and forfeitures |   |                      | (8,567,919 | ) |   |   | (4,860 | ) |
| Outstanding                                              |   |                      | 8,962,116  |   |   |   | 1,589,990 |   |
| Of which:                                                |   |                      |       |   |   |   |   |   |
| Exercisable                                              |   |                      | 4,902,943  |   |   |   | - |   |
| Vest in 2015                                             |   |                      | 194,583    |   |   |   | - |   |
| Vest in 2016                                             |   |                      | 1,369,061  |   |   |   | 530,088 |   |
| Vest in 2017                                             |   |                      | 1,247,769  |   |   |   | 529,952 |   |
| Vest in 2018                                             |   |                      | 1,247,760  |   |   |   | 529,950 |   |

----

| Name                             |   | Shares beneficially owned |        |   | Issued Shares (1)% |   |   | Issued and Outstanding Shares (1)% |   |
|----------------------------------|--------|---------------------------|-------------|--------|--------------------|--------|--------|------------------------------------|--------|
| S.B. Israel Telecom Ltd.(2)      |   |                      | 48,050,000  |   |               |   | 29.93  |                               |   |   | 30.48 |   |
| Scailex Corporation Ltd. (3)     |   |                      | 9,430,958   |   |               |   | 5.87   |                               |   |   | 5.98 |   |
| Phoenix-Excellence Group (4)     |   |                      | 12,565,437  |   |               |   | 7.83   |                               |   |   |  7.97 |   |
| Meitav DS Group (5)              |   |                      | 8,917,242   |   |               |   | 5.55   |                               |   |   | 5.66 |   |
| Psagot Investment House Ltd. (6) |   |                      | 9,418,855   |   |               |   | 5.87   |                               |   |   | 5.97 |   |
| Treasury shares (7)              |   |                      | 2,887,710   |   |               |   | 1.80   |                               |   |   | – |   |
| Public (8)                       |   |                      | 69,274,084  |   |               |   | 43.15  |                               |   |   | 43.94 |   |
| Total                            |   |                      | 160,544,286 |   |               |   | 100.00 |                               |   |   | 100.00 |   |

----

| (1) | As shown above and used throughout this annual report, the term “Issued and Outstanding Shares” does not include any treasury shares held by the Company. Treasury shares, which are included in “Issued Shares”, have no voting, dividend or other rights under the Israeli Companies Law, as long as they are held by the Company (“dormant shares”). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | S.B. Israel Telecom, an affiliate of Saban Capital Group, a private investment firm, based in Los Angeles, California, specializing in the media, entertainment and communications industries held on February 15, 2015, approximately 30.48% of our Issued and Outstanding shares and voting rights. S.B. Israel Telecom also purchased from Scailex 2,983,333 ordinary shares representing another, approximately 1.91% of our Issued and Outstanding shares and voting rights at that time, which shares are to be transferred by Scailex to S.B. Israel Telecom free and clear of any lien on one or more future deferred closing dates, subject to the conditions set forth in the share purchase agreement entered into between Scailex and S.B. Israel Telecom. See “Item ‎3D.3a 30.48% of our issued and outstanding shares and voting rights are held by S.B. Israel Telecom Ltd. our largest shareholder, who has a shareholders’ agreement with Scailex Corporation Ltd., whose holdings amounted to 5.98% of our issued and outstanding shares and voting rights as of February 15, 2015." |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Scailex, an Israeli corporation listed on the Tel Aviv Stock Exchange, held on February 15, 2015, 9,430,958 shares which represent approximately 5.98% of our Issued and Outstanding shares and voting rights, of which 9,076,050 shares (which represent 5.76% of the Company’s issued and outstanding shares) are under the control of a court appointed receiver and the balance of 354,908 shares are not under the control of the receiver. The 9,430,958 shares do not include 750,000 shares that recently were transferred by Scailex to the trustees of noteholders of Scailex. See Item "‎3D.3a 30.48% of our issued and outstanding shares and voting rights are held by S.B. Israel Telecom Ltd. our largest shareholder, who has a shareholders’ agreement with Scailex Corporation Ltd., whose holdings amounted to 5.98% of our issued and outstanding shares and voting rights as of February 15, 2015." |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Phoenix Holdings Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange (“Phoenix”), and Excellence Investments Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange (“Excellence”), which is controlled by Phoenix, hold shares in the Company (directly as well as through its wholly owned subsidiaries). (Phoenix, Excellence and their subsidiaries collectively, the “Phoenix-Excellence Group”). 1,935,000 shares of the 12,565,437 shares held by the Phoenix-Excellence Group, representing approximately 1.23% of our Issued and Outstanding shares and total voting rights, are registered in the Company’s Shareholders Register as part of the shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (5)    | Meitav DS Investments Ltd., an Israeli corporation listed on the Tel Aviv Stock Exchange, holds shares in the Company directly and indirectly (Meitav DS and their subsidiaries collectively, the “Meitav DS Group”). 805,000 shares of the 8,917,242 shares held by the Meitav DS Group, representing approximately 0.51% of our Issued and Outstanding shares and total voting rights, are registered in the Company’s Shareholders Register as part of the shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (6)    | Psagot Investment House Ltd. is an Israeli corporation listed on the Tel Aviv Stock Exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (7)    | Treasury shares do not have a right to dividends or to vote. During 2008, the Company purchased 4,467,990 shares a part of a buy-back plan. Under the Company's 2004 Equity Incentive Plan, the Company allocated to a trustee on behalf of the Company's employees 1,580,280 restricted shares which were allocated from the treasury shares. See "Item ‎6E.2 Equity Incentive Plan ".                                                                                                                                                                                                     |

| (8) | The shares under “Public” include 4,448,583 shares held by Israeli founding shareholders from among our founding shareholders and their approved substitutes. These shares, together with 869,129 shares held by Scailex 1,935,000 shares held by the Phoenix-Excellence Group and 805,000 shares held by the Meitav DS Group, represent approximately 5.02% of our issued shares (approximately 5.11% of the Issued and Outstanding Shares). Under the terms of our mobile telephone license, the Israeli founding shareholders from among our founding shareholders and their approved substitutes must hold at least 5% of our issued and outstanding share capital and of each of our means of control. The Israeli founding shareholders must meet the requirements of “Israeli entities” which are defined as individuals who are citizens and residents of Israel and entities formed in Israel and controlled, directly or indirectly, by individuals who are citizens and residents of Israel, provided that indirect control is only through entities formed in Israel, unless otherwise approved by the Minister of Communications. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | a. | the appointment of members to the Company’s board of directors in accordance with the composition specified in the Shareholders’ Agreement which provides, among other things, for the majority of the members of the board of directors to be candidates recommended by S.B. Israel Telecom; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | the execution of amendments to the Company’s Articles of Association described in the Shareholders’ Agreement; |
|--------|----|----------------------------------------------------------------------------------------------------------------------------|

|   | c. | the approval of management agreements between S.B. Israel Telecom and/or its affiliates, on the one hand, and the Company, on the other hand; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | the approval of a registration rights agreement among the Company, S.B. Israel Telecom and Scailex, pursuant to which S.B. Israel Telecom and Scailex will be entitled to demand particular rights from the Company with respect to the registration of securities of the Company under applicable U.S. securities laws; |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | the approval of run-off insurance for certain officers of the Company; and |
|--------|----|----------------------------------------------------------------------------|

|   | f. | the approval of a release, indemnity and insurance for certain officers of the Company. |
|--------|----|-----------------------------------------------------------------------------------------|

|   | a. | a material change in the Company’s line of business, or entry into a material new line of business, provided, however, that engaging in or entering into any line of business in the telecommunications or media fields would not be deemed a change in the current line of business of the Company or entering into any material new businesses; |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | b. | a merger of the Company with a communications service-provider, or the acquisition thereof by the Company, in a transaction valued in excess of US$250 million; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | the initiation of liquidation or dissolution proceedings, or a stay of proceedings or a creditors’ arrangement; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------|

|   | d. | transactions with interested parties, apart from the management agreements, a purchase of Ordinary Shares within the scope of a rights offering of the Company, the pro-rata receipt of dividends or distributions or a new registration rights agreement; |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | a change in the Company’s share capital that has a material and disproportionate adverse impact on the rights attached to the Ordinary Shares held by Scailex, or the issuance of a class of shares (or similar security) senior to the Ordinary Shares; |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f. | voluntary delisting of the Ordinary Shares from the Tel-Aviv Stock Exchange Ltd.; and |
|--------|----|---------------------------------------------------------------------------------------|

|   | g. | amendments to the Company’s Articles of Association that have a material and disproportionate adverse impact on Scailex’s rights (provided that changing the majority vote required for the approval of a certain action would not be deemed to materially adversely affect Scailex’s rights in a disproportionate manner). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

|   | 1.     | On April 12, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company charges its subscribers for certain content services without their consent. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 343 million. The parties have failed to reach a settlement agreement and proceedings have resumed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | 2.     | On May 23, 2010, a claim and a motion to certify the claim as a class action were filed against the Company and all other cellular operators. The claim alleges that the Company, as well as the other defendants, is breaching its contractual and/or legal obligation to erect cellular sites in the appropriate scope, quantity and coverage in order to provide cellular services in the required and appropriate quality. The plaintiffs claimed that this omission also causes, inter alia, monetary damages caused to consumers as a result of lack of sufficient coverage, including call disconnections, insufficient voice quality etc., as well as a significant increase in the non-ionized radiation that the public is exposed to mainly from the cellular telephone handset. In addition, it is claimed that the Company and the other defendants are breaching their contractual and/or legal obligation to ensure and/or check and/or repair and/or notify the consumer, that after repair and/or upgrade and/or exchange of cellular handsets, the handsets may emit radiation in levels that exceed the levels of radiation as set forth by the manufacturer in the handset data and even exceeds the maximum permitted levels set forth by law. In addition, it was claimed that the Company and the other defendants do not fulfill their obligation to caution and warn the consumers of the risks involved in holding the handset and the proximity of the handset to the body while carrying it and during a phone call. In addition, it was claimed that if the handsets marketed by the Company and the other defendants emit non-ionizing radiation above the permitted level, at any distance from the body, then the marketing and sale of such handsets is prohibited in Israel. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 3.677 billion.  In November 2013 the parties filed a request to approve a settlement agreement and in February 2014 the parties filed a request to approve a revised settlement agreement. The settlement agreement also includes a claim and a motion to certify the claim as a class action that was filed in a similar matter as set forth in section 4 below. In July 2014, the court approved the settlement agreement and in October 2014 the plaintiffs filed an appeal with the Supreme Court. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | 3.     | On September 7, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company unlawfully charges its customers for services of various content providers, which are sent through text messages (SMS). If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 405 million. The claim has not yet been certified as a class action.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | 4.     | On June 6, 2011, a claim and a motion to certify the claim as a class action were filed against the Company and the three other cellular operators. The claim alleges that the Company sell or supply accessories that are intended for carrying cellular handsets on the body, in a manner that contradicts the instructions and warnings of the cellular handset manufacturers and the recommendations of the Ministry of Health, all this without disclosing the risks entailed in the use of these accessories when they are sold or marketed. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 1,010 million. On November 7, 2013, the parties filed a request to approve a settlement agreement and on February 5, 2014, the parties filed a request to approve a revised settlement agreement. The settlement agreement also includes a claim and a motion to certify the claim as a class action that was filed in a similar matter as set forth in section 2 above. In July 2014 the court approved the settlement agreement and in October 2014 the plaintiffs filed an appeal with the Supreme Court.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

----

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 5.     | On October 5, 2011, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company enables its customers to subscribe to a content back up service for cellular handsets without informing them in cases in which the handset does not support the service or only partially supports such service. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 117 million. In November 2014 the claim was dismissed and in January 2015 the plaintiff filed an appeal with the Supreme Court.                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | 6.     | On February 6, 2012, a claim and a motion to certify the claim as a class action were filed against the Company and other cellular operators. The claim alleges that the Company, as well as the other defendants does not comply with the requirements set by the Equal Rights for People with Disabilities (Accessibility to Telecommunications Services and Telecommunications Devices) Regulations of 2009. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 120 million. The claim is still in its preliminary stage of the motion to be certified as a class action.                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | 7.     | On June 23, 2013, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company acted unlawfully by not offering its customers discounted cellular tariff plans which are offered under the 012 mobile brand and by charging its customers that transferred to a plan under the 012 mobile brand a payment for a new SIM card. If the claim is recognized as a class action, the total amount claimed from Partner is estimated by the plaintiff to be NIS 232 million.  The claim is still in its preliminary stage of the motion to be certified as a class action.                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | 8.     | On November 13, 2013, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company increased tariffs for its subscribers not in accordance with their agreements. If the claim is recognized as a class action, the total amount claimed from Partner is estimated by the plaintiff to be NIS 150 million. The claim is still in its preliminary stage of the motion to be certified as a class action.                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | 9.     | On December 2, 2013, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company did not fulfill its commitment regarding the grant of refunds for cellular equipment starting from the first month of the customer agreement and that the Company unlawfully charged its customers for the Orange2 service, and thereby breached the agreements with its customers and the provisions of its license, and profited unlawfully. If the claim is recognized as a class action, the total amount claimed from Partner is estimated by the plaintiff to be NIS 603 million. The claim is still in its preliminary stage of the motion to be certified as a class action.  |
|   | 10.    | On April 1, 2014, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company charged its customers for cellular internet services abroad not in accordance with the subscriber agreement. If the claim is recognized as a class action, the total amount claimed from Partner is estimated by the plaintiff to be approximately NIS 2 Billion. The claim is still in its preliminary stage of the motion to be certified as a class action.                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | 11.    | On July 15, 2014, a claim and a motion to certify the claim as a class action were filed against the Company and against additional cellular operators and content providers. The claim alleges that the cellular operators, including the Company, breached legal provisions and provisions of their licenses and thereby created a platform that led to the customers' damages alleged in the claim. If the lawsuit is recognized as a class action the total amount claimed against all of the defendants is estimated by the plaintiff to be approximately NIS 300 million. The claim is still in its preliminary stage of the motion to be certified as a class action.                                                              |

----

|   | 1.     | On April 22, 2009, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company charges certain subscribers for certain calls not according to their rate plan. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 187 million. The Parties filed a number of settlement agreements which were submitted for the court's approval and the latest revised settlement agreement was filed on June 12, 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | 2.     | On March 2, 2011, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company increased tariffs for its business subscribers not in accordance with their agreements. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiff to be approximately NIS 139 million. On September 3, 2013, a settlement agreement was signed which was submitted for the court's approval. In November 2013, the plaintiff filed an objection to the settlement agreement and in March 2014 the court approved the settlement agreement.                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | 3.     | On February 15, 2012, a claim and a motion to certify the claim as a class action were filed against 012 Smile and other telecommunication operators. The claim alleges that the defendants misled the purchasers of prepaid calling cards designated for international calls with respect to certain bonus minutes. The total amount claimed against 012 (and against each of the other defendants) if the claim is recognized as a class action is estimated by the plaintiff to be NIS 2.7 billion. On May 26, 2013, the court approved a settlement agreement filed by the parties and regarding an additional lawsuit, dealing with similar issues, as set forth in section 4 below. The parties submitted a revised settlement agreement in December 2014 that was approved by the court in January 2015.                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | 4.     | During 2008, several claims and motions to certify the claims as class actions were filed against several international telephony companies including 012 Smile. The plaintiffs allege that with respect to prepaid calling card services, the defendants misled the consumers regarding certain issues, charged consumers in excess, and formed a cartel that arranged and raised the prices of calling cards. On November 3, 2010, the court granted the plaintiffs' request and certified the lawsuit as a class action against all of the defendants. The total amount of damages claimed by the plaintiff against 012 Smile is approximately NIS 128 million. On May 26, 2013, the court approved a settlement agreement filed by the parties regarding an amended request and regarding an additional lawsuit, dealing with similar issues in an amount of NIS 2.7 billion, as set forth in section 3 above.  The parties submitted a revised settlement agreement in December 2014 that was approved by the court in January 2015. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | 5.     | On January 9, 2012, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company did not comply with the provisions of the Israeli Consumer Protection Law and its license with respect to the manner of handling customer complaints regarding incorrect charges and that as a result the group members suffered non pecuniary damages as a result of anguish and a waste of their time. If the claim had been recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 392 million. The claim was dismissed in February 2015.                                                                                                                                                                                                                                                                                                                                                                             |

----

|   | 1. | On July 14, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner is breaching its contractual and/or legal obligation and/or is acting negligently by charging V.A.T for roaming services that are consumed abroad. If the claim is recognized as a class action, the plaintiff demands to return the total amount of V.A.T that was charged by Partner for roaming services that were consumed abroad The plaintiff also pursues an injunction that will order Partner to stop charging VA.T for roaming services that are consumed abroad. In August 2014 the claim was dismissed and in October 2014 the plaintiff filed an appeal with the Supreme Court. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | On August 21, 2011, a claim and a motion to certify the claim as a class action were filed against the Company and two other cellular operators. The claim alleges that Partner charges its customers for calls executed abroad by rounding up the actual duration of the call based on an interval that differs from that set out in its licenses. If the claim is recognized as a class action, the total amount claimed from Partner is estimated by the plaintiff to be at least the amount within the authority of the District Court in Israel, which is NIS 2.5 million. On September 6, 2012, the court dismissed the claim and the request. In November 2012 the plaintiff submitted an appeal to the Supreme Court in Jerusalem. In January 2015 the appeal was dismissed. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | On August 8, 2012, a claim and a motion to certify the claim as a class action were filed against 012 Smile and another Internet Service Provider to the Central District Court in Israel. The claim alleges that the defendants breached certain provisions of their licenses by not offering their services at a unified tariff to all customers. The total amount claimed against 012 Smile if the lawsuit is recognized as a class action was not stated by the plaintiff. The Company is unable, to evaluate, with any degree of certainty, the probability of success of the lawsuit or the range of potential exposure, if any. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                                                                                                                                                                                                                                                                                                                             |   | NASDAQ      |   |   | Tel Aviv Stock Exchange  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|--------|--------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                             |   | ($ per ADS) |   |   | (NIS per ordinary share) |   |
|                                                                                                                                                                                                                                                                                                                                                             |   | High        |   |   | Low                      |   |   | High |   |   | Low |   |
|                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |
| 2010                                                                     |   |        | 24.13  |   |                     |   | 15.17 |   |   |   | 94.29 |   |   |   | 59.00 |   |
|                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| 2011                                                                     |   |        | 20.62  |   |                     |   | 8.63 |   |   |   | 74.00 |   |   |   | 32.92 |   |
|                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| 2012                                                                                                                                                                                                                                                                                                                                                             |   |        | 9.23   |   |                     |   | 3.12 |   |   |   | 35.35 |   |   |   | 12.37 |   |
|                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| 2013                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| First Quarter                                                            |   |        | 6.30   |   |                     |   | 5.46 |   |   |   | 23.26 |   |   |   | 20.30 |   |
| Second Quarter                                                           |   |        | 7.16   |   |                     |   | 6.06 |   |   |   | 25.53 |   |   |   | 21.99 |   |
| Third Quarter                                                            |   |        | 8.11   |   |                     |   | 6.18 |   |   |   | 29.15 |   |   |   | 22.61 |   |
| Fourth Quarter                                                           |   |        | 9.75   |   |                     |   | 7.82 |   |   |   | 35.00 |   |   |   | 22.87 |   |
|                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| 2014                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| First Quarter                                                                                                                                                                                                                                                                                                                                                    |   |        | 9.41   |   |                     |   | 8.40 |   |   |   | 32.93 |   |   |   | 30.81 |   |
| Second Quarter                                                                                                                                                                                                                                                                                                                                                   |   |        | 9.57   |   |                     |   | 7.81 |   |   |   | 33.10 |   |   |   | 26.89 |   |
| Third Quarter                                                                                                                                                                                                                                                                                                                                                    |   |        | 7.72   |   |                     |   | 6.81 |   |   |   | 27.67 |   |   |   | 24.85 |   |
| Fourth Quarter                                                                                                                                                                                                                                                                                                                                                   |   |        | 7.35   |   |                     |   | 5.05 |   |   |   | 27.33 |   |   |   | 20.14 |   |
|                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| September 2014                                                                                                                                                                                                                                                                                                                                                   |   |        | 7.62   |   |                     |   | 7.05 |   |   |   | 27.67 |   |   |   | 26.23 |   |
| October 2014                                                                                                                                                                                                                                                                                                                                                     |   |        | 7.35   |   |                     |   | 6.51 |   |   |   | 27.33 |   |   |   | 24.97 |   |
| November 2014                                                                                                                                                                                                                                                                                                                                                    |   |        | 6.52   |   |                     |   | 5.81 |   |   |   | 24.95 |   |   |   | 22.55 |   |
| December 2014                                                                                                                                                                                                                                                                                                                                                    |   |        | 6.15   |   |                     |   | 5.05 |   |   |   | 24.06 |   |   |   | 20.14 |   |
| January 2015                                                                                                                                                                                                                                                                                                                                                     |   |        | 4.99   |   |                     |   | 3.29 |   |   |   | 19.54 |   |   |   | 12.22 |   |
| February 2015                                                                                                                                                                                                                                                                                                                                                    |   |        | 3.93   |   |                     |   | 3.25 |   |   |   | 15.91 |   |   |   | 12.66 |   |
| March 2015 (through March 4)                                                       |   |        | 3.85   |   |                     |   | 3.75 |   |   |   | 15.76 |   |   |   | 15.19 |   |

