---

---

As filed with the Securities and Exchange Commission on April 27, 2009

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

# FORM 20-F

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

OR

|x | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the
fiscal year ended December 31, 2008
|- | --------------------------------------------------------------------------------------------------------------------------------

OR

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

OR

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

# PARTNER COMMUNICATIONS
COMPANY LTD.

(Exact Name of
Registrant as Specified in its Charter)

ISRAEL

(Jurisdiction of
Incorporation or Organization)

8 AMAL STREET
AFEQ INDUSTRIAL PARK
ROSH-HAAYIN 48103
ISRAEL

(Address of Principal
Executive Offices)

Roly Klinger

ExecutiveOffices@orange.co.il

(Name, Telephone, E-mail and/or facsimile Number and Address of Company Contact Person)

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

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

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



---

---

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

NONE

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

NONE

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

|ORDINARY
SHARES OF NIS 0.01 EACH | 153,419,394
|-------------------------------- | -----------

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES xNO o

If this report is an annual or
transition report, indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.

YES oNO x

Indicate by check mark whether the
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:

YES xNO o

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act.

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

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

U.S. GAAP x         International Financial Reporting Standards as issued by the International Accounting Standards Board o         Other o

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

ITEM 17 oITEM 18 o

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

YES oNO x

2

---

---

TABLE OF CONTENTS

|                                                                                      |   
|------------------------------------------------------------------------------------- | --
|
|
|
|
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         | 5 
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                       | 5 
|ITEM 3. KEY INFORMATION                                                               | 5 
|ITEM 4. INFORMATION ON THE COMPANY                                                    | 22
|ITEM 4A. UNRESOLVED STAFF COMMENTS                                                    | 47
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  | 47
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    | 58
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             | 74
|ITEM 8. FINANCIAL INFORMATION                                                         | 77
|ITEM 9. THE OFFER AND LISTING                                                         | 78
|ITEM 10. ADDITIONAL INFORMATION                                                       | 80
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 89
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 90
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 90
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 90
|ITEM 15. CONTROLS AND PROCEDURES                                                      | 91
|ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            | 92
|ITEM 16B. CODE OF ETHICS                                                              | 92
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      | 92
|ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  | 93
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      | 93
|ITEM 16F.  CHANGE IN REGISTRANT'S CERTIFYING ACOUNTANT                                | 93
|ITEM 16G. CORPORATE GOVERNANCE                                                        | 93
|ITEM 17. FINANCIAL STATEMENTS                                                         | 93
|ITEM 18. FINANCIAL STATEMENTS                                                         | 93
|ITEM 19. EXHIBITS                                                                     | 94
|GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS                                         | 96

3

---

---

# INTRODUCTION

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

In
this document, references to $, US$, US dollars and
dollars are to United States dollars, and references to NIS and
shekels are to New Israeli Shekels. This annual report contains translations
of NIS amounts into US dollars at specified rates solely for the convenience of the
reader. No representation is made that the amounts referred to in this annual report as
convenience translations could have been or could be converted from NIS into US dollars at
these rates, at any particular rate or at all. The translations of NIS amounts into US
dollars appearing throughout this annual report have been made at the exchange rate on
April 21 2009, of NIS 4.214 = US$1.00 as published by the Bank of Israel, unless otherwise
specified. See Item 3A. Key Information  Selected Financial Data 
Exchange Rate Data.

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

# FORWARD-LOOKING
STATEMENTS

This
annual report includes forward-looking statements within the meaning of Section 27A of the
US Securities Act of 1933, as amended, Section 21E of the US Securities Exchange Act of
1934, as amended, and the safe harbor provisions of the US Private Securities Litigation
Reform Act of 1995. Words such as believe, anticipate,
expect, intend, seek, will,
plan, could, may, project,
goal, target and similar expressions often identify
forward-looking statements but are not the only way we identify these statements. All
statements other than statements of historical fact included in this annual report,
including the statements in the sections of this annual report entitled Item 3D. Key
Information  Risk Factors, Item 4. Information on the Company and
Item 5. Operating and Financial Review and Prospects and elsewhere in this
annual report regarding our future performance, plans to increase revenues or margins or
preserve or expand market share in existing or new markets, reduce expenses and any
statements regarding other future events or our future prospects, are forward-looking
statements.

We
have based these forward-looking statements on our current knowledge and our present
beliefs and expectations regarding possible future events. These forward-looking
statements are subject to risks, uncertainties and assumptions about Partner, consumer
habits and preferences in cellular telephone usage, trends in the Israeli
telecommunications industry in general, the impact of current global economic conditions
and possible regulatory and legal developments. For a description of some of the risks we
face, see Item 3D. Key Information  Risk Factors, Item 4.
Information on the Company, Item 5. Operating and Financial Review and
Prospects, Item 8A. Consolidated Financial Statements and Other Financial
Information  Legal and Administrative Proceedings and Item 11.
Quantitative and Qualitative Disclosures about Market Risk. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this annual report
might not occur, and actual results may differ materially from the results anticipated. We
undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

4

---

---

# ITEM 1. IDENTITY OF
DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not
applicable.

# ITEM 2. OFFER STATISTICS
AND EXPECTED TIMETABLE

Not
applicable.

# ITEM 3. KEY INFORMATION

# 3A. Selected Financial
Data

The
following table sets forth our selected financial data as at and for each of the years in
the five-year period ended December 31, 2008, prepared in accordance with US GAAP. The
selected financial data for each of the years in the three-year period ended December 31,
2008, and at December 31, 2008 and 2007, are derived from our consolidated financial
statements set forth elsewhere in this annual report. The selected financial data for each
of the years ended December 31, 2005 and 2004, and at December 31, 2006, 2005 and 2004,
are derived from our audited financial statements not appearing in this annual report. The
selected financial data set forth below should be read in conjunction with Item 5.
Operating and Financial Review and Prospects and the financial statements and notes
thereto included elsewhere in this annual report.

|                             | Year ended December 31,
|---------------------------- | -----------------------
|
|
|
|
|Statement of Operations Data |                        
|Revenues, net                |                        
|                             |                        
|Services                     |                        
|                             |                        
|Equipment                    |                        
|                             |                        
|                             |                        
|                             |                        
|                             |                        
|Cost of revenues             |                        
|                             |                        
|Services                     |                        
|                             |                        
|Equipment                    |                        
|                             |                        
|                             |                        
|                             |                        
|                             |                        
|                             |                        
|Gross profit                 |                        
|                             |                        
|Selling and marketing        |                        
|Expenses                     |                        
|General and administrative   |                        
|Expenses                     |                        
|                             |                        
|                             |                        
|Operating profit             |                        
|                             |                        
|Financial expenses, net      |                        
|Loss on impairment of        |                        
|investments in non-          |                        
|marketable securities        |                        
|                             |                        
|                             |                        
|Income before tax            |                        
|                             |                        
|Tax expenses                 |                        
|                             |                        
|                             |                        
|Income before                |                        
|cumulative effect of a       |                        
|change in accounting         |                        
|Principles                   |                        
|                             |                        
|                             |                        
|Cumulative effect, at        |                        
|beginning of year, of        |                        
|a change in accounting       |                        
|Principles                   |                        
|                             |                        
|                             |                        
|Net income for the year      |                        
|                             |                        

(*)     We
reclassified certain overhead costs, and also gains/losses in our severance           pay
funds, to financial expenses, net, when preparing our consolidated financial
          statements for the year ended December 31, 2008. In order to provide
          comparability, we have performed similar reclassifications in our consolidated
          financial statements, as set forth in this annual report, for the years ended
          December 31, 2007 and 2006. However, the reclassifications had no material
          effect.

5

---

---

|                                  | Year ended December 31,
|--------------------------------- | -----------------------
|
|
|
|
|Earnings per ordinary             |                        
|share and per ADS                 |                        
|Basic:                            |                        
|Before cumulative effect          |                        
|Cumulative effect                 |                        
|                                  |                        
|                                  |                        
|                                  |                        
|                                  |                        
|Diluted:                          |                        
|Before cumulative effect          |                        
|Cumulative effect                 |                        
|                                  |                        
|                                  |                        
|                                  |                        
|                                  |                        
|Weighted average number           |                        
|of shares Outstanding             |                        
|                                  |                        
|Basic:                            |                        
|                                  |                        
|Diluted:                          |                        
|                                  |                        
|                                  |                        
|Other Financial Data              |                        
|                                  |                        
|Capital expenditures, net         |                        
|                                  |                        
|EBITDA(2)                         |                        
|Dividend per share (3)            |                        
|                                  |                        
|Statement of Cash Flow            |                        
|Data                              |                        
|                                  |                        
|Net cash provided by              |                        
|operating activities              |                        
|                                  |                        
|Net cash (used in)                |                        
|investing activities              |                        
|                                  |                        
|Net cash provided by              |                        
|(used in) financing               |                        
|activities                        |                        
|                                  |                        
|Balance Sheet Data (at year end)  |                        
|                                  |                        
|Current assets                    |                        
|                                  |                        
|Investments and long-term         |                        
|receivables                       |                        
|                                  |                        
|Fixed assets, net                 |                        
|                                  |                        
|License and deferred charges, net |                        
|                                  |                        
|Deferred income taxes             |                        
|                                  |                        
|                                  |                        
|Total assets                      |                        
|                                  |                        
|                                  |                        
|Current liabilities (4)           |                        
|                                  |                        
|                                  |                        
|Long-term liabilities (4)         |                        
|                                  |                        
|Total liabilities                 |                        
|                                  |                        
|                                  |                        
|Shareholders' equity              |                        
|                                  |                        
|                                  |                        
|Total liabilities and             |                        
|shareholders' equity              |                        
|                                  |                        

(*)     We
reclassified certain overhead costs, and also gains/losses in our severance
               pay funds, to financial expenses, net, when preparing our consolidated
financial                statements for the year ended December 31, 2008. In order to
provide                comparability, we have performed similar reclassifications in our
consolidated                financial statements, as set forth in this annual report, for
the years ended                December 31, 2007 and 2006. However, the reclassifications
had no material                effect.

6

---

---

|(1) | The
translations of NIS amounts into US dollars appearing throughout this annual
               report have been made at the exchange rate on April 21, 2009, of NIS 4.214
=                US$1.00 as published by the Bank of Israel, unless otherwise specified.
See                Item 3A. Key Information  Selected Financial Data  Exchange
               Rate Data.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | EBITDA
is a non-GAAP financial measure that represents earnings before interest,
               taxes, depreciation and amortization. EBITDA is presented because it is a
               measure commonly used in the telecommunications industry and is presented
solely                to enhance the understanding of our operating results. EBITDA,
however, should                not be considered as an alternative to operating income or
income for the year                as an indicator of our operating performance.
Similarly, EBITDA should not be                considered as an alternative to cash flow
from operating activities as a measure                of liquidity. EBITDA is not a
measure of financial performance under generally                accepted accounting
principles and may not be comparable to other similarly                titled measures
for other companies. EBITDA may not be indicative of our                historic
operating results nor is it meant to be predictive of potential future
               results. For a reconciliation of EBITDA to Operating Cash flow, see below.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The
dividend per share was calculated in respect of the period for which it was
               announced.
|--- | ---------------------------------------------------------------------------------------------------------

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

|                                          | Year ended December 31,
|----------------------------------------- | -----------------------
|
|
|
|
|Reconciliation Between                    |                        
|Operating Cashflow and EBITDA             |                        
|Net cash provided by operating activities |                        
|Liability for employee rights upon        |                        
|retirement                                |                        
|Accrued interest, exchange and linkage    |                        
|differences on long-term liabilities      |                        
|Amount carried to deferred charges        |                        
|Gain (loss) from assets in respect of     |                        
|severance pay funds                       |                        
|Increase (Decrease) in accounts           |                        
|receivable:                               |                        
|Trade                                     |                        
|Other (**)                                |                        
|                                          |                        
|Decrease (Increase) in accounts payable   |                        
|and accruals:                             |                        
|Trade                                     |                        
|Related parties                           |                        
|Other (**)                                |                        
|Decrease (Increase) in inventories        |                        
|Decrease (Increase) in asset retirement   |                        
|obligation                                |                        
|Financial expenses (***)                  |                        
|                                          |                        
|EBITDA                                    |                        
|                                          |                        

(1)     The
translations of NIS amounts into US dollars appearing throughout this annual
               report have been made at the exchange rate on April 21, 2009, of NIS 4.214
=                US$1.00 as published by the Bank of Israel, unless otherwise specified.
See                Item 3A. Key Information  Selected Financial Data  Exchange
               Rate Data.

(*)     We
reclassified certain overhead costs, and also gains/losses in our severance
               pay funds to financial expenses, net, when preparing our consolidated
financial                statements for the year ended December 31, 2008. In order to
provide                comparability, we have performed similar reclassifications in our
consolidated                financial statements, as set forth in this annual report, for
the years ended                December 31, 2007 and 2006. However, the reclassifications
had no material                effect.

(**)     Excluding
provision for tax expenses.

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

7

---

---

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

|                                                                | Year ended December 31,
|--------------------------------------------------------------- | -----------------------
|
|
|
|
|Partner Data                                                    |                        
|Subscribers (000's) (at period end) (4)                         |                        
|Pre-paid subscribers (000's) (at period end) (4)                |                        
|                                                                |                        
|Post-paid subscribers (000's) (at period end) (4)               |                        
|                                                                |                        
|Share of total Israeli subscribers (at period end) (5)          |                        
|Average monthly usage per subscriber ("MOU") (mins.) (6)        |                        
|Average monthly revenue per subscriber including                |                        
|in roaming ("ARPU") (NIS) (7)                                   |                        
|Churn rate (8)                                                  |                        
|                                                                |                        
|Estimated coverage of Israeli population (at period end) (9)    |                        
|                                                                |                        
|Number of employees (full time equivalent) (at period end) (10) |                        

|(1) | The
population estimates are as published by the Central Bureau of Statistics in
               Israel as of December 31, 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | We
have estimated the total number of Israeli cellular telephone subscribers
               from information contained in published reports issued by, and public
statements                made by, Pelephone Communications Ltd. (Pelephone)
and Cellcom                Israel Ltd. (Cellcom), or by their shareholders,
and from Partner                subscriber data at December 31, 2006, 2007 and 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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. As of 2008,                a prepaid subscriber is recognized as
such only following the actual use of his                prepaid SIM card. Based on this
new policy in January 2008, we reduced the                number of reported prepaid
subscribers by approximately 61,000. Applying this                policy retroactively,
the increase in subscribers in 2008 was 3.5%.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | References
to the number of subscribers are stated net of subscribers who leave or are disconnected
from the network, or who have not generated revenue for the Company for a period of over
six consecutive months ending at a reporting date.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(7) | We
have calculated Partner average monthly revenue per subscriber by (i)
               dividing, for each month in the relevant year, the Partner revenue during
the                month, excluding revenue from equipment sales and including revenue
from foreign                network operators for calls made by their roaming customers
while in Israel                using our network, by the average number of Partner
subscribers during that                month, and (ii) dividing the sum of all such
results by the number of months in                the relevant period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

---

---

|(8) | We
define the churn rate as the total number of subscribers who
               disconnect from our network, either involuntarily or voluntarily, in a
given                period expressed as a percentage of the average of the number of our
subscribers                at the beginning and end of such period. Our churn rate
includes subscribers who                have not generated revenue for us for a period of
the last six consecutive                months ending at a reporting date. This includes
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) | We
measure coverage using computerized models of our network, radio propagation
               characteristics and topographic information to predict signal levels at
two                meters above ground level in areas where we operate a 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | A
full-time employee is contracted to work a standard 186 hours per month.
               Part-time employees are converted to full-time equivalents by dividing
their                contracted hours per month by the full-time standard. The result is
added to the                number of full-time employees to determine the number of
employees on a                full-time equivalent basis.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Exchange Rate Data

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

| |               | Year ended December 31,
| | ------------- | -----------------------
|
|
|
|
| | Average(1)    |                        
| | High          |                        
| | Low           |                        
| | End of period |                        

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

| |      | October
2008 | November
2008 | December
2008 | January
2009 | February
2009 | March
2009 | April 2009
(through
April 21)
| | ---- | ------------ | ------------- | ------------- | ------------ | ------------- | ---------- | -----------------------------
|
|
|
|
| | High |              |               |               | 3.879        |               |            | 4.022                        
| | Low  |              |               |               | 3.465        |               |            | 3.752                        

On April 21, 2009, the exchange rate
was NIS 4.214 per US$1.00 as published by the Bank of Israel. Changes in the exchange rate
between the shekel and the US dollar could materially affect our financial results.

# 3B. Capitalization and
Indebtedness

Not
applicable.

3C.
          Reasons for the Offer and Use of Proceeds

Not
applicable.

# 3D. Risk Factors

You
should carefully consider the risks described below and the other information in the
report. Depending on the extent to which any of the following risks materializes, our
business, financial condition, cash flow or results of operations could suffer, and the
market price of our shares may be negatively affected. The risks below are not the only
ones we face, and other risks currently not affecting our business or industry, or which
are currently deemed insignificant, may arise.

# RISKS RELATING TO THE
REGULATION OF OUR INDUSTRY

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

We
are subject to government regulation regarding a broad range of issues in the
telecommunications industry, such as roaming charges, interconnect tariffs and other
billing and customer service matters; the construction and maintenance of antennas and
other network infrastructure; providing infrastructure access to existing or new
telecommunications services providers; frequency allocation; limitations or other
constraints on the services and products that we may sell; the terms and conditions of our
subscriber agreements; and obligations under our operating license. In addition, the
Ministry of Communications has announced its intention to increase competition in the
cellular market by, among other measures, providing Mobile Virtual Network Operator
(MVNO) licenses, Worldwide Interoperability for Microwave Access
(WiMAX) licenses and/or other licenses, starting in 2009, for the use of our
cellular network by other telecommunications services providers using competing or
complementary technologies, such as Voice Over Broadband over cellular
(VoBoC).

9

---

---

As
further described below, these regulations impose substantial limitations on our
flexibility in managing our business, may limit our ability to compete by, among other
measures, limiting our ability to develop our network, or preferring new and/or small
competitors in the allocation of new frequencies, including those designated for the next
generation of cellular services, and may increase our costs, decrease our revenues and
reduce our ability to expand our business. As a result, industry regulation has had in the
past, and may in the future have, a material adverse effect on our business and results of
operations. In addition, new laws, regulations or government policies, or changes in
current regulations, may be adopted or implemented in a manner which damages our business
and operating results, and announcements by the government, telecommunications operators
or others of changes or other developments in applicable regulations may have a negative
impact on the market value of our shares. For information regarding the principal
regulations and regulatory developments affecting our business, see Item 4B.
Business Overview  Regulation.

Furthermore,
defending ourselves against regulatory violations alleged by state authorities or
consumers has required, and may in the future require, substantial financial and
management resources. We may not always be successful in our defense, and should we be
found in violation of these regulations, we and our management may be subject to civil or
criminal penalties, including the loss of our operating license. For information regarding
on-going litigation or proceedings, see Item 8A. Consolidated Financial Statements
and Other Financial Information  Legal and Administrative Proceedings.

Recent and potential future
regulation and negotiation of roaming tariffs, both within Israel and elsewhere, may
increase our roaming expenses and prevent us from raising our tariffs. If we cannot obtain
or maintain favorable roaming arrangements, our services may be less attractive or less
profitable.

The
Ministry of Communications has declared its intention to evaluate roaming charges and,
since 2006, and more recently in November 2008 and February 2009, has requested us to
provide information regarding our roaming services. In addition, in August 2008 the
government instructed the Ministry of Communications together with other ministries to
negotiate a reduction of inbound and outbound roaming tariffs with the European Union
(EU) and/or members of the EU or countries frequently visited by Israelis, and
to consider other tools for reducing roaming charges. As a result of the Ministry of
Communications evaluation, new regulations may be implemented that would limit fees
charged by Israeli cellular companies for calls made by foreign network operators
subscribers while in Israel using our network, as well as for calls made by our own
subscribers using their handsets abroad.

Following
European regulation of roaming tariffs in July 2007, which reduced tariffs for calls made
by members of the European Union among themselves, EU member operators have raised roaming
tariffs for calls to and from non-EU member operators, resulting in higher roaming tariffs
for our subscribers.

Because
we consider roaming charges to be a significant source of revenue and profits, if roaming
tariffs are reduced as a result of the proposed negotiations or otherwise, if additional
EU member operators raise their tariffs, or if we are not able to raise our tariffs or
otherwise compensate for possibly higher roaming expenses, this could adversely affect our
profitability and results of operations.

We
rely on agreements to provide roaming capability to our subscribers in many areas outside
Israel. However, we cannot control the quality of the service that other telecommunication
companies provide, and it may be inferior to our quality of service. Equally, our
subscribers may not be able to use some of the advanced features that they enjoy when
making calls on our network.

Some
of our competitors may be able to obtain lower roaming rates than we obtain because they
may have larger call volumes, or because of their affiliations with other international
cellular operators. Competition is expected to intensify once Pelephone begins providing a
significant volume of roaming services through its new UMTS system. We are also subject to
competition from service providers that provide alternative roaming solutions. These
service providers use alternative technologies that bypass the existing method of
providing roaming services. Because these alternative roaming solutions have only recently
become available, we cannot yet judge the extent to which they will intensify competition.

If
our competitors providers can deliver a higher quality or a more cost effective
roaming service, then subscribers may migrate to those competitors and our results of
operations could be adversely affected. Further, we may not be able to compel providers to
participate in our technology migration and enhancement strategies. As a result, our
ability to implement technological innovations could be adversely affected if these
overseas providers are unable or unwilling to cooperate with the further development of
our network or if they cease to provide services comparable to those we offer on our
network.

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We have had difficulties obtaining
some of the building and environmental permits required for the erection and operation of
our network sites, and some building and environmental permits have not been applied for.
These difficulties could have an adverse effect on the coverage, quality and capacity of
our network. Operating network sites without building or other required permits may result
in criminal or civil liability to us or to our officers and directors.

Our
ability to maintain and improve the extent, quality and capacity of our network coverage
depends in part on our ability to obtain appropriate sites and approvals to install our
network infrastructure, including network sites. The erection and operation of most of
these network sites require building permits from local or regional planning and building
authorities, as well as a number of additional permits from other governmental and
regulatory authorities. In addition, as part of our UMTS network build-out, we are
erecting additional network sites and making modifications to our existing network sites,
for which we may be required to obtain new consents and approvals.

For
the reasons described in further detail below, we have had difficulties obtaining some of
the building and environmental permits required for the erection and operation of our
network sites. As of December 31, 2008, less than 10% of our network sites were operating
without local building permits or applicable exemptions. A portion of these sites are
microsites whose removal or repositioning would involve relatively low costs and little
change in our network capacity.

Network
site operation without required permits has in some cases resulted in the filing of
criminal charges and civil proceedings against us and our officers and directors, and
monetary penalties against the Company, as well as demolition orders. See Item 8A.
Consolidated Financial Statements and Other Financial Information  Legal and
Administrative Proceedings. In the future, we may face additional demolition orders,
monetary penalties and criminal charges. The prosecutors office has set up a
national unit to enforce planning and building laws. The unit has stiffened the
punishments regarding violations of planning and building laws, particularly against
commercial companies and its directors. If we continue to experience difficulty in
obtaining approvals for the erection and operation of network sites and other network
infrastructure, this could have an adverse effect on the extent, quality and capacity of
our network coverage and on our ability to continue to market our products and services
effectively. In addition, as we grow our subscriber base and seek to improve the range and
quality of our services, we need to further expand our network, and difficulties in
obtaining required permits may delay, increase the costs or prevent us from achieving
these goals in full. Our inability to resolve these issues in a timely manner could also
prevent us from achieving or maintaining the network coverage and quality requirements
contained in our license.

Uncertainties
under National Building Plan 36.Since June 2002, following the approval of the
National Building Plan 36 (the Plan), which regulates network site
construction and operation, building permits for our network sites (where required) have
been issued in reliance on the Plan. Recently, several local planning and building
authorities questioned the ability of Israeli cellular operators to receive building
permits, in reliance on the Plan, for network sites operating in frequencies not
specifically detailed in the frequency charts attached to the Plan. In a number of cases,
these authorities have refused to grant building permits for 3G network sites, claiming
that 3G frequencies are not included in the Plan. There has been no judicial ruling at
this stage. However a class action was filed against us as well as other cellular
operators with a request for the revocation of the building permits given to the 3G
network sites.

The
Plan is in the process of being changed. Current proposed changes impose additional
restrictions and/or requirements on the construction and operation of network sites and
could, if adopted, harm our ability to construct new network sites, make the process of
obtaining building permits for the construction and operation of network sites more
cumbersome and costly and may delay the future deployment of our network.

Uncertainties
regarding the validity of exemptions for wireless access devices.In addition, we have
set up several hundred small communications devices, called wireless access devices,
pursuant to a provision in the Communications Law (Telecommunications and Broadcasting),
1982, which exempts such devices from the need to obtain a building permit. A claim was
raised that the exemption does not apply to cellular communications devices and the matter
reached first instance courts a number of times, resulting in conflicting decisions. This
claim is included in an application to certify a class action filed against the three
principal cellular telephone operators. Recently, a district court ruling adopted the
position that the exemption does not apply to wireless accessdevices. We, as well
as our competitors, filed a request to appeal this ruling to the Supreme Court. In
addition, recently a district court ruled against one of our competitors and adopted the
position that a rooftop for wireless access device installation must be the highest
rooftop of the building and cannot be located at the same level as a residence or other
building that is regularly frequented by people. We currently have wireless access devices
that do not fulfill this ruling. In addition, in May 2008, the Attorney General filed an
opinion regarding this matter stating that the exemption does apply to wireless radio
access devices under certain conditions and recommended that an inter-ministry committee
be established to examine the appropriateness of future applications of the exemption to
wireless access devices given the changed circumstances since the enactment of the
exemption. In July 2008 a petition was filed with the High Court of Justice against the
Attorney Generals opinion seeking to annul the Attorney Generals opinion,
claiming that the wireless access devices are not meant for cellular devices. The Supreme
Court has not yet ruled on this matter. Should a definitive judgment hold that the
exemption does not apply to cellular devices, we may be required to remove the existing
devices and would not be able to install new devices on the basis of the exemption. As a
result, our network capacity would be negatively impacted, which could have an adverse
effect on our revenue and results of operations.

See
also Difficulties in obtaining environmental permits below for further risks
in connection with wireless access devices.

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Uncertainties
regarding requirements for repeaters and other small devices.We, like the other
cellular telephone operators in Israel, provide repeaters, also known as bi-directional
amplifiers, to subscribers seeking an interim solution to weak signal reception within
specific indoor locations. In light of the lack of a clear policy of the local planning
and building authorities, and in light of the practice of the other cellular telephone
operators, we have not requested permits under the Planning and Building Law for the
repeaters. We have received an approval to connect the repeaters to our communications
network, however, from the Ministry of Communications and have received from the Ministry
of the Environment permit types for all our repeaters. If the local planning and building
authorities determine that permits are necessary for the installation of these devices, or
any other receptors that we believe do not require a building permit, it could have a
negative impact on our ability to obtain permits for our repeaters.

In
addition, we construct and operate microwave links as part of our transmission network.
The various types of microwave links receive permits from the Ministry of the Environment
in respect of their radiation level. Based on an exemption in the Telecommunications Law,
we believe that building permits are not required for the installation of most of these
microwave links on rooftops, but to the best of our knowledge, there is not yet a
determinative ruling on this issue by the Israeli courts. If the courts determine that
building permits are necessary for the installation of these sites, it could have a
negative impact on our ability to obtain environmental permits for these sites and to
deploy additional microwave links, and could hinder the coverage, quality and capacity of
our transmission network and our ability to continue to market our transmission services
effectively.

Difficulties
in obtaining environmental permits.The Non-Ionizing Radiation law, 2006, most of
which entered into effect on January 1, 2007, defines the various powers of the Ministry
of the Environment as they relate, among other matters, to the granting of permits for
network sites. Pursuant to this law, the Ministry of the Environment will grant an
operating permit for a site only if a building permit has been properly obtained for such
site. In October 2007, the Commissioner of Environmental Protection took the position that
he will not grant and/or renew operating permits to wireless access devices, where the
local planning and building committees engineer objected to our reliance upon the
exemption for wireless access devices described above. Operating a network site or a
facility without an operating permit could subject us and our officers and directors to
criminal, administrative and civil liability.

In connection with some building
permits, we may also be required to indemnify planning committees in respect of claims
against them relating to the depreciation of property values that result from the granting
of permits for network sites.

Under
the Planning and Building Law, 1965, local planning committees may be held liable for the
depreciation of the value of nearby properties as a result of approving a building plan.
Under the Non-Ionizing Radiation Law, 2006, the National Council for Planning and Building
requires indemnification undertakings from cellular companies as a precondition for
obtaining a building permit for new or existing network sites. The National Council has
decided that until National Building Plan 36 is amended to reflect a different
indemnification amount, cellular companies will be required to undertake to indemnify the
committees in full against all losses resulting from claims against a committee for
reductions in property values. We do not know when the National Building Plan 36 will be
amended, or whether it will require full indemnification.

As
of December 31, 2008, we have provided local authorities with 307 indemnification
undertakings. These indemnifications expose us to risks which are difficult to quantify or
mitigate and which may have a material adverse effect on our financial conditions and
results of operations, if we are required to make substantial payments in connection
therewith.

In
addition, the requirement to provide indemnification in connection with new building
permits may impede our ability to obtain building permits for existing network sites or to
expand our network with the erection of new network sites. The indemnification requirement
may also cause us to change the location of our network sites to less suitable locations
or to dismantle existing network sites, which may have an adverse effect on the extent,
quality and capacity of our network coverage.

Two
further developments regarding this issue may also have a material adverse effect on our
operating results:

There
have been a number of attempts by local planning committees to join cellular telephone
operators as defendants in claims against such committees for the depreciation in value of
nearby properties as a result of the erection of network sites. If the local planning
committees succeed in including cellular phone operators in these actions, it may expose
us to significant liability and have a material adverse effect on our financial condition
and results of operation.

In
February 2007, the Israeli Minister of Interior Affairs extended the limitation period
within which depreciation claims may be brought under the Planning and Building Law from
three years from approval of the building plan to the later of one year from receiving a
building permit for a network site under National Building Plan 36 and six months from the
construction of a network site. The Minister retains the general authority to extend such
period further. This extension of the limitation period increases our potential exposure
to depreciation claims.

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We may be required in the future
to offer access to our network infrastructure to other operators, which may enable new
competitors, such as MVNOs, to enter the market, reduce our ability to provide services to
our subscribers and negatively affect our operating results.

Under
both the Communications Law (Telecommunications and Broadcasting), 1982, and our operating
license, the Ministry of Communications has the power to require us, like the other
telephone operators in Israel, to offer access to our network infrastructure to other
operators. The Grunau Committee, a public commission appointed by the Ministry of
Communications to review various issues in the Israeli communications market, published
its recommendations in March 2008, and recommended accelerating the regulatory process
required for the entry of MVNOs into the mobile telecommunications market. In August 2008,
the Ministry of Communications adopted most of the committees recommendations and in
January 2009 began conducting hearings regarding the draft MVNO license and regulations.
See Item 4B. Business Overview  Regulation  Regulatory
Developments.

We
believe that providing access to our network would require additional statutory and
regulatory action to establish inter-operator relationships, including with respect to
rates. However, if such action is taken, access to our network and our competitors
networks would lower the entry barriers for potential new competitors and increase the
likelihood of additional new competitors entering the mobile telephone market in Israel.
Our capacity is limited, and if we are required to allocate capacity to other operators,
the services to our subscribers may be harmed or we may be required to invest additional
capital in order to enable additional use of our network. If we fail to agree with new
operators that are given access to our network regarding the tariffs and additional
conditions for the usage of our infrastructure, the Ministry of Communications may impose
tariffs as well as the terms and conditions of such usage. If the Ministry of
Communications sets those tariffs too low, this may adversely affect our financial
condition. In addition, operators, such as MVNOs, might offer mobile telecommunication
services to our current customers at prices that are lower than our prices, thereby
reducing our market share and/or causing price erosion and adversely affecting our
financial results and condition.

The Ministry of Communications may
require us to terminate the use of certain spectrum or to share with another operator some
of the spectrum we are currently using on an exclusive basis, or to pay additional fees
for the use of our current spectrum. These requirements, should they become effective, may
adversely affect our network quality and capacity as well as our results of operations.

The
Ministry of Communications is conducting hearings regarding our use of spectrum which was
initially allocated for the use of a Palestinian mobile operator in the Palestinian
Authority administered areas of the West Bank and Gaza Strip (the Palestinian
Administered Areas). Our use of this spectrum is based on an agreement with the
Palestinian mobile operator. The agreement was endorsed by both the Israeli and the
Palestinian Ministries of Communications.

Although
we believe that we are entitled to use this spectrum and that we are paying the required
consideration for the use of all our existing spectrum, including this spectrum, the
result of such a hearing might be a requirement by the Ministry of Communications to
terminate the use of that spectrum and/or to pay an additional substantial fee for the use
made of that spectrum.

In
addition, there are demands from different third parties to rearrange the current spectrum
allocation in Israel and the Palestinian Administered Areas, particularly the 900 Mhz
frequencies, and also to allocate additional frequencies for the use of other mobile
operators in the Palestinian Administered Areas. There are also demands to allocate
additional frequencies for mobile operators, including WiMAX operators, which we may need
for our next generation GSM technology.Some of these frequencies have already been
allocated to third parties. If such frequencies are not available to us in the future, it
may harm our ability to migrate to the next generation of GSM technology, such as Long
Term Evolution (LTE).

Also,
if such a frequency rearrangement takes place, then the spectrum that has been allocated
to us for use on an exclusive basis may also be allocated to another operator in the
Palestinian Administered Areas, or we may be required to terminate the use of part of our
existing spectrum, which might be replaced by an allocation of a new band of spectrum that
may be of inferior quality.

If
we were to be prevented from using a portion of our existing spectrum, or if alternative
equivalent spectrum are not allocated to us, or if we were to be required to share some of
our spectrum or to pay significant additional amounts for use of our existing spectrum,
this could have a material adverse effect on our operations and profitability.

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

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

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

Our business and operating results
have been adversely affected by reductions in call and SMS interconnect tariffs imposed by
the Ministry of Communications, and may be further adversely affected by future regulatory
developments in these areas. We may be subject to sanctions or claims in connection with
these regulatory developments.

The
Ministry of Communications has lowered mandated call interconnect tariffs and SMS
interconnect tariffs from the beginning of 2005 to March 2008. Although we have
implemented cost-cutting measures as well as price increases and repackaging of our tariff
plans in response to these tariff reductions, the regulatory changes imposing interconnect
tariff reductions negatively impacted our revenues and profits.

Interconnect
tariffs  further possible regulatory developments.The Ministry of
Communications may further examine interconnect tariffs and as a result may further reduce
these tariffs, which may adversely affect our revenues and profits. A publicly appointed
commission (the Grunau Committee) recommended the further examination of this issue, and,
in addition, the Ministry of Communications has indicated that it intends to start
implementing a process to unify rates for calls terminating both on and off an
operators network, which may limit or eliminate our ability to pass on to our
customers the charges we bear when our customers calls must be transmitted into the
network of another telecommunications services provider in order to reach the intended
party. Preliminary hearings with cellular operators in Israel on this matter commenced in
August 2005, but have been suspended and might be resumed in the future. This change in
regulations, if implemented, could adversely affect our revenues and profits.

SMS
tariffs  further possible regulatory developments.In 2005, our license was
amended to regulate charging for SMS messages sent outside our network. Due to
technological difficulties encountered by our competitors and us in fully complying with
this amendment, we may face claims, under one interpretation of the amendment, of not
having implemented the amendment with respect to SMS messages sent to subscribers of two
other Israeli cellular operators. We have notified the Ministry of Communications of the
difficulty. The Ministry has proposed an amendment to our license, but we are uncertain as
to the effectiveness of the amendment in resolving the difficulty. Until such time as the
cellular operators develop the necessary interfaces or our license is amended, we may be
exposed, to substantial sanctions and legal claims for violation of our license.

Our mobile telephone license
imposes certain obligations on our shareholders and restrictions on who can own our
shares. Ensuring compliance with these obligations and restrictions may be outside our
control, but if the obligations or restrictions are not respected by our shareholders, we
could lose our license.

As
with other companies engaged in the telecommunications business in Israel, our license
requires that a minimum economic and voting interest in, and other defined means of
control of, our company be held by Israeli citizens and residents or entities under their
control. If this requirement were not complied with, we could be found to be in breach of
our license, even though ensuring compliance with this restriction may be outside our
control.

The
Ministry of Communications amended our license effective April 14, 2005, reducing the
required holdings by Israeli citizens and residents from 20% to 5%, which must be held by
our founding shareholders who are Israeli entities or their approved substitutes. The
amendment also requires that these shareholders appoint at least 10% of our Board of
Directors. In 2006, our founding Israeli shareholders sold substantially all of their
shares in the Company to Israeli institutional investors, who are approved substitutes.
See Item 7A. Major Shareholders  Significant Changes in Holdings of Major
Shareholders During the Past Three Years. If our shareholders do not respect these
conditions, we may be found to be in violation of our license.