----

----

----

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‎4B.9
Our Network

‎7B.2
Transactions With Scailex

----

----

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| · | General. Israeli law generally imposes a capital gains tax on the sale of capital assets by residents of Israel as defined for Israeli tax purposes, 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 Income Tax Ordinance distinguishes between “Real Capital Gain” and “Inflationary Surplus”. Real Capital Gain is the excess of the total capital gain over Inflationary Surplus computed on the basis of the increase in the CPI between the date of purchase and the date of sale. On 2012 and 2013 the real capital gain accrued on the sale of our Shares was generally taxed at a rate of 25% for corporations (26.5% as of 2014) and a rate of up to 25% for individuals. Additionally, if such individual shareholder is considered a “Significant Shareholder” at any time during the 12-month period preceding such sale (i.e., if such individual shareholder holds directly or indirectly, along with others, at least 10% of any means of control in the company, including, among other things, the right to receive profits of the company, voting rights, the right to receive the company’s liquidation proceeds and the right to appoint a director), the tax rate will be up to 30%. However, the foregoing tax rates will not apply to (i) dealers in securities; and (ii) shareholders who have acquired their shares prior to an initial public offering (that may be subject to a different tax arrangement). Inflationary surplus that accrued after December 31, 1993, is exempt from tax.Generally, a semi-annual detailed return, including a computation of the tax due should be submitted to the Israeli Tax Authorities and a tax advance amounting to the tax liability arising from the capital gain is payable. At the sale of traded securities, the aforementioned detailed return may not be submitted and the tax advance should not be paid, if all tax due was withheld at the source according to applicable provisions of the Israeli Tax Ordinance and regulations promulgated thereunder.Capital gains are also reportable on annual income tax returns. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Taxation of Israeli Residents |
|--------|-------------------------------|

----

| ·              Taxation of Non-Israeli Residents |
|------------------------------------------------------------------------------------------------------------------------|

| ·              Taxation of Investors Engaged in a Business of Trading Securities |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·              Withholding at Source from Capital Gains from Traded Securities |
|------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | 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, any state thereof or the District of Columbia; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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|                                                                 |   | As of December 31, (NIS equivalentin millions, except percentages) |   |
|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                 |   | 2014                                                               |   |   | 2013 |   |
|                                                                 |   | Fair Value                                                         |   |   | Book Value |   |   | Fair Value |   |   | Book Value |   |
|                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |   |
| NIS-denominated debt linked to the CPI (1)                           |   |                                                               |   |   |   |   |   |   |   |   |   |   |
|                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |   |
| Long-term fixed Notes payable series B due 2016                      |   |                                                               | 254    |   |   |   | 243 |   |   |   | 387 |   |   |   | 365 |   |
| Weighted average interest rate payable                               |   |                                                               |   |   |   |   | 3.4 | % |   |   |   |   |   |   | 3.4 | % |
| Long-term fixed Notes payable series C due 2018                      |   |                                                               | 750    |   |   |   | 701 |   |   |   | 766 |   |   |   | 702 |   |
| Weighted average interest rate payable                               |   |                                                               |   |   |   |   | 3.35 | % |   |   |   |   |   |   | 3.35 | % |
| Long-term bank borrowing bearing fixed interest                      |   |                                                               | 557    |   |   |   | 532 |   |   |   | 567 |   |   |   | 532 |   |
| Weighted average interest rate payable                               |   |                                                               |   |   |   |   | 2.75 | % |   |   |   |   |   |   | 2.75 | % |
| Long-term bank borrowing bearing fixed interest                      |   |                                                               | 216    |   |   |   | 199 |   |   |   | 221 |   |   |   | 200 |   |
| Weighted average interest rate payable                               |   |                                                               |   |   |   |   | 3.42 | % |   |   |   |   |   |   | 3.42 | % |
| Other payables (2)                                                   |   |                                                               | 1      |   |   |   | 1 |   |   |   | 1 |   |   |   | 1 |   |
|                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NIS-denominated debt not linked to the CPI                           |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term variable interest Notes payable series D due 2021          |   |                                                               | 538    |   |   |   | 542 |   |   |   | 537 |   |   |   | 541 |   |
| Weighted average interest rate payable                               |   |                                                               |   |   |   |   | 1.82 | % |   |   |   |   |   |   | 2.63 | % |
| Long-term fixed Notes payable series E due 2017                      |   |                                                               | 607    |   |   |   | 556 |   |   |   | 808 |   |   |   | 739 |   |
| Weighted average interest rate payable                               |   |                                                               |   |   |   |   | 5.5 | % |   |   |   |   |   |   | 5.5 | % |
|                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term bank borrowing bearing variable interest (2)               |   |                                                               | 152    |   |   |   | 152 |   |   |   | 152 |   |   |   | 152 |   |
| Weighted average interest rate payable                               |   |                                                               |   |   |   |   | 2.08 | % |   |   |   |   |   |   | 2.83 | % |
| Long-term bank borrowing bearing fixed interest                      |   |                                                               | 176    |   |   |   | 150 |   |   |   | 292 |   |   |   | 250 |   |
| Weighted average interest rate payable                               |   |                                                               |   |   |   |   | 5.70 | % |   |   |   |   |   |   | 5.70 | % |
|  Long-term bank borrowing bearing fixed interest                |   |                                                               | 200    |   |   |   | 200 |   |   |   |   |   |   |   |   |   |
| Weighted average interest rate payable                               |   |                                                               |   |   |   |   | 3 | % |   |   |   |   |   |   |   |   |
|                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade payables and others (2)                                        |   |                                                               | 662    |   |   |   | 662 |   |   |   | 614 |   |   |   | 614 |   |
|                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt denominated in foreign currencies (2)                           |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade payables denominated in USD                                    |   |                                                               | 187    |   |   |   | 187 |   |   |   | 75 |   |   |   | 75 |   |
|                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade payables denominated in other foreign currencies (mainly Euro) |   |                                                               | 46     |   |   |   | 46 |   |   |   | 168 |   |   |   | 168 |   |
|                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                                |   |                                                               | 4,346  |   |   |   | 4,171 |   |   |   | 4,588 |   |   |   | 4,339 |   |

| (1) | Amounts due for payment of principal and interest are adjusted according to the CPI. See “Item ‎‎5B Liquidity and Capital Resources”. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Book value approximates fair value. |
|-----|-------------------------------------|

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Change |   |   | Equity                         |   |   | Profit |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------------------------------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   | New Israeli Shekelsin millions |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |                           |   |   |   |   |
| December 31, 2014                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |                           |   |   |   |   |
| Increase in the CPI of                                                                            |   |   | 2.0    | %      |                           |   | (34    | )      |   |   | (34 | ) |
| Decrease in the CPI of                                                                            |   |   | (2.0   | )%     |                           |   | 34     |   |   |   | 34 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Change |   |   | Equity                         |   |   | Profit |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------------------------------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   | New Israeli Shekelsin millions |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |                           |   |   |   |   |
| December 31, 2014                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |                           |   |   |   |   |
| Increase in the USD of                                                                            |   |   | 10     | %      |                           |   | (27    | )      |   |   | (27 | ) |
| Decrease in the USD of                                                                            |   |   | (10    | )%     |                           |   | 27     |   |   |   | 27 |   |

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|   | · | pertain to the maintenance of our records that in reasonable detail accurately and fairly reflect our transactions during the year; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide reasonable assurance that our transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide reasonable assurance that our receipts and expenditures are made only in accordance with authorizations of our management and Board of Directors (as appropriate); and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | a more complete statement setting forth the values underlying the Code of Ethics; |
|---|-----------------------------------------------------------------------------------|

----

| - | a detailed guide to appropriate behavior toward interested parties, including customers, suppliers, employees, directors, shareholders, franchisers and the community in which the Company operates; |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | the extension of the Code of Ethics to our affiliated companies; and |
|---|----------------------------------------------------------------------|

| - | additional guidance for ensuring compliance with the Code of Ethics. |
|---|----------------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2013           |   |   | 2014           |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|----------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | (NISthousands) |   |   | (NISthousands) |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |           |   |   |           |   |
| Audit Fees (1)                                                                                                 |   |           | 2,112  |   |           |   | 2,329 |   |
| Audit-related Fees (2)                                                                                         |   |           | 293    |   |           |   | 275 |   |
| Tax Fees (3)                                                                                                   |   |           | 329    |   |           |   | 455 |   |
| TOTAL                                                                                                          |   |           | 2,734  |   |           |   | 3,059 |   |

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

| (2) | Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and include consultations concerning financial accounting and reporting standards, as well as the purchase of an accounting data base. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Tax Fees include fees billed for tax compliance services, including the preparation of tax returns and claims for tax refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, and requests for rulings or technical advice from taxing authority. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Exhibit No.               | Description                                                                                                                |
|---------------------------|----------------------------------------------------------------------------------------------------------------------------|
|                      |                                                                                                                       |
| 1.1+>>>          | Articles of Association last updated and approved on April 11, 2013                                                        |
| **1.2                     | Partner’s Certificate of Incorporation                                                                               |
| **1.3                     | Partner’s Memorandum of Association                                                                                  |
| **2.(a).1                 | Form of Share Certificate                                                                                                  |
| ^^2.(a).2                 | Amended and Restated Deposit Agreement Between Partner and the Bank of New York                                            |
| ^^^^2.(a)3                | Amended and Restated Deposit Agreement Between Partner and Citibank N.A.                                                   |
| ^2.(b).1                  | Form of Indenture between Partner and the Trust Company of Union Bank Ltd.                                                 |
| >>>>2.(b).2   | Trust Deed                                                                                                                 |
| >>>>2.(b).3   | Amendment no. 1 to the Trust Deed of November 26, 2009                                                                     |
| ^4.(a).1                  | Restatement of the Relationship Agreement dated April 20, 2005                                                             |
| >>>>4.(a).1.1 | Letter of Undertaking by which Scailex entered into the Restated Relationship Agreement with the Company, October 28, 2009 |

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| +>>4.(a).1.2                                                                                                                                                                                | Letter of Undertaking by which S.B. Israel Telecom entered into the Restated Relationship Agreement with the Company, January 29, 2013                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **4.(a).2                                                                                                                                                                                         | License from the Israeli Ministry of Communications issued April 8, 1998, as amended by the amendments filed with the SEC as exhibits to our annual reports on Form 20-F for each of the years ended December 31, 2000, through December 31, 2010 (the “Amended License”).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **4.(a).4                                                                                                                                                                                         | License Agreement for use of the Orange Brand in Israel dated September 14, 1998                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| #+>4.(a).4.1                                                                                                                                                                                   | Restated Amendment, dated as of January 31, 2012,to the Brand License Agreement dated 14 September 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).9                                                                                                                                                                                         | Lease Agreement with Mivnei Taasia dated July 2, 1998                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ^^^4.(a).13                                                                                                                                                                                       | Asset Purchase Agreement with Med-1 dated as of January 22, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.(a).14-57                                                                                                                                                                                       | [reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| >4.(a).58                                                                                                                                                                                      | Special License from the Israeli Ministry of Communications for the Provision of Fixed-Line Domestic Transmission and Data Communications Services issued August 14, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| >4.(a).59                                                                                                                                                                                      | Amendment No. 1 to Special License for the Provision of Fixed-Line Domestic Transmission and Data Communications Services issued September 10, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| >4.(a).60                                                                                                                                                                                      | Exclusive General License from the Israeli Ministry of Communication for the Provision of Domestic Fixed-Line Telecommunications Services issued January, 15 2007 as amended by the amendments filed with the SEC as exhibits to our annual reports on Form 20-F for each of the years ended December 31, 2006, through December 31, 2009 (the “Amended Domestic Fixed-Line License”).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| #+++4.(a).65                                                                                                                                                                                      | Purchase Agreement with Nortel Networks Israel (Sales and Marketing) Ltd. dated November 12, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| #>>4.(a).67                                                                                                                                                                                 | Swap Agreement with LM Ericsson Israel Ltd. dated December 20, 2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| #4.(a).68                                                                                                                                                                                         | [reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| #>>>>4.(a).69                                                                                                                                                                         | Facility Agreement dated November 24, 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| #4.(a).70                                                                                                                                                                                         | [reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| #4.(a).71                                                                                                                                                                                         | [reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| >>>>>4.(a) 72                                                                                                                                                                      | 012 Smile Share Purchase Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| >>>>>4.(a) 73                                                                                                                                                                      | English translation of the original Hebrew language 012 Smile Credit Facility, dated January 31, 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.(a).74-84                                                                                                                                                                                       | [reserved]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.(a).85+>>>4.(a).86+>>>4.(a).87+>>>4.(a).88+>>>4.(a).89+>>>4. 4.(a).904. 4.(a).914. 4.(a).924. 4.(a).934. 4.(a).944. 4.(a).954. 4.(a).964. 4.(a).97 | Amendment No. 69 to our License from the Israeli Ministry of CommunicationsAmendment No. 70 to our License from the Israeli Ministry of CommunicationsAmendment No. 71 to our License from the Israeli Ministry of CommunicationsAmendment No. 72 to our License from the Israeli Ministry of CommunicationsAmendment No. 73 to our License from the Israeli Ministry of CommunicationsAmendment No. 74 to our License from the Israeli Ministry of CommunicationsAmendment No. 75 to our License from the Israeli Ministry of CommunicationsAmendment No. 76 to our License from the Israeli Ministry of CommunicationsAmendment No. 77 to our License from the Israeli Ministry of CommunicationsAmendment No. 78 to our License from the Israeli Ministry of CommunicationsAmendment No. 79 to our License from the Israeli Ministry of CommunicationsAmendment No. 80 to our License from the Israeli Ministry of CommunicationsAmendment No. 81 to our License from the Israeli Ministry of Communications |
| #>>>>4.(b).1                                                                                                                                                                          | Addendum to Lease Agreements from November 1, 2002 and Lease Agreements in Beit Ofek                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| >>>>4.(b).2                                                                                                                                                                           | Registration Rights Agreement with Scailex                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.(b).3+>>>                                                                                                                                                                              | Registration Rights Agreement with S.B. Israel Telecom Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

----

| +>>6.           | See Note 2x to the consolidated financial statements for information explaining how earnings (loss) per share information was calculated.                                               |
|-----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 8.                    | List of Subsidiaries (see “Item 4C – Organizational Structure”).                                                                                                      |
| 10.1                  | Consent of Kesselman & Kesselman                                                                                                                                                    |
| 10.2                  | Consent of Giza Singer Even Ltd.                                                                                                                                                        |
| 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                                                   |
| 15.(a).1              | 2004 Equity Incentive Plan as approved by the Board of Directors on June 18, 2014                                                                                                  |
| 15.(b).1+>>> | Compensation Policy adopted on October 17, 2013 (incorporated by reference to Exhibit C from the Company's Current Report on Form 6-K (file No. 001-14968) filed on September 12, 2013) |

----

| **                     | 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, 2002.                                                                                                         |
| +++                    | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2003.                                                                                                         |
| ^                      | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2004.                                                                                                         |
| ^^                     | Incorporated by reference to our registration statement on Form F-6 (No. 333-132680).                                                                                                                            |
| ^^^                    | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2005.                                                                                                         |
| ^^^^                   | Incorporated by reference to our registration statement on Form F-6 (No. 333-177621).                                                                                                                            |
| >                   | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2006.                                                                                                         |
| >>               | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2007.                                                                                                         |
| >>>>       | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2009.                                                                                                         |
| >>>>>   | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2010.                                                                                                         |
| +>                  | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2011.                                                                                                         |
| +>>+>>> | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2012.Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2013. |
| #                      | Confidential treatment requested.                                                                                                                                                                                |

----

|   | Partner Communications Company Ltd. |
|--------|-------------------------------------|
|   |                                |   |
|   | By: /s/ Haim Romano                 |   |
|   |                                |   |
|   | Chief Executive Officer             |   |
|   |                                |   |
|   | March 11, 2015                      |   |
|   |                                |   |
|   | By: /s/ Ziv Leitman                 |   |
|   |                                |   |
|   | Chief Financial Officer             |   |
|   |                                |   |
|   | March 11, 2015                      |   |

----

----

|                                                                                         | Page            |
|----------------------------------------------------------------------------------------------|-----------------|
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                      | F - 3           |
| CONSOLIDATED FINANCIAL STATEMENTS:                                                           |            |
| Statements of Financial Position as of December 31, 2013 and 2014                            | F - 4 - F - 5   |
| Statements of Income for the years ended December 31, 2012, 2013 and 2014               | F - 6           |
| Statements of Comprehensive Income for the years ended December 31, 2012, 2013 and 2014 | F - 7           |
| Statements of Changes in Equity for the years ended December 31, 2012, 2013 and 2014    | F - 8           |
| Statements of Cash Flows for the years ended December 31, 2012, 2013 and 2014           | F - 9 - F - 10  |
| Notes to financial statements                                                                | F - 11 - F - 79 |

----

REPORT OF INDEPENDENT REGISTERD PUBLIC ACCOUNTING FIRM

PARTNER COMMUNICATIONS COMPANY LTD.

| Tel-Aviv, IsraelMarch 10, 2015    | /s/  Kesselman & Kesselman                                                            Certified Public Accountants (Isr.)A member firm of PriceWaterhouseCoopers International Limited |
|--------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

PARTNER COMMUNICATIONS COMPANY LTD.

|                                   |   |   |   |   | New Israeli Shekels |   |   | Convenience translation into U.S. dollars(note 2b3) |   |
|----------------------------------------|--------|--------|--------|--------|---------------------|--------|--------|-----------------------------------------------------|--------|
|                                   |   |   |   |   | December 31,        |   |
|                                   |   |   |   |   | 2013                |   |   | 2014                                                |   |   | 2014 |   |
|                                   |   | Note   |   |   | In millions         |   |
| CURRENT ASSETS                         |   |   |   |   |                |   |   |                                                |   |   |   |   |
| Cash and cash equivalents              |   |   |   |   |                | 481    |   |                                                |   | 663 |   |   |   | 170 |   |
| Trade receivables                      |   | 7      |   |   |                | 1,051  |   |                                                |   | 948 |   |   |   | 244 |   |
| Other receivables and prepaid expenses |   |   |   |   |                | 45     |   |                                                |   | 34 |   |   |   | 9 |   |
| Deferred expenses – right of use |   | 11     |   |   |                | 28     |   |                                                |   | 34 |   |   |   | 9 |   |
| Inventories                            |   | 8      |   |   |                | 93     |   |                                                |   | 138 |   |   |   | 35 |   |
| Income tax receivable                  |   |   |   |   |                | 3      |   |                                                |   | * |   |   |   | * |   |
| Derivative financial instruments       |   | 6      |   |   |                | 2      |   |                                                |   | * |   |   |   | * |   |
|                                   |   |   |   |   |                | 1,703  |   |                                                |   | 1,817 |   |   |   | 467 |   |
|                                   |   |   |   |   |                |   |   |                                                |   |   |   |   |   |   |   |
| NON CURRENT ASSETS                     |   |   |   |   |                |   |   |                                                |   |   |   |   |   |   |   |
| Trade receivables                      |   | 7      |   |   |                | 289    |   |                                                |   | 418 |   |   |   | 107 |   |
| Deferred expenses – right of use |   | 11     |   |   |                | 118    |   |                                                |   | 97 |   |   |   | 25 |   |
| Property and equipment                 |   | 9      |   |   |                | 1,791  |   |                                                |   | 1,661 |   |   |   | 427 |   |
| Licenses and other intangible assets   |   | 10     |   |   |                | 1,167  |   |                                                |   | 1,079 |   |   |   | 277 |   |
| Goodwill                               |   | 12     |   |   |                | 407    |   |                                                |   | 407 |   |   |   | 105 |   |
| Deferred income tax asset              |   | 23     |   |   |                | 12     |   |                                                |   | 14 |   |   |   | 4 |   |
| Prepaid expenses                       |   |   |   |   |                |   |   |                                                |   | 3 |   |   |   | 1 |   |
|                                   |   |   |   |   |                | 3,784  |   |                                                |   | 3,679 |   |   |   | 946 |   |
|                                   |   |   |   |   |                |   |   |                                                |   |   |   |   |   |   |   |
| TOTAL ASSETS                           |   |   |   |   |                | 5,487  |   |                                                |   | 5,496 |   |   |   | 1,413 |   |

|                    |   |                    |   |                      |
|-------------------------|--------|-------------------------|--------|---------------------------|
| Haim Romano             |   | Ziv Leitman             |   | Barry Ben-Zeev (Woolfson) |
| Chief Executive Officer |   | Chief Financial Officer |   | Director                  |
|                    |   |                    |   |                      |

----

|                                                                                                                                                                                           |   |   |   |   |   New Israeli Shekels |   |   | Convenience translation into U.S. dollars(note 2b3) |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|---------------------------------|--------|--------|-----------------------------------------------------|--------|
|                                                                                                                                                                                           |   |   |   |   | December 31,                    |   |
|                                                                                                                                                                                           |   |   |   |   | 2013                            |   |   | 2014                                                |   |   | 2014 |   |
|                                                                                                                                                                                           |   | Note   |   |   | In millions                     |   |
| CURRENT LIABILITIES                                                                                                                                                                            |   |   |   |   |                            |   |   |                                                |   |   |   |   |
| Current maturities of notes payable and bank borrowings                                                                                                                                        |   | 6,14   |   |   |                            | 334    |   |                                                |   | 309 |   |   |   | 79 |   |
| Trade payables                                                                                                                                                                                 |   |   |   |   |                            | 761    |   |                                                |   | 804 |   |   |   | 206 |   |
| Payables in respect of employees                                                                                                                                                               |   |   |   |   |                            | 98     |   |                                                |   | 95 |   |   |   | 24 |   |
| Other payables (mainly institutions)                                                                                                                                                           |   |   |   |   |                            | 45     |   |                                                |   | 43 |   |   |   | 11 |   |
| Income tax payable                                                                                                                                                                             |   |   |   |   |                            | 31     |   |                                                |   | 38 |   |   |   | 10 |   |
| Deferred revenues                                                                                                                                                                              |   |   |   |   |                            | 37     |   |                                                |   | 35 |   |   |   | 9 |   |
| Provisions                                                                                                                                                                                     |   | 13     |   |   |                            | 67     |   |                                                |   | 58 |   |   |   | 15 |   |
| Derivative financial instruments                                                                                                                                                               |   | 6      |   |   |                            | 1      |   |                                                |   | 3 |   |   |   | 1 |   |
|                                                                                                                                                                                           |   |   |   |   |                            | 1,374  |   |                                                |   | 1,385 |   |   |   | 355 |   |
|                                                                                                                                                                                           |   |   |   |   |                            |   |   |                                                |   |   |   |   |   |   |   |
| NON CURRENT LIABILITIES                                                                                                                                                                        |   |   |   |   |                            |   |   |                                                |   |   |   |   |   |   |   |
| Notes payable                                                                                                                                                                                  |   | 6,14   |   |   |                            | 2,038  |   |                                                |   | 1,733 |   |   |   | 446 |   |
| Bank borrowings                                                                                                                                                                                |   | 6,14   |   |   |                            | 1,109  |   |                                                |   | 1,233 |   |   |   | 317 |   |
| Liability for employee rights upon retirement, net                                                                                                                                             |   | 15     |   |   |                            | 45     |   |                                                |   | 51 |   |   |   | 13 |   |
| Dismantling and restoring sites obligation                                                                                                                                                     |   | 13     |   |   |                            | 31     |   |                                                |   | 35 |   |   |   | 9 |   |
| Other non-current liabilities                                                                                                                                                                  |   |   |   |   |                            | 16     |   |                                                |   | 16 |   |   |   | 4 |   |
| Deferred income tax liability                                                                                                                                                                  |   | 23     |   |   |                            | *      |   |                                                |   | 4 |   |   |   | 1 |   |
|                                                                                                                                                                                           |   |   |   |   |                            | 3,239  |   |                                                |   | 3,072 |   |   |   | 790 |   |
|                                                                                                                                                                                           |   |   |   |   |                            |   |   |                                                |   |   |   |   |   |   |   |
| TOTAL LIABILITIES                                                                                                                                                                              |   |   |   |   |                            | 4,613  |   |                                                |   | 4,457 |   |   |   | 1,145 |   |
|                                                                                                                                                                                           |   |   |   |   |                            |   |   |                                                |   |   |   |   |   |   |   |
| EQUITY                                                                                                                                                                                         |   | 19     |   |   |                            |   |   |                                                |   |   |   |   |   |   |   |
| Share capital - ordinary shares of NIS 0.01    par value: authorized - December 31, 2013    and 2014 - 235,000,000 shares;    issued and outstanding - |   |   |   | 2      |                            |   |   | 2                                                   |   |   |   | 1 |   |
| December 31, 2013 – **155,687,002 shares                                                                                                                                                 |   |   |   |   |                            |   |   |                                                |   |   |   |   |   |
| December 31, 2014 – ­**156,072,945 shares                                                                                                                                           |   |   |   |   |                            |   |   |                                                |   |   |   |   |   |
| Capital surplus                                                                                                                                                                                |   |   |   |   |                            | 1,100  |   |                                                |   | 1,102 |   |   |   | 283 |   |
| Accumulated retained earnings                                                                                                                                                                  |   |   |   |   |                            | 123    |   |                                                |   | 286 |   |   |   | 74 |   |
| Treasury shares, at cost - December 31, 2013 and 2014 - 4,467,990 shares                                                                                                                  |   |   |   | (351   | )                               |   |   | (351                                                | )      |   |   | (90 | ) |
| TOTAL EQUITY                                                                                                                                                                                   |   |   |   |   |                            | 874    |   |                                                |   | 1,039 |   |   |   | 268 |   |
| TOTAL LIABILITIES AND EQUITY                                                                                                                                                                   |   |   |   |   |                            | 5,487  |   |                                                |   | 5,496 |   |   |   | 1,413 |   |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|                                |   |   |   |   |                                    |   |   |       |   |   |   |   |   | Convenience       |   |
|-------------------------------------|--------|--------|--------|--------|-----------------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|-------------------|--------|
|                                |   |   |   |   |                                    |   |   |       |   |   |   |   |   | translation       |   |
|                                |   |   |   |   |                                    |   |   |       |   |   |   |   |   | into U.S. dollars |   |
|                                |   |   |   |   | New Israeli Shekels                     |   |   | (note 2b3) |   |
|                                |   |   |   |   | Year ended December 31                  |   |
|                                |   |   |   |   | 2012                                    |   |   | 2013       |   |   | 2014   |   |   | 2014              |   |
|                                |   | Note   |   |   | In millions (except earnings per share) |   |
| Revenues, net                       |   | 5      |   |   |                                    | 5,572  |   |       |   | 4,519  |   |   |   | 4,400             |   |   |   | 1,131 |   |
| Cost of revenues                    |   | 5, 20  |   |   |                                    | 4,031  |   |       |   | 3,510  |   |   |   | 3,419             |   |   |   | 879 |   |
| Gross profit                        |   |   |   |   |                                    | 1,541  |   |       |   | 1,009  |   |   |   | 981               |   |   |   | 252 |   |
|                                |   |   |   |   |                                    |   |   |       |   |   |   |   |   |              |   |   |   |   |   |
| Selling and marketing expenses      |   | 20     |   |   |                                    | 551    |   |       |   | 462    |   |   |   | 438               |   |   |   | 112 |   |
| General and administrative expenses |   | 20     |   |   |                                    | 236    |   |       |   | 217    |   |   |   | 193               |   |   |   | 50 |   |
| Other income, net                   |   | 21     |   |   |                                    | 111    |   |       |   | 79     |   |   |   | 50                |   |   |   | 13 |   |
| Operating profit                    |   |   |   |   |                                    | 865    |   |       |   | 409    |   |   |   | 400               |   |   |   | 103 |   |
| Finance income                      |   | 22     |   |   |                                    | 21     |   |       |   | 29     |   |   |   | 3                 |   |   |   | 1 |   |
| Finance expenses                    |   | 22     |   |   |                                    | 255    |   |       |   | 240    |   |   |   | 162               |   |   |   | 42 |   |
| Finance costs, net                  |   | 22     |   |   |                                    | 234    |   |       |   | 211    |   |   |   | 159               |   |   |   | 41 |   |
| Profit before income tax            |   |   |   |   |                                    | 631    |   |       |   | 198    |   |   |   | 241               |   |   |   | 62 |   |
| Income tax expenses                 |   | 23     |   |   |                                    | 153    |   |       |   | 63     |   |   |   | 79                |   |   |   | 20 |   |
| Profit for the year                 |   |   |   |   |                                    | 478    |   |       |   | 135    |   |   |   | 162               |   |   |   | 42 |   |
|                                |   |   |   |   |                                    |   |   |       |   |   |   |   |   |              |   |   |   |   |   |
| Earnings per share                  |   |   |   |   |                                    |   |   |       |   |   |   |   |   |              |   |   |   |   |   |
|                                |   |   |   |   |                                    |   |   |       |   |   |   |   |   |              |   |   |   |   |   |
| Basic                               |   | 25     |   |   |                                    | 3.07   |   |       |   | 0.87   |   |   |   | 1.04              |   |   |   | 0.27 |   |
| Diluted                             |   | 25     |   |   |                                    | 3.07   |   |       |   | 0.86   |   |   |   | 1.04              |   |   |   | 0.27 |   |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|                                                                                                 |   |   |   |   |    New Israeli Shekels |   |   | Convenience translation into U.S. dollars(note 2b3) |   |
|------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|---------------------------------------|--------|--------|-----------------------------------------------------|--------|
|                                                                                                 |   |   |   |   | Year ended December 31                |   |
|                                                                                                 |   |   |   |   | 2012                                  |   |   | 2013                                                |   |   | 2014 |   |   | 2014 |   |
|                                                                                                 |   | Note   |   |   | In millions                           |   |
| Profit for the year                                                                                  |   |   |   |   |                                  | 478    |   |                                                |   | 135 |   |   |   | 162 |   |   |   | 42 |   |
| Other comprehensive losses, items that will     not be reclassified to profit or loss |   |   |   |   |                                  |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| Remeasurements of post-employment benefit obligations                                                |   | 15     |   |   |                                  | (17    | )      |                                                |   | (9 | ) |   |   | (9 | ) |   |   | (2 | ) |
| Income taxes relating to remeasurements of post-employment benefit obligations                       |   | 23     |   |   |                                  | 4      |   |                                                |   | 2 |   |   |   | 2 |   |   |   | * |   |
| Other comprehensive losses     for the year, net of income taxes            |   |   |   |   |                                  | (13    | )      |                                                |   | (7 | ) |   |   | (7 | ) |   |   | (2 | ) |
|                                                                                                 |   |   |   |   |                                  |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL COMPREHENSIVE INCOME FOR THE YEAR                                                              |   |   |   |   |                                  | 465    |   |                                                |   | 128 |   |   |   | 155 |   |   |   | 40 |   |
|                                                                                                 |   |   |   |   |                                  |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|                                                       |   |   |   |   | Share capital |        |   |                     |   |   |    |   |   |               |   |   |     |   |
|------------------------------------------------------------|--------|--------|--------|--------|---------------|-------------|--------|--------------------------|--------|--------|---------|--------|--------|--------------------|--------|--------|----------|--------|
|                                                       |   |   |   |   | Number of     |        |   |                     |   |   | Capital |   |   | Accumulated        |   |   | Treasury |   |   |   |   |
|                                                       |   |   |   |   | Shares**      |        |   | Amount                   |   |   | surplus |   |   | earnings (deficit) |   |   | shares   |   |   | Total |   |
|                                                       |   | Note   |   |   |          |        |   | I n m i l l i o n s |   |
| New Israeli  Shekels:                            |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     |   |   |   |   |
| BALANCE AT JANUARY 1, 2012                                 |   |   |   |   |          | 155,645,708 |   |                     |   | 2      |    |   |   | 1,100              |   |   |     | (326   | ) |   |   | (351 | ) |   |   | 425 |   |
|                                                       |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   |   |
| CHANGES DURING THE YEAR ENDED DECEMBER 31, 2012            |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year                    |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     | 465    |   |   |   |   |   |   |   | 465 |   |
| Employee share-based compensation expenses                 |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     | 11     |   |   |   |   |   |   |   | 11 |   |
| Dividend                                                   |   | 19     |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     | (160   | ) |   |   |   |   |   |   | (160 | ) |
| BALANCE AT DECEMBER 31, 2012                               |   |   |   |   |          | 155,645,708 |   |                     |   | 2      |    |   |   | 1,100              |   |   |     | (10    | ) |   |   | (351 | ) |   |   | 741 |   |
|                                                       |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   |   |
| CHANGES DURING THE YEAR ENDED DECEMBER 31, 2013            |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year                    |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     | 128    |   |   |   |   |   |   |   | 128 |   |
| Exercise of options granted to employees                   |   |   |   |   |          | 41,294      |   |                     |   | *      |    |   |   | *                  |   |   |     |   |   |   |   |   |   |   |   | * |   |
| Employee share-based compensation expenses                 |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     | 5      |   |   |   |   |   |   |   | 5 |   |
|      BALANCE AT DECEMBER 31, 2013 |   |   |   |   |          | 155,687,002 |   |                     |   | 2      |    |   |   | 1,100              |   |   |     | 123    |   |   |   | (351 | ) |   |   | 874 |   |
|                                                       |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   |   |
| CHANGES DURING THE YEAR ENDED DECEMBER 31, 2014            |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year                    |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     | 155    |   |   |   |   |   |   |   | 155 |   |
| Exercise of options granted to employees                   |   |   |   |   |          | 385,943     |   |                     |   | *      |    |   |   | 2                  |   |   |     |   |   |   |   |   |   |   |   | 2 |   |
| Employee share-based compensation expenses                 |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     | 8      |   |   |   |   |   |   |   | 8 |   |
| BALANCE AT DECEMBER 31, 2014                               |   |   |   |   |          | 156,072,945 |   |                     |   | 2      |    |   |   | 1,102              |   |   |     | 286    |   |   |   | (351 | ) |   |   | 1,039 |   |
|                                                       |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   |   |
| Convenience translation into U.S. Dollars (note 2b3):      |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   |   |
| BALANCE AT JANUARY 1, 2014                                 |   |   |   |   |          | 155,687,002 |   |                     |   | 1      |    |   |   | 282                |   |   |     | 32     |   |   |   | (90 | ) |   |   | 225 |   |
| CHANGES DURING THE YEAR ENDED DECEMBER 31, 2014            |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year                    |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     | 40     |   |   |   |   |   |   |   | 40 |   |
| Exercise of options granted to employees                   |   |   |   |   |          | 385,943     |   |                     |   | *      |    |   |   | 1                  |   |   |     |   |   |   |   |   |   |   |   | 1 |   |
| Employee share-based compensation expenses                 |   |   |   |   |          |        |   |                     |   |   |    |   |   |               |   |   |     | 2      |   |   |   |   |   |   |   | 2 |   |
| BALANCE AT DECEMBER 31, 2014                               |   |   |   |   |          | 156,072,945 |   |                     |   | 1      |    |   |   | 283                |   |   |     | 74     |   |   |   | (90 | ) |   |   | 268 |   |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|                                                                          |   |   |   |   | New Israeli Shekels    |   |   | Convenience translation into U.S. dollars(note 2b3) |   |
|-------------------------------------------------------------------------------|--------|--------|--------|--------|------------------------|--------|--------|-----------------------------------------------------|--------|
|                                                                          |   |   |   |   | Year ended December 31 |   |
|                                                                          |   |   |   |   | 2012                   |   |   | 2013                                                |   |   | 2014 |   |   | 2014 |   |
|                                                                          |   | Note   |   |   | In millions            |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                         |   |   |   |   |                   |   |   |                                                |   |   |   |   |   |   |   |
| Cash generated from operations (Appendix)                                     |   |   |   |   |                   | 1,858  |   |                                                |   | 1,548 |   |   |   | 1,017 |   |   |   | 261 |   |
| Income tax paid                                                               |   | 23     |   |   |                   | (153   | )      |                                                |   | (9 | ) |   |   | (66 | ) |   |   | (17 | ) |
| Net cash provided by operating activities                                     |   |   |   |   |                   | 1,705  |   |                                                |   | 1,539 |   |   |   | 951 |   |   |   | 244 |   |
|                                                                          |   |   |   |   |                   |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                         |   |   |   |   |                   |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| Acquisition of property and equipment                                         |   | 9      |   |   |                   | (367   | )      |                                                |   | (326 | ) |   |   | (287 | ) |   |   | (74 | ) |
| Acquisition of intangible assets                                              |   | 10     |   |   |                   | (133   | )      |                                                |   | (156 | ) |   |   | (145 | ) |   |   | (37 | ) |
| Interest received                                                             |   | 22     |   |   |                   | 9      |   |                                                |   | 8 |   |   |   | 4 |   |   |   | 1 |   |
| Proceeds from sale of property and equipment                                  |   | 21     |   |   |                   | 2      |   |                                                |   | 1 |   |   |   | 1 |   |   |   | * |   |
| Proceeds from (repayment of)  derivative financial instruments, net |   | 6      |   |   |                   | 18     |   |                                                |   | (25 | ) |   |   | (4 | ) |   |   | (1 | ) |
| Net cash used in investing activities                                         |   |   |   |   |                   | (471   | )      |                                                |   | (498 | ) |   |   | (431 | ) |   |   | (111 | ) |
|                                                                          |   |   |   |   |                   |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                         |   |   |   |   |                   |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from exercise of stock options granted to employees                  |   | 19     |   |   |                   |   |   |                                                |   | * |   |   |   | 2 |   |   |   | 1 |   |
| Dividend paid                                                                 |   | 19     |   |   |                   | (167   | )      |                                                |   |   |   |   |   |   |   |   |   |   |   |
| Repayment of finance lease                                                    |   |   |   |   |                   | (2     | )      |                                                |   | (1 | ) |   |   |   |   |   |   |   |   |
| Interest paid                                                                 |   | 22     |   |   |                   | (200   | )      |                                                |   | (181 | ) |   |   | (131 | ) |   |   | (34 | ) |
| Non-current bank borrowings received                                          |   | 6,14   |   |   |                   |   |   |                                                |   |   |   |   |   | 200 |   |   |   | 51 |   |
| Repayment of non-current bank borrowings                                      |   | 6,14   |   |   |                   | (455   | )      |                                                |   | (617 | ) |   |   | (100 | ) |   |   | (26 | ) |
| Repayment of notes payable                                                    |   | 6,14   |   |   |                   | (394   | )      |                                                |   | (309 | ) |   |   | (309 | ) |   |   | (79 | ) |
| Net cash used in financing activities                                         |   |   |   |   |                   | (1,218 | )      |                                                |   | (1,108 | ) |   |   | (338 | ) |   |   | (87 | ) |
|                                                                          |   |   |   |   |                   |   |   |                                                |   |   |   |   |   |   |   |   |   |   |   |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              |   |   |   |   |                   | 16     |   |                                                |   | (67 | ) |   |   | 182 |   |   |   | 46 |   |
| CASH AND CASH EQUIVALENTS ATBEGINNING OF YEAR                                 |   |   |   |   |                   | 532    |   |                                                |   | 548 |   |   |   | 481 |   |   |   | 124 |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                      |   |   |   |   |                   | 548    |   |                                                |   | 481 |   |   |   | 663 |   |   |   | 170 |   |

----

|                                                     |   |   |   |   |   New Israeli Shekels |   |   | Convenience translation intoU.S. dollars(note 2b3) |   |
|----------------------------------------------------------|--------|--------|--------|--------|---------------------------------|--------|--------|----------------------------------------------------|--------|
|                                                     |   |   |   |   | Year ended December 31,    |   |
|                                                     |   |   |   |   | 2012                            |   |   | 2013                                               |   |   | 2014 |   |   | 2014 |   |
|                                                     |   | Note   |   |   | In millions                     |   |
|                                                     |   |   |   |   |                            |   |   |                                               |   |   |   |   |   |   |   |
| Cash generated from operations:                          |   |   |   |   |                            |   |   |                                               |   |   |   |   |   |   |   |
| Profit for the year                                      |   |   |   |   |                            | 478    |   |                                               |   | 135 |   |   |   | 162 |   |   |   | 42 |   |
|                                                     |   |   |   |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |
|     Adjustments for:                 |   |   |   |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                            |   | 9, 10  |   |   |                            | 700    |   |                                               |   | 669 |   |   |   | 652 |   |   |   | 168 |   |
| Amortization of deferred expenses- Right of use          |   | 11     |   |   |                            | 26     |   |                                               |   | 31 |   |   |   | 37 |   |   |   | 10 |   |
| Employee share based compensation expenses               |   | 19     |   |   |                            | 11     |   |                                               |   | 5 |   |   |   | 8 |   |   |   | 2 |   |
| Liability for employee rights upon retirement, net       |   | 15     |   |   |                            | (12    | )      |                                               |   | (14 | ) |   |   | (3 | ) |   |   | (1 | ) |
| Finance costs, net                                       |   | 22     |   |   |                            | 38     |   |                                               |   | 49 |   |   |   | 4 |   |   |   | 1 |   |
| Change in fair value of derivative financial instruments |   | 6      |   |   |                            | 15     |   |                                               |   | 12 |   |   |   | 7 |   |   |   | 2 |   |
| Interest paid                                            |   | 22     |   |   |                            | 200    |   |                                               |   | 181 |   |   |   | 131 |   |   |   | 34 |   |
| Interest received                                        |   | 22     |   |   |                            | (9     | )      |                                               |   | (8 | ) |   |   | (4 | ) |   |   | (1 | ) |
| Deferred income taxes                                    |   | 23     |   |   |                            | (10    | )      |                                               |   | 17 |   |   |   | 4 |   |   |   | 1 |   |
| Income tax paid                                          |   | 23     |   |   |                            | 153    |   |                                               |   | 9 |   |   |   | 66 |   |   |   | 17 |   |
| Capital loss (gain) from property and equipment          |   | 9      |   |   |                            | *      |   |                                               |   | (1 | ) |   |   | (1 | ) |   |   | * |   |
| Changes in operating assets and liabilities:             |   |   |   |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |
| Decrease (increase) in accounts receivable:              |   |   |   |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |
| Trade                                                    |   | 7      |   |   |                            | 467    |   |                                               |   | 566 |   |   |   | (26 | ) |   |   | (7 | ) |
| Other                                                    |   |   |   |   |                            | (5     | )      |                                               |   | 2 |   |   |   | 8 |   |   |   | 2 |   |
| Increase (decrease) in accounts payable and accruals:    |   |   |   |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |
| Parent group - trade                                     |   | 24     |   |   |                            | (72    | )      |                                               |   |   |   |   |   |   |   |   |   |   |   |
| Trade                                                    |   |   |   |   |                            | (107   | )      |                                               |   | (115 | ) |   |   | 44 |   |   |   | 10 |   |
| Other payables                                           |   |   |   |   |                            | (44    | )      |                                               |   | (17 | ) |   |   | (4 | ) |   |   | (1 | ) |
| Provisions                                               |   | 13     |   |   |                            | (5     | )      |                                               |   | 7 |   |   |   | (9 | ) |   |   | (2 | ) |
| Deferred revenues                                        |   |   |   |   |                            | (11    | )      |                                               |   | (3 | ) |   |   | (2 | ) |   |   | (1 | ) |
| Increase in deferred expenses - Right of use             |   | 11     |   |   |                            | (25    | )      |                                               |   | (17 | ) |   |   | (22 | ) |   |   | (6 | ) |
| Current income tax liability                             |   | 23     |   |   |                            | 5      |   |                                               |   | 35 |   |   |   | 10 |   |   |   | 3 |   |
| Decrease (increase) in inventories                       |   | 8      |   |   |                            | 65     |   |                                               |   | 5 |   |   |   | (45 | ) |   |   | (12 | ) |
| Cash generated from operations:                          |   |   |   |   |                            | 1,858  |   |                                               |   | 1,548 |   |   |   | 1,017 |   |   |   | 261 |   |
|                                                     |   |   |   |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |

----

PARTNER COMMUNICATIONS COMPANY LTD.

|   | a. | Reporting entity |
|--------|----|------------------|

|   | b. | Operating segments |
|--------|----|--------------------|

|   | (1) | Cellular segment |
|--------|-----|------------------|

----

|   | b. | Operating segments (continued) |
|--------|----|--------------------------------|

|   |   |
|--------|--------|

|   | (2) | Fixed-line segment |
|--------|-----|--------------------|

|   | (1) | In November 2014, the Ministry of Communications published a decision of the Minister of Communications regarding regulation of the wholesale market for broadband fixed-line telecommunications services - defining a format for the supply of wholesale services and setting a tariff for the supply of these services. Within this framework, the Minister decided to amend the licenses of the infrastructure owners – Bezeq The Israeli Telecommunication Corp. Ltd. (“Bezeq”) and HOT Telecom Ltd. (“Hot”) - and to prescribe the service portfolio - managed broadband access and wholesale telephony service. The regulations attached to the Minister’s decision prescribe the obligation to supply the wholesale services, including ancillary services, as well as maximum tariffs (requiring the approval of the Minister of Finance) for the said wholesale services. In February 2015 a regulation came into effect according to which each of the infrastructure owners - Bezeq and Hot are required to allow use of their broadband fixed-line infrastructure by telecommunication providers that do not have a broadband fixed-line infrastructure. This regulation will allow telecommunication providers that do not have a broadband fixed-line infrastructure, including the Company and its subsidiaries, to offer internet access in one transaction (without requiring the subscriber to engage with both an internet access provider and an infrastructure provider). |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | d. | Network sharing agreement and right of use |
|--------|----|--------------------------------------------|

|   | On November 8, 2013 the Company and Hot Mobile Ltd ("Hot Mobile") have entered into a 15-year network sharing agreement (“NSA”), which was approved by the Antitrust Commissioner as described below, and remains subject to approval by the Ministry of Communications. Pursuant to the NSA, the parties created a 50-50 joint venture ("JV") in the form of a limited partnership - P.H.I. Networks (2015) Limited Partnership, which will operate and develop a radio access network to be shared by both parties, starting with a pooling of both parties' radio   access network infrastructures to create a single shared pooled radio access network (the "Shared Network"). The parties have also established a 50-50 company limited by shares under the name Net 4 P.H.I Ltd., to be the general partner of the limited partnership. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | d. | Network sharing agreement and right of use (continued) |
|--------|----|--------------------------------------------------------|

|   | e. | Group licenses |
|--------|----|----------------|

|   | Type of services | Area of service | License owner                                                   | Granted by | Valid through | Guarantees made                 |
|--------|------------------|-----------------|-----------------------------------------------------------------|------------|---------------|---------------------------------|
| (1)    | Cellular         | Israel          | Partner Communications Company Ltd.                             | MOC        | Feb 1, 2022   | USD 10 million + NIS 10 million |
| (2)    | Cellular         | West Bank       | Partner Communications Company Ltd.                             | CA         | Feb 1, 2022   | USD 0.5 million                 |
| (3)    | ISP              | Israel          | Partner Communications Company Ltd.                             | MOC        | Mar 30, 2018  |                            |
| (4)    | ISP              | West Bank       | Partner Communications Company Ltd.                             | CA         | Mar 30, 2018  |                            |
| (5)    | ISP              | Israel          | 012 Smile Telecom Ltd.                                          | MOC        | Mar 31, 2015  |                            |
| (6)    | ISP              | West Bank       | 012 Smile Telecom Ltd.                                          | CA         | Feb 21, 2016  |                            |
| (7)    | ILD              | Israel          | 012 Smile Telecom Ltd.                                          | MOC        | Nov 15, 2029  | NIS 10.8 million                |
| (8)    | ILD              | West Bank       | 012 Smile Telecom Ltd.                                          | CA         | Feb 21, 2018  | NIS 0.6 million                 |
| (9)    | VOB and PRI      | Israel          | 012 Telecom Ltd.                                                | MOC        | Dec 21, 2025  | NIS 12 million                  |
| (10)   | VOB and PRI      | West Bank       | 012 Telecom Ltd.                                                | CA         | Feb 21, 2018  |                            |
| (11)   | VOB and PRI      | Israel          | Partner Land-line Communication Solutions - Limited Partnership | MOC        | Jan 15, 2027  | NIS 11.8 million                |
| (12)   | VOB and PRI      | West Bank       | Partner Land-line Communication Solutions - Limited Partnership | CA         | Mar 22, 2019  |                            |
| (13)   | NTP              | Israel          | Partner Land-line Communication Solutions - Limited Partnership | MOC        | Feb 28, 2017  |                            |
| (14)   | NTP              | Israel          | 012 Smile Telecom Ltd.                                          | MOC        | Mar 31, 2015  |                            |

----

|   | e. | Group licenses (continued) |
|--------|----|----------------------------|

|   | a. | Basis of preparation of the financial statements |
|--------|----|--------------------------------------------------|

|   | (1) | Basis of preparation |
|--------|-----|----------------------|

----

|   | b. | Foreign currency translations |
|--------|----|-------------------------------|

|   | c. | Principles of consolidation |
|--------|----|-----------------------------|

----

|   | d. | Inventories |
|--------|----|-------------|

|   | e. | Property and equipment |
|--------|----|------------------------|

----

|   | e. | Property and equipment (continued) |
|--------|----|------------------------------------|

|                                                                        |   | years                          |   |
|-----------------------------------------------------------------------------|--------|--------------------------------|--------|
| Communications network:                                                     |   |                           |   |
|        Physical layer and infrastructure |   | 10 - 25 (mainly 15, 10)        |   |
|        Other Communication network       |   | 3 - 15 (mainly 5, 10, 15) |   |
|                                                                        |   |                           |   |
| Computers, software and hardware for                                        |   |                           |   |
| information systems                                                         |   | 3-10 (mainly 3-5)              |   |
| Office furniture and equipment                                              |   | 7-15                           |   |
| Optic fibers and related assets                                             |   | 7-25 (mainly 20)               |   |
| Property                                                                    |   | 25                             |   |

|   | f. | Licenses and other intangible assets |
|--------|----|--------------------------------------|

|   | (1) | Licenses costs and amortization (see also note 1 (e)): |
|--------|-----|--------------------------------------------------------|

|   | (a) | The licenses to operate cellular communication services were recognized at cost. Borrowing costs which served to finance the license fee - incurred until the commencement of utilization of the license - were capitalized to cost of the license. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Partner Land-line Communication solutions – limited partnership's license for providing fixed-line communication services is stated at cost. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | 012 Smile and its subsidiaries' licenses were recognized at fair value in a business combination as of the acquisition date of 012 Smile March 3, 2011. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (2) | Computer software: Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and to bring to use the specified software.Development costs, including employee costs, that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the capitalization criteria under IAS 38 are met. Other development expenditures that do not meet the capitalization  criteria, such as software maintenance, are recognized as an expenses as incurred.Computer software costs are amortized over their estimated useful lives (3 to 10 years) using the straight-line method, see also note 10. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Customer relationships: The Company has recognized as intangible assets customer relationships that were acquired in a business combination and recognized at fair value as of the acquisition date. Customer relationships are amortized to selling and marketing expenses over their estimated useful economic lives (5 to 10 years) based on the straight line method. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Trade name: Trade name was acquired in a business combination. The trade name is amortized to selling and marketing expenses over its estimated useful economic life (12 years) based on the straight line method. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (5) | Subscriber Acquisition and Retention Costs (SARC): |
|--------|-----|----------------------------------------------------|

|   | g. | Right Of Use (ROU) of international fiber optic cables Right of use (ROU) of international fiber optic cables was acquired in a business combination, subsequent additions are recognized at cost. The ROU is presented as deferred expenses (current and non-current) and is amortized on a straight line basis over a period beginning each acquisition of additional ROU in the framework and until 2027 (including expected contractual extension periods). See also notes 11 and 16(5). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | h. | Goodwill |
|--------|----|----------|

----

|   | h. | Goodwill (continued) |
|--------|----|----------------------|

|   | i. | Impairment of non-financial assets with finite useful economic lives |
|--------|----|----------------------------------------------------------------------|

|   | j. | Financial instruments |
|--------|----|-----------------------|

|   | The Group classifies its financial instruments in the following categories: (1) at fair value through profit or loss, (2) loans and receivables, and (3) liabilities at amortized cost. The classification depends on the purpose for which the financial instruments were acquired or assumed, determined at initial recognition. See note 6 (c) as to classification of financial instruments to the categories.  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Financial assets are classified as current if they are expected to mature within 12 months after the end of the reporting period; otherwise they are classified as non-current. Financial liabilities are included in current liabilities, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current liabilities.  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legal enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legal enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | j. | Financial instruments (continued) |
|--------|----|-----------------------------------|

----

|   | k. | Employee benefits |
|--------|----|-------------------|

----

|   | k. | Employee benefits (continued) |
|--------|----|-------------------------------|

|   | l. | Share based payments |
|--------|----|----------------------|

----

|   | m. | Provisions |
|--------|----|------------|

|   | (1) | In the ordinary course of business, the Group is involved in a number of lawsuits and litigations. The costs that may result from these lawsuits are only accrued for when it is probable that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. The amount of the provisions recorded is based on a case-by-case assessment of the risk level, and events arising during the course of legal proceedings that may require a reassessment of this risk, and where applicable discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The Group's assessment of risk is based both on the advice of legal counsel and on the Group's estimate of the probable settlements amount that are expected to be incurred, if any. See also note 18. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The Company is required to incur certain costs in respect of a liability to dismantle and remove assets and to restore sites on which the assets were located. The dismantling costs are calculated according to best estimate of future expected payments discounted at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as finance costs (unwinding of discount). |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Provisions for equipment warranties include obligations to customers in respect of equipment sold. Where there are a number of similar obligations, the likelihood that an outflow will be required in a settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any item included in the same class of obligations may be small. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | n. | Revenues |
|--------|----|----------|

----

|   | n. | Revenues (continued) |
|--------|----|----------------------|

----

|   | o. | Leases |
|--------|----|--------|

|   | p. | Advertising expenses |
|--------|----|----------------------|

|   | q. | Tax expenses |
|--------|----|--------------|

----

|   | r. | Share capital |
|--------|----|---------------|

|   | s. | Earnings Per Share (EPS) |
|--------|----|--------------------------|

----

----

|   | (2) | Assessing the useful lives of assets: |
|--------|-----|---------------------------------------|

|   | (3) | Assessing the recoverable amount for impairment tests of assets with finite useful economic lives: |
|--------|-----|----------------------------------------------------------------------------------------------------|

----

|   | a. | Critical accounting estimates and assumptions (continued) |
|--------|----|-----------------------------------------------------------|

|   | (4) | Assessing the recoverable amount of goodwill for annual impairment tests: |
|--------|-----|---------------------------------------------------------------------------|

| Terminal growth rate    |   | (negative 0.2%) |   |
|-------------------------|--------|-----------------|--------|
| After-tax discount rate |   |            | 10.5   | % |
| Pre-tax discount rate   |   |            | 14.3   | % |

|   | (5) | Assessing allowance for doubtful accounts: |
|--------|-----|--------------------------------------------|

----

|   | a. | Critical accounting estimates and assumptions (continued) |
|--------|----|-----------------------------------------------------------|

|   | (6) | Considering uncertain tax positions:  |
|--------|-----|--------------------------------------------|

|   | b. | Critical judgments in applying the Group's accounting policies |
|--------|----|----------------------------------------------------------------|

----

|                                                               |   | New Israeli Shekels          |   |
|--------------------------------------------------------------------|--------|------------------------------|--------|
|                                                               |   | Year ended December 31, 2014 |   |
|                                                               |   | In millions                  |   |
|                                                               |   | Cellular segment             |   |   | Fixed-line segment |   |   | Elimination |   |   | Consolidated |   |
| Segment revenue - Services                                         |   |                         | 2,592  |   |   |   | 816 |   |   |   |   |   |   | 3,408 |   |
| Inter-segment revenue - Services                                   |   |                         | 26     |   |   |   | 188 |   |   |   | (214 | ) |   |   |   |   |
| Segment revenue - Equipment                                        |   |                         | 938    |   |   |   | 54 |   |   |   |   |   |   |   | 992 |   |
| Total revenues                                                     |   |                         | 3,556  |   |   |   | 1,058 |   |   |   | (214 | ) |   |   | 4,400 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment cost of revenues - Services                                |   |                         | 1,963  |   |   |   | 692 |   |   |   |   |   |   |   | 2,655 |   |
| Inter-segment cost of  revenues- Services                |   |                         | 185    |   |   |   | 29 |   |   |   | (214 | ) |   |   |   |   |
| Segment cost of revenues - Equipment                               |   |                         | 727    |   |   |   | 37 |   |   |   |   |   |   |   | 764 |   |
| Cost of revenues                                                   |   |                         | 2,875  |   |   |   | 758 |   |   |   | (214 | ) |   |   | 3,419 |   |
| Gross profit                                                       |   |                         | 681    |   |   |   | 300 |   |   |   |   |   |   |   | 981 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                 |   |                         | 509    |   |   |   | 122 |   |   |   |   |   |   |   | 631 |   |
| Other income, net                                                  |   |                         | 49     |   |   |   | 1 |   |   |   |   |   |   |   | 50 |   |
| Operating profit                                                   |   |                         | 221    |   |   |   | 179 |   |   |   |   |   |   |   | 400 |   |
| Adjustments to presentation of Adjusted EBITDA                     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      –Depreciation and amortization |   |                         | 534    |   |   |   | 155 |   |   |   |   |   |   |   | 689 |   |
|     –Other (1)                           |   |                         | 7      |   |   |   | * |   |   |   |   |   |   |   | 7 |   |
| Adjusted EBITDA (2)                                                |   |                         | 762    |   |   |   | 334 |   |   |   |   |   |   |   | 1,096 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation of Adjusted EBITDA to profit before income tax      |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     - Depreciation and amortization            |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 689 |   |
|     -  Finance costs, net            |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 159 |   |
|     -  Other (1)                     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 7 |   |
| Profit before income tax                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 241 |   |

----

|                                                               |   | New Israeli Shekels          |   |
|--------------------------------------------------------------------|--------|------------------------------|--------|
|                                                               |   | Year ended December 31, 2013 |   |
|                                                               |   | In millions                  |   |
|                                                               |   | Cellular segment             |   |   | Fixed-line segment |   |   | Elimination |   |   | Consolidated |   |
| Segment revenue - Services                                         |   |                         | 2,876  |   |   |   | 908 |   |   |   |   |   |   | 3,784 |   |
| Inter-segment revenue - Services                                   |   |                         | 31     |   |   |   | 177 |   |   |   | (208 | ) |   |   |   |   |
| Segment revenue - Equipment                                        |   |                         | 703    |   |   |   | 32 |   |   |   |   |   |   |   | 735 |   |
| Total revenues                                                     |   |                         | 3,610  |   |   |   | 1,117 |   |   |   | (208 | ) |   |   | 4,519 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment cost of revenues - Services                                |   |                         | 2,070  |   |   |   | 747 |   |   |   |   |   |   |   | 2,817 |   |
| Inter-segment cost of  revenues- Services                |   |                         | 175    |   |   |   | 33 |   |   |   | (208 | ) |   |   |   |   |
| Segment cost of revenues - Equipment                               |   |                         | 664    |   |   |   | 29 |   |   |   |   |   |   |   | 693 |   |
| Cost of revenues                                                   |   |                         | 2,909  |   |   |   | 809 |   |   |   | (208 | ) |   |   | 3,510 |   |
| Gross profit                                                       |   |                         | 701    |   |   |   | 308 |   |   |   |   |   |   |   | 1,009 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                 |   |                         | 544    |   |   |   | 135 |   |   |   |   |   |   |   | 679 |   |
| Other income, net                                                  |   |                         | 77     |   |   |   | 2 |   |   |   |   |   |   |   | 79 |   |
| Operating profit                                                   |   |                         | 234    |   |   |   | 175 |   |   |   |   |   |   |   | 409 |   |
| Adjustments to presentation of Adjusted EBITDA                     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      –Depreciation and amortization |   |                         | 545    |   |   |   | 155 |   |   |   |   |   |   |   | 700 |   |
|      –Other (1)                          |   |                         | 5      |   |   |   | * |   |   |   |   |   |   |   | 5 |   |
| Adjusted EBITDA (2)                                                |   |                         | 784    |   |   |   | 330 |   |   |   |   |   |   |   | 1,114 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation of Adjusted EBITDA to profit before income tax      |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     - Depreciation and amortization            |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 700 |   |
|     -  Finance costs, net            |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 211 |   |
|     -  Other (1)                     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 5 |   |
| Profit before income tax                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 198 |   |

----

|                                                               |   | New Israeli Shekels          |   |
|--------------------------------------------------------------------|--------|------------------------------|--------|
|                                                               |   | Year ended December 31, 2012 |   |
|                                                               |   | In millions                  |   |
|                                                               |   | Cellular segment             |   |   | Fixed-line segment |   |   | Elimination |   |   | Consolidated |   |
| Segment revenue - Services                                         |   |                         | 3,564  |   |   |   | 1,076 |   |   |   |   |   |   | 4,640 |   |
| Inter-segment revenue - Services                                   |   |                         | 28     |   |   |   | 134 |   |   |   | (162 | ) |   |   |   |   |
| Segment revenue - Equipment                                        |   |                         | 896    |   |   |   | 36 |   |   |   |   |   |   |   | 932 |   |
| Total revenues                                                     |   |                         | 4,488  |   |   |   | 1,246 |   |   |   | (162 | ) |   |   | 5,572 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment cost of revenues - Services                                |   |                         | 2,351  |   |   |   | 861 |   |   |   |   |   |   |   | 3,212 |   |
| Inter-segment cost of  revenues- Services                |   |                         | 134    |   |   |   | 28 |   |   |   | (162 | ) |   |   |   |   |
| Segment cost of revenues - Equipment                               |   |                         | 787    |   |   |   | 32 |   |   |   |   |   |   |   | 819 |   |
| Cost of revenues                                                   |   |                         | 3,272  |   |   |   | 921 |   |   |   | (162 | ) |   |   | 4,031 |   |
| Gross profit                                                       |   |                         | 1,216  |   |   |   | 325 |   |   |   |   |   |   |   | 1,541 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                 |   |                         | 584    |   |   |   | 203 |   |   |   |   |   |   |   | 787 |   |
| Other income, net                                                  |   |                         | 110    |   |   |   | 1 |   |   |   |   |   |   |   | 111 |   |
| Operating profit                                                   |   |                         | 742    |   |   |   | 123 |   |   |   |   |   |   |   | 865 |   |
| Adjustments to presentation of Adjusted EBITDA                     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      –Depreciation and amortization |   |                         | 562    |   |   |   | 164 |   |   |   |   |   |   |   | 726 |   |
|      –Other (1)                          |   |                         | 10     |   |   |   | 1 |   |   |   |   |   |   |   | 11 |   |
| Adjusted EBITDA (2)                                                |   |                         | 1,314  |   |   |   | 288 |   |   |   |   |   |   |   | 1,602 |   |
|                                                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation of Adjusted EBITDA to profit before income tax      |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization      |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 726 |   |
|      - Finance costs, net                 |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 234 |   |
|      - Other (1)                          |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 11 |   |
| Profit before income tax                                           |   |                         |   |   |   |   |   |   |   |   |   |   |   |   | 631 |   |

----

|   | a. | Financial risk factors |
|--------|----|------------------------|

|   | 2. | Market risks |
|--------|----|--------------|

|   | (a) | Description of market risks |
|--------|-----|-----------------------------|