In
addition, no transfer or acquisition of 10% or more of any of such means of control, or
the acquisition of control of our company, may be made without the consent of the Ministry
of Communications. Our license also restricts cross-ownership and cross-control among
competing mobile telephone operators, including the ownership of 5% or more of the means
of control of both our company and a competing operator, without the consent of the
Ministry of Communications, which may limit certain persons from acquiring our shares.
Shareholdings in breach of these limits relating to transfers or acquisitions of means of
control or control of Partner could result in two consequences. First, the shares that are
in excess of the limits will be converted into dormant shares, with no rights
other than the right to receive dividends or other distributions to shareholders, and to
participate in rights offerings until such time as the consent of the Ministry of
Communications has been obtained. Second, the breach of the limits could result in the
revocation of our license.

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

InMarch
2005, the Telecommunications Law was amended to require the Minister of Communications to
implement a mobile number portability plan by September 2006. The number portability plan
permits subscribers in Israel to change their service provider to another service provider
while retaining the same telephone number. The mandated number portability plan was
launched by all telecommunications operators in December 2007. As a result of the removal
of the barrier to switching operators, all telecommunication operators experienced an
increase in customer churn in 2008. Our churn rate increased from 15% in 2007 to 17.8% in
2008. We expect the churn rate to remain higher as a result of both the change in
regulations and increased market competition.

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In
addition, the Ministry of Communications has notified us, as well as the other operators,
that it is considering imposing monetary sanctions on relevant telecommunication license
holders, including us, in accordance with the Telecommunications Law for alleged violation
of the obligation to implement number portability by September 2006. We submitted our
position to the Ministry stating that the delay was a result of the Ministrys
failure to adequately plan and design the number portability plan. As a result of this
dispute, we may be exposed to substantial monetary sanctions and further legal claims.

# RISKS RELATING TO OUR
BUSINESS OPERATIONS

Actual and alleged health risks
related to network sites and the use of mobile telecommunications devices, including
handsets, could have a material adverse effect on our business, operations and financial
condition.

A
number of studies have been conducted to examine the health effects of wireless phone use
and network sites, and some of these studies have been construed as indicating that
radiation from wireless phone use causes adverse health effects. Media reports have
suggested that radio frequency emissions from network sites, wireless handsets and other
mobile telecommunication devices may raise various health concerns. While, to the best of
our knowledge, the handsets that we market comply with the applicable laws that relate to
acceptable Specific Absorption Rate (SAR) levels, we rely on the SAR levels
published by the manufacturers of these handsets and do not perform independent
inspections of the SAR levels of these handsets. As the manufacturers approvals
refer to a prototype handset, we have no information as to the actual level of SAR of the
handsets along the lifecycle of the handsets, including in the case of repaired handsets.

Several
lawsuits have been filed outside of Israel against operators and other participants in the
wireless industry alleging adverse health effects and other claims relating to radio
frequency transmissions to and from sites, handsets and other mobile telecommunications devices, including one lawsuit
against us and two other cellular telecommunication companies
with respect to cell sites allegedly causing environmental damage. See Item 8A - Financial Information - Legal and
Administrative Proceedings.
We may be subject to additional future litigation relating to these health concerns.

Recently,
a municipal court ruled against one of our competitors, stating that there is no need for
the standard burden of proof to prove damages from a cellular network site, and that under
certain circumstances it would be sufficient to prove the possibility of damage in order
to transfer the burden of proof to the cellular companies. Although we were not a party to
this proceeding, such rulings could have an adverse affect on our ability to contend with
claims of health damages as a result of the erection of network sites.

The
Ministry of Health published in July 2008 recommendations regarding precautionary measures
when using cellular handsets. The Ministry of Health indicated that although the findings
of an international study on whether cellular phone usage increases the risk of developing
certain tumors were not yet finalized, partial results of several of the studies were
published, and while these studies did not demonstrate a connection between cellular phone
exposure and tumor growth, a relationship between prolonged cellular phone usage and tumor
development was observed in some of these studies. These recent studies, as well as the
precautionary recommendations published by the Ministry of Health, have increased concerns
of the Israeli public.

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

Competition from existing
telecommunications providers, and potential changes in the competitive environment and
communications technologies, may cause an increase in subscriber acquisition and retention
costs or a decrease in tariffs, and may reduce our market share and increase churn rate,
all of which could adversely affect our business and results of operations.

Competition
with existing cellular service providers.We compete primarily with Cellcom, Pelephone
and MIRS, the other cellular telephone network operators in Israel.

Cellcom
is an Israeli corporation that is part of the IDB group, a large Israeli holding company
which is also active in diversified businesses with holdings in subsidiary companies that
operate in many different markets in Israel. Cellcom is also active in the Israeli
communications market providing high speed internet, international telephone services and
wireline and land-line communications services. Due to the IDB groups strong
position in Israel, we believe that in some cases we have experienced and may further
experience the loss of business subscribers who are affiliates of the IDB group or do
business with the IDB group, and who transfer their cellular business to Cellcom. In 2006,
Cellcom expanded its UMTS/ High Speed Downlink Packet Access (HSDPA) and in
2008 launched its High Speed Uplink Packet Access (HSUPA) service, which may
increase competition in this market segment.

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Pelephone, which initially was a non-GSM operator, has used CDMA-1x real time
technology (RTT), and is an Evolution Data Optimized (EVDO)
operator, launched in early 2009 its new UMTS/HSXPA network. Pelephones new network
may strengthen Pelephones position among the other UMTS operators by offering
roaming services and popular handsets.

Introduction
of additional UMTS/HSXPA technology may increase the competition level in the mobile
market affecting our churn rates, customer retention costs and roaming revenues.

Because
of the ease of switching between mobile operators, particularly following the introduction
of the number portability plan, we have already faced and may continue to face an increase
in our churn rate. Like us, all telecommunication operators experienced an increase in
customer churn in 2008. Our churn rate increased from 15% annual churn rate in 2007 to
17.8% in 2008. The increase of our churn rate may require us to increase our customer
retention costs in order to retain our subscribers.

We
are also subject to competition from service providers that provide alternative roaming
solutions. These service providers use alternative technologies that bypass the existing
method of providing roaming services. Because these alternative roaming solutions have
only recently become available, we cannot yet judge the extent to which they will
intensify competition.

Ministry
studies to introduce new competitors and enhance competition.In 2007, the Ministry of
Communications engaged NERA, an international consulting firm, to review the level of
competition in Israels mobile market and to review whether to allow the entry of new
operators, including MVNO operators, into the Israeli telecommunications market. Based on
the findings of their review, the Ministry of Communications has begun conducting hearings
regarding a draft MVNO license and regulations. In addition, the Ministry of
Communications has announced its intention to increase competition in the cellular market
by providing WiMAX licenses and/or other licenses starting in 2009 for the use of our
cellular network by other telecommunications services providers using competing or
complementary technologies, such as Voice Over Broadband over cellular
(VoBoC).

In
March 2008, the Grunau Committee, a public commission appointed in 2006 by the Ministry of
Communications to review various issues in the Israeli communications market, published
its recommendations which included: to accelerate the procedures necessary to allow the
entry of MVNOs and additional infrastructure-based operators to the mobile market; to
publish a WiMAX frequencies tender for mobile use; to examine interconnect fees and
further revise them accordingly, during 2009; to regulate charges for cellular-originated
international calls and, subject to such regulation, to allow cellular operators to enter
the international long distance market; and to prohibit a linkage between a cellular
services transaction and a handset purchase transaction. The commission further
recommended the unbundling of Bezeqs network to be followed by reducing some of the
restrictions with respect to offering integrated packages of services currently imposed on
Bezeq and its subsidiaries. In August 2008, the Ministry of Communications adopted
most of the recommendations of the Grunau Committee. In addition, the Ministry of
Communications is currently conducting a hearing in order to enable Bezeqs
subsidiaries to market, together with Bezeq, bundled services that include both
Bezeqs services and the subsidiaries services so that both Bezeq as well as
its subsidiaries can offer a wide variety of services, such as land-line telephony, mobile
telephone, internet and multi channel television, to the public and allow the consumer to
acquire all services in one package from a single vendor. See Item 4B. Business
Overview-Regulation-Regulatory Developments.

If
the Ministry of Communications decides to allow the entry of new operators into the
Israeli telecommunications market, or to adopt other measures considered in the studies
described above, competitive pressures may increase, which could adversely affect our
business and results of operations.

WiMAX
licenses.In February 2009, the Ministry of Communications published a policy with
regard to WiMAX spectrum licenses for the provision of cellular and land-line services to
existing and future communication service providers. The Ministry of Communications also
stated that it intended to promote competition in the cellular market by potentially
granting preferences to existing telecommunications services providers in this regard.
Cellular WiMAX is a competitive technology to HSDPA and LTE, which are the next generation
of GSM technologies. Granting WiMAX licenses to new operators or to any of our competitors
and not to us might offer them a competitive advantage and adversely affect our business.
Furthermore, if the Ministry of Communications allocates to new WiMAX operators
frequencies which we may need for our next GSM generation technology, this may impair our
ability to compete. Some of these frequencies have already been allocated to third
parties. If such frequencies are not available to us in the future, it may harm our
ability to migrate to the next generation of GSM technology, such as LTE.

The
Ministry of Communications has granted a special license to a few of the new land-line
operators to conduct a marketing experiment that will examine the provision of domestic
telephony services using VoBoC technology.

Land-line
competition. To the extent that land-line telephones are used instead of mobile
telephones, we also compete with Bezeq, the incumbent land-line operator in Israel, HOT
Cable Communication Systems Ltd (HOT), the cable television operator in
Israel, and other land-line operators. Bezeq owns 100% of the shares of Pelephone, which,
as mentioned above, may enable Pelephone and Bezeq to offer bundled services of land-line,
mobile telephone and other telecommunication services, subject to regulatory approval.

Several
new operators, including 012 smile communications ltd (012 smile), Netvision
013 Barak (Netvision) and Xfone Communication Ltd (Xfone), entered
the land-line market in 2007 and 2008 based on Voice Over Broadband (VoB)
services using the infrastructure of Bezeq and HOT to access customers and to provide them
with land-line telephony service. Other VoB operators may enter the mobile
telecommunications services market in the future and increase the level of competition we
face. As a result of these developments in the competitive environment, we may experience
increased costs to attract and retain subscribers, and further pressure on tariffs.

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New
Business Initiatives. In December 2008 and January 2009, we launched three additional
non-cellular business lines: Voice over Broadband (VoB) telephony services,
internet service provider (ISP) services and Web VOD (video on demand). 2009
will be the first full year that we operate these services. As expected in new markets, we
face new competitors and competition patterns. We may be at a competitive disadvantage
relative to operators who may be able to offer bundled services of land-line, mobile
telephone, television and other communications services, using their wholly- or
partially-owned infrastructure. As a result of these market conditions, we may not meet
our business plan for the new lines of business. We may face fierce competition in this
area in a manner that will not enable us to establish substantial presence in these
businesses.

Telecommunications
industry consolidation.The telecommunications market might face consolidation in a
manner which potentially decreases our competitive position. Various groups in the Israeli
telecommunications market might acquire or build new complementary lines of business in
order to provide a full range of telecommunications services packages. We might face
difficulties in obtaining the required services and product components, such as last mile
access to the customers premises, that are essential to compete with our
competitors bundled offerings. There are two major groups in the Israeli
telecommunications market that currently operate a wide range of telecommunications
services, including mobile, fixed-line, data transmission and internet. One of the groups
also offers multichannel pay-TV services and therefore already possesses a full range of
telecommunications businesses within the group. Subject to legal restrictions, the group
might be able in the future to offer full packages of bundled services. The other
telecommunications group may further develop its telecommunications portfolio by
acquisitions of additional businesses in order to also be able to offer a complete range
of telecommunications services. Such developments could substantially affect our position
in the Israeli telecommunications market, in particular, by attracting a broad range of
telecommunications subscribers to one or two full-service telecommunications groups, as
well as by permitting such a group or groups to apply substantial pressure on market
prices for selected sectors. If such developments were to occur, our business and results
of operations could be materially adversely affected.

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

Although
Israels mobile telephone services market has experienced substantial growth, and we
have experienced substantial subscriber growth since our commercial launch in 1999, the
Israeli market for mobile telephone services is now highly penetrated, and the growth of
the overall Israeli market and of our own subscriber base has been slower than in the
past. According to a recent report issued by a research company, at the end of the third
quarter of 2008, Israels mobile telephone market penetration is estimated to be
approximately 125%. This includes dormant subscribers as well as subscribers who are not
included in the Israeli population figures, such as Palestinians, visitors, and foreign
workers. While in the past our revenue growth has largely resulted from growth in the
overall market, our future revenues will depend significantly on our ability to retain
existing subscribers and to attract subscribers from the other mobile telephone network
operators as well as on our ability to generate higher revenues from existing subscribers.

In the event critical elements of
our mobile network are damaged or rendered non-operational, we may not be able to replace
them or return them to service quickly and, as a result, we may not be able to provide
telecommunications services to a substantial portion of our subscribers for an
indeterminate period of time.

Some
elements of our mobile network perform critical functions for broad sectors of our network
operation, such as switching and data platforms. If such a critical element were damaged
due to fire, water, earthquake or some other natural or man-made cause, an entire sector
of our network coverage may be rendered non-functioning, which means that we would not be
able to provide telecommunications services to a substantial portion of our subscribers.
Although we have prepared disaster recovery plans, it is not possible to determine in
advance how effective such plans will be, and in particular how quickly we will be able to
restore service. In the event we are unable to provide telecommunications services to a
substantial portion of our subscribers for an extended period of time, our business and
short- and long-term results of operations will be materially negatively affected.

We could be subject to legal
claims due to the inability of our information systems to fully support our calling plans.

In
order to attract and retain the maximum number of subscribers in our highly competitive
market, we design specific calling plans to suit the preferences of various subscriber
groups. We require sophisticated information systems to record accurately subscriber usage
pursuant to the particular terms of each subscribers plan, as well as accurate
database management and operation of a very large number of calling plans. From time to
time, we have detected some discrepancies between certain calling plans and the
information processed by our internal information systems, such as applying an incorrect
rebate or applying an incorrect tariff to a service, resulting in a higher charge. We have
invested substantial resources to refine and improve our information and control systems
and ensure that our calling plans are appropriately processed by our information systems.
We have also taken steps to remedy the identified discrepancies. Despite our substantial
investments, we may experience discrepancies in the future due to the multiplicity of our
plans and the scope of the processing tasks. Further, while we invest substantial efforts
in monitoring our employees and third-party distributors and dealers that market our
services, it is possible that some of our employees, distributors or dealers may offer
terms and make (or fail to make) representations to existing and prospective subscribers
that do not fully conform to applicable law, our license or the terms of our calling
plans. As a result of these discrepancies, we may be subject to subscribers claims,
including class action claims, and substantial sanctions for breach of our license that
may materially adversely affect our results of operations.

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We are exposed to, and currently
engaged in, a variety of legal proceedings, including several potential class action
lawsuits related primarily to our network infrastructure and consumer claims.

In
addition to a number of legal and administrative proceedings arising in the ordinary
course of our business, we have been named as defendants in a number of civil and criminal
proceedings related to our network infrastructure, which may result in civil liabilities
or criminal penalties against us or our officers and directors, and consumer claims
regarding, for example, our tariff plans and billing methods, which may result in
significant monetary damages and civil penalties. See Item 8. Financial Information
 Legal and Administrative Proceedings. Plaintiffs in some of these proceedings
are seeking certification as class actions and recently, a class was certified in
proceedings asserting liability against us (and another Israeli provider of cellular
telecommunications services) for actions taken by a third-party content provider, who is
also a defendant in this claim, however we do not belive that an adverse judgement against
us in connection with such proceedings would have a material affect on our financial condition.
Unless and until any of the other outstanding claims is recognized as a
class action, we and our legal counsel are unable to evaluate the probability of success
of such claim, or the range of potential loss, with any degree of certainty, and therefore
no provision has been made.

We
are subject to the risk of intellectual property rights claims against us, including in
relation to innovations we develop ourselves and the right to use content, including music
content, which we have purchased from third parties who present themselves as the owners
of the intellectual property rights included in the content, or as the representatives of
the owners of the intellectual property, when in fact it may not be the case. These claims
may require us to initiate or defend protracted and costly litigation, regardless of the
merits of these claims. If any of these claims succeed, we may be forced to pay damages or
may be required to obtain licenses for the infringing product or service. If we cannot
obtain all necessary licenses on commercially reasonable terms, we may be forced to stop
using or selling the products and services, which could adversely affect our ability to
provide certain services and products.

The telecommunications industry is
subject to rapid and significant changes in technology and industry structure which could
reduce demand for our services.

We
may face competition from existing or future technologies, including land-line and
cordless technologies, satellite-based personal communications services, private and
shared radio networks, broadband wireless access services, voice over Internet Protocol
services, wireless fidelity (Wi-Fi) technologies,WiMAX, VoBoC, and
other communications technologies that have the technical capability to handle mobile
telephone calls and to interconnect with the land-line telephone network and with internet
networks. The effect of emerging and future technological changes, including the
convergence of technologies and the introduction of new competitors with the ability to
provide mobile telecommunication services to customers while mobile, on the viability or
competitiveness of our network cannot be accurately predicted. The technologies we employ
or intend to employ may become obsolete or subject to competition from new technologies in
the future, and competition from new technologies in the future may have a material
adverse impact on our business and results of operations.

Moreover,
global equipment vendors and internet providers have expressed their interest in
penetrating the mobile industry and strengthening their position along the value chain.
They intend to provide direct access to the end-user to a wide variety of applications and services. Such a change might adversely change our competitive
position and increase the dominance of those new providers at the expense of cellular
service providers. Changes in the industry value chain structure might result in an
increase in our expenses as well as a decrease in our revenue generated from those
services.

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

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

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

Our
ability to provide commercially viable cellular telephone services depends upon our
ability to interconnect with the telecommunications networks of existing and future
land-line, cellular telephone and international operators in Israel in order to complete
calls between our customers and parties on the land-line or other cellular telephone
networks. All land-line, cellular telephone and international operators in Israel are
legally required to provide interconnection to, and not to discriminate against, any other
licensed telecommunications operator in Israel. We have signed interconnect agreements
with cellular telephone network operators in Israel, and with Israeli international
operators, and in July 2008, we signed an agreement with Bezeq for the provision of
land-line transmission services which replaces an earlier transmission agreement. As
regards interconnection to Bezeqs land-line network, we are currently operating
without any formal agreements with Bezeq, and our day-to-day arrangements with Bezeq
substantially conform to a draft interconnect agreement negotiated with Bezeq.

We
have no control over the quality and timing of the investment and maintenance activities
that are necessary for these entities to provide us with interconnection to their
respective telecommunications networks. The failure of these or other telecommunications
providers to provide reliable interconnections to us on a consistent basis could have a
material adverse effect on our business, financial condition or results of operations.
Disruptions, stoppages, strikes and slowdowns experienced by them may significantly affect
our ability to provide cellular telephone services. The failure by our suppliers to
provide reliable transmission services to us on a consistent basis could have a material
adverse effect on our business, financial condition or results of operations.

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

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

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

We
purchased our network equipment, such as switching equipment, base station controllers and
base transceiver stations and network software, from Alcatel (which acquired the Nortel
UMTS business in 2006), Ericsson and Nokia. As of January 2008, we purchase all our UMTS
network equipment from Ericsson, which increases our dependence on them as our sole vendor
for our UMTS network. Although our network utilizes standard equipment that is produced by
several suppliers, we cannot be certain that we will be able to obtain equipment from one
or more alternative suppliers on a timely basis in the event that any of our suppliers is
unable to satisfy our equipment requirements. Our results of operations could be adversely
affected if our supplier fails to provide us with adequate supplies of equipment, as well
as ongoing maintenance support, in a timely manner. In addition, our results of operations
could be adversely affected if the price of network equipment rises significantly. In our
experience, suppliers from time to time extend delivery times, limit supplies and increase
the prices of supplies due to their supply limitations and other factors.

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

Substantially
all of our revenues and a majority of our operating expenses are denominated in shekels.
However, in recent years, approximately one quarter of our operating expenses (excluding
depreciation and amortization), including a substantial majority of our equipment
purchases, were linked to non-shekel currencies, mainly the US dollar. These expenses
related principally to the acquisition of handsets, where the price paid by us is based
mainly on US dollars. In addition, a substantial majority of our capital expenditures
(including with respect to our 3G networks) are incurred in, or linked to, non-shekel
currencies, mainly US dollars. Thus, although the relative decline in value of the US
dollar against the shekel has helped offset increases in our financial and operating
expenses in recent years, any devaluation of the shekel against the dollar (or other
foreign currencies) will increase the shekel cost of our non-shekel denominated or linked
expenses and capital expenditures. Such an increase may have an adverse impact on our
results, which may be material. Material changes in exchange rates may cause the amounts
that we must invest to increase materially in shekel terms.

We
hedge a portion of our foreign currency commitments. As of December 31, 2008, the notional
amounts of our foreign currency derivatives were approximately US$100 million and 6
million Euro. Our derivative transactions are mainly designed to hedge short-term cash
flows related to anticipated payments in respect of purchases of handsets and capital
expenditures in foreign currency.

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Our
bank credit facility borrowings and repayments of principal and interest on our Notes due
2012 are currently in shekels, most of which are linked to the consumer price index
(CPI). We may not be permitted to raise our tariffs pursuant to our license in
a manner that would fully compensate for any increase in the CPI. Therefore, an increase
in the rate of inflation may also have a material adverse impact upon us by increasing our
financial expenses without an offsetting increase in revenue. We enter into derivative
transactions in order to protect ourselves from an increase in the CPI. As of December 31,
2008, the notional amounts of our CPI derivatives were approximately NIS 800 million (or
approximately 37% of our CPI exposure at that date).

See
Item 11. Quantitative and Qualitative Disclosures About Market Risk for more
information regarding the Companys exposure to exchange rate fluctuations and
inflation.

If we are not able to successfully
integrate new businesses or technologies, our business, brand and results of operations
may be harmed.

In
order to expand and improve our offering of services to our subscribers, attract new
subscribers and secure new sources of revenue, we may acquire or develop complementary
businesses and technologies some of which we have launched in January 2009. The identification, acquisition and integration of new
businesses or technologies may require substantial management resources, cause us to incur
unforeseen costs and disrupt our ongoing business. Until now we have not engaged in
significant acquisitions. If we are not able to successfully integrate any such new
businesses quickly and efficiently with our existing business, our business, brand,
results of operations, financial condition or cash flows may be harmed.

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

Our
efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002
relating to the evaluation of our internal control over financial reporting have resulted
in increased general and administrative expenses and required substantial management time
and attention. We expect these efforts to require a continued commitment of resources. If
we fail to maintain the adequacy of our internal controls, we may not be able to conclude
on an ongoing basis that we have effective internal control over financial reporting.
Although our management has concluded that our internal control over financial reporting
was effective as of December 31, 2008, we may identify material weaknesses or other
disclosable conditions in our future control over financial reporting. Failure to maintain
effective internal control over financial reporting could result in investigation or
sanctions by regulatory authorities and significant effort and expense, and could have a
material adverse effect on our operating results and on the market price of our ordinary
shares.

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

The
political and military conditions in Israel directly influence us. Since the establishment
of the State of Israel in 1948, a number of armed conflicts have taken place between
Israel and its Arab neighbors. Hostilities involving Israel, the interruption or
curtailment of trade between Israel and its trading partners and political instability
within Israel or its neighboring countries are likely to cause our revenues to fall and
harm our business. The establishment in 2006 of a government in the Palestinian Authority
by representatives of the Hamas militant group has created additional unrest and
uncertainty in the region. Repeated attacks by Hamas including missile strikes against
Israel, led to an armed conflict between Israel and the Hamas in December 2008 and January
2009. Ongoing violence between Israel and its Arab neighbors and Palestinians may have a
material adverse effect on the Israeli economy, in general, and on our business, financial
condition or results of operations. In particular, in recent conflicts, missile attacks
have occurred on civilian areas, which could cause substantial damage to our
infrastructure network, reducing our ability to continue serving our customers as well as
our overall network capacity.

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

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

We may not be able to fulfill our
dividend policy in the future. If we implement our current dividend policy, we will reduce
our future cash reserves, which may require us to borrow additional money.

We
first distributed dividends in 2005, and we have distributed dividends in each subsequent
year. The total amount of dividends distributed for 2008 was approximately NIS 841 million
(US$ 200 million), or NIS 5.45 per share, and represented approximately 80% of annual net
income. In addition, between the first quarter of 2008 and the third quarter of 2008, we
purchased in open market transactions approximately 4.5 million of our shares for a total amount
of approximately NIS 351 million (US$ 83 million). Under Israeli law, the payment of
dividends may be made only from accumulated retained earnings or, for a company such as
Partner Communications with negative net capital surplus, retained earnings accrued over a
period of eight quarters (after deducting prior dividends to the extent not already
deducted from retained earnings), and in either case, provided there is no reasonable
concern that the dividend will prevent the company from satisfying current or foreseeable
obligations as they come due. Accordingly, there is no assurance that we will be able to
continue paying dividends or increase our payment of dividends in the future, nor is there
any assurance that our Board of Directors will not change our dividend policy in the
future.

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Our
current dividend policy, if implemented, will significantly reduce our future cash
reserves and may adversely affect our ability to fund unexpected capital expenditures as
well as our ability to make interest and principal repayments on our financial
indebtedness. As a result, we may be required to borrow additional money, which may not be
possible on attractive terms or at all. See also the following risk factor regarding the
risks related to future borrowing created by the current economic environment.

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

# Our business results may
be affected by continued recession.

Most
of our revenues are usage dependant. The current global economic downturn is already
affecting our results through a significant adverse impact in roaming activity, and to a
certain extent also has a negative impact on average monthly usage per subscriber
(MOU), average monthly revenue per subscriber (ARPU) and
recruitment of new subscribers and in larger provisions for doubtful debt expenses. If the
global economic downturn continues, usage of any of our services may decrease and we may
not be able to compensate for lost revenues. This may have a material adverse effect on
our results of operations, financial condition or prospects. The recession may also result
in a further deterioration in the ability of our customers to pay amounts owed to us.
Failure of one or more of our larger business customers to pay the amount owed to us may
materially increase our bad debts and may have a material adverse effect on our results of
operations and financial condition. Furthermore, the recession may adversely affect third
parties we rely upon in the provision of our services, including interconnecting
telecommunication providers, roaming partners and services and equipment providers. If our
service or equipment providers fail to provide reliable and consistent services and/or
equipment to us on the requisite standards of quality and on a timely basis, our ability
to provide services to our subscribers may be reduced in scope and/or in quality, until
and inasmuch as an alternative provider can be found, and consequently our license may be
at risk of revocation for failure to satisfy the required service standards. An
alternative provider and/or solution may involve additional expenses and/or investments on
our part and/or may involve terms that are less favorable to us, including reduced
revenues. In addition, if any damage is caused to us, or if we are found liable for
damages caused to third parties by such service or equipment providers and such providers
are unable to indemnify us for such damages, we may have to bear the cost of such damages,
which may be substantial, and such outcome may adversely affect our financial condition.

Finally,
we may seek to fund the repayment of the current portion of our Notes due 2012 (In 2009, NIS 542 million in
principal plus approximately NIS 86.3 million in interest linked to the CPI as of
December 31, 2008 and assuming no future change in the CPI)
through additional bank loans, the issuance of new corporate notes and/or
the securitization of accounts receivable. Particularly in light of current global
economic conditions, there can be no assurance that we will be able to obtain additional
bank loans, issue new corporate notes or securitize accounts receivable on acceptable
terms or at all, which could have a material adverse effect on our cash flow and financial
condition.

RISKS
RELATED TO OUR CONTROLLING SHAREHOLDER

# Our company is
controlled by a single shareholder.

As
of March 31, 2009, our controlling shareholder, Hutchison Telecommunications International
Limited (Hutchison Telecom), who has been a major shareholder since we were
created, held approximately 51.41% of our issued and outstanding shares and total voting
rights. Hutchison Telecom has the ability to influence our business through its ability to
control all actions that require majority approval by the shareholders and through its
representatives on our Board of Directors. Hutchison Telecom is not obligated, however, to
provide us with financial support or to exercise its rights as a shareholder in our best
interests or in the best interests of our minority shareholders and noteholders, and it
may engage in activities that conflict with such interests. If the interests of our
controlling shareholder conflict with the interests of our other shareholders and
noteholders, those shareholders and noteholders could be disadvantaged by the actions that
this controlling shareholder chooses to pursue. In addition, our controlling shareholder
may cause our business to pursue strategic objectives that may conflict with the interests
of our other shareholders and noteholders.

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

Hutchison
Telecom and its largest shareholder, Hutchison Whampoa Limited (HWL), are
global players in the cellular telecommunications market. We benefit from the knowledge
and experience of Hutchison Telecom and HWL in terms of both strategic advice and
assistance in developing our business, and the recognition we have acquired in the
industry as a result of their association with our company. Hutchison Telecom may not
continue to be our controlling shareholder, and HWL may not continue to be the largest
shareholder of Hutchison Telecom. If Hutchison Telecom ceases to be our controlling
shareholder, or HWL ceases to be the largest shareholder of Hutchison Telecom, we may not
continue to enjoy the current advantages of our relationship with Hutchison Telecom and
HWL.

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# ITEM 4. INFORMATION ON
THE COMPANY

# 4A. History and
Development of the Company

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

Since
our incorporation, we have achieved a number of important milestones:

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

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

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

| | In
December 2001, the Ministry of Communications awarded us two bands of spectrum: one band
of GSM 1800 spectrum and one band of 2100 UMTS third generation spectrum.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | 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
August 2005, we redeemed our outstanding $175 million 13% unsecured senior subordinated
notes.
|- | -------------------------------------------------------------------------------------------------

| | 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
July 2006, we purchased Med-1 I.C.1 (1999) Ltd.s fiber-optic transmission
business for approximately NIS 71 million (US$16.8 million), in order to enable us to
reduce our transmission costs as well as to provide our business customers with bundled
services of transmission of data and voice and land-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:
Voice over Broadband (VoB) telephony services, internet service provider (ISP)
services and Web VOD (video on demand). See Item 4B. Business Overview  Services
and Products  Value-Added Services.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For
information on our capital expenditures for the last three financial years, and for the
principal capital expenditures currently in progress, see Item 5B. Liquidity and
Capital Resources

22

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# 4B. Business Overview

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. As of January 2008, a prepaid subscriber has been, and will continue
to be, recognized as such only following the actual use of his prepaid SIM card.
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.

We
were the first GSM mobile telephone network operator in Israel. We received our mobile
telephone license in April 1998, commenced full commercial operations of our digital GSM
cellular telephone network in January 1999 and on December 1, 2004 we commercially
launched our third generation, or GSM, service. Since then, we have expanded rapidly, and
on December 31, 2008, we had approximately 2.898 million subscribers, representing an
estimated 31.4% of total Israeli cellular telephone subscribers at that date. During the
twelve months ended December 31, 2008, we increased our customer base by approximately
3.5% (based on the application of our new policy regarding pre-paid subscriber recognition
at both year-end 2007 and 2008), with approximately 99,000 net active new subscribers
joining the Company in 2008, compared to 192,000 net new subscribers in 2007. At December
31, 2008, approximately 47.2% of our customer base (approximately 1,368,000 subscribers)
was represented by private subscribers who subscribe to post-paid tariff plans, 27.1%
(785,000 subscribers) by subscribers who subscribe to business tariff plans, and 25.7%
(745,000 subscribers) by subscribers who subscribe to pre-paid tariff plans. As of
December 31, 2008, we also had more than 951,000 3G customers (included in the subscriber
data above).

We
market our services under the Orange brand and the experience of our controlling shareholder, Hutchison Telecom. The Orange brand, which is
licensed to us, has been used successfully in other markets around the world to promote
cellular telephone services. Market surveys show that we have achieved strong brand
awareness in Israel. We have also received awards recognizing our high standards of
customer service. In 2008, we were named by Globes, a leading Israeli business daily
newspaper, as the number-one communications brand in Israel for the sixth consecutive
year. We also won the Effie award in the communication category for the precisely
for you marketing campaign. Finally in 2008, we won the best workplace
award in the telecommunication industry, an award granted to us by Business Data
Information (BDI).

Our
GSM/UMTS network covered approximately 98% of the Israeli population at year-end 2008. We
currently operate our GSM network in the 900 MHz and 1800 MHz bands. Our GSM services
include standard and enhanced GSM services, as well as value-added services and products
such as roaming, voice mail, voice messaging, color picture messaging, ringtone and game
downloads, information services, and General Packet Radio Services (GPRS),
which enables the packet transfer of data.

Our
3G network offers a wide range of services, such as video calls, a new portal of content
services including a rich selection of video-based services under the orange
time sub-brand, and the transmission of data.

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 already been deployed to support up to 7.2 Mbps on the downlink and 1.4Mbps
on the uplink.

ISP/VoB
Overview

In
December 2008 and January 2009, we launched three additional non-cellular business lines:
Voice over Broadband (VoB) telephony services that compete with fixed-line
telephone services; internet service provider (ISP) services that provide
access to the internet as well as home Wi-Fi networks, value-added services
(VAS) such as mail and anti-spam filtering; and Web VOD (video on demand)
providing premium on-demand video (mainly full-track feature films and television
series episodes), music tracks and games. See Item 4B. Business Overview
 Services and Products  Value-Added Services. The services are marketed
under the Orange brand and have been commercially available beginning in January 2009.
Through launching these services, we took a further step towards realizing our strategy to
evolve from a pure cellular operator into a diversified multi-service communications and
media service provider.

At
the time of our entrance into the ISP market, the three major ISPs already operating in
the Israeli broadband market accounted together for more than 95% of the ISP market. We
believe that through our unique product offerings, our high level of customer service and
our meticulous execution we will be able to penetrate this market in the coming years.

The broadband market in Israel has been estimated by IDC, a consulting company, in its
2008 report to include 1.5 million consumer connections and 180 thousand business
connections at the end of 2008. According to the Israel Central Bureau of Statistics, at
the end of 2007, the time of the last census, there were 2 million households in Israel.
Based on these statistics, the household broadband penetration in Israel is estimated to
be approximately 75%.