----

|   | a. | Financial risk factors (continued) |
|--------|----|------------------------------------|

|   | (b) | Analysis of linkage terms of financial instruments balances |
|--------|-----|-------------------------------------------------------------|

|                                                  |   | December 31, 2014               |   |
|-------------------------------------------------------|--------|---------------------------------|--------|
|                                                  |   | In or linked to USD             |   |   | In or linked to other foreign currencies (mainly EURO) |   |   | NIS linked to CPI |   |   | NIS unlinked |   |   | Total |   |
|                                                  |   | New Israeli Shekels In millions |   |
| Current assets                                        |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Cash and cash equivalents           |   |                            | 28     |   |   |   | 1 |   |   |   |   |   |   | 634 |   |   |   | 663 |   |
|    Trade receivables*                  |   |                            | 48     |   |   |   | 64 |   |   |   |   |   |   | 836 |   |   |   | 948 |   |
|    Other receivables                   |   |                            |   |   |   |   |   |   |   |   |   |   |   | 12 |   |   |   | 12 |   |
|                                                  |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non- current assets                                   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Trade receivables                   |   |                            |   |   |   |   |   |   |   |   |   |   |   | 418 |   |   |   | 418 |   |
|                                                  |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                          |   |                            | 76     |   |   |   | 65 |   |   |   |   |   |   | 1,900 |   |   |   | 2,041 |   |
|                                                  |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities                                   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Current maturities of notes payable |   |                            |   |   |   |   |   |   |   |   | 122 |   |   |   | 187 |   |   |   | 309 |   |
|    Trade payables*                     |   |                            | 187    |   |   |   | 46 |   |   |   |   |   |   |   | 571 |   |   |   | 804 |   |
|    Payables in respect of employees    |   |                            |   |   |   |   |   |   |   |   |   |   |   |   | 85 |   |   |   | 85 |   |
|    Other payables                      |   |                            |   |   |   |   |   |   |   |   | 1 |   |   |   | 6 |   |   |   | 7 |   |
|    Derivative financial instruments    |   |                            | 3      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 3 |   |
|                                                  |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non- current liabilities                              |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Notes payable                       |   |                            |   |   |   |   |   |   |   |   | 822 |   |   |   | 911 |   |   |   | 1,733 |   |
|    Bank borrowings                     |   |                            |   |   |   |   |   |   |   |   | 731 |   |   |   | 502 |   |   |   | 1,233 |   |
|                                                  |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                     |   |                            | 190    |   |   |   | 46 |   |   |   | 1,676 |   |   |   | 2,262 |   |   |   | 4,174 |   |

|                                                                                       |   | In or linked to foreign currencies |   |
|--------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                       |   | New Israeli Shekels in millions    |   |
| * Accounts that were set-off under    enforceable netting arrangements |   |                               |   |
| Trade receivables gross amounts                                                            |   |                               | 302    |   |
| Set-off                                                                                    |   |                               | (190   | ) |
| Trade receivables, net                                                                     |   |                               | 112    |   |
|                                                                                       |   |                               |   |   |
| Trade payables gross amounts                                                               |   |                               | 423    |   |
| Set-off                                                                                    |   |                               | (190   | ) |
| Trade payables, net                                                                        |   |                               | 233    |   |
|                                                                                       |   |                               |   |   |
| Net balance                                                                                |   |                               | (121   | ) |

----

|   | a. | Financial risk factors (continued) |
|--------|----|------------------------------------|

|                                                                                                                |   | December 31, 2013               |   |
|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                                                                |   | In or linked to USD             |   |   | In or linked to other foreign currencies (mainly EURO) |   |   | NIS linked to CPI |   |   |  NIS unlinked |   |   | Total |   |
|                                                                                                                |   | New Israeli Shekels In millions |   |
| Current assets                                                                                                      |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Cash and cash equivalents                                                                         |   |                            | 1      |   |   |   | 1 |   |   |   |   |   |   | 479 |   |   |   | 481 |   |
|    Trade receivables**                                                                               |   |                            | 50     |   |   |   | 132 |   |   |   |   |   |   | 869 |   |   |   | 1,051 |   |
|    Other receivables                                                                                 |   |                            |   |   |   |   |   |   |   |   |   |   |   | 16 |   |   |   | 16 |   |
|    Derivative financial instruments                                                                  |   |                            | 2      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2 |   |
|                                                                                                                |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non- current assets                                                                                                 |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Trade receivables                                                                                 |   |                            |   |   |   |   |   |   |   |   |   |   |   | 289 |   |   |   | 289 |   |
|                                                                                                                |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                                                        |   |                            | 53     |   |   |   | 133 |   |   |   |   |   |   | 1,653 |   |   |   | 1,839 |   |
|                                                                                                                |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities                                                                                                 |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Current maturities of notes payable      and non-current borrowings |   |                            |   |   |   |   |   |   |   |   | 122 |   |   |   | 212 |   |   |   | 334 |   |
|    Trade payables**                                                                                  |   |                            | 75     |   |   |   | 168 |   |   |   |   |   |   |   | 518 |   |   |   | 761 |   |
|    Payables in respect of employees                                                                  |   |                            |   |   |   |   |   |   |   |   |   |   |   |   | 87 |   |   |   | 87 |   |
|    Other payables                                                                                    |   |                            |   |   |   |   |   |   |   |   | 1 |   |   |   | 9 |   |   |   | 10 |   |
|    Derivative financial instruments                                                                  |   |                            | *      |   |   |   | 1 |   |   |   |   |   |   |   |   |   |   |   | 1 |   |
|                                                                                                                |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non- current liabilities                                                                                            |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Notes payable                                                                                     |   |                            |   |   |   |   |   |   |   |   | 945 |   |   |   | 1,093 |   |   |   | 2,038 |   |
|    Bank borrowings                                                                                   |   |                            |   |   |   |   |   |   |   |   | 732 |   |   |   | 377 |   |   |   | 1,109 |   |
|                                                                                                                |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                                                                   |   |                            | 75     |   |   |   | 169 |   |   |   | 1,800 |   |   |   | 2,296 |   |   |   | 4,340 |   |

|                                                                                              |   | In or linked to foreign currencies |   |
|---------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                              |   | New Israeli Shekels in millions    |   |
| ** Accounts that were set-off under     enforceable netting arrangements |   |                               |   |
| Trade receivables gross amounts                                                                   |   |                               | 453    |   |
| Set-off                                                                                           |   |                               | (271   | ) |
| Trade receivables, net                                                                            |   |                               | 182    |   |
|                                                                                              |   |                               |   |   |
| Trade payables gross amounts                                                                      |   |                               | 514    |   |
| Set-off                                                                                           |   |                               | (271   | ) |
| Trade payables, net                                                                               |   |                               | 243    |   |
|                                                                                              |   |                               |   |   |
| Net balance                                                                                       |   |                               | (61    | ) |

| * Representing an amount of less than 1 million. |
|--------------------------------------------------|

----

|   | a. | Financial risk factors (continued) |
|--------|----|------------------------------------|

|                                      |   | New Israeli Shekels |   |
|-------------------------------------------|--------|---------------------|--------|
|                                      |   | December 31         |   |
|                                      |   | 2013                |   |   | 2014 |   |
|                                      |   | In millions         |   |
| Embedded derivatives pay USD, receive NIS |   |                | 35     |   |   |   | 44 |   |

|                                 |   | Exchange    |   |   | Exchange    |   |   |          |   |
|--------------------------------------|--------|-------------|--------|--------|-------------|--------|--------|---------------|--------|
|                                 |   | rate of one |   |   | rate of one |   |   | Israeli       |   |
|                                 |   | Dollar      |   |   | Euro        |   |   | CPI*          |   |
| At December 31:                      |   |        |   |   |        |   |   |          |   |
|      2014   |   | NIS 3.889   |   |   | NIS 4.725   |   |   | 223.36 points |   |
|      2013   |   | NIS 3.471   |   |   | NIS 4.782   |   |   | 223.80 points |   |
|      2012   |   | NIS 3.733   |   |   | NIS 4.921   |   |   | 219.80 points |   |
| Increase (decrease) during the year: |   |        |   |   |        |   |   |          |   |
|      2014   |   | 12.0        | %      |   | (1.2        | )%     |   |          | (0.2   | )% |
|      2013   |   | (7.0        | )%     |   | (2.8        | )%     |   |          | 1.8    | % |
|      2012   |   | (2.3        | )%     |   | (0.35       | )%     |   |          | 1.6    | % |

----

|   | a. | Financial risk factors (continued) |
|--------|----|------------------------------------|

----

|   | a. | Financial risk factors (continued) |
|--------|----|------------------------------------|

|                                                                      |   | 2015                            |   |   | 2016   |   |   | 2017   |   |   | 2018 to 2019 |   |   | 2020to2021 |   |   |    2022 |   |   | Total undisco-unted |   |   | Less offering expenses and discounts |   |   |   Total discounted |   |
|---------------------------------------------------------------------------|--------|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------------|--------|--------|------------|--------|--------|------------------------|--------|--------|---------------------|--------|--------|--------------------------------------|--------|--------|------------------------------|--------|
|                                                                      |   | New Israeli Shekels in millions |   |
| Principal payments of long term indebtedness:                             |   |                            |   |   |   |   |   |   |   |   |         |   |   |       |   |   |                   |   |   |                |   |   |                                 |   |   |                         |   |
| Notes payable series B (*)                                                |   |                            | 122    |   |   |   | 122    |   |   |   |         |   |   |       |   |   |                   |   |   |                |   |   | 244                                  |   |   |                         | (1     | ) |   |   | 243 |   |
| Notes payable series C (*)                                                |   |                            |   |   |   |   | 234    |   |   |   | 234          |   |   |       | 234    |   |                   |   |   |                |   |   |                                 |   | 702    |                         |   |   | (1 | ) |   |   | 701 |   |
| Notes payable series D                                                    |   |                            |   |   |   |   |   |   |   |   | 109          |   |   |       | 218    |   |                   |   | 219    |                |   |   |                                 |   |   | 546                          |   |   |   | (4 | ) |   |   | 542 |   |
| Notes payable series E                                                    |   |                            | 187    |   |   |   | 187    |   |   |   | 187          |   |   |       |   |   |                   |   |   |                |   |   |                                 |   |   | 561                          |   |   |   | (5 | ) |   |   | 556 |   |
| Bank borrowing A (*)                                                      |   |                            |   |   |   |   | 177    |   |   |   | 177          |   |   |       | 178    |   |                   |   |   |                |   |   |                                 |   |   | 532                          |   |   |   |   |   |   |   | 532 |   |
| Bank borrowing C                                                          |   |                            |   |   |   |   |   |   |   |   |         |   |   |       | 50     |   |                   |   | 25     |                |   |   |                                 |   |   | 75                           |   |   |   |   |   |   |   | 75 |   |
| Bank borrowing D                                                          |   |                            |   |   |   |   |   |   |   |   |         |   |   |       | 50     |   |                   |   | 25     |                |   |   |                                 |   |   | 75                           |   |   |   |   |   |   |   | 75 |   |
| Bank borrowing E                                                          |   |                            |   |   |   |   |   |   |   |   |         |   |   |       | 152    |   |                   |   |   |                |   |   |                                 |   |   | 152                          |   |   |   |   |   |   |   | 152 |   |
| Bank borrowing F (*)                                                      |   |                            |   |   |   |   |   |   |   |   |         |   |   |       | 199    |   |                   |   |   |                |   |   |                                 |   |   | 199                          |   |   |   |   |   |   |   | 199 |   |
| Bank borrowing G                                                          |   |                            |   |   |   |   |   |   |   |   |         |   |   |       | 40     |   |                   |   | 40     |                |   |   | 20                                   |   |   |                         | 100    |   |   |   |   |   |   |   | 100 |   |
| Bank borrowing H                                                          |   |                            |   |   |   |   |   |   |   |   |         |   |   |       | 40     |   |                   |   | 40     |                |   |   | 20                                   |   |   |                         | 100    |   |   |   |   |   |   |   | 100 |   |
| Expected interest payments of long term borrowings and notes payables (*) |   |                            | 110    |   |   |   | 96     |   |   |   | 68           |   |   |       | 63     |   |                   |   | 14     |                |   |   |                                 |   |   |                         | 351    |   |   |   |   |   |   |   | 351 |   |
| Trade and other payables                                                  |   |                            | 889    |   |   |   |   |   |   |   |         |   |   |       |   |   |                   |   |   |                |   |   |                                 |   |   |                         | 889    |   |   |   |   |   |   |   | 889 |   |
| Derivative financial instruments                                          |   |                            | 3      |   |   |   |   |   |   |   |         |   |   |       |   |   |                   |   |   |                |   |   |                                 |   |   |                         | 3      |   |   |   |   |   |   |   | 3 |   |
|                                                                      |   |                            | 1,311  |   |   |   | 816    |   |   |   | 775          |   |   |       | 1,224  |   |                   |   | 363    |                |   |   | 40                                   |   |   |                         | 4,529  |   |   |   | (11 | ) |   |   | 4,518 |   |

|   | b. | Capital risk management |
|--------|----|-------------------------|

|   | See note 14(6) regarding loan commitments |
|--------|-------------------------------------------|

|   | See note 14(7),(8) and (9) regarding covenants and negative pledge. |
|--------|---------------------------------------------------------------------|

----

|   | c. | Fair values of financial instruments |
|--------|----|--------------------------------------|

|                             |         |   | December 31, 2013               |   |   | December 31, 2014 |   |
|----------------------------------|--------------|--------|---------------------------------|--------|--------|-------------------|--------|
|                             | Category     |   | Carrying amount                 |   |   | Fair value        |   |   | Interest rate used (**) |   |   | Carrying amount |   |   | Fair value |   |   | Interest rate used (**) |   |
|                             |         |   | New Israeli Shekels in millions |   |
| Assets                           |         |   |                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents        | L&R      |   |                            | 481    |   |              |   | 481 |   |   |   |   |   |   | 663 |   |   |   | 663 |   |   |   |   |
| Trade receivables                | L&R      |   |                            | 1,340  |   |              |   | 1,343 |   |   |   | 6.24 | % |   |   | 1,366 |   |   |   | 1,372 |   |   |   | 4.21 | % |
| Other receivables (*)       | L&R      |   |                            | 20     |   |              |   | 20 |   |   |   |   |   |   |   | 12 |   |   |   | 12 |   |   |   |   |   |
| Derivative financial instruments | FVTPLLevel 2 |   |                            | 2      |   |              |   | 2 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                      |         |   |                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes payable series B           | AC           |   |                            | 365    |   |              |   | 387 |   |   | Market quote |   |   |   | 243 |   |   |   | 254 |   |   | Market quote |   |
| Notes payable series C           | AC           |   |                            | 702    |   |              |   | 766 |   |   | Market quote |   |   |   | 701 |   |   |   | 750 |   |   | Market quote |   |
| Notes payable series D           | AC           |   |                            | 541    |   |              |   | 537 |   |   | Market quote |   |   |   | 542 |   |   |   | 538 |   |   | Market quote |   |
| Notes payable series E           | AC           |   |                            | 739    |   |              |   | 808 |   |   | Market quote |   |   |   | 556 |   |   |   | 607 |   |   | Market quote |   |
| Trade and other payables (*)     | AC           |   |                            | 849    |   |              |   | 849 |   |   |   |   |   |   |   | 896 |   |   |   | 896 |   |   |   |   |   |
| Bank borrowing A                 | AC           |   |                            | 532    |   |              |   | 567 |   |   |   | 1.09 | % |   |   | 532 |   |   |   | 557 |   |   |   | 1.10 | % |
| Bank borrowing C                 | AC           |   |                            | 75     |   |              |   | 91 |   |   |   | 2.13 | % |   |   | 75 |   |   |   | 88 |   |   |   | 2.38 | % |
| Bank borrowing D                 | AC           |   |                            | 175    |   |              |   | 201 |   |   |   | 2.13 | % |   |   | 75 |   |   |   | 88 |   |   |   | 2.38 | % |
| Bank borrowing E (*)             | AC           |   |                            | 152    |   |              |   | 152 |   |   |   |   |   |   |   | 152 |   |   |   | 152 |   |   |   |   |   |
| Bank borrowing F                 | AC           |   |                            | 200    |   |              |   | 221 |   |   |   | 1.69 | % |   |   | 199 |   |   |   | 216 |   |   |   | 1.70 | % |
| Bank borrowing G                 | AC           |   |                            |   |   |              |   |   |   |   |   |   |   |   |   | 100 |   |   |   | 100 |   |   |   | 3.08 | % |
| Bank borrowing H                 | AC           |   |                            |   |   |              |   |   |   |   |   |   |   |   |   | 100 |   |   |   | 100 |   |   |   | 2.93 | % |
| Derivative financial instruments | FVTPLLevel 2 |   |                            | 1      |   |              |   | 1 |   |   |   |   |   |   |   | 3 |   |   |   | 3 |   |   |   |   |   |

|  (*) | The fair value of these financial instruments equals their carrying amounts, as the impact of discounting is not significant.  |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------|

| (**) | The fair values of the notes payable quoted market prices at the end of the reporting period are within level 1 of the fair value hierarchy. The fair values of other instruments under L&R and AC categories were calculated based on observable weighted average of interest rates derived from quoted market prices of the Group's notes payable of similar terms and nature, are within level 2 of the fair value hierarchy. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (a) | Composition: |
|--------|-----|--------------|

|                                    |   | New Israeli Shekels |   |
|-----------------------------------------|--------|---------------------|--------|
|                                    |   | December 31         |   |
|                                    |   | 2013                |   |   | 2014 |   |
|                                    |   | In millions         |   |
| Trade (current and non-current)         |   |                | 1,590  |   |   |   | 1,577 |   |
| Deferred interest income (note 2(n)(3)) |   |                | (48    | ) |   |   | (45 | ) |
| Allowance for doubtful accounts         |   |                | (202   | ) |   |   | (166 | ) |
|                                    |   |                | 1,340  |   |   |   | 1,366 |   |
| Current                                 |   |                | 1,051  |   |   |   | 948 |   |
| Non – current                     |   |                | 289    |   |   |   | 418 |   |

|                                                     |   | New Israeli Shekels |   |
|----------------------------------------------------------|--------|---------------------|--------|
|                                                     |   | Year ended          |   |
|                                                     |   | 2012                |   |   | 2013 |   |   | 2014 |   |
|                                                     |   | In millions         |   |
| Balance at beginning of year                             |   |                | 244    |   |   |   | 222 |   |   |   | 202 |   |
| Receivables written-off during the year as uncollectible |   |                | (69    | ) |   |   | (70 | ) |   |   | (74 | ) |
| Charge or expense during the year                        |   |                | 47     |   |   |   | 50 |   |   |   | 38 |   |
| Balance at end of year                                   |   |                | 222    |   |   |   | 202 |   |   |   | 166 |   |

----

|               |   | New Israeli Shekels |   |
|--------------------|--------|---------------------|--------|
|               |   | December 31         |   |
|               |   | 2013                |   |   | 2014 |   |
|               |   | In millions         |   |
|               |   | Gross               |   |   | Allowance |   |   | Gross |   |   | Allowance |   |
| Less than one year |   |                | 1,432  |   |   |   | 80 |   |   |   | 1,387 |   |   |   | 70 |   |
| More than one year |   |                | 158    |   |   |   | 122 |   |   |   | 116 |   |   |   | 96 |   |
|               |   |                | 1,590  |   |   |   | 202 |   |   |   | 1,503 |   |   |   | 166 |   |

|                                                                                         |   | New Israeli Shekels |   |
|----------------------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                                         |   | December 31         |   |
|                                                                                         |   | 2013                |   |   | 2014 |   |
|                                                                                         |   | In millions         |   |
| Handsets and devices                                                                         |   |                | 69     |   |   |   | 98 |   |
| Accessories and other                                                                        |   |                | 11     |   |   |   | 18 |   |
| Spare parts                                                                                  |   |                | 8      |   |   |   | 18 |   |
| ISP modems, routers, servers and related                                                     |   |                |   |   |   |   |   |   |
|     equipment                                                            |   |                | 5      |   |   |   | 4 |   |
|                                                                                         |   |                | 93     |   |   |   | 138 |   |
|                                                                                         |   |                |   |   |   |   |   |   |
| Write-offs recorded                                                                          |   |                | 2      |   |   |   | 3 |   |
| Cost of inventory recognized as expenses and included in cost of revenues for the year ended |   |                | 705    |   |   |   | 780 |   |

----

|                         |   | Communication network           |   |   | Computers and information systems |   |   | Optic fibers and related assets |   |   | Office furniture and equipment |   |   | Property and leaseholdimprovements |   |   | Total  |   |
|------------------------------|--------|---------------------------------|--------|--------|-----------------------------------|--------|--------|---------------------------------|--------|--------|--------------------------------|--------|--------|------------------------------------|--------|--------|--------|--------|
|                         |   | New Israeli Shekels In millions |   |
| Cost                         |   |                            |   |   |                              |   |   |                            |   |   |                           |   |   |                               |   |   |   |   |
| Balance at January 1, 2012   |   |                            | 2,390  |   |                              |   | 354    |                            |   |   | 364                            |   |   |                               | 30     |   |   |   | 265 |   |   |   | 3,403 |   |
| Additions in 2012            |   |                            | 295    |   |                              |   | 61     |                            |   |   | 48                             |   |   |                               | 3      |   |   |   | 17 |   |   |   | 424 |   |
| Disposals in 2012            |   |                            | 184    |   |                              |   | 14     |                            |   |   |                           |   |   |                               | 2      |   |   |   | 4 |   |   |   | 204 |   |
| Balance at December 31, 2012 |   |                            | 2,501  |   |                              |   | 401    |                            |   |   | 412                            |   |   |                               | 31     |   |   |   | 278 |   |   |   | 3,623 |   |
|                         |   |                            |   |   |                              |   |   |                            |   |   |                           |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Additions in 2013            |   |                            | 208    |   |                              |   | 2      |                            |   |   | 38                             |   |   |                               | *      |   |   |   | 10 |   |   |   | 258 |   |
| Disposals in 2013            |   |                            | 205    |   |                              |   | 71     |                            |   |   |                           |   |   |                               | 1      |   |   |   | 74 |   |   |   | 351 |   |
| Balance at December 31, 2013 |   |                            | 2,504  |   |                              |   | 332    |                            |   |   | 450                            |   |   |                               | 30     |   |   |   | 214 |   |   |   | 3,530 |   |
|                         |   |                            |   |   |                              |   |   |                            |   |   |                           |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Additions in 2014            |   |                            | 237    |   |                              |   | 23     |                            |   |   | 19                             |   |   |                               | 3      |   |   |   | 12 |   |   |   | 294 |   |
| Disposals in 2014            |   |                            | 237    |   |                              |   | 52     |                            |   |   |                           |   |   |                               | 8      |   |   |   | 22 |   |   |   | 319 |   |
| Balance at December 31, 2014 |   |                            | 2,504  |   |                              |   | 303    |                            |   |   | 469                            |   |   |                               | 25     |   |   |   | 204 |   |   |   | 3,505 |   |
|                         |   |                            |   |   |                              |   |   |                            |   |   |                           |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Accumulated depreciation     |   |                            |   |   |                              |   |   |                            |   |   |                           |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2012   |   |                            | 1,028  |   |                              |   | 141    |                            |   |   | 70                             |   |   |                               | 17     |   |   |   | 96 |   |   |   | 1,352 |   |
| Depreciation in 2012         |   |                            | 352    |   |                              |   | 62     |                            |   |   | 23                             |   |   |                               | 5      |   |   |   | 42 |   |   |   | 484 |   |
| Disposals in 2012            |   |                            | 183    |   |                              |   | 14     |                            |   |   |                           |   |   |                               | 2      |   |   |   | 4 |   |   |   | 203 |   |
| Balance at December 31, 2012 |   |                            | 1,197  |   |                              |   | 189    |                            |   |   | 93                             |   |   |                               | 20     |   |   |   | 134 |   |   |   | 1,633 |   |
|                         |   |                            |   |   |                              |   |   |                            |   |   |                           |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Depreciation in 2013         |   |                            | 318    |   |                              |   | 61     |                            |   |   | 27                             |   |   |                               | 3      |   |   |   | 48 |   |   |   | 457 |   |
| Disposals in 2013            |   |                            | 205    |   |                              |   | 71     |                            |   |   |                           |   |   |                               | 1      |   |   |   | 74 |   |   |   | 351 |   |
| Balance at December 31, 2013 |   |                            | 1,310  |   |                              |   | 179    |                            |   |   | 120                            |   |   |                               | 22     |   |   |   | 108 |   |   |   | 1,739 |   |
|                         |   |                            |   |   |                              |   |   |                            |   |   |                           |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Depreciation in 2014         |   |                            | 305    |   |                              |   | 51     |                            |   |   | 31                             |   |   |                               | 4      |   |   |   | 33 |   |   |   | 424 |   |
| Disposals in 2014            |   |                            | 236    |   |                              |   | 52     |                            |   |   |                           |   |   |                               | 8      |   |   |   | 23 |   |   |   | 319 |   |
| Balance at December 31, 2014 |   |                            | 1,379  |   |                              |   | 178    |                            |   |   | 151                            |   |   |                               | 18     |   |   |   | 118 |   |   |   | 1,844 |   |
|                         |   |                            |   |   |                              |   |   |                            |   |   |                           |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Carrying amounts, net        |   |                            |   |   |                              |   |   |                            |   |   |                           |   |   |                               |   |   |   |   |   |   |   |   |   |   |
|                         |   |                            |   |   |                              |   |   |                            |   |   |                           |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| At December 31, 2012         |   |                            | 1,304  |   |                              |   | 212    |                            |   |   | 319                            |   |   |                               | 11     |   |   |   | 144 |   |   |   | 1,990 |   |
| At December 31, 2013         |   |                            | 1,194  |   |                              |   | 153    |                            |   |   | 330                            |   |   |                               | 8      |   |   |   | 106 |   |   |   | 1,791 |   |
| At December 31, 2014         |   |                            | 1,125  |   |                              |   | 125    |                            |   |   | 318                            |   |   |                               | 7      |   |   |   | 86 |   |   |   | 1,661 |   |

|                                                                          |   | New Israeli Shekels    |   |
|-------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                          |   | Year ended December 31 |   |
|                                                                          |   | 2012                   |   |   | 2013 |   |   | 2014 |   |
|                                                                          |   | In millions            |   |
| Depreciation expenses charged to the income statement:                        |   |                   |   |   |   |   |   |   |   |
| Cost of revenues                                                              |   |                   | 454    |   |   |   | 427 |   |   |   | 396 |   |
| Selling and marketing expenses                                                |   |                   | 13     |   |   |   | 13 |   |   |   | 17 |   |
| General and administrative expenses                                           |   |                   | 17     |   |   |   | 17 |   |   |   | 11 |   |
|                                                                          |   |                   | 484    |   |   |   | 457 |   |   |   | 424 |   |
| Cost additions include capitalization of salary and employee related expenses |   |                   | 24     |   |   |   | 42 |   |   |   | 41 |   |

|   |   |
|--------|--------|

----

|                         |   | Licenses                        |   |   | Trade name |   |   | Customer relationships |   |   | Subscriber acquisition and retention costs |   |   | Computer software(*) |   |   | Total  |   |
|------------------------------|--------|---------------------------------|--------|--------|------------|--------|--------|------------------------|--------|--------|--------------------------------------------|--------|--------|----------------------|--------|--------|--------|--------|
|                         |   | New Israeli Shekels In millions |   |
| Cost                         |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 |   |   |   |   |
| Balance at January 1, 2012   |   |                            | 2,088  |   |       |   | 73     |                   |   |   | 276                                        |   |   |                 | 83     |   |   |   | 468 |   |   |   | 2,988 |   |
| Additions in 2012            |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 | 9      |   |   |   | 134 |   |   |   | 143 |   |
| Disposals in 2012            |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 | 20     |   |   |   | 139 |   |   |   | 159 |   |
| Balance at December 31, 2012 |   |                            | 2,088  |   |       |   | 73     |                   |   |   | 276                                        |   |   |                 | 72     |   |   |   | 463 |   |   |   | 2,972 |   |
| Additions in 2013            |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 | 7      |   |   |   | 155 |   |   |   | 162 |   |
| Disposals in 2013            |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 | 67     |   |   |   | 45 |   |   |   | 112 |   |
| Balance at December 31, 2013 |   |                            | 2,088  |   |       |   | 73     |                   |   |   | 276                                        |   |   |                 | 12     |   |   |   | 573 |   |   |   | 3,022 |   |
| Additions in 2014            |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 | 5      |   |   |   | 135 |   |   |   | 140 |   |
| Disposals in 2014            |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 | 4      |   |   |   | 62 |   |   |   | 66 |   |
| Balance at December 31, 2014 |   |                            | 2,088  |   |       |   | 73     |                   |   |   | 276                                        |   |   |                 | 13     |   |   |   | 646 |   |   |   | 3,096 |   |
|                         |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 |   |   |   |   |   |   |   |   |   |   |
| Accumulated amortization     |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 |   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2012   |   |                            | 1,254  |   |       |   | 18     |                   |   |   | 115                                        |   |   |                 | 68     |   |   |   | 243 |   |   |   | 1,698 |   |
| Amortization in 2012         |   |                            | 82     |   |       |   | 5      |                   |   |   | 25                                         |   |   |                 | 19     |   |   |   | 85 |   |   |   | 216 |   |
| Disposals in 2012            |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 | 20     |   |   |   | 139 |   |   |   | 159 |   |
| Balance at December 31, 2012 |   |                            | 1,336  |   |       |   | 23     |                   |   |   | 140                                        |   |   |                 | 67     |   |   |   | 189 |   |   |   | 1,755 |   |
| Amortization in 2013         |   |                            | 82     |   |       |   | 5      |                   |   |   | 24                                         |   |   |                 | 9      |   |   |   | 92 |   |   |   | 212 |   |
| Disposals in 2013            |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 | 67     |   |   |   | 45 |   |   |   | 112 |   |
| Balance at December 31, 2013 |   |                            | 1,418  |   |       |   | 28     |                   |   |   | 164                                        |   |   |                 | 9      |   |   |   | 236 |   |   |   | 1,855 |   |
| Amortization in 2014         |   |                            | 84     |   |       |   | 5      |                   |   |   | 24                                         |   |   |                 | 4      |   |   |   | 111 |   |   |   | 228 |   |
| Disposals in 2014            |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 | 4      |   |   |   | 62 |   |   |   | 66 |   |
| Balance at December 31, 2014 |   |                            | 1,502  |   |       |   | 33     |                   |   |   | 188                                        |   |   |                 | 9      |   |   |   | 285 |   |   |   | 2,017 |   |
|                         |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 |   |   |   |   |   |   |   |   |   |   |
| Carrying amounts, net        |   |                            |   |   |       |   |   |                   |   |   |                                       |   |   |                 |   |   |   |   |   |   |   |   |   |   |
| At December 31, 2012         |   |                            | 752    |   |       |   | 50     |                   |   |   | 136                                        |   |   |                 | 5      |   |   |   | 274 |   |   |   | 1,217 |   |
| At December 31, 2013         |   |                            | 670    |   |       |   | 45     |                   |   |   | 112                                        |   |   |                 | 3      |   |   |   | 337 |   |   |   | 1,167 |   |
| At December 31, 2014         |   |                            | 586    |   |       |   | 40     |                   |   |   | 88                                         |   |   |                 | 4      |   |   |   | 361 |   |   |   | 1,079 |   |

|                                                                              |   | New Israeli Shekels    |   |
|-----------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                              |   | Year ended December 31 |   |
|                                                                              |   | 2012                   |   |   | 2013 |   |   | 2014 |   |
|                                                                              |   | In millions            |   |
| Amortization expenses charged to the income statement:                            |   |                   |   |   |   |   |   |   |   |
|                                                                              |   |                   |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues                                                                  |   |                   | 187    |   |   |   | 183 |   |   |   | 200 |   |
| Selling and marketing expenses                                                    |   |                   | 29     |   |   |   | 29 |   |   |   | 28 |   |
|                                                                              |   |                   | 216    |   |   |   | 212 |   |   |   | 228 |   |
|                                                                              |   |                   |   |   |   |   |   |   |   |   |   |   |
| (*) Cost additions include capitalization of salary and employee related expenses |   |                   | 37     |   |   |   | 45 |   |   |   | 44 |   |

----

|                                    |   | New Israeli Shekels in millions |   |
|-----------------------------------------|--------|---------------------------------|--------|
| Cost                                    |   |                            |   |
| Balance at January 1, 2012              |   |                            | 338    |   |
| Additional payments in 2012             |   |                            | 25     |   |
| Balance at December 31, 2012            |   |                            | 363    |   |
| Additional payments in 2013             |   |                            | 17     |   |
| Balance at December 31, 2013            |   |                            | 380    |   |
| Additional payments in 2014             |   |                            | 22     |   |
| Balance at December 31, 2014            |   |                            | 402    |   |
|                                    |   |                            |   |   |
| Accumulated amortization and impairment |   |                            |   |   |
| Balance at January 1, 2012              |   |                            | 177    |   |
| Amortization during the period          |   |                            | 26     |   |
| Balance at December 31, 2012            |   |                            | 203    |   |
| Amortization in 2013                    |   |                            | 31     |   |
| Balance at December 31, 2013            |   |                            | 234    |   |
| Amortization in 2014                    |   |                            | 37     |   |
| Balance at December 31, 2014            |   |                            | 271    |   |
|                                    |   |                            |   |   |
| Carrying amount, net                    |   |                            |   |   |
| At December 31, 2012                    |   |                            | 160    |   |
| Current                                 |   |                            | 22     |   |
| Non-current                             |   |                            | 138    |   |
|                                    |   |                            |   |   |
| Carrying amount, net                    |   |                            |   |   |
| At December 31, 2013                    |   |                            | 146    |   |
| Current                                 |   |                            | 28     |   |
| Non-current                             |   |                            | 118    |   |
|                                    |   |                            |   |   |
| Carrying amount, net                    |   |                            |   |   |
| At December 31, 2014                    |   |                            | 131    |   |
| Current                                 |   |                            | 34     |   |
| Non-current                             |   |                            | 97     |   |

----

|                    |   | As of December 31, |   |
|-------------------------|--------|--------------------|--------|
|                    |   | 2012               |   |   | 2013 |   |   | 2014 |   |
| Terminal growth rate    |   | (negative 0.2%)    |   |   | (negative 0.3%) |   |   | (negative 0.2%) |   |
| After-tax discount rate |   |               | 11.7   | % |   |   | 11.7 | % |   |   | 10.5 | % |
| Pre-tax discount rate   |   |               | 15.7   | % |   |   | 15.8 | % |   |   | 14.3 | % |

----

|                            |   | Dismantling and restoring sites obligation |   |   |  Legal claims* |   |   | Equipment warranty |   |
|---------------------------------|--------|--------------------------------------------|--------|--------|---------------------|--------|--------|--------------------|--------|
|                            |   | New Israeli Shekels In millions            |   |
| Balance as at January 1, 2014   |   |                                       | 31     |   |                |   | 62     |               |   |   | 5 |   |
| Additions during the year       |   |                                       | 3      |   |                |   | 8      |               |   |   | 10 |   |
| Reductions during the year      |   |                                       | *      |   |                |   | (15    | )                  |   |   | (12 | ) |
| Unwind of discount              |   |                                       | 1      |   |                |   |   |               |   |   |   |   |
| Balance as at December 31, 2014 |   |                                       | 35     |   |                |   | 55     |               |   |   | 3 |   |
| Non-current                     |   |                                       | 35     |   |                |   | -      |               |   |   | - |   |
| Current                         |   |                                       | -      |   |                |   | 55     |               |   |   | 3 |   |
|                            |   |                                       |   |   |                |   |   |               |   |   |   |   |
| Balance as at December 31, 2013 |   |                                       | 31     |   |                |   | 62     |               |   |   | 5 |   |
| Non-current                     |   |                                       | 31     |   |                |   | -      |               |   |   | - |   |
| Current                         |   |                                       | -      |   |                |   | 62     |               |   |   | 5 |   |

----

|   | (1) | Bank Borrowings and Notes Payable |
|--------|-----|-----------------------------------|

|                                          | Linkage terms (principal and interest) |   | Annual interest rate  |
|-----------------------------------------------|----------------------------------------|--------|-----------------------|
| Notes payable series B                        | CPI                                    |   | 3.4% CPI adj.         |
| Notes payable series C                        | CPI                                    |   | 3.35% CPI adj.        |
| Notes payable series D                        |                                   |   | 'Makam'(*)plus 1.2%   |
| Notes payable series E                        |                                   |   | 5.5% fixed            |
| Borrowing A  (see also note 14 (2)) | CPI                                    |   | 2.75% CPI adj.        |
| Borrowing C                                   |                                   |   | 5.7% fixed            |
| Borrowing D (see also note 14 (2))            |                                   |   | 5.7% fixed            |
| Borrowing E                                   |                                   |   | Prime(**)minus 0.025% |
| Borrowing F                                   | CPI                                    |   | 3.42% CPI adj.        |
| Borrowing G (see also note 14 (3))            |                                   |   | 3.08% fixed           |
| Borrowing H (see also note 14 (4))            |                                   |   | 2.93% fixed           |

|   | (*) | 'Makam' is a variable interest that is based on the yield of 12 month government bonds issued by the government of Israel. The interest is updated on a quarterly basis. The interest rates paid (in annual terms, and including the additional interest of 1.2%) for the period from October 1, 2014 to December 30, 2014 was 1.42% |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (**) | The Israeli Prime interest rate is determined by the Bank of Israel and updated on a monthly basis. The Israeli Prime interest rate as of December 31, 2013 and 2014 was 2.5% and 1.75% per year, respectively. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Principal prepayments made |
|--------|-----|----------------------------|

----

|   | (3) | Borrowing G: On November 24, 2014, the Company received a long-term loan from a leading Israeli commercial bank in the principal amount of NIS 100 million for a period of 8 years, bearing an annual fixed interest at the rate of 3.08%. The principal is payable in 20 equal quarterly instalments commencing in February 2018. The interest is payable on a quarterly basis. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Borrowing H: On November 24, 2014, the Company received a long-term loan from a leading Israeli commercial bank in the principal amount of NIS 100 million for a period of 8 years, bearing an annual fixed interest at the rate of 2.93%. The principal is payable in 20 equal quarterly instalments commencing in February 2018. The interest is payable on a quarterly basis. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | New borrowings received subsequent to balance sheet date Borrowing I: On January 14, 2015, the Company received a long-term loan from a leading Israeli commercial bank in the principal amount of NIS 120 million for a period of 6 years, bearing an annual fixed interest at the rate of 3.17%. The principal is payable in 12 equal instalments, commencing in April 2018. The interest is payable on a quarterly basis.Borrowing J: On January 14, 2015, the Company received a long-term loan from a leading Israeli commercial bank in the principal amount of NIS 80 million for a period of 6 years, bearing an annual fixed interest at the rate of 2.75%. The principal is payable in 22 equal instalments, commencing in October 2015. The interest is payable on a quarterly basis. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | Loan CommitmentsOn May 27, 2014, the Company engaged in a loan agreement with a group of institutional corporations ("Lenders"), according to which on December 28, 2016 the Lenders will provide the Company a loan in the principal amount of NIS 250 million. The Loan will bear unlinked interest at the rate of 4.95% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2017.On November 27, 2014, the Company engaged in a loan agreement with a group of institutional corporations ("Lenders"), according to which on December 26, 2017 the Lenders will provide the Company a loan in the principal amount of NIS 100 million. The Loan will bear unlinked interest at the rate of 4.44% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2018.On November 30, 2014, the Company engaged in a loan agreement with a group of institutional corporations ("Lenders"), according to which on December 26, 2017 the Lenders will provide the Company a loan in the principal amount of NIS 100 million. The Loan will bear unlinked interest at the rate of 4.34% per annum and will be paid (principal and interest) in variable quarterly payments over five years, commencing in March 2018. All the loan commitments include provisions which allow the lenders to not provide the loans should any of the events of default defined for our existing loans occur prior to the date for providing the deferred loans. These events of default include non-compliance with the financial covenants set forth below, as well as other customary terms. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (7) | Financial covenants The terms of loans require the Group to comply with financial covenants on a consolidated basis. Their main provisions are two ratios: |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (1) | The ratio of (a) the amount of all financial obligations of the Company including bank guarantees that the Company has undertaken ("Total Debt") to (b) EBITDA less Capital Expenditures shall not exceed 6.5 (the ratio as of December 31, 2013 and 2014 was 5.2 and 5.1, respectively); and  |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The ratio of (a) Total Debt to (b) the EBITDA of the Company shall not exceed 4 (the ratio as of December 31, 2013 and 2014 was 3.2 and 3.1, respectively). |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (8) | The existing bank loan agreements allow the lenders to demand an immediate repayment of the loans in certain events (events of default), including, among others, a material adverse change in the Company's business and non-compliance with the financial covenants set in those agreements. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (9) | Negative pledge The Company provided the banks with a negative pledge undertaking (i.e., not to pledge any of its assets to a third party), except for a number of exceptions that were agreed upon, including pledge (other than by way of floating charge) in favor of a third party over specific assets or rights of the Company, securing obligations no greater than NIS 100 million in aggregate. See note 6 regarding the Company's exposure to market risks and liquidity risk. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (1) | Defined contribution plan: |
|--------|-----|----------------------------|

|   | (2) | Defined benefit plan: |
|--------|-----|-----------------------|

|                                                                                                                                               |   | New Israeli Shekels |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                                                                                               |   | December 31         |   |
|                                                                                                                                               |   | 2013                |   |   | 2014 |   |
|                                                                                                                                               |   | In millions         |   |
| Present value of funded obligations                                                                                                                |   |                | 190    |   |   |   | 204 |   |
| Less: fair value of plan assets                                                                                                                    |   |                | 145    |   |   |   | 153 |   |
| Liability for employee rights upon retirement, net         – presented as non-current liability |   |                | 45     |   |   |   | 51 |   |

|                                           |   | New Israeli Shekels in millions |   |
|------------------------------------------------|--------|---------------------------------|--------|
|                                           |   | Present value of obligation     |   |   | Fair value of plan assets |   |   | Total |   |
| At January 1, 2013                             |   |                            | 190    |   |   |   | (140 | ) |   |   | 50 |   |
| Current service cost                      |   |                            | 23     |   |   |   |   |   |   |   | 23 |   |
| Interest expense (income)                 |   |                            | 7      |   |   |   | (6 | ) |   |   | 1 |   |
| Employer contributions                         |   |                            |   |   |   |   | (21 | ) |   |   | (21 | ) |
| Benefits paid                                  |   |                            | (54    | ) |   |   | 37 |   |   |   | (17 | ) |
| Remeasurements:                                |   |                            |   |   |   |   |   |   |   |   |   |   |
| Experience loss (gain)                         |   |                            | 23     |   |   |   | (15 | ) |   |   | 8 |   |
| Loss from change in financial assumptions      |   |                            | 1      |   |   |   |   |   |   |   | 1 |   |
| Return on plan assets                          |   |                            |   |   |   |   | * |   |   |   | * |   |
| At January 1, 2014                             |   |                            | 190    |   |   |   | (145 | ) |   |   | 45 |   |
| Current service cost                      |   |                            | 19     |   |   |   |   |   |   |   | 19 |   |
| Interest expense (income)                 |   |                            | 6      |   |   |   | (5 | ) |   |   | 1 |   |
| Employer contributions                         |   |                            |   |   |   |   | (17 | ) |   |   | (17 | ) |
| Benefits paid                                  |   |                            | (23    | ) |   |   | 17 |   |   |   | (6 | ) |
| Remeasurements:                                |   |                            |   |   |   |   |   |   |   |   |   |   |
| Experience loss (gain)                         |   |                            | 3      |   |   |   | (3 | ) |   |   | * |   |
| Loss from change in demographic assumptions    |   |                            | 7      |   |   |   |   |   |   |   | 7 |   |
| Loss from change in financial assumptions (**) |   |                            | 2      |   |   |   |   |   |   |   | 2 |   |
| Return on plan assets                          |   |                            |   |   |   |   | * |   |   |   | * |   |
| At December 31, 2014                      |   |                            | 204    |   |   |   | (153 | ) |   |   | 51 |   |

|   | (*) | Representing an amount of less than NIS 1 million  |
|--------|-----|---------------------------------------------------------|

|   | (**) | Reduced by NIS 4 million due to using Israel high-quality corporate bonds in 2014, while using Israeli Government bonds in 2013, see note 2(k)(i)(2). As a result the weighted average interest rate as of Dec 31, 2014 increased by 1.2%, which is expected to increase finance costs in 2015 by approximately NIS 0.4 million. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                      |   | New Israeli Shekels    |   |
|-------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                      |   | Year ended December 31 |   |
|                                                                                      |   | 2012                   |   |   | 2013 |   |   | 2014 |   |
|                                                                                      |   | In millions            |   |
| Current service cost                                                                 |   |                   | 33     |   |   |   | 23 |   |   |   | 19 |   |
| Interest expense                                                                     |   |                   | 2      |   |   |   | 1 |   |   |   | 1 |   |
| Total expenses recognized in the income statement                                         |   |                   | 35     |   |   |   | 24 |   |   |   | 20 |   |
| Charged to the statement of income as follows:                                            |   |                   |   |   |   |   |   |   |   |   |   |   |
|          Cost of revenues                    |   |                   | 20     |   |   |   | 13 |   |   |   | 11 |   |
|          Selling and marketing expenses      |   |                   | 10     |   |   |   | 8 |   |   |   | 6 |   |
|          General and administrative expenses |   |                   | 3      |   |   |   | 2 |   |   |   | 2 |   |
|          Finance costs, net                  |   |                   | 2      |   |   |   | 1 |   |   |   | 1 |   |
|                                                                                      |   |                   | 35     |   |   |   | 24 |   |   |   | 20 |   |
| Remeasurement losses net, recognized in the statement of comprehensive income, before tax |   |                   | 17     |   |   |   | 9 |   |   |   | 9 |   |
| Actual return on plan assets                                                              |   |                   | 6      |   |   |   | 6 |   |   |   | 8 |   |

|                            |   | December 31 |    |
|---------------------------------|--------|-------------|---------|
|                            |   | 2013        |    |   | 2014 |   |
|                            |   | %           |    |   | % |   |
|                            |   |        |    |   |   |   |
| Interest rate weighted average  |   |        | 4.2     | % |   |   | 3.0 | % |
| Inflation rate weighted average |   |        | 2.4     | % |   |   | 1.6 | % |
| Expected turnover rate          |   |        | 8% - 55 | % |   |   | 10% - 49 | % |
| Future salary increases         |   |        | 1% - 26 | % |   |   | 1% - 26 | % |