The
number of Voice over IP (VoIP) lines in Israel is estimated at the end
of 2008 to be 550 thousand lines. This estimate is based on the two major VoIP
operators, HOTand 012 smile , who published reports for September 2008 and
December 2008, respectively. During 2008, Bezeq International Ltd (Bezeq
International)  and Netvision  expressed their interest in launching
VoB services. The number of Public Switched Telephone Network (PSTN) lines
(excluding VoB) in Israel is estimated by IDC to be 2.6m lines at the end of 2008

23

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Special characteristics
of the Cellular Telecommunications Industry in Israel

We
believe that the following special characteristics differentiate the Israeli market from
other developed cellular telecommunications markets:

| | High
Cellular Phone Usage. Israeli usage of cellular phones is relatively high compared to
Western Europe in terms of average monthly usage per subscriber.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | Calling
Party Pays. In Israel, only the party originating a telephone call pays for the
airtime. Cellular telephone network operators do not charge subscribers to receive calls
on their handsets, except while roaming. This encourages higher rates of cellular
telephone usage.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | High
Cellular Telephone Penetration. 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, 2008 of 125% representing approximately 9.2 million
subscribers out of an estimated population of approximately 7.4 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.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Multiple
Different Cellular Telephone Technologies. The four cellular telephone licensees in
Israel have systems based on multiple technologies. We are currently one of three Israeli
network operators using GSM and UMTS systems. GSM is an advanced, internationally
accepted technology, and according to an industry source, was used by more than 3.2
billion people worldwide as of December 31, 2008. Other technologies currently used by
Israeli cellular telephone licensees include the N-AMPS analog, TDMA, CDMA and CDMA1x
RTT, EVDO, D-AMPS, EDGE, UMTS/HSXPA ( HSDPA and HSUPA) and iDEN systems.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Favorable
Geography. Israel covers an area of approximately 8,000 square miles (20,700 square
kilometers) and its population tends to be centered in a small number of densely
populated areas. In addition, the terrain of Israel is relatively flat. These factors
facilitate the roll out of a cellular network in a cost effective manner.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Strong
Potential For Value-Added Services. Published market data shows that the relatively
young Israeli population has a propensity to accept and use high technology products. We
believe that this characteristic of the Israeli population will facilitate further growth
in the Israeli cellular telecommunications market as well as the acceptance of new
value-added services as they become available on our network.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Strategy

We
intend to continue to enhance revenues and profitability, and to continue to create value
for our shareholders, customers and employees. In order to accomplish this, we intend to:

| | Broaden
3G Service Use and Our Subscriber Base. The penetration rate in Israel is very high;
however, we believe that we can increase our revenues from our existing customer base and
also add new subscribers to our network. We believe that a major source of growth for us
is additional revenues from our 3G and data card subscribers consuming more data and
content services. We are leveraging our brand and our outstanding reputation for network
quality, innovation, and customer service to develop our 3G business in order to benefit
from that growth. We consistently launch new 3G based products to attract new customers
and to increase consumption of data services. We also aim to offer desirable content and
to make our 3G services widely accessible and affordable.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Broaden
and Diversify Our Portfolio of Products and Services and Maximize the Synergy between the
New Linesof Business and Our Mobile Business.We believe that a growth
opportunity exists by broadening and diversifying our portfolio of products and services
beyond the pure cellular service to include fixed-line telephony, transmission services,
Internet Service Provider (ISP) services and other accompanying telecom and
media services. In order to reach customers, we will use our own mobile and fiber optic
networks, leased access and transmission lines, or, with respect to Voice Over Broadband (VoB)
services, the existing infrastructure of Bezeq, the incumbent land-line operator in
Israel, and HOT, the cable television operator in Israel. We also intend to 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 cellular churn rates, increase
customer loyalty, maximize the synergy between our lines of business and generate
additional streams of revenues. In the foreseeable future, we believe that revenues from
these services will not be material compared to our total cellular revenues.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24

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| | Retain
the Strength of our Brand. We believe that a focused marketing strategy based upon
the strong international Orange brand is critical to our subscriber growth and loyalty.
We intend to continue to promote our brand, including in connection with our 3G services.
We also intend to support our brand by continuing to focus on customer service,
innovation and the quality of our network.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Competitive Strengths

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

| | Strong
Brand Identity. Since the launch of full commercial operations in 1999, we have made
a substantial investment in promoting the Orange brand in Israel to represent quality,
innovation and customer service. Our marketing activities have resulted in wide-scale
recognition of the Orange brand in Israel.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3G
Services.As of December 31, 2008, we have an Israeli nationwide UMTS network, which
offers high speed data, advanced video content and video telephony, and in most populated
areas also offers the features of HSXPA. We believe we are positioned as leaders in our 3G
offering, both in terms of network quality and available content.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Focus
on Customer Service. We believe we provide outstanding customer service through
quick, simple and reliable handling of customer needs and interactions, which we have
achieved through investments in technology and training of customer service skills.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | High
Quality Network and Technology Leadership. We believe that we set high standards for
network quality and that our use of sophisticated network planning and optimization tools
and techniques and our investment in dense base station coverage have produced a high
quality network. Additionally, we believe that we are a recognized leader in the
development and provision of cellular services in Israel.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Wide
variety of communication products. We believe that our new initiative of offering
VoB, ISP and VOD services will strengthen our position in the communications market.
Offering a wide variety of combined mobile and fixed-line data products and services will
enable us to better compete with the competitive bundled services of other players,
increase customer loyalty, and serve as an additional source of revenue.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Beneficial
Relationship with Hutchison Telecom. Our controlling shareholder, Hutchison Telecom
and its controlling shareholder, HWL, are global players in the 2G and 3G mobile
telecommunications market. Hutchison Telecom has a controlling interest in 3G mobile
operations in Hong Kong, Macau and Indonesia, and HWL has a controlling interest in 2G
and/or 3G mobile operations in Hong Kong, Macau Indonesia, Vietnam and Sri Lanka, and HWL
has a controlling interest in 3G mobile operations in Austria, Australia, Denmark,
Ireland, Italy, Sweden and the United Kingdom, and a license for developing a 3G network
in Norway. We benefit from the knowledge and experience of Hutchison Telecom and HWL in
terms of both strategic advice and assistance in developing our business, and the
recognition we have acquired in the industry as a result of their association with our
company.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Strong
Financial Performance and Financial Position. Our net cash provided by operating
activities less net cash used in investing activities has improved significantly and has
grown from negative NIS 1,154.0 million in the year ended December 31, 2000 to positive
NIS 916 million and NIS 1,308 million for the years ended December 31, 2007 and 2008,
respectively.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Strong
and Motivated Management Team. We have been able to attract a number of Israeli
senior managers from the telecommunications, high-tech and consumer products industries.
Our management team is experienced and highly respected and, we believe, well-positioned
to manage the Company. We believe that our performance-based incentive package aligns the
interests of senior management with those of our investors.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Marketing and Brand

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

Our
marketing strategy is based on the concept of high value for money and introducing
advanced services for subscribers. In order to carry out our strategy, we offer our
subscribers competitive tariffs, technologies and services that we believe are advanced,
including our 3G services and GPRS services. During 2008 we achieved the primary objective
of our marketing strategy, which was to increase our 3G subscriber base and 3G usage by
our customers as well as to enhance our long-term relationship with our customers through
innovative retention activities.

25

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In
order to promote our advanced new services and to increase awareness of these services, we
employ a large number of promotional activities and use a broad range of advertising
media. During 2008 we continued to pursue extensive advertising presence in the media in order to
maintain high exposure for our brand and advanced technologies. During 2008, our main
advertising activities focused on promoting the subscribership and usage of 3G and HSXPA
services, and of advanced mobile applications such as PC-mobile synchronization and mobile
broadband using data-cards, as well as increasing loyalty among our customers. Our
marketing strategy focuses on promoting our services to various segments of the Israeli
population, and we have extended this to our 3G services. We advertise our services in
several languages. In addition to traditional media, we promote our brand and services by
sponsoring and initiating cultural and community programs. Specifically in 2008 we
sponsored a free-entrance, large scale concert that featured leading Israeli artists. In
addition, we sponsored the International Film Festival, a major cultural event in Israel
that takes place every year in Jerusalem and attracts international attention. We use the
distinctive Orange brand logo in all our promotional activities and advertising. See
Item 4B. Business OverviewIntellectual Property.

Services and Products

Our
principal business is currently the provision of mobile telecommunications services in
Israel, and our goal is to become a diversified multi-service communications and media
service provider and offer our subscribers a wide range of sophisticated and easy to use
services based upon the latest proven technology.

Our
most basic service is cellular telephony service  provided on both our GSM/GPRS
network and our UMTS/HSDPA network. Our basic offer includes international dialing,
roaming, voice mail, short message services, intelligent network services, content based
on our cellular portal, data and fax transmission and other services. We are continually
developing tailored value-added services to meet the special needs of our subscribers and
to enhance our long-term relationship with our subscribers.

Our
use of HSCSD, GSM, GPRS, UMTS and HSXPA technologies enables high speed data
transmission. All our content services, including 2G and 2.5G content, were re-branded
during 2008 under the sub-brand orange time. Our orange time mobile services
enable the streaming and downloading of rich applications and content and WAP browsing for
2G subscribers, while the 3G subscribers services are enhanced by video and high
quality audio capabilities. Our MMS services enable subscribers to send photos, multimedia
and animation from handset to handset and from handset to web. We also offer high quality
customer service, as well as handset repair and replacement services for equipment sold to
our subscribers.

Our 3G network offers a wide range of services, such as video calls; a new portal of
content services including a rich selection of video-based and MP3 based services under
the orange time sub-brand, and the transmission of data at speeds of up to 7.2
Mbps. We have concluded content agreements with a variety of content providers and
suppliers in the Israeli television and entertainment industry.

In
December 2008 and January 2009, we launched three additional non-cellular business lines:
Voice over Broadband (VoB) telephony services that compete with fixed-line
telephone services; internet service provider (ISP) services that provide
access to the internet as well as home Wi-Fi networks, value-added services
(VAS) such as mail and anti-spam filtering; and Web VOD (video on demand)
providing premium on-demand video (mainly full-track feature films and television
series episodes), music tracks and games. See Item 4B. Business Overview
 Services and Products  Value-Added Services. More services are to be
commercially available during the first half of 2009.

We
have received and maintain the accreditation of the ISO 9001:2000 Standard from the
Quality and Control Institute (ICQ), a quality system certification and
registration body authorized by Bureau Veritas Quality International. ISO 9001:2000 is a
quality management system specification whose requirements are aimed primarily at
achieving customer satisfaction by preserving standardization at all stages, and
throughout company processes. In November 2008 we were audited by the ICQ and found to be
in compliance with the requirements of the standards ISO 14001:2004 and OHSAS 18001:2007.
The objective of the requirements of ISO 14001:2004 is to enable organizations to
implement an effective environmental management system in order to help protect human
health as well as the environment from the potential impacts of the companys
activities, products and services and to assist in maintaining and improving the quality
of the environment OHSAS 18001:2007 is an international occupational health and safety
management system specification. The objective of its requirements is to enable
organizations to eliminate or minimize risks to employees and other interested parties who
may be exposed to occupational health and safety risks associated with the companys
activities, and to implement, maintain and continually improve the occupational health and
safety management system.

26

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Tariff Plans

Since
the beginning of our full commercial operations in 1999, we have introduced tariff plans
aimed at bringing innovation to the Israeli cellular communications market. At
December 31, 2008, approximately 27.1% of our subscribers were subscribed to business
segment tariff plans (which are all post-paid), compared to approximately 24.6% at
year-end 2007; approximately 47.2% of our subscribers were subscribed to post-paid private
tariff plans; and approximately 25.7% were subscribed to pre-paid tariff plans.

Our
businesstariff plans offer features attractive to business users such as charging
fees based on airtime usage without adding the interconnect charges imposed by other
cellular and land-line providers for calls made by our subscribers that terminate on third
party networks, and providing discounts for calls to designated numbers within a
subscribers calling circle. In addition, we usually offer handset subsidies to
customers joining these tariff plans. Most of these tariff plans include subscription
periods of 36 months.

The
elements of our tariff plans for private customers are packaged and marketed in various
ways to create tariff packages attractive to target markets, including families, soldiers,
Orthodox Jews, Arab and Russian communities, teens and students. Our tariff plans for
private customers feature a certain number of free minutes for calls made between family
members and special discounts on tariffs for calls among a limited number of family
members or friends. They also offer limited handset subsidies. Based on an amendment to
our license in March 2008, standard subscriber agreements with private customers have been
shortened as of January 2009 to 18 months.

Under
our pre-paid plans, upon purchase of a SIM card or phone card or prepayment by credit
card, customers can use our network, including some of our value-added services, without
the need to register with us or enter into any contract. Our pre-paid plans enable us to
compete in the pre-paid cellular services market.

International Roaming

Israelis
are frequent travelers, and Israel is a highly visited country. According to the Israel
Central Bureau of Statistics, in 2008, more than 4.2 million overseas departures of
Israelis were recorded, and almost 3.2 million people visited Israel during 2008. Roaming
allows a mobile phone subscriber to place and to receive calls while in the coverage area
of a network to which he or she does not subscribe and to be billed for such service by
his or her home network. Facilitating international roaming was a primary design goal of
the GSM system from its inception. A GSM roamer can therefore expect to enjoy
substantially the same services, features and security while traveling as he does at home.
We consider international roaming to be a significant source of revenue. The Ministry of
Communications may introduce new regulations that would limit our revenues from roaming
services.

At
December 31, 2008, we had open commercial roaming relationships with 376 operators in 174
countries or jurisdictions. We also have agreements with satellite operators, providing
global coverage, requiring the use of unique handsets. Creating roaming relationships with
multiple operators in each country increases potential incoming roaming revenue for us and
gives our subscribers more choice in coverage, services and prices in that country.

At
December 31, 2008, our commercial roaming relationships included 81 3G roaming agreements
in 42 countries, compared to 48 3G roaming agreements in 32 countries at year-end 2007.
The 3G roaming agreements enable our 3G roamers to initiate video calls, high speed data
and video and audio content while abroad. Since we operate our GSM services on the 900 MHz
band, which is the most widely-used band among GSM operators worldwide in terms of
handsets, and also on the 1800 MHz band, all of our roaming enabled subscribers may roam
to most countries where we have roaming capability using their own handsets without
modification. In some countries cellular networks use either the 1900 MHz band of GSM or
other technologies (GSM 850, CDMA or UMTS) with which we have established international
roaming. Our subscribers who own dual or tri-band handsets that work on GSM 1900 as well
as GSM 900 may also use their own handsets in countries that deploy GSM 1900 frequency
with networks using GSM 1900. Other subscribers who advise us of their intention to visit
those countries are either loaned free of charge a compatible handset into which they
insert their SIM, thus retaining their own phone number, phone book and all other regular
features, or are given the option to rent such handsets at their destination upon their
arrival. Since the launch of our 3G network, 3G networks around the world are becoming
gradually available to our 3G subscribers.

See
Item 4B. Business Overview  Regulation and also Item 3D. Risk
Factors  Risks Relating to the Regulation of Our Industry for risks relating
to the regulation of roaming tariffs.

Value-Added Services

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

27

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Our
main focus throughout 2008 was to continue to expand our 3G and HSXPA business in Israel
and to enhance our relationship with our customers through active retention activities. To
meet these goals, we have expanded our 3G handset portfolio to cater to several specific
market segments, we have enhanced our content portal offering and we have launched several
innovative retention activities. The main cellular value-added services we currently offer
include the following:

| | Blackberry. This
service offers customers one of the most advanced mail solutions. We offer the Blackberry
handset along with the Blackberry service, with Hebrew support for emails and SMS
messages.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Call
back. While roaming, this service allows subscribers to return calls to Israel at
discounted rates from most countries.
|- | ----------------------------------------------------------------------------------------------------------------------------

| | Content
Download. This service enables the downloading of rich applications and content,
including games, interactive screensavers and polyphonic ringtones. Our 3G users can also
download specially edited video clips, MP3 songs, MP3 ringtones and other content items.
A small portion of our 2.5G customers can also download several video and MP3 items over
our GPRS network. In order to use these download services, the users have to own specific
handsets.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fun
Tone. Personal ring back tone which is subject to the customer preference, from a
wide international library of music tracks or other types of audio elements (e.g. sound
effects) which is heard when dialing to this customer.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | High
Speed Data. We offer high speed data access through either Packet-Switched or
Circuit-Switched technology. Packet-Switched services are through GPRS, UMTS and HSXPA. We
also support traditional Circuit-Switched based HSCSD service.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | MMS
Services. These services enable subscribers to send photos, multimedia and animation
from handset to handset and from handset to e-mail, from handset to web album and from a
web album to handsets, based on Multimedia Message Services (MMS) platform
and on a web MMS storage album.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Mobile
Instant Messaging. Java based application, which enables a customer who is a
registered user in Windows Live Messenger or ICQ IM communities to enter his personal
account in the community from his cell-phone, and send and receive IM messages to and
from his contacts and see their current status.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Orange
GPS. Java based application enables customers navigation, including voice navigation,
using their cellular phone.
|- | ------------------------------------------------------------------------------------------------------------------------

| | Orange
Hotspots.This service enables Wi-Fi access from laptops to wireless networks in more
than a few thousand hotspots in Israel and around the world, such as hotels, airports and
restaurants.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Orange
Mail. Mobile e-mail services that enable access to e-mail accounts (private or
business accounts) through our WAP portal.
|- | --------------------------------------------------------------------------------------------------------------------------------

| | Orange
Precisely for You. A service that checks a subscribers rate plan,
handset type, seniority and usage patterns and offers a personalized offer.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | Orange
Shop. Website offering new and existing customers an online shop for handsets and
plans.
|- | -----------------------------------------------------------------------------------------------

| | Organizational
Voice Recognition.A service that allows for voice recognition of the names listed in
a customers global contact list. The customer is able to dial a number and ask for
the contact person and the system connects the customer to that person.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | PC
to Mobile Video Calling.This service allows 3G subscribers to speak with any other
party using an internet camera, and expands the video telephony available to customers
who do not have a 3G handset or are not within the 3G coverage area.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SIM
Backup. This service allows customers to backup their phonebook entries on the SIM
card on a network server. If the SIM card or phone is lost, the subscriber does not lose
his contact list.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Speed
Detectors. This service allows subscribers to receive a notice about speed detectors
in their vicinity.
|- | -------------------------------------------------------------------------------------------------------------

| | Vehicle
Fleet Management. This service provides a comprehensive system for businesses to
manage their vehicle fleet. It allows the user to track the position, speed and direction
of vehicles, which helps speed up delivery times, cut running costs and improve customer
service. It provides the ability to assess at a glance which driver is best placed
to respond to the next call, optimizing driver time, cutting fuel costs and improving
efficiency. In addition, it provides the option to communicate with drivers via text
messages.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Video
and Audio Streaming. We provide our 3G customers (and a small portion of our 2.5G
customers) with the ability to watch video clips and to listen to full music tracks
without downloading them to their handset. These services offer a wide range of
information and entertainment clips to view and listen to, and enable the customer to
watch live television broadcasts.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Video
Calls. This service enables our 3G users (while in our 3G coverage area and with a 3G
handset) to speak with each other through video conferences.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------

28

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| | Video
Mail. This service enables our 3G subscribers to send and receive video messages if
the receiver is not available.
|- | ------------------------------------------------------------------------------------------------------------------------

| | Virtual
Private Network. User groups can be formed in multiple layers, and the members can
then reach each other through short dialing codes, like extension numbers. This service
is mostly used among business customers.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | WAP
Services. We have WAP technology that enables WAP-related services.
|- | -----------------------------------------------------------------------

During
2008, we expanded our value-added services beyond the cellular domain to include:

| | VoB
(Voice over broadband). This service allows users to make and receive telephone
calls over the Internet through an ISP connection. 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
fixed and mobile telephone lines.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ISP
(Internet Service Provider).As an internet service provider, we offer our customers
access to the internet and internet services through a separate communications network.
Our ISP offering includes improved email accounts based on Googles Gmail service,
home WiFi networking, anti-virus and site filtering based on the customers
restriction definition, and other value added internet services. To back up our offering,
we have established a dedicated staff for installation and support, and also provide a
direct connection to the Israeli backbone and international backbone.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Web
VOD (Video on Demand) Services.This service gives users access to our on-line media
shop and enables them to view video items on their computers through internetstreaming. Under
the orange time brand, our on-line media shop offers premium on-demand video
(mainly full-track feature films and television series episodes), music tracks and
PC (portable computer) and mobile games, under a variety of payment plans.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our VoB, ISP and VOD services are
available to all Israeli customers, not only to mobile customers, thus enabling us to
reach more customers and grow our total customer base.

Handsets

We
provide handsets to our subscribers at discounts of up to 100% when they first become
subscribers or when upgrading their handsets. The discount offered depends upon the tariff
package and special promotions.

We
currently offer a range of different handset models supplied by a number of manufacturers.
We offer handsets to satisfy our subscribers roaming needs in the 900 MHz, 1800 MHz
and 1900 MHz bands, and in 2100 MHz (3G) as well. Not all handsets support all band
ranges. We evaluate the technical features of every new cellular handset and, if we decide
to make it available to subscribers, we obtain a type approval from the Ministry of
Communications for such handset. We advise our sales representatives and dealers on
compatibility and technical issues. All our handsets are Enhanced Full Rate
(EFR)compatible to provide high voice quality. All of our handset
models have Hebrew language displays. We offer innovative handsets in our portfolio,
including large screens with high resolution displays, high quality cameras with video
capabilities, touch screen, large memory, embedded GPS, open operating systems (Symbian,
Windows Mobile) with enhanced applications, T.V.application and music library, backup
application, messaging and internet applications and rich content in our portal. Following
the launch of our HSDPA network, we also sell handsets that enable customers to use
content services with high-speed rates of data transmission and lap-tops with HSDPA
embedded data cards.

Land-line Services

In
addition to our cellular services, we provide, through our subsidiary Partner Landline
Telecommunication Solutions, L.P., land-line transmission and data capacity services,
using the transmission network we purchased from Med-1 1.C.1 (1999) Ltd. and have since
then continued to expand. Our land-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 land-line services to business customers.

Customer Service

Our
customer support and service provides several channels for our customers: call centers,
walk-in centers and self-service support, which includes Interactive Voice Response
(IVR), web-based services and automated SMS.

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

29

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Walk-in
Centers. We currently operate 33 Partner-owned service and sales centers across
Israel. These centers provide a face-to-face, uniformly designed, contact channel and
offer all services that we provide to customers: sales, handset upgrade, handset
maintenance and other services (such as finance, rate-plan changes and subscription to new
services). Several centers are focused on sales to both private and small business
customers. These centers are located in central locations, such as shopping malls in Tel
Aviv and its periphery, Jerusalem, Haifa and Beer-Sheba. Lease agreements for our
retail stores and service centers are for periods of two to five years. We have the option
to extend the lease agreements for different periods including the initial lease period.
See also Note 7a(3) to our consolidated financial statements.

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

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

Sales and Distribution

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

We
distribute our services and products primarily through:

| |  | Direct
sales channels, which consist of Partner-owned sales centers and business sales
representatives; and
| | - | -----------------------------------------------------------------------------------------------------------

| |  | Indirect
sales channels, which consist of traditional networks of specialized dealers and
non-traditional networks of retail chains and stores.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

Direct Sales Channels

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

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

| |  | A
team of regional representatives and customer account managers, located in four regional
offices, supports small to medium-sized businesses.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

| |  | A
team of corporate representatives and customer account mangers who support large
corporate customers.
| | - | -------------------------------------------------------------------------------------------------------

| |  | A
door to doorsales-force focuses on individual and small business customers.
| | - | -------------------------------------------------------------------------------

| |  | A
telemarketing department conducts direct sales by phone (to private and business
customers), initiates contacts to prospective customers and coordinates appointments for
the sales representatives.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

In
addition, during 2008, we opened 33 new orange stands in shopping centers throughout the
country, in addition to our six previously existing shops.

As
part of our strategy to transition to a communication and multimedia service provider, we
intend to enhance and expand our in-house distribution channels, which will include sales
of new innovative products and services.

Indirect Sales Channels

Traditional
Dealer Networks. At December 31, 2008, we had agreements with 29 traditional dealers
providing 50 points of sale, selling a range of our products. The private dealer network
is an important distribution channel because of its ability to attract existing cellular
users to our network. Our dealer network focuses primarily on sales to individual
customers and, to a lesser extent, small business customers. Most of our dealers
specialize in sales for post-paid customers, and others specialize on sales for pre-paid
customers and distribution of pre-paid handsets to sub-dealers. In addition, we have
specific dealers that target different segments of the Israeli population with the
appropriate style, language and locations. We provide regular training to employees of our
dealers to update them on our products and services. Our dealer managers visit dealers on
a regular basis to provide information and training, answer questions and solve any
problems that may arise. We pay our dealers competitive commissions and provide handset
subsidies. However, dealers are not entitled to commissions for any customers that
terminate their service within 60 days of activation.

30

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Non-Traditional
Dealer Networks.Non-traditional dealers consist of generalist retailers or
specialized stores that sell related products. In 2008, approximately 12% of our new
subscribers were recruited through sales by Super-Pharm, the largest drugstore chain in
Israel, under a contract to sell our network services in their stores and in a chain of
stores called Super-Link. On December 31, 2008, we terminated our agreement
with Super-Pharm after a comprehensive review of our distribution strategy and the
effectiveness of our current distribution channels. Under the agreement, Super-Pharm was
obliged to transfer to us all of its orange outside kiosks, which accounted for a
substantial part of Super-Pharms sales of orange services. We intend to enhance and
expand our in-house distribution channels as part of our strategy to transition to a
communication and multimedia service provider, which will include sales of new innovative
products and services. We believe that the termination of the Super-Pharm agreement
benefits the Company and will not have a material effect on our financial performance.

We
continue to develop our distribution network with other non-traditional dealers, such as
the Cellular Center for Vehicles, which has approximately 34 locations for the
sale, installation and maintenance of car kits, and Auto Depot, which has nine
such locations. We provide regular training to the employees of our non-traditional
dealers to update them on our products and services.

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

Customer Contracts and
Credit Policy

Based
on an amendment to our license in March 2008, standard subscriber agreements with private
customers have been shortened as of January 2009 from a maximum of 36 to 18 months. Most
of our business customers sign 36-month contracts. Subscribers are billed monthly for
airtime charges and charges per services. All customers are supervised by daily reports in
order to display exceptional usage. Roaming access for direct debit subscribers is subject
to credit scoring by Partners credit supervisors with the assistance of outside
credit agencies and may require additional guarantees or deposits.

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

All
business subscribers can subscribe and pay for their services by credit card or direct
debit. Customers acquiring more than ten handsets (or less in certain circumstances) are
subject to a credit scoring review performed by Partners credit supervisors with the
assistance of outside credit agencies.

Most of our subscribers pay for the handsets in 36 or 18 installments, depending on
the term of their contract, which are charged directly to their credit card or to their
monthly bill. If the customer opts to pay for the installment via his monthly bill, the
outstanding installment payments are not secured. Under the terms of these
contracts, customers who terminate their contracts prior to the expiration of the
contracts term and who have purchased a subsidized handset from our dealers or from
us can be charged for payment of the residual price of their handset. This charge reflects
the difference between the price they paid for the handset, if any, and the list price,
adjusted for the remaining number of months until the end of the contract term.

Our Network

We
have built an extensive, resilient and advanced network system in Israel, allowing us to
offer our services with extensive coverage and consistent high quality. During the years
ended December 31, 2006, 2007 and 2008, we have made net capital expenditures of NIS 363
million, NIS 417 million and NIS 351 million ($83 million), respectively, in our network
infrastructure, including optic fibers.

Overview

Third
generation wireless communication, which offers full interactive multimedia capabilities
at data rates of up to 384 Kbps, is bringing wire-free networks significantly closer to
the capabilities of land-line networks. Improvements in coding and data compression
technology will provide better voice quality and more reliable data transmission. UMTS is
the global standard adopted for the implementation of third generation wireless
telecommunications capable of data rates of 7.2 Mbps and is the 3G technology we use. HSXPA
is a technological enhancement to our 3G services that offers subscribers the ability to
access our 3G services at higher speeds for downloading (HSDPA) and uploading (HSUPA)
data.

Infrastructure

As
of December 31, 2008, our GSM network consisted of 1,846 macrobase transceiver stations,
205 microbase transceiver stations and 357 indoor transceiver stations, all linked to 30
base station controllers. The base station subsystem is controlled by 11 cellular
switching centers. Base transceiver stations, cellular switching centers and base station
controllers are interconnected by approximately 5,750 transmission links. Ericsson and
Nokia supply our base station controller and base transceiver station sites for our GSM
and GPRS network.

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As
of December 31, 2008, our UMTS network consisted of 1,770 macrobase transceiver base
stations, 45 microbase transceiver stations and 184 indoor transceiver stations, all
linked to 13 radio network controllers. The base station subsystem is controlled by four
mobile switching centers and six media gateways. The base transceiver stations, the mobile
switching centers and the radio network controllers are interconnected by approximately
2,200 transmission links. As of January 2008, Ericsson is our sole 3G UTRAN and core
network equipment supplier, and we are progressively replacing equipment purchased from
other suppliers with Ericsson equipment.

In
addition, our network is interconnected with two public switched telephone companies,
Bezeq and HOT, in several locations across Israel. Our network is also directly connected
to the three cellular networks and the six Israeli international operators, and indirectly
to the land-line and cellular telephone networks of Paltel.

Our
transmission network is made up of leased lines from Bezeq and Cellcom and our own
microwave links and fiber optic infrastructure. Currently most of our transmission network
consists of leased lines. Our fiber-optic transmission network enables us to reduce our
transmission costs as well as to provide our business customers with bundled services of
data and voice transmission and land-line services

Our
GSM and UMTS networks covered approximately 98% of the Israeli population at year-end
2008. We are continuing to expand and improve the coverage, capacity and quality of our
UMTS network.

Network Design

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

With
these quality parameters in mind, we rolled out our UMTS/HSPA network starting in 2004, which shares locations with the GSM sites. In December 2007, we signed an agreement
with LM Ericsson Israel Ltd. for the replacement of third party 3G radio equipment
existing in our network, and during 2008, more than half of our network was replaced with
new and more advanced equipment. See Item 5A. Operating Results  Ericsson Agreement.

We
use monitoring probes and counters to ensure network quality.

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

This
infrastructure enables us to provide services to our customers such as call
hijackwhich allows customers to retrieve in-coming mobile line calls on their
fixed line, improved email accounts based on Googles Gmail service, anti-virus and
site filtering based on the customers restriction definition.

In
December 2008 and January 2009, we launched additional non-cellular business lines that
target households in the Israeli market. We became an Internet Service Provider (ISP),
providing internet to Israeli customers at their homes, over third parties existing
network infrastructure. In addition to this service, we began providing fixed-line phone
calls using VoB technology. The technology is based on the Nokia Siemens Next Generation
Network (NGN) softswitch. In order to provide the fixed-line services, we developed a home
gateway box (smartbox), that provides the customer with a setup of a home network WiFi
based on the protocol 802.11n, FXS and DECT supported phones, and built in firewall.

Spectrum Allocation and
Capacity

Spectrum
availability is limited and is allocated by the Ministry of Communications through a
licensing process. Pursuant to the terms of our license and subsequent allocations, we
were allocated 2x10.4 MHz in the 900 MHz frequency band, of which 2x2.4 MHz are shared
with Paltel which operates in the West Bank and the Gaza Strip. We also have an agreement
to use an additional 2x2.4 MHz of spectrum in the 900 MHz frequency band on a shared basis
with Paltel. Under this agreement, which has been endorsed by the Ministry of
Communications, we are permitted to use this additional spectrum in Israel so long as we
do not cause interference in areas where Paltel operates. See Item 3C. Risk
Factors for a discussion of the risks associated with regulatory developments in
spectrum allocation.

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We
were also allocated two additional bands of spectrum: 2 x 10 MHz of GSM 1800 spectrum and
2 x 10 MHz and 1 x 5 MHz of UMTS/HSDPA third generation spectrum. We operate GSM 1800 MHz
band base transceiver stations that enhance the capacity of our GSM 900 MHz network, and
improve our GSM 900 MHz networks quality.

Enabling Systems

Our
UMTS network offers advanced applications and services including, among others, a UMTS
content portal offering a variety of services such as live TV channels, JAVA games, maps
and directions application, wide range of music (MP3) services. We have installed a video
gateway and a streaming server, enabling us to offer our customers a range of video
services on UMTS handsets.

Site Procurement

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

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

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

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

| | permits
from the Israeli Defense Forces.
|- | ----------------------------------------

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

Suppliers

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

Ericsson,
together with its affiliates, is a major supplier of GSM equipment with cellular switching
centers, base station controllers, base transceiver stations, transit transmission
centers, operation support systems and transmission systems equipment. Ericsson is also
our major supplier of GPRS network equipment, including GPRS support nodes and gateway
GPRS support nodes, as a second vendor for UMTS infrastructure equipment. On December 20,
2007, we entered into an agreement with Ericsson for the supply of 3G radio equipment to
replace our existing Alcatel-Lucent 3G equipment and to expand our existing 3G network, as
well as to provide support and maintenance for the Ericsson elements in our network. As a
result, Ericsson became our sole supplier for our 3G network.

Nokia
also supplies us base station controllers, base transceiver stations and network
management system equipment.

We
continue to purchase certain network components from various other key suppliers. We
believe that our network suppliers price structure is competitive with industry
standards. See Item 3D. Key InformationRisk FactorsWe depend on a
limited number of suppliers for our network equipment. Our results of operations could be
adversely affected if our suppliers fail to provide us with adequate supplies of network
equipment or maintenance support on a timely basis.

We
have agreements with Baran Raviv, Bintech and H. Mer, all Israeli engineering companies,
for the construction of our sites.

Interconnection

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

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

We
have formal interconnect agreements with all Israeli cellular and with the other land-line
companies. The interconnect tariffs are set forth in the Interconnection Regulations
(Telecommunications and Broadcasts) (Fees for Interconnections) 2000 that imposes a
uniform call interconnect tariff for all cellular telephone operators.

Our
network is connected directly and indirectly through Bezeq to Paltel and Jawwal, the
Palestinian land-line and cellular operators. Since we transfer and receive part of the
traffic to and from Paltels network through the Bezeq network, we pay Bezeq a
transit fee for each call.

In
recent years, the Ministry of Communications has reduced the call interconnect, and SMS
interconnect tariffs. A further review of these tariffs by the Minister of Communications
is expected. In response to the tariff reductions described above, we implemented
cost-cutting measures as well as price increases and repackaging of our tariff plans.
Depending on the effectiveness of such steps, and other factors such as general market
conditions, these regulatory changes may negatively impact our revenues and profits. The
Grunau Committee, whose recommendations were published in March 2008, recommended further
review of interconnect tariffs. See - Regulation  Telecommunications Law
below.

We
have written interconnect agreements or operating arrangements with all of the
international service providers serving Israel. The regulated interconnect tariff for
incoming international calls was reduced to NIS 0.22 per minute, in line with the
reduction in interconnect tariffs for incoming domestic calls, effective March 1, 2008.
This tariff, adjusted to conform to changes in the consumer price index (CPI),
amounts to NIS 0.274 per minute as of March 1, 2009.

In
January 2007, one of our subsidiaries received a domestic land-line license. Our
subsidiary is connected, directly with all other telecommunication networks operating in
Israel. The interconnection fees are set by the Interconnection Regulations (Bezeq and
Broadcasts) (Fees for Interconnection) 2006.

Competition

There
are currently four cellular telephone network operators in Israel: Partner, Cellcom,
Pelephone and MIRS. We compete with Cellcom, Pelephone and MIRS principally on the basis
of telecommunications service quality, brand identity, variety of handsets, tariffs,
value-added services (VAS) and the quality of customer services.

The
table below sets forth an estimate of each operators share of total subscribers in
the Israeli cellular market at December 31, 2004, 2005, 2006, 2007 and 2008.

|Market Share* | 2004 | 2005 | 2006 | 2007 | 2008
|------------- | ---- | ---- | ---- | ---- | ----
|
|
|
|
|Partner       |      |      |      | 32.4 | %   
|Cellcom       |      |      |      | 33.9 | %   
|Pelephone     |      |      |      | 29.5 | %   
|MIRS          |      |      |      | 4.2  | %   

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

Cellcom
is an Israeli corporation whose major beneficial shareholder is Discount Investment
Corporation Ltd, (DIC). DIC is a majority-owned subsidiary of IDB Development Corporation,
which in turn is a majority-owned subsidiary of IDB Holding Corporation Ltd (IDB). The IDB
group is one of the largest diversified business groups in Israel, whose indirect
subsidiaries also operate in the Israeli communications market.

Cellcom
operates nationwide cellular telephone networks based on GSM 1800 MHz/GPRS, D-AMPS, EDGE
and UMTS/HSDPA HSUPA technologies.

Pelephone
is an Israeli corporation wholly owned by Bezeq, the primary land-line operator in Israel
that is controlled by S.C.G. Group (Haim Saban), the Apax Fund, and Arkin Communications
(Mori Arkin). Pelephone, which currently uses the N-AMPS analog and the CDMA, CDMA-1x RTT,
as well as the EVDO technology, launched in the beginning of 2009 a UMTS/HSXPA network,
which might strengthen its ability to compete in the provision of inbound and outbound
roaming services as well as improve its competitive position in the market.

MIRS,
an Enhanced Specialized Mobile Radio, or trunking network, holds a general
license to operate as a mobile telephone operator. MIRS is an Israeli corporation whose
major shareholder is Motorola Communications (Israel) Ltd. MIRS operates using an Enhanced
Specialized Mobile Radio, or trunking iDEN network and has expressed its
intention to roll out a WiMAX network subject to receiving a license. MIRS has also
expressed its interest in upgrading its network to WiMax technology.

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In
addition, the Palestine Telecommunication Co. Ltd. (Paltel) operates a GSM
mobile telephone network under the name Jawwal in the Palestinian Administered
Areas, as well as a land-line network. Paltels GSM network competes with our network
in some border coverage overlap areas. In addition, a second Palestinian operator,
Watania, is expected to roll out its GSM network during 2009.

Several
service providers offer competitive roaming solutions. The service is offered, inter alia,
by the International Long Distance vendors as well as by specialized enterprises.

To
the extent that land-line telephones are used instead of mobile telephones, we also
compete with Bezeq, the incumbent land-line operator in Israel, HOT, the cable television
operator in Israel, and other telecommunication services providers who are entering the
land-line market. Bezeq holds 100% of the shares of Pelephone, which may enable Pelephone
and Bezeq and other affiliates of Bezeq to offer bundled services of land-line, mobile
telephone and other telecommunication services, subject to regulatory approval. In the
future other holders of licenses to provide land-line telephone services may enter the
mobile telecommunications services market via MVNO and increase the level of competition
we face.

In
connection with our new services beyond the cellular market, there are currently three
major fixed ISP providers in Israel that we compete with since recently entering this
market: Bezeq International, Smile 012 and Netvision, which together account for
approximately 95% of the ISP market in Israel. With respect to video on demand
(VOD), we are the first operator in Israel to launch Web VOD service over the
internet to the users PC. The service is considered to be innovative and certain
media and telecom companies have expressed an interest in approaching this market. In the land-line telephone service market including both (legacy and VoB
transmission), which we have recently entered, there are a number of providers. Bezeq is
the major Time Division Multiplexing (TDM) provider and HOT and Smile 012
began providing VoB/VoIP service a few years ago.