----

|                    |   | December 31, 2014                 |   |
|-------------------------|--------|-----------------------------------|--------|
|                    |   | NIS in millions                   |   |
|                    |   | Increase of 10% of the assumption |   |   | Decrease of 10% of the assumption |   |
| Interest rate           |   |                              | (1     | ) |   |   | 0.7 |   |
| Expected turnover rate  |   |                              | 0.2    |   |   |   | (0.3 | ) |
| Future salary increases |   |                              | 0.7    |   |   |   | (0.6 | ) |

|                |   | NIS in millions |   |
|---------------------|--------|-----------------|--------|
| 2015                |   |            | 50     |   |
| 2016                |   |            | 24     |   |
| 2017                |   |            | 19     |   |
| 2018 and 2019       |   |            | 28     |   |
| 2020 and thereafter |   |            | 106    |   |
|                |   |            | 227    |   |

----

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

|              |   | Royalty rates on income from mobile telephone services provided under the Mobile Telephone License |   |   | Royalty rates on income from domestic fixed-line services and ILD services provided under the Fixed Line Licenses |   |
|-------------------|--------|----------------------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------------------------------|--------|
| Year 2012         |   |                                                                                               | 1.3    | %      |                                                                                                              |   | 1 | % |
| Year 2013 onwards |   |                                                                                               | 0      | %      |                                                                                                              |   | 0 | % |

|   | (2) | Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. For the years 2012, 2013 and 2014 the Company paid a total amount of approximately NIS 59 million, NIS 60 million and NIS 60 million, respectively.  See also note 18(B)(1). |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (3) | At December 31, 2014, the Group is committed to acquire property and equipment and software elements for approximately NIS 23 million. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | At December 31, 2014, the Group is committed to acquire inventory in an amount of approximately NIS 554 million. The commitment to acquire inventory includes the following: the Company has signed in 2012 an agreement with Apple Distribution International for the purchase and resale of iPhone handsets, ipads and accessories in Israel (the "Apple Agreement"). The term of the Apple Agreement is three years, during which Partner has agreed to purchase a minimum quantity of equipment per year, which will represent a significant portion of the Company's expected equipment purchases over that period. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Right of Use (ROU)  |
|--------|-----|--------------------------|

|                |   | New Israeli Shekels in millions |   |
|---------------------|--------|---------------------------------|--------|
| 2015                |   |                            | 27     |   |
| 2016                |   |                            | 45     |   |
| 2017                |   |                            | 47     |   |
| 2018                |   |                            | 51     |   |
| 2019                |   |                            | 51     |   |
| 2020 and thereafter |   |                            | 101    |   |
|                |   |                            | 322    |   |

----

|   | (6) | In April 2012 - the Company entered into a five-year agreement with Bezeq - The Israel Telecommunication Corp., Ltd. ("Bezeq"), effective as of January 1, 2012, for the supply of transmission services for use in Partner's mobile network ("the Bezeq Agreement"). According to the Bezeq Agreement, the minimum annual commitment is NIS 55 million for the year 2012 and will gradually increase to NIS 71 million for the year 2016 due to the increase in the scope of the capacity to be purchased in accordance with the layout agreed upon by the parties. The minimum commitment as of December 31, 2014 is NIS 140 million. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7) | Liens and guarantees As of December 31, 2104, the Group has provided bank guarantees in respect of licenses (see note 1(e)) in an amount of NIS 86 million, in addition to bank guarantees in favor of other parties in an aggregate amount of approximately NIS 43 million as of December 31, 2014. The total bank guarantees provided by the Group as of December 31, 2014 is NIS 129 million. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (8) | License for the use of the Orange brand On July 1, 1998, the Company entered into a brand license agreement with Orange International Developments Limited, a subsidiary of Orange Limited, formerly Orange plc further assigned to Orange Brand Services Limited, a member of the France Telecom Group (“Orange”). Under this agreement, the Company has the exclusive right to use the Orange brand in Israel. The license was royalty-free until June 2013; however, pursuant to an amendment to the brand license agreement negotiated in January 2012 with Orange Brand Services Limited, a member of the France Telecom Group, the Company began paying royalties in April 1, 2012 for a period of 15 years. Royalties payable are based on a percentage of the Company’s service revenues offered under the Orange brand. Under the brand license agreement, the Company is required to comply with the Orange brand guidelines established by Orange. The Company has the right to use the Orange brand as long as it is able and legally eligible under the laws of Israel to offer telecommunications services to the public in Israel. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (9) | Covenants and negative pledge – see note 14(7), (8), and (9). |
|--------|-----|---------------------------------------------------------------------|

|   | (10) | See note 14 (6) with respect of loan commitments. |
|--------|------|---------------------------------------------------|

|   | (11) | Operating leases – see note 17. |
|--------|------|---------------------------------------|

|   | (12) | See note 1(d) with respect to network sharing and right of use agreements. |
|--------|------|----------------------------------------------------------------------------|

----

|   | (1) | The Group leases its headquarter facilities in Rosh Ha-ayin, Israel, with a total of approximately 53,307 gross square meters (including parking lots). The lease term is until the end of 2024. The rental payments are linked to the Israeli CPI. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The Group also leases five call centers in Haifa, Jerusalem, Rehovot, Rishon Lezion and Beer-Sheva and also retail stores. The leases for each site have different lengths and specific terms. Lease agreements for service centers and retail stores for a period of two to ten years. The Group has options to extend some lease contract periods for up to twenty years (including the original lease periods). Some of the rental payments are linked to the dollar or to the Israeli CPI. Some of the extension options include an increase of the lease payment in a range of 2%-10%.  |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Lease agreements in respect of cell sites and switching stations throughout Israel are for periods of two to ten years. The Company has an option to extend some of the lease contract periods for up to ten years (including the original lease periods). Some of the rental payments fees are linked to the dollar or linked to the Israeli CPI. Some of the extension options include an increase of the lease payment in a range of 2%-10%. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | As of December 31, 2014 operating lease agreements in respect of vehicles are for periods of up to three years. The rental payments are linked to the Israeli CPI. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Non-cancelable minimum operating lease rentals in respect of all the above leases are payable including option periods which are reasonably certain are as follows: |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                |   | New Israeli Shekels |   |
|---------------------|--------|---------------------|--------|
|                |   | December 31, 2014   |   |
|                |   | In millions         |   |
| 2015                |   |                | 226    |   |
| 2016                |   |                | 204    |   |
| 2017                |   |                | 173    |   |
| 2018                |   |                | 130    |   |
| 2019-2020           |   |                | 184    |   |
| 2021-2022           |   |                | 125    |   |
| 2023-2024           |   |                | 72     |   |
| 2025 and thereafter |   |                | 9      |   |
|                |   |                | 1,123  |   |

|   | (6) | The rental expenses for the years ended December 31, 2012, 2013 and 2014 were approximately NIS 290 million, NIS 271 million, and NIS 259 million, respectively. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | A. | Claims |
|--------|----|--------|

|   | 1. | Consumer claims  |
|--------|----|-----------------------|

|   | a. | Alleged illegal collection of charges, claims or breach of the Consumer Protection Law and Customer agreement claims This category includes lawsuits and motions for the recognition of these lawsuits as class actions with respect to alleged unlawful collection of charges from customers or alleged breach of the Consumer Protection Law. Described hereunder are the outstanding consumer purported class actions with respect to lawsuits with a total claim amount of NIS 7,081 million or which have not been quantified, broken down by the amount claimed, as of the date of approval of these financial statements: |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Claim amount                   | Number of claims | Total claims amount (NIS million) |
|--------------------------------|------------------|-----------------------------------|
| Up to NIS 100 million          | 11               | 325                               |
| NIS 100- 400 million           | 6                | 1,048                             |
| NIS 400 million -NIS 1 billion | 2                | 1,008                             |
| Over NIS 1 billion             | 2                | 4,700                             |
| Unquantified claims            | 3                | -                                 |
| Total                          | 24               | 7,081                             |

|   | 1. | During 2008, several claims and motions to certify the claims as class actions were filed against several international telephony companies including 012 Smile. The plaintiffs allege that with respect to prepaid calling card services, the defendants misled the consumers regarding certain issues, charged consumers in excess, and formed a cartel that arranged and raised the prices of calling cards. The total amount of damages claimed by the plaintiffs against 012 Smile is approximately NIS 128 million. On November 3, 2010, the court granted the plaintiffs' request and certified the lawsuit as a class action against all of the defendants. On May 10, 2012, the parties signed a settlement agreement regarding the amended request and regarding an additional lawsuit in an amount of NIS 2.7 billion, dealing with similar issues. On March 11, 2013, the parties signed a revised settlement agreement, and on May 26, 2013, the court approved the settlement agreement. The parties submitted a revised settlement agreement in December 2014 that was approved by the court in January 2015. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 2. | On April 13, 2011, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner sent a message to its customers that their internet package was fully utilized before it was fully utilized. The amount claimed in the lawsuit was estimated by the plaintiffs to be approximately NIS 4.6 million. On June 26, 2013, The Court approved the motion and recognized the lawsuit as a class action. On August 19, 2013, Partner filed a request to appeal to the Supreme Court. On February 21, 2014, the Supreme Court dismissed Partner's request, and a hearing has been set. On January 6, 2015, the parties filed a request to approve a settlement agreement. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | On May 12, 2011, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company misled certain subscribers with respect to terms and conditions of a content back up service for cellular handsets. The total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 35 million. On August 27, 2013, the Court approved the motion and recognized the lawsuit as a class action. Partner estimates that even if the claim will be decided in favor of the relevant customers, the damages that Partner will be required to pay for will be immaterial. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Claim amount                   | Number of claims | Total claims amount (NIS million) |
|--------------------------------|------------------|-----------------------------------|
| Up to NIS 100 million          | 17               | 396                               |
| NIS 100-400 million            | 3                | 652                               |
| Unquantified  claims | 1                | -                                 |
| Total                          | 21               | 1,048                             |

|   | 1. | On September 26, 2011, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner unlawfully charged payments from customers who requested to port-in their phone number from another cellular operator for services which were given to them prior to the completion of the port-in. The amount claimed in the lawsuit was estimated by the plaintiffs to be approximately NIS 25 million. On March 3, 2013, the Tel-Aviv District Court approved the motion and recognized the lawsuit as a class action. Partner estimates that even if the claim will be decided in favor of the relevant customers, the damages that Partner will be required to pay for will be immaterial. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | On May 6, 2010, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner unlawfully charged its customers for opening handsets that were locked for use on other cellular networks (sim lock). The amount claimed in the lawsuit was estimated by the plaintiffs to be approximately NIS 20 million. On August 25, 2013, The Court approved the motion and recognized the lawsuit as a class action.  On October 8, 2013, Partner filed a request to appeal to the Supreme Court. On June 27, 2014, the Supreme Court determined a credit mechanism for the relevant group of customers which the parties are implementing. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 3. | On April 3, 2012, a claim and a motion to certify the claim as a class action were filed against Partner. The claim alleges that Partner breached its license conditions in connection with benefits provided to costumers that purchased handsets from third parties. The amount claimed in the lawsuit was estimated by the plaintiffs to be approximately NIS 22 million. On September 3, 2014, The Court approved the motion and recognized the lawsuit as a class action. It should be noted that Partner estimates that even if the claim will be decided in favor of the relevant customers, the damages that Partner will be required to pay for will be immaterial. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | B. | Contingencies in respect of regulatory demands and building and planning procedures |
|--------|----|-------------------------------------------------------------------------------------|

|   | (1) | Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. Under the above Regulations should the Company choose to return a frequency, such payment is no longer due. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Section 197 of the Building and Planning Law states that a property owner has the right to be compensated by a local planning committee for reductions in property value as a result of a new building plan. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | a. | Share capital: |
|--------|----|----------------|

|   | b. | Share based compensation to employees |
|--------|----|---------------------------------------|

|   | (1) | Description of the Equity Incentive Plan |
|--------|-----|------------------------------------------|

----

|   | b. | Share based compensation to employees (continued) |
|--------|----|---------------------------------------------------|

|   | - | Exercise price adjustment: The exercise price of options shall be reduced in the following events: (1) dividend distribution other than in the ordinary course: by the gross dividend amount so distributed per share, and (2)  dividend distribution in the ordinary course: With respect to certain options (depending on the date of the granting of the options), the exercise price shall be reduced by the amount of a dividend in excess of 40% of the Company’s net income for the relevant period per share, or else by the gross dividend amount so distributed per share ("Full Dividend Mechanism"). |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | Cashless exercise:  Most of the options may be exercised only through a cashless exercise procedure, while holders of other options may choose between cashless exercise and the regular option exercise procedure. In accordance with such cashless exercise, the option holder would receive from the Company, without payment of the exercise price, only the number of shares whose aggregate market value equals the economic gain which the option holder would have realized by selling all the shares purchased at their market price, net of the option exercise price. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Information in respect of options and restricted shares granted under the Plan: |
|--------|-----|---------------------------------------------------------------------------------|

|                                                     |   | Through December 31, 2014 |       |
|----------------------------------------------------------|--------|---------------------------|------------|
|                                                     |   | Number of options         |       |   | Number of RSAs |   |
| Granted                                                  |   |                      | 23,585,385 |   |   |   | 1,594,850 |   |
| Shares issued upon exercises                             |   |                      | (6,055,350 | ) |   |   |   |   |
| Cancelled upon net exercises, expiration and forfeitures |   |                      | (8,567,919 | ) |   |   | (4,860 | ) |
| Outstanding                                              |   |                      | 8,962,116  |   |   |   | 1,589,990 |   |
| Of which:                                                |   |                      |       |   |   |   |   |   |
| Exercisable                                              |   |                      | 4,902,943  |   |   |   | - |   |
| Vest in 2015                                             |   |                      | 194,583    |   |   |   | - |   |
| Vest in 2016                                             |   |                      | 1,369,061  |   |   |   | 530,088 |   |
| Vest in 2017                                             |   |                      | 1,247,769  |   |   |   | 529,952 |   |
| Vest in 2018                                             |   |                      | 1,247,760  |   |   |   | 529,950 |   |

----

|   | (3) | Options status summary as of December 31, 2012, 2013 and 2014 and the changes therein during the years ended on those dates: |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------|

|                                       |   | Year ended December 31 |      |
|--------------------------------------------|--------|------------------------|-----------|
|                                       |   | 2012                   |      |   | 2013 |   |   | 2014 |   |
|                                       |   | Number                 |      |   | Weighted averageexercise price |   |   | Number |   |   | Weighted averageexercise price |   |   | Number |   |   | Weighted averageexercise price |   |
|                                       |   |                   |      |   | NIS |   |   |   |   |   | NIS |   |   |   |   |   | NIS |   |
| Balance outstanding at the                 |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| beginning of the year                      |   |                   | 6,452,891 |   |   |   | 52.98 |   |   |   | 7,523,748 |   |   |   | 44.02 |   |   |   | 6,928,382 |   |   |   | 43.46 |   |
| Changes during the year:                   |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Granted                                    |   |                   | 1,795,340 |   |   |   | 18.42 |   |   |   | 292,500 |   |   |   | 25.36 |   |   |   | 3,897,270 |   |   |   | 26.25 |   |
| Exercised                                  |   |                   | -         |   |   |   |   |   |   |   | (75,640 | ) |   |   | 13.66 |   |   |   | (828,950 | ) |   |   | 16.30 |   |
| Forfeited                                  |   |                   | (449,266  | ) |   |   | 54.97 |   |   |   | (322,009 | ) |   |   | 30.63 |   |   |   | (334,570 | ) |   |   | 32.83 |   |
| Expired                                    |   |                   | (275,217  | ) |   |   | 56.07 |   |   |   | (490,217 | ) |   |   | 54.31 |   |   |   | (700,016 | ) |   |   | 57.72 |   |
| Balance outstanding at the end of the year |   |                   | 7,523,748 |   |   |   | 44.02 |   |   |   | 6,928,382 |   |   |   | 43.46 |   |   |   | 8,962,116 |   |   |   | 32.08 |   |
| Balance exercisable at the end of the year |   |                   | 3,723,702 |   |   |   | 53.61 |   |   |   | 4,818,696 |   |   |   | 52.02 |   |   |   | 4,902,943 |   |   |   | 47.25 |   |
| Shares issued                              |   |                   | -         |   |   |   |   |   |   |   | 41,294 |   |   |   |   |   |   |   | 385,943 |   |   |   |   |   |

|                                                                                                                       |   | Options granted in 2012 |   |   | Options granted in 2013 |   |   | Options granted in 2014 |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|--------|-------------------------|--------|
| Weighted average fair value of options granted using the Black & Scholes option-pricing model – per option (NIS) |   |                    | 3.74   |   |                    |   | 6.74   |                    |   |   | 6.92 |   |
| The above fair value is estimated on the grant date based on the following weighted average assumptions:                   |   |                    |   |   |                    |   |   |                    |   |   |   |   |
| Expected volatility                                                                                                        |   |                    | 30.46  | %      |                    |   | 34.43  | %                       |   |   | 31.66 | % |
| Risk-free interest rate                                                                                                    |   |                    | 2.52   | %      |                    |   | 1.78   | %                       |   |   | 1.00 | % |
| Expected life (years)                                                                                                      |   |                    | 3      |   |                    |   | 3      |                    |   |   | 4 |   |
| Dividend yield                                                                                                             |   |                    | *      |   |                    |   | *      |                    |   |   | * |   |

----

|  Expire in |   | Number of options |          |   | Weighted average exercise price in NIS |   |
|-----------------|--------|-------------------|---------------|--------|----------------------------------------|--------|
| 2015            |   |              | 201,285       |   |                                   |   | 52.40 |   |
| 2016            |   |              | 32,500        |   |                                   |   | 29.45 |   |
| 2017            |   |              | 71,000        |   |                                   |   | 53.44 |   |
| 2019            |   |              | 1,258,271     |   |                                   |   | 51.12 |   |
| 2020            |   |              | (*) 4,832,290 |   |                                   |   | 33.64 |   |
| 2021            |   |              | 1,517,250     |   |                                   |   | 47.35 |   |
| 2022            |   |              | 757,020       |   |                                   |   | 21.39 |   |
| 2023            |   |              | 150,000       |   |                                   |   | 23.61 |   |
| 2024            |   |              | 142,500       |   |                                   |   | 33.05 |   |
|            |   |              | 8,962,116     |   |                                   |   | 32.08 |   |

|   | c. | Dividends |
|--------|----|-----------|

|                                                  |   | For the year ended December 31, |   |
|-------------------------------------------------------|--------|---------------------------------|--------|
|                                                  |   | 2012                            |   |
|                                                  |   | Per sharein NIS                 |   |   | NIS in millions |   |
| Dividends declared during the year                    |   |                            | 1.03   |   |   |   | 160 |   |
| Tax withheld                                          |   |                            |   |   |   |   |   |   |
| Previously withheld tax - paid during the year        |   |                            |   |   |   |   | 7 |   |
| Net Cash flow in respect of dividends during the year |   |                            |   |   |   |   | 167 |   |