The
Ministry of Communications has granted a new services provider a trial license to provide
VoBoC services. For a discussion of the risks created by our competitive environment,
including risks arising in connection with government measures to increase competition,
see Item 3D. Risk Factors.

Information Technology

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

While
many of our systems have been developed by third-party vendors, all of them have been
modified and refined to suit our particular needs. In certain instances, we have developed
critical information technology systems internally to meet our specific requirements. For
example, significant segments of our CRM and business information infrastructure were
developed internally and were designed to integrate our customer service outreach with our
overall sales and marketing effort. In other cases, conversely, we have outsourced
responsibility for certain systems to third parties. Our Vantive CRM system is
in the process of being replaced through a contract with IBM to implement a new CRM system
based upon Siebel software. The migration to the new CRM system is still in
progress.

Intellectual Property

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

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

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

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

REGULATION

Overview

We
operate within Israel primarily under the Communications Law (Telecommunications and
Broadcasting), 1982 (the Telecommunications Law), the Wireless Telegraphy
Ordinance (New Version), 1972 (the Wireless Telegraphy Ordinance), the
regulations promulgated by the Ministry of Communications and our license. The Ministry of
Communications issues the licenses which grant the right to establish and operate mobile
telephone and other telecommunication services in Israel, and sets the terms by which such
services are provided. The regulatory framework under which we operate consists also of
the Planning and Building Law, 1965, the Consumer Protection Law, 1981, and the
Non-Ionizing Radiation Law, 2006. Additional areas of Israeli law may be relevant to our
operations, including antitrust law, specifically the Restrictive Trade Practices Law,
1988, the Class Actions Law, 2006, and administrative law.

Telecommunications Law

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

General
licenses, which relate to telecommunications activities over a public network or for the
granting of nationwide services or international telecommunications services, have been
awarded to Bezeq, and to HOT, to the four cellular telephone operators and to the
international operators. In addition, the Ministry of Communications may issue additional
mobile telephone operator and other licenses in the future.

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

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

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

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

Royalties.
          Pursuant to the Telecommunication (Royalties) Regulations, 2001, we must pay
          royalties to the State of Israel every quarter based on our chargeable revenues,
          as defined in the regulation, from mobile telephone services (including, among
          other, airtime, monthly subscription fees, roaming services and non-recurring),
          on a cumulative basis, excluding value-added tax. Revenues for purposes of
          royalty calculation also exclude revenues transferred to other
          telecommunications license holders, bad debts, payments for roaming services to
          foreign mobile telephone operators and certain other revenues. The regulation
          provided a rate of 4% in 2003 and a rate of 3.5% in 2004 and 2005. In November
          2004, the Ministry of Communications announced that from January 2006 the rate
          of royalties payments will be reduced annually by 0.5% to a level of 1%. For
          2007 the rate was 2.5% , for 2008 the rate was 2%, for 2009 the rate is 1.5%.and
          it will be finally reduced to a rate of 1% in 2010.

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Fair Competition and
Antitrust Law

Provisions
protecting Partner from anti-competitive practices can be found in our license and in the
licenses of the other telecommunications operators, in the various telecommunications
regulations and in the Restrictive Trade Practices Law. Our license emphasizes the
principle of granting users equal access to the systems of each of the operators upon
equitable terms. The Telecommunications Law also provides certain protection against
disruption of telecommunications services.

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

The
Israeli Commissioner of Restrictive Trade Practices expressed his view in the past, that
the cellular telephone industry in Israel operates as an oligopoly and that the Israeli
government should intervene to regulate prices. Such a finding could result in increased
regulatory intervention (including with regard to tariffs and tariffing practices), the
application of certain limitations on our conduct and increased litigation. Tariff
increases by the cellular telephone operators have prompted the Ministry of Communications
to express its intention to intervene in the market by, inter alia, introducing new
operators. See Item 3C. Risk Factors.

Regulatory Developments

The
regulations regarding the international call market currently prohibit cellular operators
from applying for licenses for this market. Following the Grunau Committees
recommendations of March 2008, the Ministry of Communications announced that it would
allow the cellular operators to offer international call services, subject to certain
revisions in the interconnection regulations and provided that the MVNO operators,
including those who are international call operators, first be allowed entry into the
cellular market.

In
2004, the Ministry of Communications began authorizing the issuance of licenses to provide
domestic land-line services to customers, competing with Bezeq, on a non-universal service
basis. Services provided under such license should be precisely defined by the provider,
should be provided to customers in a region, or regions, defined by the provider and
should be provided to a defined type of customer. Under the terms of such license, the
provider must demonstrate aggregate revenues of no less than NIS 50 million within 3 years
from the launching of the services. The license term is 20 years. In January 2007, we were
granted this license. The Ministry of Communications has promulgated regulations that,
coupled with a change effected in the cellular telephone operators licenses, impose
a uniform call and SMS interconnect tariff. In November 2004, the Ministry of
Communications announced regulatory changes significantly reducing call interconnect
tariffs and SMS interconnect tariffs, effective March 1, 2005, with additional reductions
mandated for the coming years. A further review of these tariffs by the Minister of
Communications is expected. Furthermore, the Ministry of Communications also indicated
that it intends to start implementing a process to bring about unification of rates for
calls terminating both on and off an operators network, and disallow charging the
customer with a separate interconnect tariffs. Preliminary hearings with the cellular
operators in Israel on this matter commenced in August 2005, but have been suspended. See
Item 4B. Information on the CompanyBusiness
OverviewInterconnection.

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

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

In
January 2007, the Ministry of Communications appointed a public commission, headed by
Prof. Grunau, a professor of economics at Hebrew University, to formulate recommendations
regarding the policy and the principles of competition in the Israeli telecommunications
market. The issues that were examined by the commission included the structural separation
of activities, such as transmission and content, including the structural separation of
Bezeq; the requirement that licensed telecommunication companies provide access to their
infrastructure to other companies; and the principle of convergence arrangements between
cellular and land-line operators, as well as between voice service providers and video and
data service providers. In March 2008 the commission published its recommendations
including the following recommendations: developing a wholesale market in the land-line
segment that would center around a local loop unbundling obligation, acceleration of the
regulatory process required for the entry of virtual operators into the cellular market
and of the WiMAX tender, and a change in the billing method for calls initiated by our
subscribers to destinations abroad, following which the tariff for such calls is
determined by the international operator who will pay us the regulated interconnect tariff
for incoming international calls to cellular subscribers.

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In
August 2008, the Ministry of Communications adopted the majority of the recommendations
published in March 2008 by the Grunau Committee. The recommendations adopted include
recommendations: to accelerate the procedures necessary to allow the entry of MVNOs and
additional infrastructure based operators to the cellular market; to publish a WiMAX
frequencies tender for cellular use; to examine interconnect fees and further revise them
accordingly, during 2009; to negotiate a reduction of inbound and outbound roaming tariffs
with the European Union and/or members of the European Union and/or countries frequently
visited by Israelis; to regulate charges for mobile-originated international calls; and to
prohibit a linkage between a cellular services transaction and a handset purchase
transaction. Another recommendation concerns the unbundling of Bezeqs network to be
followed by alleviating some of the restrictions with respect to offering integrated
packages of services currently imposed on Bezeq and its subsidiaries.

Also,
in August 2008, the Israeli Government adopted resolutions in line with the Grunau
Committee recommendations concerning MVNO, roaming tariffs and interconnect fees, as well
as a resolution directing the Ministry of Communication to examine ways to encourage the
entry into the cellular market of additional operators, including by providing certain
reliefs and incentives.

In
March 2008, our license was amended shortening the maximum commitment period in the
agreements with private customers to 18 months, and to offer
other effective rate plans without a commitment period.

Several
new regulations directly affecting our business operations entered into effect in January
2009:

| |  | In
2008, the Consumer Protection Law was amended in a manner that obligates us, commencing
January 2009, to terminate certain services (excluding voice services) we provide to our
subscribers during a predefined period at the end of that period, unless the price for
the services to be provided after the end of the predefined period has been set in
advance or we have received the subscribers affirmative consent to continue and
provide these services.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In
October 2008, our license was further amended effective December 31, 2008, obligating us
to set fixed tariffs for certain services determined by the Ministry of Communications in
limited period non-business customer agreements and prohibiting us from raising tariffs
during the agreement period.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our
license was amended, effective January 2009, to require us to offer tariff plans based on
billing units reduced from 12 seconds to no longer than one second. Such
regulation may adversely affect our business and operating results.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Ministry of Communications is also conducting hearings on various matters related to our
business, such as:

| |  | The
Ministry of Communications has been conducting a hearing process to consider prohibiting
the cellular operators from linking the sale of handsets to the provision of various
benefits regarding cellular services, including air time.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 for calls made by our own customers using their handsets abroad.
Recently, the Minister 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | The
Ministry of Communications has begun conducting a hearing process based on one of the
Grunau Committee recommendations of March 2008 (described above) to consider a change in
the manner in which accounts are settled between the international operators and the
cellular operators.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Entry of MVNO Operators

MVNOs,
or mobile virtual network operators, are mobile telecommunications operators that do not
own their own spectrum and usually do not have their physical own network infrastructure.
Instead, MVNOs have business arrangements with existing cellular operators to use their
infrastructure and network for the MVNOs own customers. The introduction of the
operation of MVNOs into the Israeli mobile telecommunications market could increase
competition, which may adversely affect our business, revenues and results of operations.

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In
March 2007, the Ministry of Communications initiated a review whether to allow the entry
of MVNO operators in the Israeli telecommunications market. In August 2007, although the
market was found to be competitive , recommendations were submitted to the Ministry of
Communications to allow the entry of MVNOs into the Israeli mobile market by granting them
licenses, at the first stage by encouraging negotiations between potential virtual
operators and the existing mobile operators without the Ministry of Communications
intervention. In August 2007, the Israeli government instructed the Ministry of
Communications to take all measures necessary to allow any MVNO wishing to provide
cellular services to the public using the network of a cellular operator to do so as of
December 31, 2007. In March 2008, the public commission headed by Prof. Grunau recommended
acceleration of the regulatory process required for the entry of MVNOs into the mobile
market. This recommendation was adopted by the Ministry of Communications. In addition, a
private bill was introduced in parliament to facilitate the process of MVNO entry into the
Israeli market. In January 2009, the Ministry of Communications began conducting hearings
regarding the draft MVNO license and regulations and we submitted our position in February
2009.

Number Portability

In
March 2005, the Telecommunications Law was amended to require the Minister of
Communications to implement a mobile number portability plan and, separately, a fixed
number portability plan, in each case by September 2006. The number portability plan
permits subscribers in Israel to change their service provider to another network operator
while retaining the same telephone number.

The
number portability plan mandated by law was launched by all telecommunications operators
on December 1, 2007. The Ministry has notified us as well as the other operators that it
is considering imposing monetary sanctions on relevant telecommunication license holders,
including us, in accordance with the Telecommunications Law for alleged violation of the
obligation to implement number portability by September 2006. We submitted our position to
the Ministry stating that the delay was a result of the Ministrys failure to
adequately plan and design the number portability plan. As a result of this dispute, we
may be exposed to substantial monetary sanctions and further legal claims.

WiMAX Bandwidth

In
February 2009, the Ministry of Communications published a policy regarding the allocation
of bandwidth in the WiMAX spectrum. WiMAX is a technology that aims to provide wireless
data over long distances, in a variety of different methods, from point to point links to
full mobile type access. The Ministry of Communications policy reflects its decision
that incumbent cellular operators would not currently be allowed to participate in the
WIMAX 2.5 GHz frequency tender, which will be open mainly to new entrants to the
telecommunications market. If WiMAX frequencies are made available only to new entrants to
the telecommunications market, our ability to compete would be impaired. Some of these
frequencies have already been allocated to third parties. If such frequencies are not
available to us in the future, it may harm our ability to migrate to the next generation
of GSM technology, such as LTE.

Liberalization of Handset
Market

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

Our Mobile Telephone
License

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

The
Minister of Communications amended our license in February 2002 to include the provision
of 3G services by us and extended our mobile telephone license through 2022.

Under
the terms of the amended license, we have provided a $10 million guarantee to the State of
Israel to secure the Companys adherence to the terms of the license.

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

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

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| | 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
Minister of Communications shall be entitled to appoint an observer to the Board of
Directors and its committees, subject to certain qualifications and confidentiality
undertakings.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

Conversely,
we must allow other network operators to interconnect to our network. See Item 4B.
Information on the CompanyBusiness OverviewInterconnection.

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

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

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

Territory
of License. Our license authorizes us to provide mobile telephone services within the
State of Israel as well as offer roaming services outside the State of Israel. In May
2000, we were also granted a license from the Israeli Civil Administration, to provide
mobile services to the Israeli populated areas in the West Bank. The license is effective
until April 7, 2013. The provisions of the general license described above, including as
to its extension, generally apply to this license, subject to certain modifications. We
believe that we will be able to receive an extension to this license upon request.

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

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

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

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

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

| | the
right to share in Partner's remaining assets after payment of debts when Partner is wound
up.
|- | -------------------------------------------------------------------------------------------------

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

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

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

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

41

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

| | the
founding shareholders or their approved substitutes of Partner continue to hold in the
aggregate at          least 26% of the means of control of Partner;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | our
Articles of Association provide that an ordinary majority of the voting power at the
general meeting of Partner is entitled to appoint all the directors of Partner other than
external directors.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | Founding
shareholders or their approved substitutes must hold at least 26% of the means of control
of Partner.
|- | --------------------------------------------------------------------------------------------------------------

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

| | A
Foreign Mobile Radio and Telephone operator (as defined below) (or a controlling
corporation thereof) must hold directly or indirectly at least 25% of the means of
control of Partner.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 Minister, and in addition have a
representative or appointee who is an Office Holder in a competing mobile radio telephone
operator, unless it has been legally required to do so, or (c) hold, either directly or
indirectly, more than 10% of any means of control in a competing mobile radio telephone
operator, even if it received a permit to hold up to 10% of such means of control.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | No
trust fund, insurance company, investment company or a pension fund that is an Interested
Party in a competing mobile radio telephone operator may: (a) hold, either directly or
indirectly, more than 5% of any means of control in Partner, without having obtained a
permit to do so from the Ministry of Communications; or (b) hold, directly or indirectly,
more than 5% of any means of control in Partner in accordance with a permit from the
Ministry of Communications, and in addition have a representative or appointee who is an
Office Holder in Partner, unless it has been legally required to do so; or (c) hold,
either directly or indirectly, more than 10% of any means of control in Partner, even if
it received a permit to hold up to 10% of such means of control.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Partner,
an Office Holder or Interested Party in Partner, or an Office Holder in an Interested
Party in Partner does not control a competing mobile radio telephone operator, is not
controlled by a competing mobile radio telephone operator, by an Office Holder or an
Interested Party in a competing mobile radio telephone operator, by an Office Holder in
an Interested Party in a competing mobile radio telephone operator, or by a person or
corporation that controls a competing mobile radio telephone operator.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | We
fail to invest the required amounts in the establishment and operation of the mobile
radio telephone system in accordance with our undertakings to the Ministry of
Communications;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | A
receiver or temporary liquidator is appointed for us, an order is issued for our winding
up or we have          decided to voluntarily wind up; or
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | Partner,
an Office Holder in Partner or an Interested Party in Partner or an Office Holder in an
Interested Party of Partner is an Interested Party in a competing mobile radio telephone
operator or is an Office Holder in a competing mobile radio telephone operator or in an
interested party in a competing mobile radio telephone operator without first obtaining a
permit from the Ministry of Communications to do so or has not fulfilled one of the
conditions included in such permit. See Item 4B. Information on the CompanyBusiness
OverviewRegulationOur Permit Regarding Cross Ownership.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

| | A
change in our license is required due to its breach by Partner.
|- | -----------------------------------------------------------------

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

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

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

| | Control means
the ability to, directly or indirectly, direct the activity of a corporation, either
alone or jointly with others, whether derived from the governing documents of the
corporation, from an agreement, oral or written, from holding any of the means of control
in the corporation or in another corporation, or which derives from any other source, and
excluding the ability derived solely from holding the office of director or any other
office in the corporation. Any person controlling a subsidiary or a corporation held
directly by him will be deemed to control any corporation controlled by such subsidiary
or by such controlled corporation. It is presumed that a person or corporation controls a
corporation if one of the following conditions exist: (1) such person holds, either
directly or indirectly, fifty percent (50%) or more of any means of control in the
corporation; (2) such person holds, either directly or indirectly, a percentage of any
means of control in the corporation which is the largest part in relation to the holdings
of the other Interested Parties in the corporation; or (3) such person has the ability to
prevent the taking of business decisions in the corporation, with the exception of
decisions in the matters of sale or liquidation of most businesses of the corporation, or
fundamental changes of these businesses.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Foreign
Mobile Radio Telephone Operator means an operator of a mobile telephone system
abroad, through which mobile telephone services are provided to at least 500,000
subscribers.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | Interested
Party means a person who either directly or indirectly holds 5% or more of any
type of means of control, including holding as an agent.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------

Our Permit RegardingCross Ownership

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

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

Other Licenses

Domestic
Land-line License. In January, 2007, the Ministry of Communications granted Partner
Fixed Communication Solutions Limited Partnership, which is fully owned by the Company, a
license for the provision of domestic land-line telecommunications services. The license
expires in twenty years but may be extended by the Ministry of Communications for
successive periods of ten years provided that the licensee has complied with the terms of
the license and has acted consistently for the enhancement of telecom services and their
enhancement. The licensee deposited a bank guarantee in the amount of NIS 10 million with
the Ministry of Communications upon receiving the license which shall be used to secure
the licensees obligations under the License. The general conditions of the mobile
telephone license described above, generally apply to this license, subject to certain
modifications. In addition to any 10% share transfer requiring the prior approval of the
Ministry of Communications, the license additionally requires approval prior to a third
party acquiring the ability to exercise significant influence over us. In this context,
holding 25% of our means of control is presumed to confer significant influence. The
license was amended in February 2007 to grant us the right to offer Voice Over Broadband
(VoB) services using the infrastructure of Bezeq and HOT to access customers
and to provide them with land-line telephony service. The License was further amended in
July 2007 to incorporate the provision of transmission and data communications services
that were previously provided for under a transmission license that was granted in July
2006. In March 2009, we were also granted a domestic land-line license to provide
land-line services to the Israeli populated areas in the West Bank. The license is
effective until March 2019.

ISP
License. In March 2001, we received a special license granted by the Ministry of
Communications, allowing us through our own facilities to provide internet access to both
mobile and land-line network customers. The license was renewed in April 2008 and is valid
until April 2013. We began supplying commercial ISP services beginning in January 2009.

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

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

Network Site Permits

Permits
of the Ministry of the Environment

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

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

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

Local
Building Permits

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

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

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

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

National
Building Plan No. 36

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

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

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

Other
Approvals

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

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We,
like other cellular telephone operators in Israel, provide repeaters, also known as
bi-directional amplifiers, to subscribers seeking an interim solution to weak signal
reception within specific indoor locations. In light of the lack of a clear policy of the
local planning and building authorities, and in light of the practice of the other
cellular telephone operators, we have not requested permits under the Planning and
Building Law for the repeaters. However, we have received from the Ministry of
Communications an approval to connect the repeaters to our communications network. We have
also received from the Ministry of the Environment, the permits that are necessary for the
repeaters.

In
addition, we construct and operate microwave links as part of our transmission network.
The various types of microwave links receive permits from the Ministry of the Environment
in respect of their radiation level. Based on an exemption in the Telecommunications Law,
we believe that building permits are not required for the installation of most of these
microwave links on rooftops, but to the best of our knowledge, there is not yet a
determinative ruling on this issue by the Israeli courts. If the courts determine that
building permits are necessary for the installation of these sites, it could have a
negative impact on our ability to deploy additional microwave links, and could hinder the
coverage, quality and capacity of our transmission network and our ability to continue to
market our land-line services effectively.

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

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

In
addition, this procedure also called for repaired handsets to comply with all applicable
standards required for obtaining handset type approval, including standards relating to
the safety, electromagnetic levels, and SAR levels. Under a December 2005 amendment to
this procedure, in the event that the SAR level is not measured after the repair of a
handset, the repairing entity is required to notify the customer by means of a label
affixed to the handset that the SAR may have been altered following the repair, in
accordance with the provisions relating to the form of such label set forth in the
procedure. A consultant had been retained by the Ministry of Communications to formulate a
recommendation regarding the appropriate manner to implement the procedure for repairing
handsets. In the course of the consultants work, he met with cellular telephone
operators, including Partner. In August 2006, the consultant submitted his findings to the
Ministry of Communications, but the Ministry of Communications has not yet issued any
guidelines. We intend to comply with the decision of the Ministry of Communications on
this matter once a decision is published.

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

# 4C. Organizational
Structure

We
currently have three wholly-owned subsidiaries, Partner Future Communications 2000 Ltd.,
an Israeli corporation, Partner Land-Line Communications Solutions LLP, an Israeli limited
partnership, and Partner Business Communications Solutions, LLP, an Israeli limited
partnership. Partner Future Communications 2000 Ltd. serves as the general partner and the
Company serves as the limited partner of each of the limited partnerships. We are an
indirect subsidiary of Hutchison Telecom, which as of March 31, 2009, held approximately
51.41% of our issued and outstanding shares and total voting rights. Hutchison Telecom is
an international provider of mobile and land-line telecommunications services with
operations in eight markets.

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# 4D. Property, Plant and
Equipment

Headquarters

We
lease our headquarter facilities in Rosh Ha-ayin, Israel, in three sites with a total of
approximately 35,000 square meters. The leases for each site have different lengths and
specific terms, but we believe that our current office facilities are adequate for the
foreseeable future, and that we will be able to extend the leases or obtain alternate or
additional facilities, if needed, on acceptable commercial terms.

We
lease two call centers in Haifa, as well as in Jerusalem and other locations in Israel.
The leases for each site have different lengths and specific terms, but we believe that
our current call center facilities are adequate for the foreseeable future, and that we
will be able to extend the leases or obtain alternate or additional facilities, if needed,
on acceptable commercial terms.

Network

For
a description of our telecommunications network, see Item 4B. Business Overview
 Our Network above.

We lease most of the sites where our mobile telecommunications network equipment is
installed throughout Israel. At December 31, 2008, we had 2,488 network sites (including micro-sites). The lease agreements relating to our network sites are
generally for periods of two to three years. We have the option to extend the lease
periods up to ten years (including the original lease period).

The
erection and operation of most of these network sites requires building permits from local
or regional zoning authorities, as well as a number of additional permits from
governmental and regulatory authorities, and we have had difficulties in obtaining some of
these permits. Difficulties obtaining required permits could continue and therefore affect
our ability to maintain cell networksites. In addition, as we grow our subscriber
base and seek to improve the range and quality of our services, we need to further expand
our network, and difficulties in obtaining required permits may delay, increase the costs
or prevent us from achieving these goals in full. See Item 3D. Risk Factors 
Risks Relating to the Regulation of Our Industry and Item 4B. Business
Overview  Regulation.

Land-lines.In addition to our cellular network, we possess, through our subsidiary
          Partner Landline Telecommunication Solutions, L.P., land-line transmission and
          data capacity. Our land-line capacity also includes capacity which we lease from
          other land-line telecommunications service providers.

Service Centers and
Points of Sale

Lease
agreements for our retail stores and service centers are for periods of two to five years.
We have the option to extend the lease agreements for different periods of up to sixteen
additional years (including the original lease period). The average size of our retail
stores and service center is approximately 350 square meters. See also Note 7a(3) to our
consolidated financial statements.

# ITEM 4A. UNRESOLVED
STAFF COMMENTS

Not
applicable.

# ITEM 5. OPERATING AND
FINANCIAL REVIEW AND PROSPECTS

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

# 5A. Operating Results

# Overview

Business Developments in
2008

In
2008, approximately 99,000 net active subscribers joined the Company, compared with
approximately 192,000 in 2007. The business sector accounted for approximately 84% of
annual net new active subscribers. At the end of December 2008, the Companys active
subscriber base, including both 2G and 3G subscribers, was approximately 2,898,000,
including approximately 785,000 business subscribers (customers who subscribe to business rate plans),
or 27.1% of the base, approximately
1,368,000 post-paid private subscribers, or 47.2% of the base, and approximately 745,000
prepaid subscribers, or 25.7% of the base. Beginning in January 2008, the Company adopted
a more conservative and rigorous policy for recognizing prepaid subscribers. The aim of
the new policy is to ensure that purchased prepaid SIM cards are only recognized in the
subscriber base after the prepaid SIM cards are actually used by the prepaid subscribers.
Based on this new policy in January 2008, we reduced the number of reported prepaid
subscribers by approximately 61,000. 2008 year-end total market share is estimated to be
31.4%, compared to approximately 31.7% at year-end 2007.

47

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The
Company added approximately 318,000 subscribers to its 3G network in 2008, and its 3G
subscriber base reached approximately 951,000 subscribers by year-end. Approximately 44%
of our post-paid subscriber base benefited from the wide range of 3G services and advanced
handsets we offered by year-end. The increase in 3G subscribers was a key driver for the
increase in revenues from data and content services (excluding SMS messages) from NIS 425
million in 2007 to NIS 529 million in 2008. In the fourth quarter of 2008 we carried out
the initial implementation and launch of the Companys new portfolio of services,
which includes ISP services, mail access, Wi-Fi, fixed telephony through VoB and web VOD services.
We thus took a further step towards realizing
our strategy to evolve from a pure cellular operator into a diversified multi-service
communications and media service provider.

In
December 2007 number portability was introduced in Israel. The introduction required us to
invest additional resources in order to reach out to new subscribers and to ensure the
continued satisfaction of our existing subscribers. Largely as a result of number
portability and its impact in the first half of 2008, the annual churn rate in 2008 was
17.8%, an increase from 15.0% in 2007. For a definition of churn rate, see
footnote 8 under Item 3A. Selected Financial Data.

Reported
2008 average monthly usage per subscriber (MOU) was 365 minutes, an increase
of 8.6% compared with 336 minutes in 2007. The increase is explained in part by the effect
of a special campaign in the first months of number portability that offered new and
upgrading subscribers a significant number of free minutes for a period of 12 months.
Reported 2008 annual average monthly revenue per subscriber (ARPU) was NIS 159
(US$ 42), an increase of 0.6% compared to NIS 158 in 2007. The above amounts for 2007 are
not adjusted for the approximate 61,000 decrease in the subscriber base following the
change to our prepaid recognition policy in January 2008, which would have increased
minutes per user (MOU) for 2007 to 343 minutes and ARPU for 2007 to NIS 162. The table
below sets forth a summary of selected financial and operating data for each of the years
ended December 31, 2008, 2007and 2006.

|                                                             |  | Year ended December 31,
|------------------------------------------------------------ |  | -----------------------
|
|
|
|
|Revenues (NIS million)                                       |  |                        
|Operating profit (NIS million)                               |  |                        
|Income before taxes (NIS million)                            |  |                        
|Net income (NIS million)                                     |  |                        
|Capital expenditures, net (NIS million)                      |  |                        
|Cash flow provided by operating activities net of investment |  |                        
|activities (NIS million)                                     |  |                        
|Subscribers (thousands)                                      |  |                        
|Annual churn rate (%)                                        |  |                        
|Average monthly usage per subscriber (in minutes)            |  |                        
|Average monthly revenue per subscriber (NIS)                 |  |                        

Ericsson Agreement.On December 20, 2007, we entered into an
agreement with LM Ericsson Israel Ltd. (Ericsson) for the replacement of third
party 3G radio equipment in our existing 3G network and additional investment in the 3G
network, as well as support and maintenance of our network for a period of three years. We
allocated the purchase price of US$ 65 million to the above deliverables based on their
relative fair values. Of this amount, US$ 6.6 million related to support and maintenance
of the network and impacts the cost of sales in our financial statements. The purchase
price is net of commercial discounts, some of which are contingent upon future
negotiations for further purchases of services, which are probable.

Following
the agreement, in accordance with Financial Accounting Standards No. 144 (FAS 144),
Accounting for the Impairment or Disposal of Long Lived Assets, we reviewed
the communication network for impairment, in order to assure that the carrying amount of
thefixed assets would be recoverable. No impairment loss was required. Following
the impairment test, we accelerated the estimated useful life of such equipment to the
period when it was anticipated that it would be replaced. The total additional amount of
depreciation resulting from this acceleration, for the periods in which such accelerated
depreciation has occurred or will occur, was NIS 136 million. As of December 31, 2008, a
significant portion of the 3G radio equipment subject to the accelerated depreciation was
replaced, resulting in additional depreciation expenses of approximately NIS 74 million in
2008 compared to 2007.

Significant regulatory
developments

Our
license was amended, effective January 2009, to require us to offer tariff plans based on
billing units no longer than one second. As a result, as of January 2009, all of our
tariff plans are based on one second billing units. Such regulation may adversely affect
our business and revenues.

The
final reduction in interconnect tariffs, mandated by the Ministry of Communications
program of required gradual reductions from 2005 to 2008, went into effect on March 1,
2008. This resulted in an approximately 14% reduction in interconnect tariffs and diluted
average revenue per minute (including incoming calls) for 2008 compared with 2007. For
more information regarding potential and actual regulatory developments impacting our
operations and earnings, see Item 4B. Business Overview  Regulation.

48

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Revenues

We
derive revenues from the sale of both services and equipment.

Our
principal source of revenues is from the sale of cellular network services, primarily
network airtime usage fees, and is denominated primarily in shekels. In 2008, as in each
of 2007 and 2006, approximately one half of network airtime usage fees were derived from
outgoing calls and tariff rate plan fees, with the remainder generated from interconnect
fees from other operators, roaming, and data and content services. Data and content
revenues excluding SMS messages accounted for 9.5% of service revenues in 2008 compared
with 8.0% of service revenues in 2007. This represented a year-on-year 24% increase in
data and content revenues excluding SMS messages. Revenues from SMS message services
accounted for 5.8% of service revenues in 2008, compared with 4.8% of service revenue in
2007, representing a year-on-year 28% increase in revenues from SMS message services.
Other service revenues include revenues from the sale of handset warranties and of
land-line and transmission services.

Equipment
revenues are derived from sales of handsets, car kits and accessories.

We
recognize revenues from network services at the time we provide the service to the
subscriber. We recognize revenues from handset sales, car kits and other equipment only
upon delivery and the transfer of ownership to the subscriber.

Cost of Revenues

The
principal components of our cost of revenues are:

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

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

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

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

| |  | leases
for our antenna and other network sites;
| | - | -----------------------------------------------

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

| |  | content
revenue costs paid to the providers of content we offer to our subscribers;
| | - | -----------------------------------------------------------------------------------

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

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

Selling and Marketing
Expenses

The
principal components of our selling and marketing expenses are:

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

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

| |  | sales
commissions to dealers.
| | - | -----------------------------

General and
Administrative Expenses

The
principal components of our general and administrative expenses are:

| |  | provision
for bad debts;
| | - | ------------------------

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

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

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

| |  | insurance.
| | - | ----------

49

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Financial Expenses

The principal
components of our financial expenses, net, are:

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

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

| |  | financial
revenue in respect of receivables (interest charges embedded in handset installment
payments);
| | - | --------------------------------------------------------------------------------------------------------

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

| |  | gains/losses
in our severance pay funds; and
| | - | --------------------------------------------

| |  | credit
card commissions.
| | - | ------------------------

Key Business Indicators
(Operating Data)

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

| |  | number
of total and 3G  subscribers;
| | - | ------------------------------------

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

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

| |  | churn
rate.
| | - | -----------

Critical Accounting
Policies and Estimates

The
discussion and analysis of our financial condition and results of operations below is
based upon our consolidated financial statements, which have been prepared in accordance
with US GAAP. The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses during the reporting period. We also evaluate our estimates on an ongoing basis.
We base our estimates on historical experience and on various other assumptions and
information that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

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

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

Revenue Recognition

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

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

Long-Lived Assets

We
have substantial investments in tangible and intangible long-lived assets, primarily our
communications network, our license and spectrum. Changes in technology or changes in our
intended use of these assets can cause the estimated period of use or the value of these
assets to change. We amortize our communications network by the straight-line method,
mainly over 6.7 years (15% per year). For instance, had the percentage of depreciation
been decreased by 5%, our operating profit would increase by approximately NIS 116 million
and had the percentage of depreciation increased by 5%, our operating profit would
decrease by approximately NIS 66 million. We amortize our license by the straight-line
method over the utilization period of the license, which is based upon the license period.
During 2002, our license was extended by 14 years to 2022. Consequently, the unamortized
balance of our license is amortized as of 2002 over the period ending in 2022. We review
our communications network, license and spectrum for impairment whenever events or changes
in circumstances indicate that the carrying amounts may not be recoverable through
undiscounted future cash flows. If necessary, we write down the assets to their estimated
fair values. No write-downs of our long-lived assets have been recorded since
incorporation.

50

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We
accelerated the estimated useful life of the third party 3G radio equipment existing in
our network to be replaced under an agreement with LM Ericsson Israel Ltd. See
Business Developments in 2008  Ericsson Agreement above.

As
part of our transition to IFRS commencing January 1, 2009, we examined, among other
matters, the remaining estimated useful lives of our fixed assets. As a result of this
examination, we revised the estimated useful lives of our fixed assets, commencing October
1, 2008. The effect of the revisions on the net income for the year ended December 31,
2008, was immaterial.

Allowance for Doubtful
Accounts

We
maintain an allowance for doubtful accounts for estimated losses resulting from the
inability of our subscribers to make required payments. We base our allowance on the
likelihood of recoverability of accounts receivable based on the age of the balances, our
historical write-off experience net of recoveries, changes in the credit worthiness of our
customers, and collection trends. The allowance is periodically reviewed. The allowance
charged to expenses is determined in respect of specific debts doubtful of collection,
calculated as a specified percentage of the outstanding balance in each debt age group,
with the percentage of the allowance increasing as the age of the debt increases. For
example, a debt that is between 1 to 1.5 years overdue is reserved for at the rate of
84.7%. If we decreased our percentage of the allowance for all aging debts by 15%, our
operating profit would increase by NIS 36 million. If we increased such percentage by 15%,
our operating profit would decrease by NIS 27 million. Actual customer collections could
differ from our estimates. For example, if the financial condition or our customers were
to deteriorate, additional allowances may be required. Our bad debt expenses as a
percentage of revenues were 0.5%, 0.7% and 1.4% for the years ended December 31, 2006,
2007 and 2008, respectively. The increase in bad debt expenses in 2008 reflected
principally two factors: firstly, the impact of special campaigns during the first months
of number portability in early 2008 that enabled the purchase of handsets directly in the
monthly bill; secondly, it is thought that the global economic downturn contributed to the
lower collection rates from both business and private customers in 2008 compared with
2007.

Transition to IFRS

Beginning
January 1, 2009, we will prepare our consolidated financial statements according to
International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board. The announcement of our first quarter results for 2009, and
for subsequent periods, will be based on IFRS, and not on U.S. GAAP.

Accounting
reclassifications

We
reclassified certain overhead costs, and also gains/losses in our severance pay funds, to
financial expenses, net, when preparing our consolidated financial statements for the year
ended December 31, 2008. In order to provide comparability, we have performed similar
reclassifications in our consolidated financial statements, as set forth in this annual
report, for the years ended December 31, 2007 and 2006. However, the reclassifications had
no material effect.

Results of Operations for the Year Ended December 31, 2008 Compared to the Year Ended
December 31, 2007

Revenues. In 2008 the Company achieved total net revenues of NIS 6,329.5 million (US$1,502
million), an of 3.5% from NIS 6,113.6 million in 2007.

Revenues
from services.Annual service revenues totaled NIS 5,573.2 million (US$ 1,322.5
million) in 2008, representing an increase of 4.6% from NIS 5,328.7million in 2007. The
increase was driven primarily by subscriber base growth and an increase in the weight of
post-paid subscribers with above average levels of ARPU in our subscriber base , as well
as an increase in data and content revenues.

Total
network minutes in 2008 increased by 13.0% compared with 2007, resulting mainly from an
expanding subscriber base, which, excluding the effect of the decrease from the change in
recognizing prepaid subscribers, grew by approximately 3.5% in 2008 , as well as from an
approximate 8.6% increase in minutes of use per subscriber. The effect of this increase on
service revenues was partially offset by an approximate 7.4% dilution in the average
revenue per minute (including incoming calls). The dilution was a result of competitive
market pressures; the increase in the weight of business subscribers in our total customer
base to 27.1% of the subscriber base at year-end 2008, from 24.6% at year-end 2007, since
business subscribers benefit from special tariff rates; and regulatory interventions, the
most significant being the reduction of approximately 14% in interconnect tariffs which
went into effect on March 1, 2008.