----

| (a)  Cost of revenues                               |   | New Israeli Shekels     |   |
|---------------------------------------------------------------|--------|-------------------------|--------|
|                                                          |   | Year ended December 31, |   |
|                                                          |   | 2012                    |   |   | 2013 |   |   | 2014 |   |
|                                                          |   | In millions             |   |
| Payments to transmission, communication and content providers |   |                    | 1,153  |   |   |   | 1,073 |   |   |   | 981 |   |
| Cost of equipment and accessories                             |   |                    | 788    |   |   |   | 664 |   |   |   | 738 |   |
| Wages, employee benefits expenses and car maintenance         |   |                    | 614    |   |   |   | 408 |   |   |   | 366 |   |
| Depreciation and amortization                                 |   |                    | 641    |   |   |   | 610 |   |   |   | 596 |   |
| Costs of handling, replacing or repairing equipment           |   |                    | 140    |   |   |   | 104 |   |   |   | 88 |   |
| Operating lease, rent and overhead expenses                   |   |                    | 303    |   |   |   | 312 |   |   |   | 332 |   |
| Network and cable maintenance                                 |   |                    | 133    |   |   |   | 123 |   |   |   | 120 |   |
| Payments to internet service providers (ISP)                  |   |                    | 69     |   |   |   | 45 |   |   |   | 29 |   |
| Carkit installation, IT support, and other operating expenses |   |                    | 80     |   |   |   | 82 |   |   |   | 86 |   |
| Royalty expenses (see note 16 (1))                            |   |                    | 39     |   |   |   |   |   |   |   |   |   |
| Amortization of rights of use                                 |   |                    | 26     |   |   |   | 31 |   |   |   | 37 |   |
| Other                                                         |   |                    | 45     |   |   |   | 58 |   |   |   | 46 |   |
| Total cost of revenues                                        |   |                    | 4,031  |   |   |   | 3,510 |   |   |   | 3,419 |   |

| (b)  Selling and marketing expenses         |   | New Israeli Shekels     |   |
|-------------------------------------------------------|--------|-------------------------|--------|
|                                                  |   | Year ended December 31, |   |
|                                                  |   | 2012                    |   |   | 2013 |   |   | 2014 |   |
|                                                  |   | In millions             |   |
| Wages, employee benefits expenses and car maintenance |   |                    | 299    |   |   |   | 231 |   |   |   | 205 |   |
| Advertising and marketing                             |   |                    | 64     |   |   |   | 55 |   |   |   | 49 |   |
| Selling commissions, net                              |   |                    | 59     |   |   |   | 72 |   |   |   | 83 |   |
| Depreciation and amortization                         |   |                    | 42     |   |   |   | 42 |   |   |   | 45 |   |
| Operating lease, rent and overhead expenses           |   |                    | 45     |   |   |   | 33 |   |   |   | 25 |   |
| Other                                                 |   |                    | 42     |   |   |   | 29 |   |   |   | 31 |   |
| Total selling and marketing expenses                  |   |                    | 551    |   |   |   | 462 |   |   |   | 438 |   |

| (c)  General and administrative expenses    |   | New Israeli Shekels     |   |
|-------------------------------------------------------|--------|-------------------------|--------|
|                                                  |   | Year ended December 31, |   |
|                                                  |   | 2012                    |   |   | 2013 |   |   | 2014 |   |
|                                                  |   | In millions             |   |
| Wages, employee benefits expenses and car maintenance |   |                    | 89     |   |   |   | 80 |   |   |   | 71 |   |
| Bad debts and allowance for doubtful accounts         |   |                    | 40     |   |   |   | 50 |   |   |   | 39 |   |
| Professional fees                                     |   |                    | 29     |   |   |   | 25 |   |   |   | 27 |   |
| Credit card and other commissions                     |   |                    | 33     |   |   |   | 23 |   |   |   | 18 |   |
| Depreciation                                          |   |                    | 17     |   |   |   | 17 |   |   |   | 11 |   |
| Other                                                 |   |                    | 28     |   |   |   | 22 |   |   |   | 27 |   |
| Total general and administrative expenses             |   |                    | 236    |   |   |   | 217 |   |   |   | 193 |   |

----

| (d)  Employee benefit expense                                                                                      |   | New Israeli Shekels     |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                         |   | Year ended December 31, |   |
|                                                                                                                         |   | 2012                    |   |   | 2013 |   |   | 2014 |   |
|                                                                                                                         |   | In millions             |   |
| Wages and salaries including social benefits, social security costs, pension costs and car maintenance before capitalization |   |                    | 1,002  |   |   |   | 763 |   |   |   | 683 |   |
| Less: expenses capitalized (notes 9, 10)                                                                                     |   |                    | (61    | ) |   |   | (87 | ) |   |   | (85 | ) |
| Service costs: defined benefit plan (note 15)                                                                                |   |                    | 33     |   |   |   | 23 |   |   |   | 19 |   |
| Service costs: defined contribution plan (note 15)                                                                           |   |                    | 17     |   |   |   | 15 |   |   |   | 17 |   |
| Share based compensation expenses (note 19(b))                                                                               |   |                    | 11     |   |   |   | 5 |   |   |   | 8 |   |
|                                                                                                                         |   |                    | 1,002  |   |   |   | 719 |   |   |   | 642 |   |

|                                     |   |                                       |   |
|------------------------------------------|--------|--------------------------------------------|--------|
|                                     |   | New Israeli ShekelsYear ended December 31, |   |
|                                     |   | 2012                                       |   |   | 2013 |   |   | 2014 |   |
|                                     |   | In millions                                |   |
| Unwinding of trade receivables           |   |                                       | 108    |   |   |   | 75 |   |   |   | 47 |   |
| Other income, net                        |   |                                       | 3      |   |   |   | 3 |   |   |   | 2 |   |
| Capital gain from property and equipment |   |                                       | *      |   |   |   | 1 |   |   |   | 1 |   |
|                                     |   |                                       | 111    |   |   |   | 79 |   |   |   | 50 |   |

|                                                       |   | New Israeli Shekels     |   |
|------------------------------------------------------------|--------|-------------------------|--------|
|                                                       |   | Year ended December 31, |   |
|                                                       |   | 2012                    |   |   | 2013 |   |   | 2014 |   |
|                                                       |   | In millions             |   |
| Net foreign exchange rate gains                            |   |                    | 8      |   |   |   | 21 |   |   |   |   |
| Interest income from cash equivalents                      |   |                    | 7      |   |   |   | 7 |   |   |   | 3 |   |
| Other                                                      |   |                    | 6      |   |   |   | 1 |   |   |   | * |   |
| Finance income                                             |   |                    | 21     |   |   |   | 29 |   |   |   | 3 |   |
|                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |
| Interest expenses                                          |   |                    | 188    |   |   |   | 171 |   |   |   | 123 |   |
| Linkage expenses to CPI                                    |   |                    | 35     |   |   |   | 46 |   |   |   | 3 |   |
| Fair value loss from derivative financial instruments, net |   |                    | 15     |   |   |   | 12 |   |   |   | 7 |   |
| Net foreign exchange rate losses                           |   |                    |   |   |   |   |   |   |   |   | 18 |   |
| Other finance costs                                        |   |                    | 17     |   |   |   | 11 |   |   |   | 11 |   |
| Finance expense                                            |   |                    | 255    |   |   |   | 240 |   |   |   | 162 |   |
|                                                       |   |                    | 234    |   |   |   | 211 |   |   |   | 159 |   |

----

|   | a. | Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 |
|--------|----|---------------------------------------------------------------------------------------------------|

|   | b. | Corporate income tax rates applicable to the Group |
|--------|----|----------------------------------------------------|

----

|   | c. | Deferred income taxes |
|--------|----|-----------------------|

| Balance of deferred tax asset (liability) in respect of |   | As at January 1, 2012 |   |   | Charged to the income statement |   |   | Charged to other comprehensive income |   |   | As at December 31, 2012 |   |   | Charged to the income statement |   |   | Charged to other comprehensive income |   |   |   Effect of change in corporate tax rate |   |   | As at December 31, 2013 |   |   | Charged to the income statement |   |   | Charged to other comprehensive income |   |   | As at December 31, 2014 |   |
|---------------------------------------------------------|--------|-----------------------|--------|--------|---------------------------------|--------|--------|--------------------------------------------|--------|--------|-------------------------|--------|--------|---------------------------------|--------|--------|--------------------------------------------|--------|--------|----------------------------------------------------|--------|--------|-------------------------|--------|--------|---------------------------------|--------|--------|--------------------------------------------|--------|--------|-------------------------|--------|
|                                                    |   |                  |   |   |                            |   |   |                                       |   |   |                    |   |   |                            |   |   |                                       |   |   |                                               |   |   |                    |   |   |                            |   |   |                                       |   |   |                    |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts                         |   |                  | 61     |   |                            |   | (5     | )                                          |   |   |                    |   |   | 56                              |   |   |                                       | (5     | )      |                                               |   |   |                    |   | 3      |                            |   |   | 54                                         |   |   |                    | (10    | ) |   |   |   |   |   | 44 |   |
| Provisions for employee rights                          |   |                  | 17     |   |                            |   | (6     | )                                          |   |   | 4                       |   |   |                            | 15     |   |                                       |   | *      |                                               |   |   | 2                       |   |   |                            | 1      |   |                                       |   | 18     |                    |   |   | (1 | ) |   |   | 2 |   |   |   | 19 |   |
| Depreciable fixed assets and software                   |   |                  | (123   | )      |                            |   | 23     |                                       |   |   |                    |   |   |                            | (100   | )      |                                       |   | 13     |                                               |   |   |                    |   |   |                            | (5     | )      |                                       |   | (92    | )                       |   |   | 22 |   |   |   |   |   |   |   | (70 | ) |
| Intangibles, deferred expenses and carry forward losses |   |                  | 48     |   |                            |   | (1     | )                                          |   |   |                    |   |   |                            | 47     |   |                                       |   | (26    | )                                                  |   |   |                    |   |   |                            | 2      |   |                                       |   | 23     |                    |   |   | (16 | ) |   |   |   |   |   |   | 7 |   |
| Options granted to employees                            |   |                  | 1      |   |                            |   | (1     | )                                          |   |   |                    |   |   |                            | *      |   |                                       |   | 1      |                                               |   |   |                    |   |   |                            | *      |   |                                       |   | 1      |                    |   |   | * |   |   |   |   |   |   |   | 1 |   |
| Financial instruments                                   |   |                  | *      |   |                            |   | *      |                                       |   |   |                    |   |   |                            | -      |   |                                       |   |   |                                               |   |   |                    |   |   |                            |   |   |                                       |   | -      |                    |   |   |   |   |   |   |   |   |   |   | - |   |
| Other                                                   |   |                  | 9      |   |                            |   | *      |                                       |   |   |                    |   |   |                            | 9      |   |                                       |   | (1     | )                                                  |   |   |                    |   |   |                            | *      |   |                                       |   | 8      |                    |   |   | 1 |   |   |   |   |   |   |   | 9 |   |
| Total                                                   |   |                  | 13     |   |                            |   | 10     |                                       |   |   | 4                       |   |   |                            | 27     |   |                                       |   | (18    | )                                                  |   |   | 2                       |   |   |                            | 1      |   |                                       |   | 12     |                    |   |   | (4 | ) |   |   | 2 |   |   |   | 10 |   |

----

|                                                               |   | New Israeli Shekels |   |
|--------------------------------------------------------------------|--------|---------------------|--------|
|                                                               |   | December 31,        |   |
|                                                               |   | 2013                |   |   | 2014 |   |
|                                                               |   | In millions         |   |
| Deferred tax assets                                                |   |                |   |   |   |   |
| Deferred tax assets to be recovered after more than 12 months      |   |                | 89     |   |   |   | 82 |   |
| Deferred tax assets to be recovered within 12 months               |   |                | 39     |   |   |   | 35 |   |
|                                                               |   |                | 128    |   |   |   | 117 |   |
| Deferred tax liabilities                                           |   |                |   |   |   |   |   |   |
|                                                               |   |                |   |   |   |   |   |   |
| Deferred tax liabilities to be recovered after more than 12 months |   |                | 94     |   |   |   | 90 |   |
| Deferred tax liabilities to be recovered within 12 months          |   |                | 22     |   |   |   | 17 |   |
|                                                               |   |                | 116    |   |   |   | 107 |   |
| Deferred tax assets, net                                           |   |                | 12     |   |   |   | 10 |   |

|   | d. | 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: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                   |   | New Israeli Shekels    |   |
|------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                   |   | Year ended December 31 |   |
|                                                                   |   | 2012                   |   |   | 2013 |   |   | 2014 |   |
|                                                                   |   | In millions            |   |
| Profit before taxes on income,                                         |   |                   |   |   |   |   |   |   |   |
| as reported in the income statements                                   |   |                   | 631    |   |   |   | 198 |   |   |   | 241 |   |
| Theoretical tax expense                                                |   |                   | 158    |   |   |   | 50 |   |   |   | 64 |   |
| Increase in tax resulting from disallowable deductions                 |   |                   | 5      |   |   |   | 17 |   |   |   | 15 |   |
| Income not subject to tax                                              |   |                   | (1     | ) |   |   |   |   |   |   | * |   |
| Temporary differences and tax losses for which no                      |   |                   |   |   |   |   |   |   |   |   |   |   |
|      deferred income tax asset was recognized |   |                   | (2     | ) |   |   |   |   |   |   |   |   |
| Utilization of previously unrecognized tax losses and                  |   |                   |   |   |   |   |   |   |   |   |   |   |
| other temporary differences                                            |   |                   | (11    | ) |   |   | (3 | ) |   |   |   |   |
| Taxes on income in respect of previous years                           |   |                   | 2      |   |   |   |   |   |   |   |   |   |
| Change in corporate tax rate, see (b) above                            |   |                   |   |   |   |   | (1 | ) |   |   |   |   |
| Other                                                                  |   |                   | 2      |   |   |   | * |   |   |   | * |   |
| Income tax expenses                                                    |   |                   | 153    |   |   |   | 63 |   |   |   | 79 |   |

|   |   |  * Representing an amount of less than NIS 1 million. |
|--------|--------|------------------------------------------------------------|

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|   | e. | Taxes on income included in the income statements: |
|--------|----|----------------------------------------------------|

|                                                     |   | New Israeli Shekels    |   |
|----------------------------------------------------------|--------|------------------------|--------|
|                                                     |   | Year ended December 31 |   |
|                                                     |   | 2012                   |   |   | 2013 |   |   | 2014 |   |
|                                                     |   | In millions            |   |
| For the reported year:                                   |   |                   |   |   |   |   |   |   |   |
| Current                                                  |   |                   | 161    |   |   |   | 48 |   |   |   | 72 |   |
| Deferred, see (c) above                                  |   |                   | (10    | ) |   |   | 18 |   |   |   | 4 |   |
| Effect of change in corporate tax rate on deferred taxes |   |                   |   |   |   |   | (1 | ) |   |   |   |   |
| In respect of previous year:                             |   |                   |   |   |   |   |   |   |   |   |   |   |
| Current                                                  |   |                   | 2      |   |   |   | (2 | ) |   |   | 3 |   |
| Deferred, see (c) above                                  |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                                     |   |                   | 153    |   |   |   | 63 |   |   |   | 79 |   |

|   | 1) | The Company has received final corporate tax assessments through the year ended December 31, 2011. |
|--------|----|----------------------------------------------------------------------------------------------------|

|   | 2) | A subsidiary has received final corporate tax assessments through the year ended December 31, 2012. |
|--------|----|-----------------------------------------------------------------------------------------------------|

|   | 3) | As general rule, tax self-assessments filed by another two subsidiaries through the year ended December 31, 2010 are, by law, now regarded as final. However, the manager of the tax authority may direct that the abovementioned last tax self-assessment will not be regarded as final until December 31, 2015. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | a. | Transactions with Scailex group |
|--------|----|---------------------------------|

|                                                           |   | New Israeli Shekels     |   |
|----------------------------------------------------------------|--------|-------------------------|--------|
|                                                           |   | Year ended December 31, |   |
|                                                           |   | 2012                    |   |   | 2013 |   |   | 2014 |   |
| Transactions with Scailex group                                |   | In millions             |   |
| Service revenues                                               |   |                    | 0.6    |   |   |   | 0.4 |   |   |   | 0.3 |   |
| Acquisition of equipment                                       |   |                    | 288    |   |   |   | 189 |   |   |   | 51 |   |
| Selling commissions, maintenance and other expenses (revenues) |   |                    | (10    | ) |   |   | (2 | ) |   |   | (0.1 | ) |

|                                                  |   | New Israeli Shekels |   |
|-------------------------------------------------------|--------|---------------------|--------|
|                                                  |   | December 31,        |   |
|                                                  |   | 2013                |   |   | 2014 |   |
| Statement of financial position items - Scailex group |   | In millions         |   |
| Current liabilities: Scailex group                    |   |                | 30     |   |   |   | 3 |   |

----

|   | b. | Key management compensation |
|--------|----|-----------------------------|

|                                           |   | New Israeli Shekels    |   |
|------------------------------------------------|--------|------------------------|--------|
|                                           |   | Year ended December 31 |   |
|                                           |   | 2012                   |   |   | 2013 |   |   | 2014 |   |
| Key management compensation expenses comprised |   | In millions            |   |
| Salaries and short-term employee benefits      |   |                   | 21     |   |   |   | 20 |   |   |   | 20 |   |
| Long term employment benefits                  |   |                   | 6      |   |   |   | 5 |   |   |   | 3 |   |
| Employee share-based compensation expenses     |   |                   | 7      |   |   |   | 2 |   |   |   | 2 |   |
|                                           |   |                   | 34     |   |   |   | 27 |   |   |   | 25 |   |

|                                                   |   | New Israeli Shekels |   |
|--------------------------------------------------------|--------|---------------------|--------|
|                                                   |   | December 31,        |   |
|                                                   |   | 2013                |   |   | 2014 |   |
| Statement of financial position items - key management |   | In millions         |   |
| Current liabilities:                                   |   |                | 5      |   |   |   | 5 |   |
| Non-current liabilities:                               |   |                | 14     |   |   |   | 13 |   |

|   | c. | In the ordinary course of business, key management or their relatives may have engaged with the Company with immaterial transactions that are under normal market conditions. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | Principal shareholder: On January 29, 2013, S.B. Israel Telecom Ltd. completed the acquisition of 48,050,000 ordinary shares of the Company and became the Company's principal shareholder. See also note 1(a). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | In order to encourage the Company’s executive officers to remain with the Company following the acquisition by S.B. Israel Telecom of 30.87% of our issued and outstanding shares, principally from Scailex, the Company’s Board of Directors, upon the recommendation and approval of its compensation committee, adopted a two-year retention plan on December 17, 2012, that became effective upon change of control on January 29, 2013. According to the terms of the plan, retention payments were made to each of the Company’s eligible executive officers at the first and second anniversaries of the closing of the change of control (January 29, 2013), provided the executive officer had not resigned for reasons other than for certain justified reasons, (as specified in the retention plan) or in case of termination by the Company. The aggregate amount of all retention payments paid was NIS 6.5 million. In addition, on May 22, 2012, the Company’s Board of Directors and audit committee, upon the recommendation and approval of its compensation committee, adopted a retention plan for the CEO according to which the CEO would receive an amount of NIS 1.8 million, provided that the CEO did not resign during the first year of the change of control or his employment was terminated by the Company under circumstances other than those that would deny his lawful right to severance payments and advanced notice. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                   |   | Year ended December 31 |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                                                                                                                   |   | 2012                   |    |   | 2013 |   |   | 2014 |   |
| Profit used for the computation of                                                                                                                                |   |                   |    |   |   |   |   |   |   |
| basic and diluted EPS (NIS in millions)                                                                                                                                |   |                   | 478     |   |   |   | 135 |   |   |   | 162 |   |
|                                                                                                                                                                   |   |                   |    |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares used                                                                                                                            |   |                   |    |   |   |   |   |   |   |   |   |   |
| in computation of basic EPS (in thousands)                                                                                                                        |   |                   | 155,646 |   |   |   | 155,658 |   |   |   | 155,802 |   |
|                                                                                                                                                                   |   |                   |    |   |   |   |   |   |   |   |   |   |
| Add - net additional shares from assumed                                                                                                                          |   |                   |    |   |   |   |   |   |   |   |   |   |
| exercise of employee stock options and restricted shared (in thousands)                                                                                           |   |                   | 127     |   |   |   | 541 |   |   |   | 598 |   |
|                                                                                                                                                                   |   |                   |    |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares used in                                                                                                                         |   |                   |    |   |   |   |   |   |   |   |   |   |
| computation of diluted EPS (in thousands)                                                                                                                              |   |                   | 155,773 |   |   |   | 156,199 |   |   |   | 156,400 |   |
|                                                                                                                                                                   |   |                   |    |   |   |   |   |   |   |   |   |   |
| Number of options and restricted shares not taken into account in computation of diluted earnings per share, because of their anti-dilutive effect (in thousands) |   |                   | 6,156   |   |   |   | 5,378 |   |   |   | 8,101 |   |

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