51

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Data
and content revenues, excluding SMS messages, totaled NIS 528.8 million (US$125.5 million)
in 2008, accounting for 9.5% of service revenues, up from NIS 425.6 million, representing
8.0% of service revenues, in 2007. Revenues from SMS message services totaled NIS 324.9
million (US$ 77.1 million) in 2008, accounting for 5.8% of service revenues, up from NIS
253.7 million, representing 4.8% of service revenues, in 2007.

Revenues
from equipment.Equipment revenues in 2008 totaled NIS 756.3 million (US$ 179.5
million), representing a decrease of 3.6% from NIS 784.9 million in 2007. The decrease was
mainly due to the lower number of transactions, partially offset by an increase in the
average revenue per sale due to a higher proportion of more advanced and higher cost 3G
handset sales compared with 2G handsets.

Gross
profit.Gross profit in 2008 was NIS 2,250.4 million (US$ 534.0 million),
representing an 11.3% increase from gross profit in 2007 of NIS 2,022.0 million.

Gross
profit from services.Annual gross profit from services in 2008 was NIS 2,337.4
million (US$ 554.7 million), an increase of 4.4% from NIS 2,238.6 million in 2007. The
increase reflected the higher service revenues, partially offset by a 4.7% increase in the
cost of service revenues from NIS 3,090.2 million in 2007 to NIS 3,235.8 million (US$
767.9 million) in 2008. The increase in cost of service revenue was primarily driven by
the additional depreciation expenses of approximately NIS 74 million over 2008 resulting
from the accelerated depreciation of equipment to be replaced under an agreement with LM
Ericsson Israel Ltd. As a result of the agreement, Ericsson became the sole vendor of our
3G network. In addition, the cost of services revenues reflected higher variable airtime
and content costs as a result of higher airtime and content usage. The cost increases were
partially offset by efficiency improvements, a decrease in (non-accelerated) depreciation
expenses, a lower rate of royalty payments to the Israeli government and the reduction in
interconnect tariffs.

Gross
loss on equipment.Gross loss on equipment (which reflects revenues from equipment
sales less the related cost of goods sold) decreased in 2008 by 59.8% from NIS 216.6
million to NIS 87.0 million (US$ 20.6 million). The decrease was due primarily to a lower
number of transactions, as well as the use of more competitive airtime rate plan tariffs
that offered customers airtime usage rebates but lower equipment subsidies.

Selling,
marketing and general and administrative expenses.Selling, marketing, general and
administration (SG&A) expenses totaled NIS 645.2 million (US$ 153.1 million) in 2008,
an increase of 3.6% from NIS 623.0 million in 2007. The increase was largely associated
with the additional costs resulting from growth in the subscriber base, larger provisions
for doubtful accounts from receivables on handset sales and service revenues, and with
higher distribution and commission expenses.

Operating
profit.As a result of the above, the Company recorded an operating profit
in 2008 of NIS 1,605.2 million (US$ 380.9 million), representing an increase of 14.7% from
NIS 1,399.0 million in 2007.

Financial
expenses, net.Financial expenses, net, increased in 2008 by 30.8%, or NIS
37.1 million, from NIS 120.8 million in 2007 to NIS 157.9 million (US$ 37.5 million) in
2008. The increase was primarily attributable to the increase in expenses resulting from
the higher Consumer Price Index (CPI) level of 4.5% in 2008 compared with 2.8%
in 2007, and by the NIS 16 million losses in the companys severance pay funds as a
result of the recent decline in the markets. These increases were partially offset by an
increase of NIS 38 million in financial revenue in respect of receivables. See Note 11f to
our consolidated financial statements.

Income
before taxes.Income before taxes for 2008 was NIS 1,447.3 million (US$
343.5 million), up 13.2% compared to NIS 1,278.2 million in 2007.

Taxes
on income for 2008 were NIS 395.8 million (US$ 93.9 million), an increase
of 17.0% from NIS 338.4 million in 2007. The increase reflected the impact of the
cancellation of a tax provision in the amount of NIS 29 million in 2007, partially offset
by the impact of the reduction in Israeli corporate tax rate from 29% in 2007 to 27% in
2008. (See Note 9b to our consolidated financial statements.) In December 2008, the
Company signed final tax assessments with the Israeli Tax Authorities for the years up to
and including 2006, with no material impact on our results of operations, cash flow or
financial condition.

Net
income.Net income in 2008 was NIS 1,051.5 million (US$ 249.5 million) and
earnings of NIS 6.73 (US$ 1.60) per diluted share, representing an 11.9% increase from NIS
939.8 million (earnings of NIS 5.96 per diluted share), in 2007. Excluding the effect of
the tax provision cancellation in 2007, net income increased by 15.4% in 2008.

Results of Operations for the Year Ended December 31, 2007 Compared to the Year Ended
December 31, 2006

Revenues.In 2007 the Company achieved total net revenues of NIS 6,113.6 million, an increase of
9.0% from NIS 5,606.7 million in 2006.

Revenues
from services.Annual service revenues totaled NIS 5,328.7 million in 2007,
representing an increase of 6.0% from NIS 5,027.3 million in 2006. The increase was driven
primarily by subscriber base growth, an increase in the weight of post-paid subscribers in
our subscriber base, higher average minutes of use, as well as an increase in content and
data revenues, partially offset by a decrease in average revenue per minute.

52

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Total
network minutes in 2007 increased by 14% compared with 2006, resulting mainly from an
expanding subscriber base, which grew by approximately 7.2% in 2007, as well as from an 8%
increase in minutes of use per subscriber. The effect of this increase on revenues was
partially offset by an 11% dilution in the average tariff per minute (including
interconnect tariffs). The dilution was a result of competitive market pressures on
tariffs charged to subscribers; the increase in the weight of business subscribers in our
total customer base to 24.6% of the subscriber base at year-end 2007, from 22.07% at
year-end 2006, since business subscribers benefit from special tariff rates; and
regulatory intervention, including the reduction of approximately 10% in interconnect
tariffs which went into effect on March 1, 2007, and the regulation restricting our
ability to charge for calls directed to voice mail which went into effect January 1, 2007.

Data
and content revenues, excluding SMS messages, totaled NIS 425.3 million in 2007,
accounting for 8.0% of service revenues, up from NIS 316.1 million, representing 6.3% of
service revenues, in 2006. Revenues from SMS message services totaled NIS 253.7 million in
2007, accounting for 4.8% of service revenues, up from NIS 192.5 million, representing
3.8% of service revenues, in 2006.

Revenues
from equipment.Equipment revenues in 2007 totaled NIS 784.9 million, representing an
increase of 35.5% from NIS 579.4 million in 2006. The increase was caused by increases
both in the average revenue per sale, reflecting the higher proportion of more advanced
and higher cost 3G handset sales to new and upgrading subscribers, as well as in the total
number of handset sales to new and upgrading subscribers.

Gross
profit.Gross profit in 2007 was NIS 2,022.0 million, representing an 18.5%
increase from gross profit in 2006 of NIS 1,706.4 million.

Gross
profit from services.Annual gross profit from services in 2007 was NIS 2,238.6
million, an increase of 15.5% from NIS 1,938.7 million in 2006. The increase reflects the
higher service revenues, partially offset by a 0.05% increase in the cost of service
revenues from NIS 3,088.6 million in 2006 to NIS 3,090.2 million in 2007. The increase was
primarily driven by higher variable airtime and content costs resulting from the growth in
airtime and content usage, partially offset by lower costs resulting from efficiency
measures taken by the Company, lower depreciation expenses, the decrease in the rate of
royalties paid to the Israeli government, as provided for in our operating license, and
the lower interconnect tariff subsequent to government regulation in this area.

Gross
loss on equipment.Gross loss on equipment decreased in 2007 by 6.8% from NIS 232.4
million to NIS 216.6 million. The decrease is explained by handset revenues (including
carkits) increasing more than the increase in the cost of handset sales. The cost of
handset sales increased due to the higher proportion of 3G handset sales, as well as the
higher total number of sales, while the cost per individual handset declined due to the
decrease in the value of the US dollar against the Shekel in 2007.

53

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Selling,
marketing and general and administrative expenses.Selling, marketing,
general and administration (SG&A) expenses totaled NIS 623.0 million in 2007, an
increase of 26.5% from NIS 492.6 million in 2006. The increase was largely related to the
additional costs of growing the subscriber base, including higher distribution and
commission expenses, and larger provisions for doubtful accounts from receivables on
handset sales and service revenues. In addition, the increase included the impact of a one
time retirement bonus payment paid to the Companys founding chief executive officer,
Mr. Amikam Cohen, of approximately NIS 15 million, as well as payments to additional
retiring senior executives.

Operating
profit.As a result of the above, the Company recorded an operating profit
in 2007 of NIS 1,399.0 million, representing an increase of 15.3% from NIS 1,213.8 million
in 2006.

Financial
expenses.Financial expenses decreased in 2007 by 25.4%, or NIS 41.1
million, from NIS 161.9 million in 2006 to NIS 120.8 million. The decrease was primarily
attributable to an increase in financial income of NIS 21.1 million together with a
reduction of NIS 82.8 million in financial and coverage expenses and due to currency
fluctuations, offset by an increase of NIS 63.8 million in CPI linkage expenses resulting
from the higher CPI level.

Income
before taxes.Income before taxes for 2007 was NIS 1,278.2 million, up
21.5% compared to NIS 1,052 million in 2006.

Taxes
on income.As of January 1, 2007, the Company adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  an Interpretation of FASB
Statement No. 109 (FIN 48). FIN 48 specifies how tax benefits for
uncertain tax positions are to be recognized, measured, and derecognized in financial
statements; requires certain disclosures of uncertain tax positions; specifies how
reserves for uncertain tax positions should be classified on the balance sheet; and
provides transition and interim-period guidance, among other provisions. On May 2, 2007,
the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB
Interpretation No. 48-1 (FSP FIN 48-1). FSP FIN 48-1 provides guidance
on how an entity should determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits. The Company adopted FSP FIN
48-1 as of January 1, 2007. The Companys policy to include interest and penalties
relating to uncertain tax positions, within the provision for income taxes has not changed
as a result of implementing FIN 48.

Following
the ruling of the Supreme Court, on November 20, 2006 on the matter of Paz Gas Marketing
Company Ltd. and others vs. the assessing officer and others, which overturned the rules
regarding the recognition of financing expenses, the Company included in its financial
statements, beginning for the fourth quarter of 2006 and through the first three quarters
of 2007, an additional provision for taxes in the amount of NIS 55 million. This provision
was an estimate of the additional tax expense relating to the possibility that part of the
financing expenses accrued in the years 2005 and 2006 in respect of a financial debt,
which is attributable, inter alia, to the financing of a repurchase of Company shares,
will not be recognized as an expense for tax purposes. On October 28 and 29, 2007, the
Israeli Supreme Court issued a new ruling readdressing the same issue. The Company
re-evaluated the provision in light of the new ruling and decided to reduce the provision
of unrecognized tax benefit to an amount of NIS 7 million, according to FIN 48.

Taking
into account this reduction in tax provisions, total tax expenses for 2007 were NIS 338.4
million, a decrease of 8.7% from NIS 370.7 million in 2006. The decrease also reflected
the lower Israeli corporate tax rate in 2007 of 29% compared with 31% in 2006. In 2008,
the Israeli corporate tax rate will decrease further to 27% (see Note 9b to our
consolidated financial statements).

Net
income.Net income in 2007 was NIS 939.8 million and earnings of NIS 5.96
per diluted share, representing a 37.7% increase from NIS 682.3 million (earnings of NIS
4.41 per diluted share), in 2006.

During
2007, our net active subscribers increased by 192,000, or 7.2%. The Companys
subscriber base at the end of December 2007 was approximately 2,860,000, accounting for an
approximate market share of 32%, including approximately 703,000 business subscribers or
24.6% of the base, approximately 1,365,000 postpaid private subscribers, or 47.7% of the
base, and approximately 792,000 prepaid subscribers, or 27.7% of the base. Of the
Companys subscriber base, approximately 633,000 were 3G subscribers. Net new active
subscribers in the business sector accounted for approximately 51% of net new active
subscribers in the year.

The
annual churn rate in 2007 decreased to 15.0% from 15.6% in 2006. The decrease was
primarily related to the business and private postpaid sectors.

Average
monthly usage per subscriber (MOU) for 2007 was 336 minutes, an increase of 8%
compared with 311 minutes in 2006. Average monthly revenue per subscriber
(ARPU) in 2007 was NIS 158, with no change from the 2006 amount, despite the
reduction in interconnection charges mandated by the Ministry of Communications in March
2007.

54

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Seasonality

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

|                 | Three months ended
|---------------- | ------------------
|
|
|
|Service Revenues |                   
|                 |                   
|2007             |                   
|2008             |                   

Impact of Inflation and
Exchange Rate Fluctuations

Substantially
all of our revenues and a majority of our operating expenses are denominated in shekels.
However, in recent years, approximately one quarter of our operating expenses (excluding
depreciation), including a substantial majority of our handset purchases, were linked to
non-shekel currencies, mainly the US dollar. These expenses related principally to the
acquisition of handsets, where the price paid by us is based mainly on US dollars. In
addition, a substantial majority of our capital expenditures (including with respect to
our 3G networks) are incurred in, or linked to, non-shekel currencies, mainly US dollars.
Thus, although the relative decline in value of the US dollar against the shekel has
helped offset increases in our financial and operating expenses in recent years, any
devaluation of the shekel against the dollar (or other foreign currencies) will increase
the shekel cost of our non-shekel denominated or linked expenses and capital expenditures.
Such an increase may have an adverse impact on our results, which may be material.
Material changes in exchange rates may cause the amounts that we must invest to increase
materially in shekel terms. We hedge a portion of our foreign currency commitments. See
Item 11. Quantitative and Qualitative Disclosures About Market Risk.

Although
we have the ability to borrow under our bank credit facility in US dollars, our current
borrowings are in shekels, and most of our financial debt (shekel bank borrowings and our
Notes due 2012) are linked to the consumer price index (CPI). If the CPI
increases, we may not be permitted to raise our tariffs in a manner that would fully
compensate for any increase in our financial expenses. In 2008, the CPI increased 4.5%,
causing an increase of NIS 101 million in our financial expenses, net, compared to a CPI
increase of 2.8% in 2007, which caused an increase of NIS 64 million in financial
expenses, net. The CPI for each month is published on the 15th day of the
following month; references above to the annual change in CPI for a given year is the
change from the CPI published on the 15th day of December of the preceding year
to the CPI published on the 15th day of December of the relevant year, which
for the purposes of this annual report, covers the twelve months beginning January 1
through December 31of the year in question. To hedge the impact of increases in the CPI,
we enter into derivative transactions. See Item 11. Quantitative and Qualitative
Disclosures about Market Risk.

# 5B. Liquidity and
Capital Resources

The
discussion below first describes our financial indebtedness (Notes due 2012 and total
financial debt) and capital expenditures, as well as our dividend payment and share
repurchase policies, and then discusses our main sources of liquidity.

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


The notes due 2012 are listed on the Tel-Aviv Stock Exchange, and members of our Board of Directors
and senior management may have purchased a portion of the notes due 2012 through stock exchange
transactions.

Quarterly
repayments of principal and interest on the Notes due 2012 will be made in twelve
installments, beginning in June 2009 and ending in March 2012. Principal and interest
payments on the Notes due 2012 are linked to the consumer price index (CPI), with annual
interest on the notes equal to 4.25% adjusted according to the CPI. The notes were rated
AA- by Standard and Poors Maalot, and Aa2 by Midroog, two of Israels rating
agencies. In March 2009, Standard and Poors Maalot declared its intention to review
the rating of the notes, and stated that there was a high probability the rating would be
raised in the near future.

55

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The
table below sets forth the minimum payments of principal to be made on our Notes due 2012,
based on the consumer price index (CPI) at December 31, 2008.

|I n  t h o u s a n d s  | NIS | Convenience
translation
into US dollars
|----------------------- | --- | ---------------------------------------
|
|
|
|
|Year ended December 31: |     |                                        
|2009                    |     |                                        
|2010                    |     |                                        
|2011                    |     |                                        
|2012                    |     |                                        
|                        |     |                                        

We
intend to fund the repayment of the current portion of our Notes due 2012 payable in 2009
(NIS 542 million in principal plus approximately NIS 86.3 million in interest linked to
the CPI as of December 31, 2008 and assuming no future change in the CPI.) through additional bank loans, the securitization of
accounts receivable, the issuance or sale of corporate notes, available cash or
operational cash flow, or a combination of one or more of these resources. See Item
3D. Risk Factors  Our business results may be affected by the continued
recessionfor a discussion of uncertainties regarding the availability of
funding.

Financial
Debt.At December 31, 2008, total financial debt (including the current portion of our
long-term liabilities) amounted to NIS 2,192.0 million, compared to NIS 2,100.9 million at
December 31, 2007. The increase in total financial debt at year-end 2008 reflected
principally the impact of the 4.5% increase in CPI on our debt under the Notes due 2012.
Short-term financial debt, which is comprised of the current portion of long-term debt,
amounted to NIS 567.3 million at December 31, 2008, compared to NIS 28.3 million at
December 31, 2007, reflecting principally the initial repayments on our Notes due 2012
coming due during 2009.

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

In
2008, 2007 and 2006, our capital expenditures amounted to approximately NIS 445 million,
NIS 469 million and NIS 488 million, respectively, and were principally related to our
network. In 2008, major capital expenditures included expenditures related to the
agreement with LM Ericsson Israel Ltd. in December 2007 for the replacement of third party
3G radio equipment existing in our network and for additional investment in the 3G
network. In addition, we invested in our new portfolio of fixed line and ISP services.
These investments will continue in 2009, and we currently expect our capital expenditures
for 2009 to remain below 10% of anticipated revenues. We fund our capital expenditures
principally through cash from operations.

Dividend payments and share repurchases. The total dividend distributed in
2008 was approximately NIS 841 million (US$ 200 million), or NIS 5.45 per share,
representing approximately 80% of the annual net income. Cash dividends are paid in
Israeli currency. The Board of Directors has reaffirmed our existing policy, targeting an
80% payout ratio of annual net income. For further information see Item 3D. Risk
Factors  We may not be able to fulfill our dividend policy in the future. If we
implement our current dividend policy, we will reduce our future cash reserves, which may
require us to borrow additional money. and Item 8A. Consolidated
Financial Statements and other Financial Information  Dividend Distribution
Policy.

In
February 2008, the Board also approved a share buy-back plan throughout 2008 in an amount
of up to NIS 600 million, subject to appropriate market conditions. Through September 30,
2008, we repurchased approximately 4.5 million of our shares at an average price per share
of NIS 78.44 for a total consideration of approximately NIS 351 million. In view of the
significant market turbulence, the Board of Directors suspended the share buy-back plan.
See Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers.

Currently,
our main sources of liquidity are:

| |  | cash
on hand;
| | - | -------------

| |  | operating
cash flows; and
| | - | -------------------------

| |  | our
senior credit facility.
| | - | ---------------------------

Cash
on hand.At December 31, 2008, we had NIS 184 million in cash on hand, compared to NIS
148 million at year-end 2007.

56

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Operating
cash flows.Cash flows generated from operating activities in 2008 (NIS 1,839.1
million or US $436.4 million), net of cash flows from investing activities (NIS 530.8
million or US $126 million), were NIS 1,308.3 million (US $310.5 million), an increase of
42.8%, or NIS 392.1 million, from 2007. Cash flow from operating activities increased by
27.2% to NIS 1,839.1 million (US$ 436.4 million) in 2008 from NIS 1,445.7 million in 2007.
The increase in cash flow from operating activities reflected both the higher operating
income and the effects of the introduction of factoring future handset payments, which
increased operating cash flow by approximately NIS 200 million, as well as initiatives
that were taken during the course of 2008 to reduce the working capital and cash flow
volatility. Cash flow used for investing activities, which consisted principally of the
purchase of fixed assets in connection with the development of our network, increased 0.3%
from NIS 529.5 million in 2007 to NIS 530.8 million (US$ 126 million) in 2008.

Senior
credit facilities.In 2008, our senior credit facilities consisted of a US$75 million
long-term loan facility (Facility A) and a US$75 million revolving loan facility (Facility
B). On September 1, 2008, Facility A expired, with US$6 million borrowed and remaining to
be repaid under Facility A in 2009. Facility B will terminate on September 1, 2009. At
December 31, 2008, the balance available for drawing down on Facility B was approximately
US$ 75 million Our credit facilities are unsecured.

We
believe that funds from our operations, together with funds available under our credit
facility, our cash on hand and our ability to raise further debt, will provide us with
enough liquidity and resources to fund our expected capital expenditure needs, repayment
of our notes, as well as our obligations under our financing agreements, our license
payments and our other material commitments, at least for the next 12 months. However, the
actual amount and timing of our future requirements may differ materially from our
estimates, See also Item 3D. Risk Factors  If we implement our current
dividend policy, we will reduce our future cash reserves, which may require us to increase
our level of debt. and   Our business results may be affected by
continued recession for a discussion of uncertainties regarding raising additional
debt.

# 5C. Research and
Development, Patents and Licenses

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

# 5D. Trend Information

# Outlook

While
the severity and duration of the current global economic downturn is still unknown, we
believe that the core areas of our business are on solid foundations. However, we have
already seen a significant adverse impact in roaming activity and in larger provisions for
doubtful debt expenses. Furthermore, in 2009 we have seen some indications of a possible
halt in the growth of average minutes per user (MOU). Our intention is to mitigate, as
much as possible, the effects of the downturn through efficiency and cost-cutting measures
where appropriate. However, should the downturn continue through 2009, profit levels could
be lower than in 2008. See Item 3D. Risk Factors  Our business results may be
affected by continued recession.

We
will continue to invest in our new portfolio of fixed-line and ISP services in 2009 with a
view to the services contributing to profitability beginning in 2010. At the same time,
the annual level of capital expenditures for 2009 is expected to remain below 10% of
anticipated revenues.

As
stated above under Item 5B. Liquidity and Capital Resources, we may seek to
fund the repayment of the current portion of our Notes due 2012 payable in 2009  through additional bank loans or via the issuance of new corporate notes.
Particularly in light of current global economic conditions, there can be no assurance
we will be able to obtain additional bank loans or issue new corporate notes on
acceptable terms or at all.

The Company will start
to report its financial results based on International Financial Reporting Standards
(IFRS) beginning for the first quarter of 2009.

The
statements above under this section regarding trends are forward-looking
statements. We have based these forward-looking statements on our current knowledge and
our present beliefs and expectations regarding possible future events. These
forward-looking statements are subject to risks, uncertainties and assumptions about
Partner, consumer habits and preferences in mobile telephone usage, trends in the Israeli
telecommunications industry in general, possible regulatory and legal developments and
trends in general economic conditions. For a description of some of the risks we face, see
Item 3D. Key Information  Risk Factors in particular   Our
business results may be affected by continued recession, Item 4. Information
on the Company, Item 5. Operating and Financial Review and Prospects and
Item 8A. Consolidated Financial Statements and Other Financial Information 
Legal and Administrative Proceedings. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed above might not occur, and actual
results may differ materially from the results anticipated.

57

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# 5E. Off-Balance Sheet
Arrangements

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

# 5F. Aggregate
Contractual Obligations

Set
forth below are our contractual obligations and other commercial commitments as of
December 31, 2008:

|                                    | Payments Due by Period (NIS in thousands)
|----------------------------------- | -----------------------------------------
|
|
|
|Long-Term Debt*                     |                                          
|Capital Lease Obligations           |                                          
|Operating Leases                    |                                          
|                                    |                                          
|Contribution to funds in respect of |                                          
|Employee rights in respect of       |                                          
|severance pay funds                 |                                          
|Handsets                            |                                          
|Fixed Assets                        |                                          
|                                    |                                          
|Total Contractual Cash Obligations  |                                          

*
This table does not include payments of interest on our Long-Term Debt. Interest on our
Notes due 2012, which represent NIS 1,624.7 million of our Long-Term Debt, is currently at
4.25% per annum and is linked to changes in the consumer price index (CPI).
Estimated interest payments for 2009 on the Notes due 2012 total approximately NIS 86.3
million linked to the CPI as of December 31, 2008, and assuming no future change in the CPI.

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# ITEM 6. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES

# 6A. Directors and Senior
Management

Below
is a list of the Directors of the Company as of January 1, 2009:

Directors

|Name of Director             | Age |  | Position                          
|---------------------------- | --- |  | ----------------------------------
|
|
|
|
|Fok Kin-ning, Canning        | 57  |  | Chairman of the Board of Directors
|Dr. Michael J. Anghel (2)(4) | 70  |  | Director                          
|Chan Ting Yu (1)(3)          | 58  |  | Director                          
|Chow Woo Mo Fong, Susan      | 55  |  | Director                          
|Uzia Galil                   | 83  |  | Director                          
|Erez Gissin (1)(2)           | 50  |  | Director                          
|Dennis Pok Man, Lui (1)(3)   | 58  |  | Director                          
|Pesach Shachar (1)           | 75  |  | Director                          
|Amikam Shorer (5)            | 41  |  | Director                          
|Frank John Sixt              | 57  |  | Director                          
|Moshe Vidman (1)(2)(3)(4)    | 65  |  | Director                          

---

|(1) | Member
of the Executive Committee of the Board of Directors.
|--- | ------------------------------------------------------------

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

|(3) | Member
of the Compensation Committee.
|--- | -------------------------------------

|(4) | External
Director under the Companies Law.
|--- | ------------------------------------------

|(5) | Director
appointed by our Israeli founding shareholders.
|--- | --------------------------------------------------------

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

Dr. Michael J. Anghel became a director of Partner in March 2006. From 1977 to
          1999, he led the Discount Investment Corporation Ltd. (of the IDB Group)
          activities in the fields of technology and communications. Dr. Anghel was
          instrumental in founding Tevel, one of the first Israeli cable television
          operators and later in founding Cellcom  the second Israeli cellular
          operator. In 1999 he founded CAP Ventures, an advanced technology investment
          company. From 2004 to 2005, Dr. Anghel served as CEO of DCM, the investment
          banking arm of the Israel Discount Bank. He has been involved in various
          technology enterprises and has served on the Boards of Directors of various
          major Israeli corporations and financial institutions including Elron, Elbit,
          Nice, Gilat, American Israeli Paper Mills, Maalot (the Israeli affiliate of
          Standard and Poors) and Hapoalim Capital Markets. He currently serves on
          the Boards of Directors of Syneron Medical Ltd., Evogene Ltd., Gravity Visual Effects and Design Ltd., Dan Hotels Ltd, Orbotech Ltd. and the
Strauss-Group Ltd.  He is also the chairman of the Center for Educational Technology.
Prior to launching his business career, Dr. Anghel served as a full-time
          member of the Recanati Graduate School of Business Administration of the Tel
          Aviv University, where he taught finance and corporate strategy. He currently
          serves as Chairman of the Tel Aviv Universitys Executive Program. Dr.
          Anghel holds a B.A. (Economics) from the Hebrew University in Jerusalem and an
          M.B.A. and Ph.D. (Finance) from Columbia University in New York. Mr. Anghel is
          an independent director as well as an external director and serves as a member
          of the Audit Committee and the Security Committee of the Company,

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

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

Uzia
Galil has been a director of Partner since August 1999. Mr. Galil currently serves as
Chairman and Chief Executive Officer of Uzia Initiatives and Management Ltd., a company
specializing in the promotion and nurturing of new businesses primarily in the field of
information technology for personalized medicine, mobile communication and electronic
commerce, which he founded in November 1999. From 1962 until November 1999, Mr. Galil
served as President and Chief Executive Officer of Elron Electronics Industries Ltd., an
Israeli high technology holding company, which he founded and of which he also served as
Chairman of the Board of Directors. From January 1981 until leaving Elron, Mr. Galil also
served as Chairman of the Board of Directors of Elbit Ltd., an electronic communication
affiliate of Elron, and as a member of the Boards of Directors of Elbit Systems Ltd., a
defense electronics affiliate of Elron, and all other private companies held in the Elron
portfolio. Mr. Galil currently serves as a member of the Boards of Directors of Orbotech
Ltd., and as Chairman of Zoran Corporation. From 1980 to 1990, Mr. Galil served as
Chairman of the International Board of Governors of the Technion. Mr. Galil holds a M.S.
in Electrical Engineering from Purdue University and a B.S. from the Technion. Mr. Galil
has also been awarded an honorary doctorate in technical sciences by the Technion in
recognition of his contribution to the development of science-based industries in Israel,
an honorary doctorate in philosophy by the Weitzman Institute of Science, an honorary
doctorate in engineering by Polytechnic University, New York, and an honorary doctorate
from the Ben-Gurion University of the Negev in Israel and the Solomon Bublick prize
laureate from the Hebrew University of Jerusalem. In 1997 he was awarded the prestigious
Israel Prize for his contribution to the development of the Israeli hi-tech industry.
Until April 2005, Mr. Galil had been a director nominated by Elbit.COM., after which Mr.
Galil served as a director on behalf of Advent Investments Pte Ltd until March 2008.

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

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

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

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

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

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

Senior Management

Below is a list of the Senior
Management of the Company as of January 1, 2009.

|Name of Officer* | Age |  | Position                                                                
|---------------- | --- |  | ------------------------------------------------------------------------
|
|
|
|
|David Avner      | 57  |  | Chief Executive Officer                                                 
|Emanuel Avner    | 48  |  | Chief Financial Officer                                                 
|Chaim Beker      | 64  |  | Vice President, Operations                                              
|Avi Berger       | 46  |  | Vice President, Technologies                                            
|Alon Berman      | 48  |  | Vice President, Internet and Broadband                                  
|Michal Dana      | 53  |  | Vice President, Human Resources and Operations                          
|Oded Degany      | 45  |  | Vice President, Carrier, International and Investor Relations           
|Gadi Gilon       | 50  |  | Vice President, InformationTechnology                                   
|Eli Glickman     | 47  |  | Vice President, Customer and Private Sales Division                     
|Roly Klinger     | 48  |  | Vice President, Legal and Regulatory Affairs and Joint Company Secretary
|Erez Paz         | 46  |  | Vice President, Marketing                                               
|Gil Rosenfeld    | 43  |  | Vice President, Business Division                                       
|Edith Shih       | 56  |  | Joint Company Secretary                                                 

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

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

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

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Avi
Berger was appointed as Vice President, Internet &Broadband effective January 1,
2009, having served as Deputy Vice President Technologies since joining the Company in
December 2007. Prior to joining the Company, Mr. Berger served as Vice President of
Business Development in Tadiran communications Ltd. after having served for 21 years in
the Israeli Defense Forces, rising to the rank of Colonel and Head of the C4I department
in the C4I branch. Mr. Berger holds a bachelor degree in Electrical Engineering from Tel
Aviv University, and a Master Degree in Electrical Engineering (Communication &
Telecommunication) from UCLA.

Alon
Berman was appointed Vice President, Internet and Broadband effective January 1, 2009.
From October 2004 until December 31, 2008, Mr. Berman served as Vice President
Technologies. Mr. Berman joined Partner as Deputy VP of Engineering in the Technologies
division at the end of 2002, after serving 20 years in the Israeli Defense Forces, rising
to the rank of Colonel and Head of Technical Department in the Communications Corps. Mr.
Berman holds a bachelor degree in Electronic Engineering from the Technion  Israel
Institute of Technology (1982), a Master Degree in Electronic Engineering (1991) and an
MBA (1994) from Tel Aviv University.

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

Oded
Degany was appointed as Vice President Corporate Development, Strategy and Investor
Relations effective January 1, 2008. Mr. Degany joined Partner in May 2007, and effective
January 1, 2008, has been responsible for strategy, investor relations and domestic and
international carrier relations. Previously, he served as Vice President Business
Development at ECI Telecom from 2006 to 2007 and as Vice President of Corporate
Development and M&A at Amdocs (Israel) from 2000 to 2006. Before that, he served as
Director of Business Development and Strategy at Clal (Israel) Ltd from 1997 to 2000, and
as a Senior Business Analyst at National Consultants (NC)-Leumi & Co. Investment
Bankers Ltd. from 1996 to 1997. Mr. Degany holds a B.A. degree in physics from the
Technion-Israel Institute of Technology and an MBA degree from Tel Aviv University.

Gadi
Gilon was appointed as Vice President CIO of the IT Division effective January 1,
2009, having served as Deputy Vice President, CIO since January 2008. Prior to joining the
Company in March 2006, Mr. Gilon served from 2004 until 2006 as CIO and Senior Vice
President of the Keter Group. From 2000 until 2004, he served as CIO at
Clalit Health Services; and served as a lecturer at Emek Izrael College. Mr.
Gilon was also a Director and CIO at Soroka University Medical Center from 1997 to 2000.
Mr. Gilon holds a Bachelors Degree in Management, Economics and Human behavioral sciences
from Ben Gurion University and is studying for a Masters Degree in Philosophy and Digital
Culture at Tel Aviv University.

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

Roly
Klinger, Vice President Legal and Regulatory Affairs and Joint Company Secretary,
joined Partner in August 1998 as the Chief Legal Counsel and Joint Company Secretary. Roly
Klinger was appointed as Vice President Legal and Regulatory Affairs effective November 1,
2007. From 1993, she served as Legal Advisor and Corporate General Secretary of Keshet
Broadcasting Ltd., which holds an operating franchise for Israels first commercial
television channel. Ms. Klinger received an LL.B degree from Tel Aviv University and is
admitted to the Israel Bar.

Erez
Paz, was appointed Vice President, Marketing and Content effective January 1, 2008.
Mr. Paz joined Partner in September 2007. He worked from 2004 to 2007 for Visa-CAL Ltd. as
Vice President Marketing. Previously he worked for Coca Cola Israel from 1995 to 2004
during which time he held the positions of Vice President Marketing, Deputy of Vice
President Marketing, On Premise Market Manager and Branch Manager. Mr. Paz holds a BSc in
Industrial & Management Engineering from Ben Gurion University and an MBA from the
University of Bradford, West Yorkshire, United Kingdom.

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

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

Appointments

Under
our license, at least 10% of our Board of Directors, or at lease one director if the Board
is comprised of up to 14 members, must be appointed by Israeli entities, as defined in the
license. See Item 4B. Business Overview  Regulation  Our Mobile
Telephone License.

Except
for the foregoing, there is no arrangement or understanding with any major shareholders
regarding the appointment of Directors or senior management.

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

# 6B. Compensation

The
aggregate compensation paid, and benefits in kind granted to or accrued on behalf of all
our directors and senior management for their services in all capacities to the Company
and its subsidiaries during the year ended December 31, 2008, was approximately NIS 32.86
million (US$ 7.78 million). This amount included approximately NIS 1.6 million (US$0.38
million) set aside or accrued to provide pension, retirement or similar benefits on behalf
of all our senior management during the year ended December 31, 2008. The aggregate
compensation amount does not include performance bonus payments made in 2008 with respect
to the year ending December 31, 2007, but does include bonus payments deemed earned with
respect to the year ending December 31, 2008, and paid in 2009. The aggregate compensation
amount also does not include amounts expensed in 2008 (which were in addition to amounts
expensed during 2007) to provide compensation and benefits in kind to or on behalf of
senior management that terminated their employment relationship with the Company during
2008, which amounted to approximately NIS 1.66 million (US$ 0.39 million) expensed in 2008.

Bonus
payments for our senior management are determined with respect to a given year based on
quantitative and qualitative goals set for the Company as a whole, as well as on an
individual basis. The individual goals for the Chief Executive Officer are set by the
Compensation Committee and the Board of Directors, and the individual goals for senior
management reporting to the CEO are set by the CEO in accordance with the overall Company
objectives. Once the results of the year are known, and based on the extent to which
corporate and individual goals have been met, bonus payments are determined in the
discretion of the Compensation Committee and the Board of Directors and, with respect to
senior management reporting to the CEO, in light of recommendations made by the CEO.

Compensation
for senior management may also be provided in the form of stock options to purchase our
ordinary shares. In 2008 options were granted to our senior management under the 2004
Employee Stock Option Plan to purchase up to 50,000 of our ordinary shares at an exercise
price of NIS 66.05 per share with such options vesting at the earliest in February 2009.
These options will expire by February 2018. For more information, see Item 6E.
Directors, Senior Management and EmployeesShare Ownership2004 Employee Stock
Option Plan.

# 6C. Board Practices

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

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Terms
of Directors

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

Alternate Directors

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

External Directors under
the Companies Law

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

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

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

Financial Experts under
the Companies Law

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

Nasdaq Corporate
Governance Rules and Our Practices

Under
Nasdaq Rule 5615(c), companies that satisfy the definition of a Controlled
Company are exempt from the requirements of Nasdaq Rules 5605(b) (Independent
Directors) (except for the requirements of subsection (b)(2), which pertain to
executive sessions of independent directors), 5605(d) (Independent Director
Oversight of Executive Officer Compensation) and 5605(e) (Independent Director
Oversight of Executive Compensation). A Controlled Company is defined as
a company of which more than 50% of the voting power for the election of directors is held
by an individual, group or another company. As Hutchison Telecom holds more than 50% of
the voting rights of our issued  and outstanding ordinary shares, we fall under the definition of a
Controlled Company and therefore rely on the exemptions for a Controlled
Company described above. However, our Board of Directors may from time to time
review this decision.

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In
addition, under Nasdaq Rule 5615(a)(3), a foreign private issuer such as the Company may
follow its home country practice in lieu of the requirements of the Nasdaq Rule 5600
Series (Corporate Governance Requirements), with certain exceptions, provided
that it discloses each requirement that it does not follow and describes the home country
practice followed in lieu of such requirements. We describe below the two areas where we
follow our home country practice:

| |  | In
connection with our adoption of our 2004 Employee Share Option Plan (The 2004 Plan),
we received an exemption from Nasdaq with respect to its requirement (now under Nasdaq
Rule 5635) that issuers receive shareholder approval when establishing a stock option
plan, purchase plan or other equity compensation arrangement pursuant to which stock may
be acquired by officers, directors or consultants. In accordance with Israeli law, Board
of Directors approval was obtained in connection with the adoption of the 2004Plan,
and shareholder approval will be obtained when required under Israeli law, such as when
options would be issued under the plan to directors or to office holders who hold a
controlling interest in Partner. However, following an amendment of the Plan in March
2006, material amendments to the 2004 Plan now require shareholder approval. See Item
6E.Share Ownership- 2004 Employee Stock Option Plan
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In
order to comply with the conditions and restrictions imposed on us by the Ministry of
Communications, including in our license, in relation to ownership or control over us,
under certain events specified in our articles of association, the Board of Directors may
determine that certain ordinary shares are dormant shares. Consequently, we 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Executive Committee

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

Audit Committee

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

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

The
Board of Directors has determined that Moshe Vidman, Michael Anghel and Erez Gissin are
audit committee financial experts as defined by applicable SEC regulations.
See Item 16A. Audit Committee Financial Expert below.

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

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Compensation Committee

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

Security Committee

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

Internal Auditor

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

Fiduciary Duties of an
Office Holder

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

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

Approval of Related Party
Transactions

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

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

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

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

Duty of a Shareholder

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

Indemnification

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

|(1) | any
financial liability incurred by, or imposed upon the officer or director in
               favor of a third party in accordance with a judgment, including a judgment
given                in a settlement or a judgment of an arbitrator, approved by the
court; or
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | reasonable
litigation expenses, including legal fees, incurred by the officer or
               director or which he was ordered to pay by the court:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | in
the context of proceedings filed against him by Partner or on Partners
          behalf or by a third party; or
| | --- | -------------------------------------------------------------------------------------------------------------------

| | (b) | in
a criminal proceeding in which he was acquitted; or
| | --- | ------------------------------------------------------

| | (c) | in
a criminal proceeding in which he was convicted of a felony which does not
          require a finding of criminal intent.
| | --- | -----------------------------------------------------------------------------------------------------------------------------

|(3) | reasonable
litigation expenses, including legal fees, incurred by the officer or
               director due to such investigation or proceeding conducted against him by
an                authority authorized to conduct an investigation or proceeding,
relating to an                offense which does not require criminal intent, within the
meaning of the                relevant terms in any law, and which:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | ended
without filing of an indictment against him and without the imposition of           a
financial liability as a substitute for a criminal proceeding; or
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | ended
without filing of an indictment against him but for which he was subject           to a
financial liability as a substitute for a criminal proceeding; or
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | any
other liability or expense in respect of which it is permitted or will be
               permitted under applicable law to indemnify an officer of Partner.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

|(2) | a
breach of the duty of care if it was made intentionally or recklessly;
|--- | ------------------------------------------------------------------------

|(3) | an
intentional act which was done to unlawfully yield a personal profit; or
|--- | ---------------------------------------------------------------------------

|(4) | criminal
fine or penalty imposed on him.
|--- | ----------------------------------------

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

We
participate in a directors and officers liability insurance policy procured by
our controlling shareholder, Hutchison Telecom, insuring our directors and
officers liability and our undertaking to indemnify them, in respect of certain
matters permitted by the Companies Law. The insurance program provides primary coverage
for the directors and officers of Partner and its subsidiaries for an amount of US $20
million for any one claim and in the aggregate and in excess thereof the insurance program
provides coverage for Hutchison Telecom and its participating subsidiaries, including
Partner, of up to US $105 million for any one claim and in the aggregate.

Hutchison
Telecom and its participating subsidiaries, including us, are also covered by further
excess directors and officers liability insurance policies of up to a limit of
US$75 million for any one claim and in the aggregate for the policy period. These policies
are shared with Cheung Kong (Holdings) Ltd (Cheung Kong), HWL, CK Life
Sciences Intl. (Holdings), Inc. and Hongkong Electric Holdings Limited and their
respective subsidiaries. In the event of the depletion of the insurance coverage
underlying the first layers of insurance as the result of payment of loss, these policies
shall continue to apply for subsequent losses as excess insurance over the amount of
insurance remaining under such first layers of insurances on follow form basis. Our
participation in the annual premium of the insurance program as described above was US
$537,936 for 2008.

# 6D. Employees

At
December 31, 2008, we had 4,671 employees on full time equivalent basis, compared with
4,130 at December 31, 2007 and 3,714 at December 31, 2006. The number of employees at
year-end 2008, 2007, and 2006, according to their activity, was as follows:

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

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

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

68

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As
of January 1, 2008, the Extension Order for Comprehensive Pension Insurance in the Economy
applies (hereinafter: the Pension Extension Order). Pursuant to the Pension
Extension Order, the employees contributions and employers contributions are
ranked and increase each year until the year 2013. In 2008, the total deduction from the
employees salary for remunerations was 0.833%, and the total of employers
contributions was 0.833% for remunerations and 0.834% for severance. In 2013, deductions
from the employees salary will be 5% for severance, and employers
contributions will be a total of 5% for remunerations and 5% for severance.

Some
of our employees are eligible for an improved pension plan with terms of 5%
employers contributions and a deduction of 5% from the employees salary. The
more senior employees are entitled to a full pension insurance, in the amounts as follow
(amounts vary according to choice of a pension fund or a managers insurance fund):
employers contributions: 13.33%- 15.83% of the employees salary and
employees deductions: 5% of the employees salary.

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

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

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

# 6E. Share Ownership

As
of March 31, 2009, our directors and senior management owned an aggregate of 226,669
ordinary shares, which constitutes less than 1% of our outstanding ordinary shares.
Directors and senior management do not have different voting rights than other
shareholders of the Company.

As
of March 31, 2009, our senior management held, in the aggregate, options to purchase up to
3,614,594 of our ordinary shares, of which 524,594 options were vested and exercisable as
of that date and an additional 87,500 will be vested and exercisable during the sixty days
thereafter. No individual senior manager holds options to purchase 1% or more of our
outstanding ordinary shares. No options have been granted to our directors.

The
table below sets forth the number of options held by our senior management according to
exercise price and expiration date, as of March 31, 2009:

|Option exercise price (NIS) | Number of options held | Option expiration Date
|--------------------------- | ---------------------- | ----------------------
|
|
|
|
|26.74                       | 78,318                 | November 2014         
|33.72                       | 153,776                | April 2015            
|33.58                       | 62,500                 | May 2016              
|32.73                       | 112,500                | July 2016             
|34.63                       | 42,500                 | September 2016        
|42.1                        | 300,000                | January 2017          
|57.96                       | 220,000                | June 2017             
|64.90                       | 125,000                | December 2017         
|66.05                       | 50,000                 | February 2018         
|60.74                       | * 2,470,000            | March 2019            

|* | Of
these 2,470,000 options, 1,250,000 options were granted to the Chief Executive Officer.
         None of these options has vested as of the date of this report and the first
vesting would          be in April 2010. This option grant was made in addition to
previous option allocations to          the Chief Executive Officer.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

69

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In 2004, 2005 and 2006 we granted options to our management and
other employees pursuant to the 2004 Employee Stock Option Plan. In March 2008, the Board
of Directors terminated the 1998 and 2000 Employee Stock Option Plan as well as the 2003
Amended Plan. As a result, no further options will be granted under such plans.

1998 Employee Stock
Option Plan

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

The
1998 Plan initially authorized the issuance of options to purchase 5,833,333 shares. In
2000, options to purchase 729,166 shares were transferred to the 2000 Plan which left
options to purchase 5,104,167 shares in the 1998 plan. As of December 31, 2008, options to
purchase 4,908,411 ordinary shares had been exercised under the 1998 Plan. On March 26,
2008, the Board of Directors terminated the 1998 Employee Stock Option Plan, and as a
result, no further options will be granted under such plan. The termination of the 1998
Plan shall not adversely affect the terms of any option which has already been granted.

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

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

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

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

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

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

2000 Employee Stock
Option Plan

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

The
2000 Plan authorizes the issuance of options to purchase up to 4,472,222 ordinary shares.
In November 2003, 419,930 options under this plan were transferred to the 2003 Amended
Plan. As of December 31, 2008, options to purchase 3,675,172 ordinary shares had been
exercised, options to purchase 144,800 ordinary shares were outstanding. On March 26,
2008, the Board of Directors terminated the 2000 Employee Stock Option Plan, and as a
result, no further options will be granted under such plan. The termination of the 2000
Plan shall not adversely affect the terms of any option which has already been granted.
The exercise prices of the outstanding options range from NIS 17.25  NIS 27.35.

70

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

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

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

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

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

2003 Amended Plan

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

Until
November 2003 we granted options pursuant to our 1998 Plan and 2000 Plan. Following the
amendment of these stock option plans in November 2003, any grant of options were subject
to the terms of our 2000 Plan, as amended, referred to as the 2003 Amended Plan.

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

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

In
December 2003, 419,930 options under the 2000 Plan were transferred to the 2003 Amended
Plan. Of these options, options to purchase 195,000 ordinary shares have been exercised.
All options granted under this plan have been exercised and no options remain outstanding.
On March 26, 2008, the Board of Directors terminated the 2003 Amended Plan, and as a
result, no further options will be granted under such plan.

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

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

71

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2004 Share
Option Plan

Under
the 2004 Share Option Plan (the 2004 plan),  5,775,000 ordinary shares were initially reserved for
issuance upon the exercise of 5,775,000 options to be granted without consideration to
employees, directors, officers and advisors. The options will be granted to employees
under the provisions of the capital gains tax route provided for in Section 102 of
the Israeli Income Tax Ordinance. The options usually vest in four equal annual batches, provided
that the Board of Directors or the Compensation Committee has not resolved otherwise. The option holder may exercise all or
part of his options at any time after the date of vesting but no later than the expiration
of the exercise period, which will be fixed by the Employee Stock Option Committee and
will not exceed ten years from the date of option grant.

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

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

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

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

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

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

72

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On
March 26, 2008, the 2004 Share Option Plan was amended by the Board of Directors to
include the following material amendments: to increase the total number of our shares
reserved for issuance upon exercise of all options granted under the 2004 Share Option
Plan by 8,142,000 shares; to introduce the acceleration of option vesting and
exercisability in the event of a change of control or voluntary winding up; and to allow,
upon compliance with certain conditions, the cashless exercise of vested
options, according to which, upon exercise by the option holder of a given number of
options, but without payment of the exercise price, the option holder would receive from
the Company 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. These amendments were approved by
the shareholders of the Company, and by the shareholders of Hutchison Telecom and
Hutchison Whampoa, respectively.

As
of December 31, 2008 options to purchase 3,537,849 ordinary shares had been exercised,
options to purchase 2,086,387 shares were outstanding and options to purchase 8,292,764
ordinary shares were available for grant under the 2004 Plan. The exercise price of the
options is based on the fair market value of the Companys shares at the time of
grant. The fair market value of an ordinary share on any date will be equal to the average
of the closing sale price of ordinary shares during the preceding 30 trading days, as such
closing sale price is published by the Tel-Aviv Stock Exchange. The exercise prices of
outstanding options as of March 31, 2009, range from NIS 26.74 to NIS 66.05. Options that
had been forfeited or expired unexercised may be regranted.

On
February 23, 2009, the 2004 Share Option Plan, was further amended by the Board of
Directors (the Plan Amendments) to include the following two material
amendments: (i) with respect to options granted on or after February 23, 2009, the date of
approval of the Plan Amendments by the Board of Directors (the Board
Approval),a dividend-adjustment mechanism, reducing the exercise price of such
options following each dividend distribution in the ordinary course in an amount in excess
of 40% (forty percent) or of another percent resolved by the Board of Directors, of the
Companys net income for the relevant period (the Excess Dividend) by an
amount equal to the gross amount of the Excess Dividend per Ordinary Share. (ii) with
respect to all options granted under the 2004 Share Option Plan, a dividend adjustment
mechanism reducing the exercise price of such options following each dividend distribution
other than in the ordinary course, by an amount which the Board of Directors considers as
reflecting the impact such distribution will have or will likely to have on the trading
price of the Ordinary Shares, and provisions authorizing the Board of Directors to allow
option holders to exercise their vested options during a fixed period, only through a
cashless exercise procedure, pursuant to which each vested option will entitle its holder
to the right to purchase Ordinary Shares (subject to the adjustments). The Plan Amendments
were approved by our shareholders and are subject to, and conditional upon, the relevant
approvals of the shareholders of, Hutchison Telecommunications International Limited and
Hutchison Whampoa Limited respectively.

73

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# ITEM 7. MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

# 7A. Major Shareholders

The
following table sets forth certain information with respect to the beneficial ownership of
our ordinary shares as of March 31, 2009, with respect to each person who we believe to be
the beneficial owner of 5% or more of our ordinary shares. Except where otherwise
indicated, we believe, based on information furnished to us by the principal shareholders,
that the beneficial owners of the ordinary shares listed below have sole investment and
voting power with respect to such ordinary shares. None of our major shareholders has any
different voting rights than any other shareholder. See Item 10B. Memorandum and
Articles of Association  Rights Attached to Shares.

|Name                                                                           | Shares beneficially
owned | Issued
Shares (1) 
% | Issued and
Outstanding
Shares (1)
%
|------------------------------------------------------------------------------ | ------------------------- | -------------------- | -----------------------------------
|
|
|
|
|Hutchison Telecommunications International Limited, Hutchison Whampoa Limited, |                           |                      |                                    
|Cheung Kong (Holdings) Limited (2)(3)(4)                                       |                           |                      |                                    
|                                                                               |                           |                     
|Israeli founding shareholders (5)                                              |                           |                      |                                    
|                                                                               |                           |                     
|Treasury shares (6)                                                            |                           |                      |                                    
|                                                                               |                           |                     
|Public (7)                                                                     |                           |                      |                                    
|                                                                               |                           |                     
|Total                                                                          |                           |                      |                                    

---

|(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 rights under the Companies Law, as long as they are held by the company.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Hutchison
Telecommunications International Limited (Hutchison                Telecom),
a company incorporated in the Cayman Islands and whose ordinary                shares are
listed on the Hong Kong Stock Exchange and ADSs are listed on the New                York
Stock Exchange, owns 78,940,104 ordinary shares of Partner shares through
               Advent Investments Pte Ltd. (Advent). Advent, incorporated in
               Singapore, is an indirect wholly-owned subsidiary of Hutchison Telecom,
owned                through a chain of wholly-owned subsidiaries as follows: Advent is
owned by                Amber International Holdings Inc., which is owned by Hutchison
               Telecommunications International (Cayman) Holdings Limited, which is owned
by                Hutchison Telecom.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Based
on publicly available SEC filings, Hutchison Whampoa Limited (               HWL),
a company incorporated in Hong Kong and whose ordinary shares are                listed
on the Hong Kong Stock Exchange, owns Partner shares through its direct
               wholly-owned subsidiary Hutchison International Limited, which in turn
directly                holds 100% of Ommaney Holdings Limited, which in turn directly
holds 100% of                Hutchison Telecommunications Group Holdings Limited, which
in turn directly                holds 100% of Hutchison Telecommunications Investment
Holdings Limited                (HTIHL), which in turn directly holds
approximately 54.42% and also                through its wholly-owned subsidiary,
Hutchison Telecommunications Holdings                Limited, indirectly holds
approximately 5.94% of the total outstanding ordinary                shares of Hutchison
Telecom, which indirectly owns 78,940,104 of the ordinary                shares of
Partner.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Based
on publicly available SEC filings, Cheung Kong (Holdings) Limited                (Cheung
Kong), through its indirect ownership of approximately                49.97% of the
issued shares of HWL and its indirect ownership of 1.1% of the                issued
shares of Hutchison Telecom, may be deemed to have sole voting and
               dispositive power over the ordinary shares of Partner beneficially owned
by HWL                and Hutchison Telecom. However, as stated in publicly available SEC
filings,                Cheung Kong expressly disclaims beneficial ownership of the
shares of Hutchison                Telecom beneficially owned in aggregate by HWL, HTIHL
and Hutchison                Telecommunications Holdings Limited, and of the ordinary
shares of the Company.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

74

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|(5) | Under
the terms of our mobile telephone license, 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Treasury
shares do not have a right to dividends or to vote.
|--- | ------------------------------------------------------------

|(7) | As
of March 31, 2009, our directors and senior management owned an aggregate of
               226,669 ordinary shares, which constitutes less than 1% of our outstanding
               ordinary shares and have been included under Public in the
table                above. For information regarding options held by our senior
management to                purchase ordinary shares, see Item 6E. Share Ownership.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Controlling Shareholders

Partner
is controlled by Hutchison Telecom. For more information about the form of its holdings
and the main shareholder in Hutchison Telecom, see the shareholder ownership table above
and the corresponding footnotes. See also Item 7B. Related Party Transactions 
Relationship Agreement below for a description of the Restatement of the
Relationship Agreement among Hutchison and the founding Israeli shareholders.

We
are not aware of any arrangements that might result in a change in control of our Company.

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

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

Other

On
March 31, 2009,11,635,748 ADSs (equivalent to 11,635,748 ordinary shares) or approximately
7.58% of our total issued and outstanding ordinary shares, were held of
record by 54 registered holders in the United States. Additionally, on March 31, 2009,
there were approximately 46 holders of record of our ordinary shares. Of these holders,
none had a registered address in the United States, although certain accounts of record
with registered addresses other than in the United States may hold our ordinary shares, in
whole or in part, beneficially for United States persons. We are aware that many ADSs and
ordinary shares are held of record by brokers and other nominees and accordingly the above
numbers are not necessarily representative of the actual number of persons who are
beneficial holders of ADSs and ordinary shares, or the number of ADSs and ordinary shares
beneficially held by such persons.

# 7B. Related PartyTransactions

Relationship Agreement

Our
founding Israeli shareholders are parties to a Relationship Agreement with the Hutchison
Telecom subsidiaries which are direct shareholders in the Company in relation to their
direct and indirect holdings of our shares and the rights associated with such holdings.
See Exhibit 4(a).1 to this annual report.

License Conditions:
Required Minimum Israeli and Founding Shareholder Percentages

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

Foreign Mobile Radio
Telephone Operator

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

Compulsory Transfer in
the Event of Default

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

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Term and Termination

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

Related agreement among
Israeli founding shareholders

A
shareholders agreement among the Israeli founding shareholders, or their approved
substitutes, established the procedures, rights and obligations with respect to the
appointment of the Israeli director. See Item 6A. Directors and Senior Management
 Appointments.

Transactions with
Affiliates

Agreements with
affiliates of Hutchison Telecom

We
have a strong relationship with Hutchison Telecom, previously one of our principal
shareholders and now our controlling shareholder, and HWL, Hutchison Telecoms
largest shareholder. Hutchison Telecom and HWL are global playersin UMTS third
generation mobile telecommunications and, in particular, the deployment and development of
third generation mobile networks and products and services worldwide.

We
are participants in a directors and officers liability insurance policy
procured by Hutchison Telecom, insuring our directors and officers liability
and our undertaking to indemnify them, in respect of certain matters permitted by the
Companies Law. The insurance program provides primary coverage of Partner and its
subsidiaries for an amount of US $20 million for any one claim and in the aggregate, and
in excess thereof the insurance program provides coverage for Hutchison Telecom and its
participating subsidiaries, including Partner, of up to US$105 million for any one claim
and in the aggregate. We also participate in further excess directors and
officers liability insurance policies of up to $75 million together with Hutchison
Telecom and its participating subsidiaries, which provide coverage in the event of
depletion of insurance coverage under the first layers of insurance as the result of
payment of loss. Our participation in the annual premium of the insurance program as
described above was US $537,936 for the year 2008. See Item 6C. Board Practices
 Indemnification.

In
August 2002, we signed a Cost-Sharing Agreement (the CSA) with certain members
of the HWL group of companies for the joint acquisition and development of information
technology platforms and software solutions, hardware, content and other services, in
connection with the 3G generation business. The CSA allows us to participate in
acquisition and development projects with other 3G companies within the HWL and Hutchison
Telecom groups, and to benefit from the combined purchasing power and resources of the
groups which include companies in Austria, Australia, Denmark, Hong Kong, Ireland, Italy,
Sweden and the United Kingdom. As of December 31, 2008, we had given notice of our
participation in nine joint contracts. We expect that our share in these contracts in
financial terms (including our share of joint expenses and liabilities) is not material.
We believe that the CSA gives us an advantage unavailable to our competitors, because the
CSA gives us an opportunity to maximize economies of scale and operational efficiencies
for development and procurement activities associated with our 3G business. See Note, 12
(b) and 12 (c) to our consolidated financial statements.

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

In
March 2007 we entered into a supply agreement with H3G for the future purchase of 3G
handsets. The supply agreement allows us to purchase handsets by delivering purchase
forecasts to H3G according to a set price list. We are not obligated to make any minimum
purchase amounts under the agreement.

Agreements with
affiliates of Eurocom

During
2008 we purchased a substantial portion of our Nokia handsets from Eurocom Communications
Ltd. (Eurocom) one of our founding Israeli shareholders, that represented
approximately 45% of all of our handset purchases.

We
believe that our handset purchases from Eurocom were on commercial, arms-length terms.

Other Agreements

In
April 2005, we entered into a bank credit facility, which replaced our previous bank
facility. Bank Hapoalim B.M., Bank Leumi Le-Israel B.M., Israel Discount Bank Ltd. and
United Mizrahi Bank Ltd. are participating in the facility, with Bank Hapoalim B.M.
serving as facility agent and Bank Leumi Le-Israel B.M. serving as coordinating agent.
During 2004, two of our directors served also as directors in banks that are parties to
the new credit facility  Mr. Mordechai Keret in Bank Hapoalim B.M. and Mr. Moshe
Vidman in Bank Leumi Le-Israel B.M. See Item 5B. Liquidity and Capital Resources
 Senior Credit Facilities.

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The
Company paid in 2007 a special retirement payment of US$ 3.65 million to Mr. Amikam Cohen,
our previous Chief Executive Officer, who retired from his functions as chief executive on
January 1, 2007, and from the Company on April 1, 2007. In addition, the Company undertook
to pay Mr. Cohen a non-compete payment of US$0.6 million, in five equal installments, each
payment to be made at the end of a six-month period over two and a half years starting in
November 2007.

Registration Rights

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

# 7C. Interests of Experts
and Counsel

Not
applicable.

# ITEM 8. FINANCIAL
INFORMATION

# 8A. Consolidated
Financial Statements and Other Financial Information

Audited
financial statements for the three fiscal years ended December 31, 2008, are included
under "Item 18. Financial Statements."

Legal and Administrative Proceedings

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

In
addition to ordinary course proceedings described above, we have been named as defendants
in a number of civil and criminal proceedings related to our network infrastructure and
consumer claims regarding, for example, our tariff plans and billing methods, which may
result in civil liabilities or criminal penalties against us or our officers and
directors. Plaintiffs in some of these proceedings are seeking certification as class
actions. Unless and until any of these claims is recognized as a class action, we and our
legal counsel are unable to evaluate the probability of success of such claim, or the
range of a potential loss, with any degree of certainty, and therefore no provision has
been made. Recently, a class was certified in proceedings asserting liability against us
(and another Israeli provider of cellular telecommunications services) for actions taken
by a third-party content provider, who is also a defendant in this claim, although we do
not believe that an adverse judgment against us in connection with such proceedings would
have a material effect on our financial condition. See Item 3D: Risk Factors
for a description of the main litigations and proceedings in which we have been involved.
See also Note 7 to our consolidated financial statements.

During
2008, nine criminal proceedings were brought against us concerning the erection of network
sites without building permits, one of which was also brought against our officers and
directors. As of December 31, 2008, 18 criminal proceedings were pending against us
concerning the erection of network sites without building permits, none of which was
pending against our officers and directors. We are currently negotiating with the relevant
local authorities to reach a settlement regarding the relocation of affected sites or
obtaining building permits for those sites. The total amount of fines paid in 2008 was
approximately NIS 0.4 million. Settlements of previous criminal proceedings brought
against us resulted in Partner, but not its officers or directors, admitting guilt and
paying a fine, and also resulted in the imposition of demolition orders for the relevant
sites, the execution of which have been stayed for a period of time to allow us to obtain
the necessary permits or to relocate the relevant network site.

Dividend Distribution
Policy

Our
Articles of Association allow for our Board of Directors to approve all future dividend
distributions, without the need for shareholder approval, subject to the provisions
governing dividends under the Companies Law. We first paid a dividend to our shareholders
for the year 2005. See Item 5. Liquidity and Capital Resources  Dividend
payments and share repurchases.

Our
dividend policy for 2008 provides for an 80% payout ratio of annual net income, the same
as with respect to the year 2007. See Item 3D. Risk Factors for risks relating
to future payments of dividends.

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

# 8B. Significant Changes

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

# ITEM 9. THE OFFER AND
LISTING

# 9A. Offer and Listing Details

Our
capital consists of ordinary shares, which are traded on the Tel Aviv Stock Exchange under
the symbol PTNR. American Depositary Shares (ADSs), each
representing one of the Companys ordinary shares, are quoted on the Nasdaq Global
Market under the symbol PTNR. Our ADSs were listed on the London Stock
Exchange until March 12, 2008, when we discontinued the listing of our ADSs on that
exchange. The ADSs are evidenced by American Depositary Receipts (ADRs)
originally issued by JPMorgan Chase, as depositary under a Deposit Agreement, dated as of
November 1, 1999, among the Company, JPMorgan Chase and registered holders from time to
time of ADRs. ADSs were first issued in October 1999. Since March 2006, the Bank of New
York has served as our depository for ADSs.

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

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|               | Nasdaq | London Stock Exchange | Tel Aviv Stock Exchange
|-------------- | ------ | --------------------- | -----------------------
|
|
|
|
|2004           |        |                       |                        
|               |        |                      
|2005           |        |                       |                        
|               |        |                      
|2006           |        |                       |                        
|               |        |                      
|2007           |        |                       |                        
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        
|               |        |                      
|2008           |        |                      
|First Quarter  |        |                       |                        
|Second Quarter |        |                       |                        
|Third Quarter  |        |                       |                        
|Fourth Quarter |        |                       |                        

---

*     The data
for the fourth quarter of 2004 is based on last trade reported to the London Stock
Exchange. From January 1, 2005 through December 31, 2008, there were no trades of our ADS
executed on the London Stock Exchange trading system.

|               | Nasdaq | Tel Aviv Stock Exchange
|-------------- | ------ | -----------------------
|
|
|
|
|September 2008 |        |                        
|October 2008   |        |                        
|November 2008  |        |                        
|December 2008  |        |                        
|January 2009   |        |                        
|February 2009  |        |                        
|March 2009     |        |                        

# 9B. Plan of Distribution

Not
applicable.

# 9C. Markets

Our
ADSs are quoted on the Nasdaq National Market under the symbol PTNR and,
until March 12, 2008, were traded on the London Stock Exchange under the symbol PCCD.
Our ordinary shares are traded on the Tel Aviv Stock Exchange under the symbol PTNR.

# 9D. Selling Shareholders

Not
applicable.

# 9E. Dilution

Not
applicable.

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# 9F. Expenses of the Issue

Not
applicable.

# ITEM 10. ADDITIONAL
INFORMATION

# 10A. Share Capital

Not
applicable.

# 10B. Memorandum and Articles
of Association

Purposes and Objects of
the Company

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

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

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

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

The Powers of the
Directors

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

See
Item 6C. Board Practices.

Rights Attached to Shares

Our registered
share capital consists of a single class of 235 million ordinary shares, par value NIS
0.01 per share, of which 153,419,394 ordinary shares were issued and outstanding as of
December 31, 2008, and 153,547,476 shares were issued and outstanding as of March 31,
2009. All outstanding ordinary shares are validly issued. The rights attached to our
ordinary shares are described below.

Dividend Rights

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

Shares
which are treated as dormant under our Articles of Association retain the rights to
receive dividends or other distributions to shareholders, and to participate in rights
offerings, but no other rights. See Item 4B. Business Overview  Regulation
 Our Mobile Telephone License  License Conditions.

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

Voting Rights

Holders
of issued and outstanding ordinary shares have one vote for each ordinary share held on
all matters submitted to a vote of shareholders. Such voting rights may be affected by the
grant of any special voting rights to the holders of a class of shares with preferential
rights that may be authorized in the future. The quorum required for an ordinary meeting
of shareholders consists of at least two shareholders present in person or by proxy who
hold or represent, in the aggregate, at least one third of the voting rights of the issued
share capital. In the event that a quorum is not present within thirty minutes of the
scheduled time, the shareholders meeting will be adjourned to the same day of the
following week, or the next business day thereafter, at the same time and place, or such
time and place as the Board of Directors may determine. If at such reconvened meeting a
quorum is not present at the time appointed for holding the meeting, one or more
shareholders present in person or by proxy holding or representing in the aggregate at
least 10% of the voting rights in us will constitute a quorum. Any shareholder seeking to
vote at a general meeting of our shareholders must first notify us if any of the
shareholders holdings in us requires the consent of the Minister of Communications.
The instructions of a shareholder will not be valid unless accompanied by a certification
by the shareholder as to whether or not the shareholders holdings in us or the
shareholders vote requires the consent of the Ministry of Communications due to a
breach by the shareholder of the restrictions on transfer or acquisition of means of
control, or provisions regarding cross-ownership with other mobile telephone operators or
shareholdings or agreements which may reduce or harm competition. If the shareholder does
not provide such certification, his instructions will be invalid and his vote not counted.

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

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

Under
our Articles of Association our shareholders vote to approve our annual consolidated financial
statements, at the annual ordinary meeting of shareholders.

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

Rights in the
Companys Profits

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

Rights in the Event of
Liquidation

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

Limitations on Ownership
and Control

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

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

Changing Rights Attached
to Shares

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

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Annual and Extraordinary
Meetings

The
Board of Directors must convene an annual meeting of shareholders at least once every
calendar year, within fifteen months of the last annual meeting. Notice of a general
meeting must be sent to each registered shareholder within five days after the record date
set by the Board of Directors for that meeting, unless a different notice time is required
under applicable law or unless all shareholders who qualify to vote at the time approve in
writing of a shorter notice period. An extraordinary meeting may be convened by the Board
of Directors, as it decides or upon a demand of any two directors or 25% of the directors,
whichever is lower, or of one or more shareholders holding in the aggregate at least 5%
of our issued capital, and at least 1% of the total voting rights of the Company or of one or more shareholders holding at
least 5% of the total voting rights in the Company. An extraordinary meeting must be held not more than thirty-five
days from the publication date of the announcement of the meeting. See Item 10B.
Rights Attached to SharesVoting Rights.

Limitations on the Rights
to Own Our Securities

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

Limitations on Change in
Control and Disclosure Duties

For
limitations on change in control, see Item 4B. Information on the Company 
Business Overview  Our Mobile Telephone License  License Conditions and
 Our Permit Regarding Cross Ownership.

Changes in our Capital

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

Share Buy-back Program

On
February 6, 2008, the Company announced that the Board of Directors had resolved to adopt
a share buy-back program according to which the Company intended to buy its own shares for
a total amount of up to NIS 600 million by the end of 2008, subject to market terms and
conditions. The Company reserved the right to discontinue the buy-back program at any
time. See Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers.

The
shares bought by the Company were reserved as treasury stock. In accordance with the
Israeli Companies Law, company shares that have been acquired and are held by the Company
do not bear
any rights until they are transferred to a third party.

# 10C. Material Contracts

In
January 2006, we signed an agreement with Med I.C.1 (1999) Ltd. to purchase its
fiber-optic cable infrastructure comprising of a network of approximately 900 kilometers
of submerged and terrestrial transmission fiber in Israel. We entered into this agreement
in order to enable us to reduce our transmission costs as well as to provide our business
customers with bundled services of transmission of data, voice and land-line services. In
July 2006, we completed this transaction for a final purchase price of approximately NIS
71 million ($16.8 million). In January 2007, we signed a two-year contract, which was
extended for another year, with the international long-distance provider Golden
Lines (012), to carry all of our international call traffic. The agreement provides
that Partner will route calls to its customers that are roaming abroad via Golden Lines
(012). In addition, Partner will route outgoing international calls from foreign roamers
hosted on Partners network in Israel. Under the agreement, all international
signaling traffic related to Partners roamers abroad and foreign roamers hosted on
Partners network while visiting Israel will be also be routed through Golden Lines
(012). We expect that the costs related to these services provide by Golden Lines (012)
will be approximately US $30 million over a three-year period.

In
December 2007, we signed an agreement with LM Ericsson Israel Ltd. for the replacement of
third party 3G radio equipment existing in our network and for additional investment in
the 3G network in addition to the support and maintenance of our network. The Company
allocated the purchase price of US$ 65 million to the above deliverables based on their
relative fair values. Of this amount, US$ 6.6 million related to support and maintenance
of the network. . During 2008, it was agreed to add equipment with a value of US$ 4
million to the above agreement, The purchase price is after deduction of commercial
discounts, some of which are contingent upon future negotiations for further purchases of
services that are probable. While the major part of the replacement took place during
2008, the process is expected to end no later than June 2011.

We
had contracted with Super-Pharm, the largest drugstore chain in Israel, to
sell our network services through nationwide stores in a variety of formats, including
Partner shop-in-shops, kiosks, wall-unit displays and at front counters. In 2008,
approximately 12% of our new subscribers were recruited through sales by Super-Pharm. On
December 31, 2008, we terminated our agreement with Super-Pharm after a comprehensive
review of our distribution strategy and the effectiveness of our current distribution
channels. Under the agreement, Super-Pharm was obliged to transfer to us all of its orange
outside kiosks, which accounted for a substantial part of Super-Pharms sales of
orange services. See Item 4B. Business Overview  Sales and Distribution 
Indirect Sales Channels.

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In
July 2008, we signed an agreement with Bezeq for the provision of land-line transmission
services. The agreement replaces an earlier transmission agreement from 2003, and applies
retroactively for five years beginning December 2007. We may extend the term of the
agreement by up to two one-year periods. The agreement includes both a basic package for a
fixed number of lines, and additional transmission services which we may purchase from
time to time in our discretion. We expect that the costs related to the services provided
by Bezeq will be approximately NIS 65 million annually.

# 10D. Exchange Controls

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

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

# 10E. Taxation

Israeli Tax Considerations

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

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

Israeli Tax Reforms

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

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

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

General Corporate Tax
Structure

The
corporate tax rate applicable in 2008 was 27%. This rate was reduced to 26% in 2009 and is
scheduled to be reduced to 25% in 2010 and beyond.

Special Provisions
Relating to Taxation under Inflationary Conditions

Until
2008, our taxable income was determined under the Income Tax (Inflationary Adjustment) Law
1985 (the Inflationary Adjustments Law), which attempts to overcome some of
the problems presented to a traditional tax system by inflation.

In
February 2008, the Israeli Parliament approved Amendment No. 20 to the Inflationary
Adjustments Law (the Amendment). The Amendment repealed the Inflationary
Adjustments Law as of January 1 2008 and set certain transitionary rules.

83

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The
Israeli Income Tax Ordinance and regulations promulgated there under allow
Foreign-Invested Companies, to adjust their tax returns based on exchange rate
fluctuations of the shekel against the US Dollar. For these purposes, a Foreign-Invested
Company is a company in which more than 25% of the share capital in terms of rights to
distributions, voting and appointment of directors, and of the combined share capital,
including shareholder loans and capital notes, is held by persons who are not residents of
Israel. A company that elects to measure its results for tax purposes based on the US
Dollar exchange rate cannot change that election for a period of three years following the
election. Although we qualify as a Foreign-Invested Company, We have not elected this
taxable income measurement alternative.

Tax on Capital Gains of
Shareholders

| | General.
Israeli law imposes a capital gains tax on the sale of capital assets by an Israeli
resident and on the sale of capital assets located in Israel or the sale of direct or
indirect rights to assets located in Israel, including on the sale of our Shares by some
of our shareholders (see discussion below). The Israeli Income Tax Ordinance
distinguishes between Real Gain and Inflationary Surplus. Real
Gain is the excess of the total capital gain over Inflationary Surplus computed on the
basis of the increase in the CPI between the date of purchase and the date of sale. In
2008, the Real Gain accrued at the sale of an asset that is purchased on or after January
1, 2003 is taxed at a 25% rate for corporations, and 20% rate for individuals.
Additionally, if such shareholder is considered a Significant Shareholder at
any time during the 12-month period preceding such sale (i.e. if such shareholder holds
directly or indirectly, including along with others, at least 10% of any means of control
in the company), the tax rate will be 25%. However, the foregoing tax rates will not
apply to (i) dealers in securities; and (ii) shareholders who have acquired their shares
prior to an initial public offering (that may be subject to a different tax arrangement).
Inflationary surplus that accrued after December 31, 1993, is exempt from tax.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Real
Gains derived from the disposal after January 1, 2003 of an asset purchased prior to this
date will be subject to capital gains tax at a blended rate. The regular corporate tax
rate of 27% (in 2008 and reduced to 26% in 2009) and a marginal tax rate of up to 47% (in
2008 and reduced to 46% in 2009) for individuals will be applied to the gain amount which
bears the same ratio to the total gain realized as the ratio which the holding period
commencing at the acquisition date and terminating on January 1, 2003 bears to the total
holding period. The remainder of the gain realized will be subject to capital gains tax
at a 25% rate for corporations and 20% for individuals (25% for an individual who was a
Significant Shareholder at any time during the 12-month period preceding such
sale).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Taxation
of Israeli Residents. In July 2001 our ordinary shares were listed for trading on the
Tel Aviv Stock Exchange. As a result of our dual listing and due to the 2003 Tax Reform
(inclusion of new provisions concerning the taxation of capital markets) and that since
our ordinary shares are no longer considered foreign traded securities, (as
defined in the Israeli Income Tax Ordinance prior to cancellation of the definition in
the 2006 Tax Reform), the tax treatment of our shareholders under Israeli law has
changed.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

# Sale of shares purchased
after January 1, 2003

Individuals

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

Corporations

# Corporations that were
subject to the Inflationary Adjustments Law

With
respect to shares purchased purchased prior to January 1, 2006, the shareholder will be
subject to tax at the corporate rate on the realized capital gain ( 27% in 2008and 26% in
2009). Although not clear from doubt it can generally be assumed that with respect to
shares purchased after January 1, 2006, the shareholder will be subject to tax at the
corporate tax rate of 25% on realized real capital gains.

84

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# Corporations that were
not subject to the Inflationary Adjustments Law

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

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

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

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

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

| | Taxation
of Investors Engaged in a Business of Trading Securities. Individual and corporate
dealers in securities in Israel are taxed at tax rates applicable to business
income.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Withholding
at Source from Capital Gains from Traded Securities. Under the 2006 Tax Reform,
Israeli stockbrokers have a duty to withhold tax upon the sale of traded securities. The
applicable withholding tax rate is generally 20% from the real gain derived from such
sale by Israeli resident individuals and 25% from the real gain derived by Israeli
resident corporations. Non-Israeli residents are generally not subject to a withholding
tax on the capital gain derived from the sale of traded securities provided all the
following conditions are met:
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1 - | the income derived from such sale is not classified as business income;
| | --- | -----------------------------------------------------------------------

| | 2 - | the income is not attributed to a permanent establishment maintained by the seller in
Israel; and
| | --- | -------------------------------------------------------------------------------------------------

| | 3 - | the
securities sold were purchased upon or after the initial public offering (this condition
was cancelled in respect of securities purchased on or after January , 2009)
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dividends

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

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

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

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

Taxation of Residents of
the United States under the US Treaty

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

85

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

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

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

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

Repatriation

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

United States Federal
Income Tax Considerations

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

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

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

| | a
corporation (or an entity taxable as a corporation for US federal income tax purposes)
created or organized in or under the laws of the United States or any political
subdivision thereof (including the District of Columbia);
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

86

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

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

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

Dividends

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

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

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

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

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

Sale, Exchange or Other
Disposition

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

87

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

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

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

Passive Foreign
Investment Company Rules

A
non-US corporation will be classified as a Passive Foreign Investment Company (a
PFIC) for any taxable year if at least 75% of its gross income consists of
passive income (such as dividends, interest, rents, royalties (other than rents or
royalties derived in the active conduct of a trade or business and received from an
unrelated person), or gains on the disposition or certain minority interests), or at least
50% of the average value of its assets consist of assets that produce, or are held for the
production of, passive income. We currently believe, that we were not a PFIC for the year
ended December 31, 2008. However, this conclusion is a factual determination that must be
made at the close of each year and is based on, among other things, a valuation of our
ordinary shares, ADSs and assets, which will likely change from time to time. If we were
characterized as a PFIC for any taxable year, a US holder would suffer adverse tax
consequences. These consequences may include having gains realized on the disposition of
ordinary shares or ADSs treated as ordinary income rather than capital gains and being
subject to punitive interest charges on certain dividends and on the proceeds of the sale
or other disposition of the ordinary shares or ADSs. Furthermore, dividends paid by a PFIC
are not eligible to be treated as qualified dividend income (as discussed
above).

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

Information Reporting and
Backup Withholding

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

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

# 10F. Dividends and
Paying Agents

Not
applicable.

# 10G. Statement By Experts

Not
applicable.

# 10H. Documents on Display

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

# 10I. Subsidiary
Information

Not
applicable.

88

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# ITEM 11. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

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

We
have borrowings in shekels linked to the CPI and in foreign currencies. The following
table provides information derived from the financial statements about these borrowings as
of December 31, 2008.

# Non-Derivative
Instruments

|                                                             | Fair Value (NIS
equivalent in
millions, except
percentages)
|------------------------------------------------------------ | -----------------------------------------------------------
|
|
|
|
|NIS-denominated debt linked to the CPI (1)                   |                                                            
|                                                             |                                                            
|Long-term fixed Notes due 2012(2)                            |                                                            
|Weighted average interest rate payable                       |                                                            
|                                                             |                                                            
|NIS-denominated debt not linked to the CPI                   |                                                            
|                                                             |                                                            
|Short term-floating bank debt                                |                                                            
|                                                             |                                                            
|Weighted average interest rate payable on floating rate debt |                                                            
|                                                             |                                                            
|Capital lease                                                |                                                            
|Weighted average interest rate payable                       |                                                            
|                                                             |                                                            
|Debt denominated in foreign currencies (mainly USD) (1)      |                                                            
|                                                             |                                                            
|Payables-trade                                               |                                                            
|Weighted average interest rate payable                       |                                                            
|                                                             |                                                            
|Capital leases                                               |                                                            
|Weighted average interest rate payable                       |                                                            
|                                                             |                                                            
|Total                                                        |                                                            

|(1) | Book
value approximates fair value at December 31, 2008.
|--- | --------------------------------------------------------

|(2) | Amounts
due for payment of principal and interest (4.25%) on the Notes due 2012
               are adjusted according to the CPI. See Item 5B. Liquidity and
Capital                Resources  Notes due 2012".
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Expected Maturity Dates :

We
have a senior credit facility with Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and
Israel Discount Bank Ltd., in which United Mizrahi Bank Ltd. had participated. The
facility was divided into two tranches: a US$75 million term loan facility (Facility
A) and a US$75 million revolving loan facility (Facility B). On
September 1, 2008, Facility A expired, with US$6 million borrowed and remaining to be
repaid under Facility A in 2009. Facility B will terminate on September 1, 2009. Our
credit facilities are unsecured.

Foreign Exchange and
Inflation

Substantially
all of our revenues and a majority of our operating expenses are denominated in shekels.
However, through December 31, 2008, a material amount of our operating expenses were
linked to non-shekel currencies, mainly the US dollar. These expenses related mainly to
the acquisition of handsets where the price paid by us is based on various foreign
currencies, mainly the US dollar. In addition, most of our capital expenditures are
incurred in, or linked to non-shekel currencies, mainly the US dollar. In light of the
decrease in the average value of the US dollar compared to the shekel during 2007 and
2008, changes in foreign exchange rates thus had an overall favorable impact on our
expenses and financial results. In the event of a devaluation of the shekel against the
dollar (or other foreign currencies), the shekel cost of our non-shekel denominated or
linked expenses would increase. Such an increase may have an adverse impact on our
results, which may be material. We hedge some of our foreign currency commitments.

89

---

---

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

Our
bank credit facility borrowings and Notes due 2012 are currently in shekels, most of which
are linked to the CPI. We may not be permitted to raise our tariffs pursuant to our
license in a manner that would fully compensate for any increase in the CPI. Therefore, an
increase in the rate of inflation may also have a material adverse impact upon us by
increasing our financial expenses without an offsetting increase in revenue. In 2008, the
CPI increased 4.5%, causing an increase of NIS 101 million in our financial expenses, net,
compared to a CPI increase of 2.8% in 2007, which caused an increase of NIS 64 million in
financial expenses, net. See Note 11 f to our consolidated financial statements. These
expenses were partially offset by hedging contracts (see below).

We
enter into derivative transactions in order to protect ourselves from an increase in the
CPI in respect of the principal of the CPI  linked Notes. The transactions are
mainly designated to hedge the cash flows related to payments in respect of purchases of
handsets and capital expenditures in foreign currency. However, these contracts do not
qualify for hedge accounting under FAS 133.

The
following table provides information derived from the financial statements about our
outstanding foreign exchange instruments. The notional amount does not necessarily
represent amounts exchanged by the parties and, therefore, is not a direct measure of our
exposure. See also Note 10b to our consolidated financial statements.

Derivative Instruments

| |                                                              | As of
December
31, 2008 | Maturing in
2009 | Fair Value
at
December 31,
2008
| | ------------------------------------------------------------ | ----------------------- | ---------------- | -------------------------------
|
|
|
|
| | Forward transactions - for the exchange of: Dollars into NIS |                         |                  |                                
| | Forward transactions-for the exchange of Euros into NIS      |                         |                  |                                
| | Embedded derivatives - Dollars into NIS                      |                         |                  |                                
| | Forward transactions - for changes in the Israeli CPI        |                         |                  |                                

# ITEM 12. DESCRIPTION OF
SECURITIES OTHER THAN EQUITY SECURITIES

Not
applicable.

# ITEM 13. DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES

None.

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

None.

90

---

---

# ITEM 15. CONTROLS AND
PROCEDURES

(a)
Disclosure Controls and Procedures. Our management, including our Chief
          Executive Officer and Chief Financial Officer, carried out an evaluation of the
          effectiveness of the design and operation of our disclosure controls and
          procedures as of December 31, 2008. Disclosure controls and procedures means
          controls and other procedures designed to ensure that information required to
be           disclosed in the reports that we file under the Securities Exchange Act of
1934,           as amended, is recorded, processed, summarized and reported within the
time           periods specified in the rules and forms of the SEC. Disclosure controls
and           procedures include, without limitation, controls and procedures designed to
          ensure that information required to be disclosed in the reports we file or
          submit under the Securities Exchange Act of 1934, as amended, is accumulated
and           communicated to our management, including our principal executive and
principal           financial officers, or persons performing similar functions, as
appropriate, to           allow timely decisions regarding required disclosure.

There
are inherent limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or overriding
of the controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control objectives.
Nevertheless, our disclosure controls and procedures are designed to provide reasonable
assurance of achieving the desired control objectives. Based upon our evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls
and procedures in place as of December 31, 2008 were effective.

(b)
Managements Annual Report on Internal Control over Financial
          Reporting. Our management, under the supervision of our Chief
          Executive Officer and Chief Financial Officer, is responsible for establishing
          and maintaining adequate internal control over our financial reporting, as
          defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended.
          The Companys internal control over financial reporting is a process
          designed to provide reasonable assurance regarding the reliability of financial
          reporting and the preparation of financial statements for external purposes in
          accordance with generally accepted accounting principles. Internal control over
          financial reporting includes policies and procedures that:

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

Due
to its inherent limitations, internal control over financial reporting may not prevent or
detect all misstatements. In addition, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.

Our
management, including our Chief Executive Officer and Chief Financial Officer, conducted
an evaluation of the effectiveness of our internal control over financial reporting as of
December 31, 2008, based on the framework for Internal Control-Integrated Framework
set forth by The Committee of Sponsoring Organizations of the Treadway Commission. Based
on this assessment, management concluded that the Companys internal control over
financial reporting was effective as of December 31, 2008.

Our
internal control over financial reporting as of December 31, 2008, has been audited by
Kesselman & Kesselman, an independent registered public accounting firm in Israel and
a member of PricewaterhouseCoopers International Limited., as stated in their report which
is included under Item 18.

(c)
Attestation report of the registered public accounting firm. The
          attestation report of Kesselman & Kesselman, an independent registered
          public accounting firm in Israel and a member of PricewaterhouseCoopers
          International Limited, regarding the Companys internal control over
          financial reporting is included under Item 18.

(d)
Changes in Internal Control Over Financial Reporting. There were no
          changes in our internal control over financial reporting that occurred during
          the year ended December 31, 2008, that have materially affected, or are
          reasonably likely to materially affect, our internal control over financial
          reporting.

91

---

---

# ITEM 16A. AUDIT
COMMITTEE FINANCIAL EXPERT

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

# ITEM 16B. CODE OF ETHICS

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

# ITEM 16C. PRINCIPAL
ACCOUNTANT FEES AND SERVICES

Kesselman
& Kesselman, independent certified public accountants in Israel and a member of
Pricewaterhouse Coopers International Limited (PwC), have served as our
independent public accountants for each of the fiscal years in the three-year period ended
December 31, 2008, for which audited financial statements appear in this annual report on
Form 20-F.

The
following table presents the aggregate fees for professional services rendered by PwC to
Partner in 2007 and 2008.

| |                        | 2007 (NIS
thousands) | 2008 (NIS
thousands)
| | ---------------------- | -------------------- | --------------------
|
|
|
|
| | Audit Fees (1)         |                      |                     
| | Audit-related Fees (2) |                      |                     
| | Tax Fees (3)           |                      |                     
| | TOTAL                  |                      |                     
| |                        |                      |                     

---

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

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

Audit Committee
Pre-approval Policies and Procedures

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

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

Not
applicable.

92

---

---

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

The table below sets forth
information regarding stock repurchases effected by the Company since January 1, 2008.

|Period                           | (a) Total Number of
Shares Purchased | (b) Average Price
Paid per Share | (c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1) | (d) Maximum Number
(or Approximate NIS
Value) of Shares
that May Yet Be
Purchased Under the
Plans or Programs (1)
|-------------------------------- | ------------------------------------ | -------------------------------- | ---------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------
|
|
|
|
|March 1 - March 31, 2008         |                                      |                                  |                                                                                          | 625,000 shares                                                                                                   
|April 1-April 30, 2008           |                                      |                                  |                                                                                          | -                                                                                                                
|May 1 - May 31, 2008             |                                      |                                  |                                                                                          | 690,852 shares                                                                                                   
|June 1 - June 30, 2008           |                                      |                                  |                                                                                          | 1,190,177 shares                                                                                                 
|July 1-July 31, 2008             |                                      |                                  |                                                                                          | -                                                                                                                
|August 1 - August 31, 2008       |                                      |                                  |                                                                                          | 1,163,021 shares                                                                                                 
|September 1 - September 30, 2008 |                                      |                                  |                                                                                          | 798,940 shares                                                                                                   
|                                 |                                      |                                  |                                                                                          |                                                                                                                  

| | (1) | The
share repurchase plan was publicly announced on February 6, 2008, and provided
                  for the repurchase of up to a maximum of NIS 600 million. This
repurchase plan                   could be stopped by the Board of Directors at any time,
and  expired on December                   31, 2008 (see above "Item 10B. Memorandum and
Articles of Association - Share                   Buy-Back Program"). There were no other
repurchase plans in existence by the                   Company following January 1, 2009.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACOUNTANT

Not
applicable.

ITEM 16G. CORPORATE GOVERNANCE

See
Item 6C. Board Practices   Nasdaq Corporate Governance Rules and Our Practices, and
also 10B. Memorandum and Articles of Association.

ITEM 17. FINANCIAL STATEMENTS

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

ITEM 18. FINANCIAL STATEMENTS

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

|                                                                                                   | Page          
|-------------------------------------------------------------------------------------------------- | --------------
|
|
|
|
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                            | F - 2         
|CONSOLIDATED FINANCIAL STATEMENTS:                                                                
|Balance sheets as of December 31, 2007 and 2008                                                    | F - 4 - F - 5 
|Statements of operations for the years ended December 31, 2006, 2007 and 2008                      | F - 6         
|Statements of changes in shareholders' equity for the years ended December 31, 2006, 2007 and 2008 | F - 7         
|Statements of cash flows for the years ended December 31, 2006, 2007 and 2008                      | F - 8 - F - 9 
|Notes to financial statements                                                                      | F - 10 - F -56
|                                                                                                   |               

93

---

---

# ITEM 19. EXHIBITS

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

|Exhibit No. |  | Description
|----------- |  | -----------

|>1.1 |  | Partners Amended and Restated Articles of Association
|---- |  | ------------------------------------------------------

|*1.2 |  | Partners
Certificate of Incorporation
|---- |  | --------------------------------------

|*1.3 |  | Partners
Memorandum of Association
|---- |  | -----------------------------------

|**2.(a).1 |  | Form
of Share Certificate
|--------- |  | -------------------------

|^^2.(a).2 |  | Amended
and Restated Deposit Agreement Between Partner and the Bank of New York
|--------- |  | -------------------------------------------------------------------------------

|^2.(b) |  | Form
of Indenture between Partner and the Trust Company of Union Bank Ltd.
|------ |  | --------------------------------------------------------------------------

|^4.(a).1 |  | Restatement
of the Relationship Agreement dated April 20, 2005
|-------- |  | --------------------------------------------------------------

|**4.(a).2 |  | License
from the Israeli Ministry of Communications issued April 8, 1998
|--------- |  | ------------------------------------------------------------------------

|**4.(a).4 |  | License
Agreement for use of the Orange Brand in Israel dated September 14, 1998
|--------- |  | --------------------------------------------------------------------------------

|**4.(a).5 |  | Brand
Support/Technology Transfer Agreement dated July 18, 1999
|--------- |  | ---------------------------------------------------------------

|**4.(a).6 |  | Agreement
with Ericsson Radio Systems AB dated May 28, 1998
|--------- |  | -----------------------------------------------------------

|#++4.(a).7 |  | Agreement
with LM Ericsson Israel Ltd. dated November 25, 2002
|---------- |  | --------------------------------------------------------------

|^#4.(a).8 |  | Dealer
Agreement with Super-Pharm dated February 12, 2004
|--------- |  | ---------------------------------------------------------

|#4.(a).8.1 |  | Amendment
to the Dealer Agreement with Super-Pharm, dated July 8, 2007
|---------- |  | ----------------------------------------------------------------------

|**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 |  | Amendments
Nos. 1 to 6 to our License from the Israeli Ministry of Communications
|------------ |  | ---------------------------------------------------------------------------------

|+4.(a).15 |  | Amendments
Nos. 7 to 11 to our License from the Israeli Ministry of Communications
|--------- |  | ----------------------------------------------------------------------------------

|++4.(a).16 |  | Amendments
Nos. 12 to 17 to our License from the Israeli Ministry of Communications
|---------- |  | -----------------------------------------------------------------------------------

|+++4.(a).17 |  | Amendments
Nos. 18 to 23 to our License from the Israeli Ministry of Communications
|----------- |  | -----------------------------------------------------------------------------------

|^4.(a).18 |  | Amendments
Nos. 24 to 31 to our License from the Israeli Ministry of Communications
|--------- |  | -----------------------------------------------------------------------------------

|^^^4.(a).19 |  | Amendments
Nos. 32 to 34 to our License from the Israeli Ministry of Communications
|----------- |  | -----------------------------------------------------------------------------------

|>4.(a).20 |  | Amendments
Nos. 35 to 44 to our License from the Israeli Ministry of Communications
|--------- |  | -----------------------------------------------------------------------------------

|>>4.(a).21 |  | Amendment
No. 44 to our License from the Israeli Ministry of Communications
|---------- |  | ---------------------------------------------------------------------------

|>>4.(a).22 |  | Amendment
No. 45 to our License from the Israeli Ministry of Communications
|---------- |  | ---------------------------------------------------------------------------

|4.(a).23 |  | Amendment
No. 46 to our License from the Israeli Ministry of Communications
|-------- |  | ---------------------------------------------------------------------------

|4.(a).24 |  | Amendment
No. 47 to our License from the Israeli Ministry of Communications
|-------- |  | ---------------------------------------------------------------------------

|4.(a).25 |  | Amendment
No. 48 to our License from the Israeli Ministry of Communications
|-------- |  | ---------------------------------------------------------------------------

|4.(a).26 |  | Amendment
No. 49 to our License from the Israeli Ministry of Communications
|-------- |  | ---------------------------------------------------------------------------

|>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 Transmission and Data Communications Services issued
          January, 15 2007.
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|>4.(a).60.1 |  | Amendment No. 1 to Fixed-Line License from the Israeli Ministry of
          Communications issued January 14, 2007
|----------- |  | -------------------------------------------------------------------------------------------------------------------

|>4.(a).60.2 |  | Amendment No. 2 to Fixed-Line License from the Israeli Ministry of
          Communications issued January 31, 2007
|----------- |  | -------------------------------------------------------------------------------------------------------------------

|>4.(a).60.3 |  | Amendment
No. 3 to Fixed-Line License from the Israeli Ministry of Communications issued February
19, 2007
|----------- |  | ----------------------------------------------------------------------------------------------------------

|>>4.(a).60.4 |  | Amendment
No. 4 to Fixed-Line License from the Israeli Ministry of Communications issued July 11,
2007
|------------ |  | ------------------------------------------------------------------------------------------------------

|>>4.(a).60.5 |  | Amendment
No. 5 to Fixed-Line License from the Israeli Ministry of Communications issued October
10, 2007
|------------ |  | ---------------------------------------------------------------------------------------------------------

|4.(a).60.6 |  | Amendment
No. 6 to Fixed-Line License from the Israeli Ministry of Communications issued August 11,
2008
|---------- |  | --------------------------------------------------------------------------------------------------------

|4.(a).60.7 |  | Amendment
No. 7 to Fixed-Line License from the Israeli Ministry of Communications issued December
25, 2008
|---------- |  | ----------------------------------------------------------------------------------------------------------

|^4.(a).64 |  | Facility
Agreement dated April 14, 2005
|--------- |  | ---------------------------------------

|#+++4.(a).65 |  | Purchase
Agreement with Nortel Networks Israel (Sales and Marketing) Ltd. dated November 12, 2003.
|------------ |  | --------------------------------------------------------------------------------------------------

|^4.(a).66 |  | Share
Buy Back Agreement dated February 7, 2005
|--------- |  | -----------------------------------------------

|#4.(a).67 |  | Swap
Agreement with LM Ericsson Israel Ltd. dated December 20, 2007
|--------- |  | -------------------------------------------------------------------

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

|8. |  | List
of Subsidiaries (see Item 4C  Organizational Structure).
|-- |  | ----------------------------------------------------------------

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

94

---

---

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

---

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

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

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

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

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

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

|^ | 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 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.
|-- | --------------------------------------------------------------------------------------------------------

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

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

95

---

---

# GLOSSARY OF SELECTED
TELECOMMUNICATIONS TERMS

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

|                                 |                                                                                                                                                                                                                                                                                                                  
|-------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|
|AMPS                             | Advanced Mobile Phone System; the analogue cellular telephone technology adopted in the United States. Also N-AMPS (Narrowband AMPS), a more frequency-efficient variant of AMPS.                                                                                                                                
|                                
|Analog Technology                | A technology in which some property of an electrical signal is varied proportionally to the input signal being transmitted, stored or processed. Fixed transmitter/receiver equipment in each cell of a cellular                                                                                                 
|                                
|Base Transceiver Station (BTS) | telecommunications network that communicates by radio with all cellular telephones in that cell.                                                                                                                                                                                                                 
|                                
|Base Station Controller (BSC)  | Monitors and controls one or more base stations in order to exchange messages, handover cellular units from cell to cell and perform other system administrative tasks.                                                                                                                                          
|                                
|Blocked call                     | Where a cellular phone call fails because no channels are available in the cell in which the user is located.                                                                                                                                                                                                    
|                                
|CDMA                             | Code Division Multiple Access; a method by which many users sharing the same radio channel can be distinguished by unique code numbers.                                                                                                                                                                          
|                                
|Cell                             | In a cellular telephone system, the coverage area of a single base transceiver station or one sector therein.                                                                                                                                                                                                    
|                                
|Channel                          | A frequency or time slot in a telecommunications system over which distinct messages can be conveyed.                                                                                                                                                                                                            
|                                
|Churn                            | The number of customers who are disconnected from a network, either involuntarily, due to payment delinquency or suspected fraudulent use, or voluntarily, as customers switch to competing networks, relocate outside the network's service area, or cease using cellular telephones permanently or temporarily.
|                                
|D-AMPS                           | Digital Advanced Mobile Phone System; a digital mobile system first implemented in the United States and intended initially to permit gradual upgrading of AMPS networks.                                                                                                                                        
|                                
|Dropped call                     | When a cellular phone call is involuntarily terminated.                                                                                                                                                                                                                                                          
|                                
|GPRS                             | General Packet Radio Services (GPRS) is a packet-based wireless communication service that enables data rates from 56 up to 114 Kbps and continuous connection to the Internet for mobile phone and computer users. GPRS is based on Global System for Mobile (GSM) communication.                               
|                                
|GSM                              | The Global System for Mobile Communications, a comprehensive digital standard for the operation of all elements of a mobile telephone system. GSM originated in Europe, but is now the most popular digital mobile telephone standard worldwide.                                                                 
|                                
|GSM 900                          | GSM operation in the 900 MHz frequency band; the original frequency band allocated to GSM, later extended by 10 MHz (EGSM).                                                                                                                                                                                      
|                                
|GSM 1800                         | GSM operation in the 1800 MHz frequency band; formerly known as DCS 1800 or PCN, first allocated for the expansion of mobile network competition in Europe, now used for the same purpose in many other areas.                                                                                                   
|                                
|GSM 1900                         | GSM operation in the 1900 MHz band; primarily used in North and South America                                                                                                                                                                                                                                    
|                                
|GSM Association                  | Formerly known as the GSM Memorandum of Understanding Association (GSM MoU), an organization of operators, government administrations, and equipment and service suppliers that promotes the development and promulgation of the GSM standard and relations between GSM operators.                               

96

---

---

|                                             |                                                                                                                                                                                                                                                                                                                                                                         
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|
|HSCSD                                        | High Speed Circuit Switched Data is an infrastructure development which enables the transmission of data at higher speeds than the 9600 Bps speed previously available on GSM networks.                                                                                                                                                                                 
|                                            
|HSXPA                                        | HSXPA technology describes the third generation (UMTS) cellular High Speed Packet Access protocol that combines both the High Speed Downlink Packet Access (HSPDA) and High Speed Uplink Packet Access (HSUPA) modes for high performance WCDMA (Wide Band CDMA) systems.                                                                                               
|                                            
|Intelligent Network (IN)                   | Network architecture that centralizes the processing of calls and billing information of calls.                                                                                                                                                                                                                                                                         
|                                            
|LTE                                          | Long Term Evolution - a 3rd Generation Partnership Project (3GPP) term that defines the next evolution of the 3GPP standard cellular network. The main characteristics are a use of better modulation, coding, transmission and reception techniques, and with the combination of bigger spectrum bands, gives the end user much higher data rates (up to 150 Mbps).
|                                            
|Mobile Switching Center ("MSC")              | A large, computer-based device used to connect calls within a cellular network and as the interface of the cellular network to other networks.                                                                                                                                                                                                                          
|                                            
|RTT                                          | Real-time technology.                                                                                                                                                                                                                                                                                                                                                   
|                                            
|SMS                                          | Short message service, a service which enables cellular telephone users to send and receive written messages on their handsets.                                                                                                                                                                                                                                         
|                                            
|UMTS                                         | Universal Cellular Telecommunications System, the "third generation" of cellular telecommunications standard, also referred to as UMTS.                                                                                                                                                                                                                                 
|                                            
|Virtual Private Network (VPN)              | A private network provided by means of the facilities of a public telephone network but which operates by logic as a closed user group thereby providing the convenience of a private network with the economy of scale of a public network.                                                                                                                            
|                                            
|Voice Over Broadband  (VoB)                | A competitive Voice Telephony service, provided over broadband IP infrastructure (e.g. cables, ADSL), mainly by ISPs.                                                                                                                                                                                                                                                   
|                                            
|Voice Over Broadband over cellular (VoBoC) | A service enabling cellular subscribers to make voice calls using voice over IP technology. The subscriber must have a WiFi or a cellular broadband connection in order to use this service.                                                                                                                                                                            
|                                            
|WAP                                          | Wireless Application Protocol, a language specifically developed for cellular telephones that facilitates internet usage.                                                                                                                                                                                                                                               
|                                             |                                                                                                                                                                                                                                                                                                                                                                         

97

---

---

# SIGNATURES

The
Company hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.

| |  | Partner Communications Company Ltd.By: /s/ David Avner
David AvnerChief Executive OfficerApril 27, 2009
| |  | ---------------------------------------------------------------------------------------------------------------------

| |  | By: /s/ Emanuel Avner
Emanuel AvnerChief Financial OfficerApril 27, 2009
| |  | --------------------------------------------------------------------------------------

98

---

---

PARTNER COMMUNICATIONS
COMPANY LTD.(An Israeli Corporation)2008 ANNUAL REPORT



---

---

PARTNER COMMUNICATIONS COMPANY
LTD.(An Israeli Corporation)2008 ANNUAL REPORT

TABLE OF CONTENTS

|                                                                                                   | Page     
|-------------------------------------------------------------------------------------------------- | ---------
|
|
|
|
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                            | F-2      
|CONSOLIDATED FINANCIAL STATEMENTS:                                                                
|Balance sheets as of December 31, 2007 and 2008                                                    | F-4-F-5  
|Statements of operations for the years ended December 31, 2006, 2007 and 2008                      | F-6      
|Statements of changes in shareholders' equity for the years ended December 31, 2006, 2007 and 2008 | F-7      
|Statements of cash flows for the years ended December 31, 2006, 2007 and 2008                      | F-8-F-9  
|Notes to financial statements                                                                      | F-10-F-56

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



---

---

# Report of Independent
Registered Public Accounting Firm

To the Shareholders of

# PARTNER COMMUNICATIONS
COMPANY LTD.

We have completed integrated audits
of Partner Communications Company Ltd.s (collectively  the Company
or Partner) consolidated financial statements and of its internal control over
financial reporting as of December 31, 2008, in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below.

# Consolidated financial
statements

We have audited the consolidated
balance sheets of Partner as of December 31, 2008 and 2007 and the related consolidated
statements of operations, changes in shareholders equity and cash flows for each of
the three years in the period ended December 31, 2008. These consolidated financial
statements are the responsibility of the Companys Board of Directors and management.
Our responsibility is to express an opinion on these financial statements based on our
integrated audits.

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

In our opinion, the consolidated
financial statements referred to above, present fairly, in all material respects, the
financial position of Partner at December 31, 2008 and 2007, and the results of their
operations, changes in shareholders equity and their cash flows for each of the
three years in the period ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in notes 1p and 9h to
the consolidated financial statements, effective January 1, 2007 the Company changed its
method of accounting for uncertainty in income taxes to conform with FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109". In addition, as discussed in note 1u, effective January 1, 2006,
the company changed its method of accounting for share-based payment to conform with FASB
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-based
Payment.

# Internal control over
financial reporting

Also, in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal Control-Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

F - 2

---

---

The Companys Board of Directors
and management are responsible for maintaining effective internal control over financial
reporting and management is responsible for the assessment of the effectiveness of
internal control over financial reporting included in the accompanying Managements
Annual Report on Internal Control over Financial Reporting appearing under Item 15(b). Our
responsibility is to express an opinion on the effectiveness of the Companys
internal control over financial reporting based on our integrated audit. We conducted our
audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial
reporting includes obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our
audit also includes performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

|                 |                                    
|---------------- | -----------------------------------
|
|
|
|
|Tel-Aviv, Israel | Kesselman & Kesselman              
|April 27, 2009   | Certified Public Accountants (Isr.)
|                 | A member of PricewaterhouseCoopers 
|                 | International Limited              

F - 3

---

---

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

|                                                             | December 31
|------------------------------------------------------------ | -----------
|
|
|
|
|A s s e t s                                                  |            
|CURRENT ASSETS:                                              |            
|Cash and cash equivalents                                    |            
|Accounts receivable (note 11a):                              |            
|Trade                                                        |            
|Other                                                        |            
|Inventories (note 11b)                                       |            
|Deferred income taxes (note 9d)                              |            
|                                                             |            
|T o t a l  current assets                                    |            
|                                                             |            
|INVESTMENTS AND LONG-TERM RECEIVABLES:                       |            
|Accounts receivable - trade (note 11a)                       |            
|Funds in respect of employee rights upon retirement (note 6) |            
|                                                             |            
|                                                             |            
|                                                             |            
|FIXED ASSETS,  net of accumulated depreciation and           |            
|amortization (note 2)                                        |            
|                                                             |            
|LICENSES, DEFERRED CHARGES AND OTHER                         |            
|INTANGIBLE ASSETS, net of accumulated                        |            
|amortization (note 3)                                        |            
|                                                             |            
|DEFERRED INCOME TAXES (note 9d)                              |            
|                                                             |            
|T o t a l  assets                                            |            
|                                                             |            

Date of approval of the financial statements: April 27, 2009

|                        |                         |             
|----------------------- | ----------------------- | ------------
|
|
|
|
|                        |                         |             
|David Avner             | Emanuel Avner           | Moshe Vidman
|Chief Executive Officer | Chief Financial Officer | Director    

F - 4

---

---

|                                                                     | December 31
|-------------------------------------------------------------------- | -----------
|
|
|
|
|Liabilities and shareholders' equity                                 |            
|CURRENT LIABILITIES:                                                 |            
|Current maturities of long-term liabilities and short term loans     |            
|(notes 4, 5, 11e)                                                    |            
|                                                                     |            
|Accounts payable and accruals:                                       |            
|Trade                                                                |            
|Other (note 11c)                                                     |            
|Parent group - trade                                                 |            
|                                                                     |            
|T o t a l   current liabilities                                      |            
|                                                                     |            
|LONG-TERM LIABILITIES:                                               |            
|Notes payable (note 5)                                               |            
|Liability for employee rights upon retirement (note 6)               |            
|Other liabilities (note 11e)                                         |            
|                                                                     |            
|T o t a l   long-term liabilities                                    |            
|                                                                     |            
|COMMITMENTS AND CONTINGENT LIABILITIES (note 7)                      |            
|                                                                     |            
|T o t a l   liabilities                                              |            
|                                                                     |            
|SHAREHOLDERS' EQUITY (note 8):                                       |            
|Share capital - ordinary shares of NIS 0.01 par                      |            
|value: authorized - December 31, 2007 and 2008 - 235,000,000 shares; |            
|issued and outstanding -                                             |            
|December 31, 2007 - 157,320,770 shares and                           |            
|December 31, 2008 - 153,419,394 shares                               |            
|Capital surplus                                                      |            
|Accumulated deficit                                                  |            
|Treasury shares, at cost (December 31, 2008- 4,467,990 shares,       |            
|December 31, 2007- nil)                                              |            
|                                                                     |            
|T o t a l   shareholders' equity                                     |            
|                                                                     |            
|                                                                     |            
|                                                                     |            

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

F - 5

---

---

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

|                                              | Year ended December 31
|--------------------------------------------- | ----------------------
|
|
|
|
|REVENUES - net:                               |                       
|Services                                      |                       
|Equipment                                     |                       
|                                              |                       
|                                              |                       
|COST OF REVENUES:                             |                       
|Services                                      |                       
|Equipment                                     |                       
|                                              |                       
|                                              |                       
|                                              |                       
|GROSS PROFIT                                  |                       
|                                              |                       
|SELLING AND MARKETING EXPENSES                |                       
|GENERAL AND ADMINISTRATIVE EXPENSES           |                       
|                                              |                       
|                                              |                       
|                                              |                       
|OPERATING PROFIT                              |                       
|FINANCIAL EXPENSES, net (note 11f)            |                       
|                                              |                       
|INCOME BEFORE TAXES ON INCOME                 |                       
|TAXES ON INCOME (note 9)                      |                       
|                                              |                       
|INCOME BEFORE CUMULATIVE EFFECT OF A          |                       
|CHANGE IN ACCOUNTING PRINCIPLES               |                       
|CUMULATIVE EFFECT, AT BEGINNING OF YEAR, OF   |                       
|A CHANGE IN ACCOUNTING PRINCIPLES, net of tax |                       
|                                              |                       
|NET INCOME FOR THE YEAR                       |                       
|                                              |                       
|EARNINGS PER SHARE ("EPS"):                   |                       
|Basic:                                        |                       
|Before cumulative effect                      |                       
|Cumulative effect                             |                       
|                                              |                       
|                                              |                       
|                                              |                       
|Diluted:                                      |                       
|Before cumulative effect                      |                       
|Cumulative effect                             |                       
|                                              |                       
|                                              |                       
|                                              |                       
|WEIGHTED AVERAGE NUMBER OF                    |                       
|SHARES OUTSTANDING:                           |                       
|Basic                                         |                       
|                                              |                       
|Diluted                                       |                       
|                                              |                       

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

F - 6

---

---

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

|                                                                                            | Share capital |  |  |             | 
|------------------------------------------------------------------------------------------- | ------------- |  |  | ----------- | 
|
|
|
|
|New Israeli Shekels:                                                                        |               |  |  |             | 
|BALANCE AT JANUARY 1, 2006                                                                  |               |  |  | 152,528,288 | 
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2006:                                            |               | 
|Exercise of options granted to employees                                                    |               |  |  | 1,987,929   | 
|Cumulative effect, at beginning of year, of a change in                                     |               | 
|accounting principles                                                                       |               |  |  |             | 
|Employee share-based compensation expenses                                                  |               |  |  |             | 
|Dividend                                                                                    |               |  |  |             | 
|Net income                                                                                  |               |  |  |             | 
|                                                                                            |               |  |  |             | 
|BALANCE AT DECEMBER 31, 2006                                                                |               |  |  | 154,516,217 | 
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2007                                             |               | 
|Exercise of options granted to employees                                                    |               |  |  | 2,804,553   | 
|Employee share-based compensation expenses                                                  |               |  |  |             | 
|Dividend                                                                                    |               |  |  |             | 
|Net income                                                                                  |               |  |  |             | 
|                                                                                            |               |  |  |             | 
|BALANCE AT DECEMBER 31, 2007                                                                |               |  |  | 157,320,770 | 
|                                                                                            |               |  |  |             | 
|                                                                                            |               | 
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2008                                             |               | 
|Exercise of options granted to employees                                                    |               |  |  | 566,614     | 
|Employee share-based compensation expenses                                                  |               |  |  |             | 
|Dividend                                                                                    |               |  |  |             | 
|Treasury shares, at cost (December 31,                                                      |               | 
|2008- 4,467,990 shares of NIS 0.01 par value)                                               |               |  |  |             | 
|Net income                                                                                  |               |  |  |             | 
|                                                                                            |               |  |  |             | 
|BALANCE AT DECEMBER 31, 2008                                                                |               |  |  | 157,887,384 | 
|                                                                                            |               |  |  |             | 
|                                                                                            |               | 
|Convenience translation into u.s. dollars (note 1a):                                        |               | 
|BALANCE AT JANUARY 1, 2008                                                                  |               |  |  | 57,320,770  | 
|                                                                                            |               |  |  |             | 
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2008                                             |               | 
|Exercise of options granted to employees                                                    |               |  |  | 566,614     | 
|Employee share-based compensation expenses                                                  |               |  |  |             | 
|Dividend                                                                                    |               |  |  |             | 
|Treasury shares, at cost (December 31, 2008-        4,467,990 shares of NIS 0.01 par value) |               |  |  |             | 
|Net income                                                                                  |               |  |  |             | 
|                                                                                            |               |  |  |             | 
|BALANCE AT DECEMBER 31, 2008                                                                |               |  |  | 157,887,384 | 
|                                                                                            |               |  |  |             | 

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

F - 7

---

---

(Continued)  1

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

|                                                      | Year ended December 31
|----------------------------------------------------- | ----------------------
|
|
|
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |                       
|Net income for the year                               |                       
|Adjustments to reconcile net income to net cash       |                       
|provided by operating activities:                     |                       
|Depreciation and amortization                         |                       
|Employee share-based compensation expenses            |                       
|Liability for employee rights upon retirement         |                       
|Deferred income taxes                                 |                       
|Accrued interest, exchange and linkage (erosion of)   |                       
|differences on long-term liabilities                  |                       
|Capital loss on sale and disposal of fixed assets     |                       
|Cumulative effect, at beginning of year, of a change  |                       
|in accounting principles                              |                       
|(Gain) loss from funds in respect of employees rights |                       
|Changes in operating asset and liability items:       |                       
|Decrease (increase) in accounts receivable:           |                       
|Trade                                                 |                       
|Other                                                 |                       
|Increase (decrease) in accounts payable and accruals: |                       
|Trade                                                 |                       
|Other                                                 |                       
|Parent group - trade                                  |                       
|Increase in asset retirement obligations              |                       
|Decrease (increase) in inventories                    |                       
|                                                      |                       
|Net cash provided by operating activities             |                       
|                                                      |                       
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                       
|Purchase of fixed assets                              |                       
|Acquisition of optic fibers activity                  |                       
|Proceeds from sale of fixed assets                    |                       
|Purchase of additional spectrum                       |                       
|Payments in respect of land line license              |                       
|Funds in respect of employee rights upon retirement   |                       
|                                                      |                       
|Net cash used in investing activities                 |                       
|                                                      |                       

F - 8

---

---

(Concluded)  2

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

|                                                                     | Year ended December 31
|-------------------------------------------------------------------- | ----------------------
|
|
|
|
|CASH FLOWS FROM FINANCING ACTIVITIES:                                |                       
|Repayment of capital lease                                           |                       
|Proceeds from exercise of stock options granted to employees         |                       
|Windfall tax benefit in respect of exercise of options               |                       
|granted to employees                                                 |                       
|Dividend paid                                                        |                       
|Short-term credit from banks                                         |                       
|Repayment of long-term bank loans                                    |                       
|Treasury shares                                                      |                       
|                                                                     |                       
|Net cash used in financing activities                                |                       
|                                                                     |                       
|INCREASE IN CASH AND CASH EQUIVALENTS                                |                       
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                       |                       
|                                                                     |                       
|CASH AND CASH EQUIVALENTS AT END OF YEAR                             |                       
|                                                                     |                       
|                                                                     |                       
|SUPPLEMENTARY DISCLOSURE OF CASH                                     |                       
|FLOW INFORMATION - cash paid during the year:                        |                       
|Interest                                                             |                       
|                                                                     |                       
|Income taxes (net of refund of approximately NIS 74 million in 2007) |                       
|                                                                     |                       

Supplementary information on investing and financing activities not involving cash flows

At December 31, 2006, 2007 and 2008, trade payables include NIS 201.8 million, NIS 160 million and NIS 220
million (USD 52 million), respectively, in respect of acquisition of fixed assets.

At December 31, 2007 and 2008, tax withholding related to dividend of approximately NIS 7 million and NIS 18
million (USD 4 million) respectively is outstanding.

During 2007 and 2008, the Company has undertaken a capital lease with respect to fixed assets in the amount
of NIS 7.4 million and NIS 7.2 million (USD 1.7 million), respectively.

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

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

F - 9

---

---

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

# NOTE 1 
SIGNIFICANT ACCOUNTING POLICIES:

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

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

| | 1) | Partner
Communications Company Ltd. (the Company) operates a mobile
               telecommunications network in Israel. The Company is a subsidiary of
Hutchison                Telecommunications International Limited (HTIL).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has one reportable segment, which provides telecommunications services consisting
mainly of airtime, content and handsets. The Companys chief operating
decision-maker evaluates performance, makes operating decisions and allocates resources
based on financial data consistent with the presentation in the accompanying financial
statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2008, Partner launched three additional non-cellular business lines: an on-line
media shop, under the brand orange time, providing premium on-demand video
(mainly full track feature films and series episodes), music tracks and
games; Internet services provider (ISP) that provides access to the internet as well as
home WiFi networks, value added services (VAS) such as anti-virus and
anti-spam filtering  as well as VOB telephony services that compete with fixed line
telephone services.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
September 2008, Partner announced the soft launch of their new portfolio of services,
including ISP services, mail access, Wi-Fi, fixed telephony through VOB technology and
entertainment multimedia services. The new services are available from the first half of
2009.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | The
Company was incorporated on September 29, 1997, and operates under a
          license granted by the Ministry of Communications to operate a cellular
          telephone network for a period of 10 years beginning April 7, 1998. The
          Company commenced full commercial operations on January 1, 1999.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company paid a one-time license fee of approximately new Israeli shekels (NIS) 1.6
billion which is presented under license, deferred charges and other intangible
assets.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | The
Company is entitled to request an extension of the license for an additional period of
six years and then renewal for one or more additional six year periods. Should the
license not be renewed, the new license-holder is obliged to purchase the communications
network and all the rights and obligations of the subscribers for a fair price, as agreed
between the parties or as determined by an arbitrator.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company launched its 3G network on December 1, 2004.
| | --------------------------------------------------------

| | Under
the terms of the amended license, the Company provided a bank guarantee in NIS equivalent
of USD 10 million to the State of Israel to secure the Companys adherence to
the terms of the license.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 10

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

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

| | In
January 2007 Partner Land-Line Communication Solutions (Partner Land Line)
 a limited Partnership under the Companys control was awarded a temporary
license from the Ministry of Communications for the offering of transmission services
which was converted during August 2007 into the special general license for domestic
fixed services. The license was amended in February 2007 to grant Partner the right to
offer voice over broadband (VOB) services. The license is for a period of 20
years. The Company paid NIS 1 million in consideration of the license.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the terms of the license, the Company provided a bank guarantee of NIS 10 million to
the State of Israel to secure the Companys adherence to the terms of the license.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2001, Partner received a special license issued by the Ministry of Communications,
allowing it, through its own facilities, to provide Internet access to both mobile and
fixed network customers. The license has recently been renewed and is valid until April
2013. Partner began supplying commercial ISP services at the end of 2008.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

| |                         | NIS in
thousands | Estimated total
useful life
before change in
estimate | Estimated total
useful life
after change
in estimate | Remaining
useful life
after change
in estimate
| | ----------------------- | ---------------- | ----------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------
|
|
|
|
| | Fixed assets (*)        |                  |                                                       |                                                      | 52,632                                        
| | Customer Relationships  |                  |                                                      
| | with Carriers           |                  |                                                       |                                                      | 10,669                                        
| | Customer Relationships  |                  |                                                      
| | with Business Customers |                  |                                                       |                                                      | 7,824                                         
| |                         |                  |                                                       |                                                      |                                               
| |                         |                  |                                                       |                                                      | 71,125                                        
| |                         |                  |                                                       |                                                      |                                               

| | (*)
          Refer to e(4) below.
| | ----------------------------------

F - 11

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

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

| | Use
of estimates in the preparation of financial statements
| | -----------------------------------------------------------

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

| | Regarding
change in estimate during Q4 2008 see also note e.
| | ------------------------------------------------------------

| | Functional
currency and reporting currency
| | ------------------------------------------

| | The
functional currency of the Company and its subsidiary and Partnership (together  The
Group) is the local currency New Israeli Shekels  NIS. The consolidated financial
statements have been drawn up on the basis of the historical cost of Israeli currency and
are presented in NIS.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Convenience
translation into U.S. dollars (dollars or USD)
| | --------------------------------------------------------------

| | The
NIS figures at December 31, 2008 and for the period then ended have been translated into
dollars using the representative exchange rate of the dollar at April 21,2009 (USD 1 = NIS 4.214).
The translation was made solely for convenience. The translated dollar figures should not
be construed as a representation that the Israeli currency amounts actually represent, or
could be converted into, dollars.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounting
principles
| | ---------------------

| | The
consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (U.S. GAAP). The Company has decided
to adopt the International Financial Reporting Standards (IFRS) from Q1 2009.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | 1) | The
consolidated financial statements include the accounts of the Company and           its
wholly-owned subsidiary and Partnership.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------

| | 2) | Intercompany
balances and transactions between the Groups entities have           been
eliminated.
| | -- | ---------------------------------------------------------------------------------------------------

| | c. | Inventories
| | -- | -----------

| | Inventories
of cellular telephones (handsets), accessories and inventory related to ISP are stated at
the lower of cost or estimated net realizable value. Cost is determined on the first-in,
first-out basis.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 12

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | d. | Non-marketable
securities
| | -- | -------------------------

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

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

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

| | 2) | Direct
consultation and supervision costs and other direct costs relating to
               setting up the Companys communications network and information
systems for                recording and billing calls are capitalized to cost of the
assets.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | Interest
costs in respect of loans and credit which served to finance the
               construction or acquisition of fixed assets  incurred until
installation                of the fixed assets is completed  are capitalized to
cost of such assets.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | Assets
are depreciated by the straight-line method, on basis of their estimated           useful
life.
| | -- | ------------------------------------------------------------------------------------------------------

| | Number
of years of depreciation are as follows (**):
| | ----------------------------------------------------

| |                                                  | Before
change in
estimate | After change in
estimate | Remaining useful
life after change
in estimate
| | ------------------------------------------------ | ------------------------- | ------------------------ | ----------------------------------------------
|
|
|
|
| | Communications network: (*)                      |                           |                          |                                               
| | Physical layer and infrastructure                | 5 - 10                    | 10 - 25                  | 1 - 25                                        
| |                                                  | (mainly 7)                | (mainly 15, 10)          | (mainly 8- 20)                                
| | Other Communication network                      | 5 - 10                    | 3 - 15                   | 1 - 15                                        
| |                                                  | (mainly 7)                | (mainly 7, 10, 15)       | (mainly 3- 10)                                
| | Computers, hardware and software for            
| | information systems                              | 3-7                       | 3-10                     | 1-10                                          
| |                                                  |                           | (mainly 3-5)             | (mainly 3-5)                                  
| | Office furniture and equipment                   | 7-15                      | 7-10                     | 1-10                                          
| |                                                  |                           |                          | (mainly 4-7)                                  
| | Optic fibers (see note 1a(3)) and related assets | 10-15                     | 7-25                     | 7-25                                          
| |                                                  |                           | (mainly 20, 25)          | (mainly15, 20,25)                             

| | (*) | See
7 below.
| | --- | ------------

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

| | (**) | As
part of the Companys transition to IFRS commencing January 1, 2009,           the
Company examined, among other matters, the remaining estimated useful lives           of
its fixed assets. As a result of this examination the Company revised the
          estimated useful lives of its fixed assets, commencing October 1, 2008. As a
          result of this change, the net income for the year ended December 31, 2008
          increased by NIS 6.4 million and earnings per share basic and diluted for the
          same period increased by NIS 0.04.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | e. | Fixed
assets (continued):
| | -- | -------------------------

| | 5) | Fixed
assets leased by the Company under capital leases are classified as the           Companys  assets
and are recorded, at the inception of the lease, at the lower of the assets fair
value or
the present value of the minimum lease payments.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6) | Computer
Software Costs
| | -- | -----------------------

| | The
cost of internal-use software which has useful life in excess of one year is capitalized
in accordance with Statement of Position (SOP) No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. Subsequent additions,
modifications or upgrades to internal-use software are capitalized only to the extent
that they allow the software to perform a task it previously did not perform. Software
maintenance and training costs are expensed in the period in which they are incurred.
Capitalized computer software costs are amortized using the straight-line method over a
period of 3 to 10 years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7) | On
December 20, 2007 the Company entered into an agreement (the           Agreement)
with LM Ericsson Israel Ltd. (Ericsson), for           the replacement of
third party 3G radio equipment existing in Partners           network, and for
additional investment in the 3G network in addition to the           support and
maintenance of the Companys network for a period of three           years.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company allocated the purchase price of USD 65 million to the above deliverables based on
their relative fair values. Of this amount, USD 6.6 million related to support and
maintenance of the Network. During the year 2008, it was agreed to add to the above
agreement equipment in the value of USD 4 million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
purchase price is after deduction of commercial discounts, some of which contingent upon
future negotiations for further purchases of purchase of services that are probable.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
replacement process is scheduled to take place during a period ending no later than June
30, 2011. The main part of the replacement took place during 2008.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following
the agreement, in accordance with Financial Accounting Standards No. 144 (FAS 144), Accounting
for the Impairment or Disposal of Long Lived Assets, the Company, on December 20,
2007, reviewed the communication network for impairment, in order to assure that the
carrying amount of the fixed assets is recoverable. No impairment loss was required.
Following the impairment test, the Company accelerated the estimated useful life of the
equipment to be replaced (in the depreciated amount of approximately NIS 136 million) to
the period it is anticipating that the actual replacement will take place. As of December
31, 2008 a significant portion of the 3G radio equipment was replaced.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 14

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | e. | Fixed
assets (continued):
| | -- | -------------------------

| | As
a result of the above change related to the transaction with Ericsson in 2008 the
depreciation expenses increased by NIS 74 million (included in cost of service revenues),
net income decreased by NIS 54 million and earnings per share, basic and diluted,
decreased by NIS 0.35, compared with the figures prior to the acceleration of
depreciation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
subsequent accounting treatment of the various elements is as follows:
| | --------------------------------------------------------------------------

| | (a) | Network
equipment  the amount attributed will be depreciated over its           estimated
useful life according to the straight line method.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Support
and maintenance services  the amount attributed will be expensed            on
a straight line method  over the support and maintenance           services
agreement period (three years).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | Licenses,
deferred charges and other intangible assets:
| | -- | -------------------------------------------------------

| | 1) | Licenses:
| | -- | ---------

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

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

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

| | Interest
expenses which served to finance the license fee  incurred until the commencement
of utilization of the license  were capitalized to cost of the license.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
license for providing transmission services (see also 1a(2) above) is stated at cost and
is amortized by the straight-line method over the utilization period of the license,
starting in January 2007. The license is for a period of 20 years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | Customer
relationships relating to Med-1 fiber optic acquisition are amortized           over the
estimated useful life which is 5-7 years. (see also 1a(3) above).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | Deferred
charges:
| | -- | -----------------

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

| | b) | Issuance
costs relating to Notes payable (see note 5) are amortized using the           effective
interest rate stipulated for the Notes.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | g. | Impairment
of long-lived assets
| | -- | -------------------------------

| | The
Company has adopted FAS 144. FAS 144 requires that long-lived assets, including certain
intangible assets, to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. Under FAS 144, if the sum of the expected future cash flows
(undiscounted and without interest charges) of the long-lived assets is less than the
carrying amount of such assets, an impairment loss would be recognized, and the assets
written down to their estimated fair values. See also 1e.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | Cash
equivalents
| | -- | ----------------

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

| | i. | Comprehensive
income
| | -- | --------------------

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

| | j. | Revenue
recognition
| | -- | -------------------

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

| | The
Company recognizes revenues net of value added taxes.
| | ---------------------------------------------------------

| | Revenues
from long-term credit arrangements (longer than one year) are recognized on the basis of
the present value of future cash flows, discounted according to interest rates at the
time of the transaction. The difference between the original credit and its present value
is recorded as interest income over the credit period.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 16

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | k. | Concentration
of credit risks  allowance for doubtful accounts
| | -- | ---------------------------------------------------------------

| | The
Companys revenues are derived from a large number of customers. Accordingly, the
Companys trade balances do not represent a substantial concentration of credit
risk. An appropriate provision for doubtful accounts is included in the accounts of the
Company. The allowance charged to expenses (including bad debts), determined as a
percentage of specific debts doubtful of collection, based upon historical experience and
future expectations, for the years ended December 31, 2006, 2007 and 2008 totaled NIS 26,470,000,
NIS 43,770,000 and NIS 91,486,000 (USD 21,171,000) (see note 11a),
respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
cash and cash equivalents as of December 31, 2008 are deposited mainly with leading
Israeli banks. Therefore, in the opinion of the Company, the credit risk inherent in
these balances is remote, and is assessed periodically.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | l. | Sale
of Receivables
| | -- | -------------------

| | In
December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, Disclosures by Public
Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable
Interest Entities (the FSP). This FSP is effective for all public entities financial
statements issued for fiscal years and interim periods ending after December 15, 2008.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2008, the Company factored most of its long-term trade receivables resulting from sales
of handsets by credit cards. The factoring was executed through clearing company, on a
non-recourse basis. The sale of accounts receivable was recorded by the Company as a
sales transaction under the provisions of Statement of Financial Accounting Standards
No.140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
resulting costs were charged to financial expenses-net, as incurred. During
the year the Company sold NIS 290 million (USD 69 million) long-term trade receivables.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | m. | Handsets
warranty obligations
| | -- | -----------------------------

| | The
provision for handsets warranty obligations is calculated at the rate of 2% of the cost
of the handsets sold, see note 11d. The Company has entered into several agreements under
which the supplier does not provide any warranty but rather provides additional handsets
to satisfy its warranty obligation. In these cases, the Company provides for warranty
costs at the same time as the revenues are recognized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | n. | Advertising
expenses
| | -- | --------------------

| | Advertising
expenses are charged to the statement of operations as incurred. Advertising expenses for
the years ended December 31, 2006, 2007 and 2008 totaled NIS 105,035,000, NIS
115,835,000 and NIS 102,855,000 (USD 24,408,000), respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o. | Deferred
income taxes
| | -- | ---------------------

| | Deferred
taxes are determined utilizing the asset and liability method, based on the differences
between the amounts presented in these financial statements and those taken into account
for tax purposes, in accordance with the applicable tax laws. Valuation allowances are
provided if, based upon the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized (see note 9d).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred
tax assets and liabilities are presented as current or long-term items in accordance with
the nature of assets or liabilities to which they relate.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred
tax balances are computed at the tax rates expected to be in effect at the deferred tax
asset is utilized or the deferred tax liability is settled, based on the tax laws enacted
(see also note 9b).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | p. | Uncertainty
in Income Taxes
| | -- | ---------------------------

| | As
of January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 (FIN
48). FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized,
measured, and derecognized in financial statements; requires certain disclosures of
uncertain tax positions; specifies how reserves for uncertain tax positions should be
classified on the balance sheet; and provides transition and interim-period guidance,
among other provisions. On May 2, 2007, the FASB issued FASB Staff Position No. FIN 48-1,
Definition of Settlement in FASB Interpretation No. 48-1 (FSP FIN 48-1).
FSP FIN 48-1 provides guidance on how an entity should determine whether a tax position
is effectively settled for the purpose of recognizing previously unrecognized tax
benefits. The Company adopted FSP FIN 48-1 as of January 1, 2007.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys policy to include interest and penalties relating to uncertain tax
positions, within the provision for income taxes has not changed as a result of
implementing FIN 48 (see also note 9h).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | q. | Foreign
currency transactions and balances
| | -- | ------------------------------------------

| | Balances
in, or linked to, foreign currency are stated on the basis of the exchange rates
prevailing at balance sheet dates. For foreign currency transactions included in the
statements of operations, the exchange rates at transaction dates are used. Transaction
gains or losses arising from changes in the exchange rates used in the translation of
such balances are carried to financial income or expenses.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 18

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | r. | Derivative
financial instruments (derivatives)
| | -- | ------------------------------------------------

| | Under
FAS 133, which establishes accounting and reporting standards for derivatives, including
certain derivatives embedded in other contracts, and for hedging activities, all
derivatives are recognized on the balance sheet at their fair value. On the date that the
Company enters into a derivative contract, it designates the derivative, for accounting
purposes, as: (1) hedging instrument, or (2) non-hedging instrument. Any changes in fair
value are to be reflected as current gains or losses or other comprehensive gains or
losses, depending upon whether the derivative is designated as a hedge and what type of
hedging relationship exists. Changes in fair value of non-hedging instruments are carried
to financial expenses-net on a current basis. To date, the Company did not
have any contracts that qualify for hedge accounting under FAS 133.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company occasionally enters into commercial (foreign currency) contracts in which a
derivative instrument is embedded. This embedded derivative is separated from
the host contract and carried at fair value through income statement when (1) the
embedded derivative possesses economic characteristics that are not clearly and closely
related to the economic characteristics of the host contract and (2) a separate,
stand-alone instrument with the same terms would qualify as a derivative instrument
(see note 10).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Decrease
(increase) in fair value of derivative instruments are presented as part of cash flows
from operating activities in the Companys consolidated statements of cash flows.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | s. | Treasury
shares:
| | -- | ----------------

| | Treasury
shares acquired by the Company are presented as a reduction of shareholders equity,
at their cost to the Company.
| | ---------------------------------------------------------------------------------------------------------------------------

| | t. | Earning
Per Share (EPS):
| | -- | ------------------------

| | Basic
EPS is computed by dividing net income by the weighted average number of shares
outstanding during the years, net of treasury shares.
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | Diluted
EPS reflects the increase in the weighted average number of shares outstanding that would
result from the assumed exercise of employee stock options, calculated using the
treasury-stock-method.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | u. | Share
based payment:
| | -- | --------------------

| | Prior
to January 1, 2006, the Company accounted for employees share-based payment under the
intrinsic value model in accordance with Accounting Principles Board Opinion No. 25 Accounting
for Stock Issued to Employees (APB 25) and related interpretations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004), Share-based Payment (FAS 123 (R)). FAS 123(R)
requires awards classified as equity awards to be accounted for using the grant-date fair
value method. The fair values of share-based payment transactions is recognized as
expense over the requisite service period, net of estimated forfeitures. The company
estimated forfeitures based on historical experience and anticipated future conditions.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 19

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | u. | Share
based payment(continued):
| | -- | -------------------------------

| | The
Company elected to recognize compensation cost for an award with only service conditions
using the accelerated method.
| | --------------------------------------------------------------------------------------------------------------------------

| | The
Company elected to adopt the modified prospective transition method, permitted by FAS 123(R).
Under such transition method, FAS 123(R) has been implemented as from the first quarter
of 2006 with no restatement of prior periods. The valuation provisions of FAS 123(R)
apply to new awards and to awards modified, repurchased, or cancelled after January 1,
2006. Additionally, compensation cost for the portion of awards for which the requisite
service has not been rendered that are outstanding as of January 1, 2006 are recognized
over the remaining service period using the grant-date fair value of those awards as
calculated for pro forma disclosure purposes under FAS 123.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company records deferred tax awards that result in deductions on the Companys
income tax returns, based on the amount of compensation cost recognized and the Companys
statutory tax rate.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Differences
between the deferred tax assets recognized and the actual tax deduction reported on the
companys income tax return are recorded in additional paid-in capital (If the tax
deduction exceeds the deferred tax asset) or as an expense in the income statement (if
the deferred tax asset exceeds the tax deduction and no additional paid-in capital exists
from previous awards).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
adoption of FAS 123(R) resulted in a cumulative benefit from accounting change of
approximately NIS 1 million which reflects the net cumulative impact of estimating future
forfeitures in the determination of period expense, rather than recording forfeitures
when they occur as previously permitted under APB 25.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | v. | Asset
retirement obligations
| | -- | ----------------------------

| | The
Company recognizes a liability in respect of asset retirement obligation (ARO) associated
with the retirement of a tangible long lived asset in the period in which it is incurred
and becomes determinable, with an offsetting increase in the carrying amount of the
associated asset. The cost of the tangible asset, including the initially recognized ARO,
is depreciated such that the cost of the ARO is recognized over the useful life of the
asset.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
ARO is recorded at fair value, and the accretion expense will be recognized over time as
the discounted liability is accreted to its expected settlement value. The fair value of
the ARO is measured using expected future cash out flows discounted at the Companys
credit-adjusted risk-free interest rate.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 20

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | v. | Asset
retirement obligations (continued):
| | -- | -----------------------------------------

| | The
Company has adopted, as of January 1, 2006 FASB Interpretation No. 47, Accounting
for Conditional Asset Retirement Obligations (FIN 47). FIN 47 requires
an entity to recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the fair value of the liability can be reasonably estimated.
This Interpretation also clarifies that the term Conditional Asset Retirement Obligation
refers to a legal obligation to perform an asset retirement activity in which the timing
and/or method of settlement are conditional on a future event that may or may not be
within the control of the entity. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset retirement
obligation. According to FIN 47 uncertainty about the timing and/or method of settlement
of a conditional asset retirement obligation should be factored into the measurement of
the liability when sufficient information exists.  FIN 47 has not had
a material impact on the companys financial condition or results of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is subject to asset retirement obligations associated with its cell sites
operating leases. These lease agreements contain clauses requiring restoration of the
leased site at the end of the lease term, creating asset retirement obligations, see also
note 11e.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | w. | Fair
Value Measurement:
| | -- | -----------------------

| | Effective
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS
157), and the related effective FSPs. SFAS 157 defines fair value, establishes a
framework for measuring fair value and enhances fair value measurement disclosure. Under
this standard, fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability (i.e., the exit price) in an orderly
transaction between market participants at the measurement date.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS157
establishes a hierarchy for inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are inputs that market
participants would use in pricing the asset or liability developed based on market data
obtained from sources independent of the Company. Unobservable inputs are inputs that
reflect the Companys assumptions about the assumptions market participants would
use in pricing the asset or liability developed based on the best information available
in the circumstances. The hierarchy is broken down into three levels based on the
reliability of inputs.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
pronouncements defining fair value hierarchy consist of the following three levels:
| | ---------------------------------------------------------------------------------------

| | Level 1  | Inputs are quoted prices in active markets for identical assets or liabilities.
| | --------- | -------------------------------------------------------------------------------

| | Level 2
 | Inputs are quoted prices for similar assets or liabilities in an active market,
quoted prices for identical or similar assets or liabilities in markets that are not
active, inputs other than quoted prices that are observable and market-corroborated
inputs which are derived principally from or corroborated by observable market data.
| | --------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Level 3
 | Inputs are derived from valuation techniques in which one or more significant
inputs or value drivers are unobservable.
| | --------- | -----------------------------------------------------------------------------------------------------------------------

F - 21

---

---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | w. | Fair
Value Measurement(continued):
| | -- | ----------------------------------

| | The
adoption of SFAS 157 and the related FSPs did not have a material effect on the
Companys consolidated financial position and operating results.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, effective January 1, 2008, the Company adopted SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities, including an
amendment of FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities, which permits an entity to measure certain financial
assets and financial liabilities at fair value. The Company has not elected the fair
value option to any eligible assets or liabilities. Thus, the adoption of this Statement
did not affect the companys consolidated financial position and operating results.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
further disclosure, see note 10c .
| | --------------------------------------

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

| | 1) | In
December 2007, the FASB issued Statement of Financial Accounting Standards
               No. 141 (revised 2007), Business Combinations (SFAS
               141(R)). SFAS 141(R) changes the accounting for business
combinations,                including the measurement of acquirer shares issued in
consideration for a                business combination, the recognition of contingent
consideration, the                accounting for contingencies, the recognition of
capitalized in-process research                and development, the accounting for
acquisition-related restructuring cost                accruals, the treatment of
acquisition related transaction costs and the                recognition of changes in
the acquirers income tax valuation allowance and                income tax
uncertainties. SFAS 141(R) applies prospectively to business                combinations
for which the acquisition date is on or after the beginning of the                first
annual reporting period beginning on or after December 15, 2008. Early
               application is prohibited. The Company will be required to adopt SFAS
141(R) on                January 1, 2009. The Company is currently assessing the impact,
if any, that                SFAS 141(R) may have on its results of operations and
financial position.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | In
December 2007, the FASB issued Statement of Financial Accounting Standards
               No. 160, Noncontrolling Interests in Consolidated Financial
Statements, an                Amendment of ARB No. 51 (SFAS 160).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. An ownership
interest in subsidiaries held by parties other than the parent should be presented in the
consolidated statement of financial position within equity, but separate from the parents
equity. SFAS 160 requires that changes in a parents ownership interest while the
parent retains its controlling financial interest in its subsidiary should be accounted
for similarly as equity transactions. When a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary should be initially measured at
fair value, with any gain or loss recognized in earnings.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 22

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---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | x. | Recently
issued accounting pronouncements(continued):
| | -- | -----------------------------------------------------

| | SFAS
160 requires consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. It also requires
disclosure, on the face of the consolidated income statement, of the amounts of
consolidated net income attributable to the parent and to the noncontrolling interests.
SFAS 160 is effective for fiscal years (including interim periods within those fiscal
years) beginning on or after December 15, 2008. Earlier adoption is prohibited. The
statement shall be applied prospectively as of the beginning of the fiscal year in which
it is initially applied, except for the presentation and disclosure requirement which
shall be applied retrospectively for all periods presented. The Company will be required
to adopt SFAS 160 on January 1, 2009. The Company is currently assessing the impact, if
any, that SFAS 160 may have on its results of operations and financial position.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | In
February 2008, the FASB issued FSP FAS 140-3, Accounting for Transfers of
               Financial Assets and Repurchase Financing Transactions (FSP FAS 140-3).
The FSP                provides guidance for determining whether an initial transfer of a
financial                asset and a repurchase financing should be considered a linked
transaction for                the purposes of assessing whether sale accounting is
appropriate under FASB                Statement 140, Accounting for Transfers and
Servicing of Financial Assets and                Extinguishment of Liabilities (FAS 140).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
FSP is effective for financial statements issued for fiscal years beginning after
November 15, 2008. The Company is currently evaluating the impact, if any, of the
adoption of FSP FAS 140-3 on its financial position, results of operations or cash flows.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
               Instruments and Hedging Activities  an amendment of FASB Statement
No.                133,(SFAS 161) as amended and interpreted, which
requires                enhanced disclosures about an entitys derivative and
hedging activities                and thereby improves the transparency of financial
reporting. Disclosing the                fair values of derivative instruments and their
gains and losses in a tabular                format provides a more complete picture of
the location in an entitys                financial statements of both the
derivative positions existing at period end and                the effect of using
derivatives during the reporting period. Entities are                required to provide
enhanced disclosures about (a) how and why an entity uses                derivative
instruments, (b) how derivative instruments and related hedged items                are
accounted for under Statement 133 and its related interpretations, and (c)
               how derivative instruments and related hedged items affect an entitys
               financial position, financial performance, and cash flows. SFAS No. 161 is
               effective for financial statements issued for fiscal years and interim
periods                beginning after November15, 2008. The Company is currently
assessing the impact,                if any, that FAS 161 may have on its results of
operations and financial                position.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5) | On
October 10, 2008 the FASB issued FSP No. FAS 157-3: guidance clarifying how
          FASB Statement No. 157, Fair Value Measurements (FAS 157), should be applied
          when valuing securities in markets that are not active.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 23

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---

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

NOTE 1  SIGNIFICANT
ACCOUNTING POLICIES(continued):

| | x. | Recently
issued accounting pronouncements(continued):
| | -- | -----------------------------------------------------

| | In
February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement
No. 157". FSP FAS 157-2 delays the effective date of SFAS No. 157 from
2008 to 2009 for all nonfinancial assets and nonfinancial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is currently assessing the impact, if any, that SFAS No. 157 may have on its
results of operations and financial position.
| | --------------------------------------------------------------------------------------------------------------------------------------

| | 6) | In
April 2008, the FASB issued FSP No. FAS 142-3, Determination           of
the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors
          that should be considered in developing renewal or extension assumptions used
to           determine the useful life of a recognized intangible asset under SFAS
          No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3
is           effective for financial statements issued for years beginning after
          December 15, 2008. The Company is currently evaluating the impact, if any,
          of the adoption of FSP FAS 142-3 on its financial position, results of
          operations or cash flows.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7) | Effective
January 1, 2008, the Company adopted FASB Staff Position No. FAS           140-4 and
FIN 46(R)-8,Disclosures by Public Entities (Enterprises) about           Transfers
of Financial Assets and Interests in Variable Interest Entities,           (the
FSP). Since the pronouncement is related to disclosure only, it           did not
have an effect on the consolidated financial statements. See note 1l.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | y. | Reclassifications
| | -- | -----------------

| | Certain
comparative figures have been reclassified to conform to the current year presentation.
The change is immaterial.
| | -------------------------------------------------------------------------------------------------------------------------

F - 24

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---

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

# NOTE 2  FIXED
ASSETS:

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

| |                                                  | December 31
| | ------------------------------------------------ | -----------
|
|
|
|
| | Communications network                           |            
| | Computers, hardware and software for             |            
| | information systems                              |            
| | Optic fibers and related assets                  |            
| | Office furniture and equipment                   |            
| | Leasehold improvements                           |            
| |                                                  |            
| |                                                  |            
| | Less - accumulated depreciation and amortization |            
| |                                                  |            
| |                                                  |            
| |                                                  |            

| | The
cost of communication network in the amount of approximately NIS 2 billion is fully
depreciated and still in use.
| | ---------------------------------------------------------------------------------------------------------------------

| | Depreciation
and amortization in respect of fixed assets totaled NIS 529,560,000, NIS 509,568,000 and
NIS 560,052,000 (USD 132,903,000) for the periods ended December 31, 2006, 2007
and 2008, respectively. As to change in estimate, refer to note 1e4 and 1e7.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Fixed
assets include interest expenses, direct consultation and supervision
               costs and other direct costs of establishing the cellular communications
network                and information systems, which were capitalized (before commencing
full                commercial operations or utilization of the related fixed assets) in
respect of:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                          | December 31
| | -------------------------------------------------------- | -----------
|
|
|
|
| | Communications network                                   |            
| | Computers, hardware and software for information systems |            
| |                                                          |            
| |                                                          |            
| | L e s s - accumulated depreciation                       |            
| |                                                          |            
| | Depreciated balance                                      |            
| |                                                          |            

F - 25

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

# NOTE 3  LICENSES,
DEFERRED CHARGES AND OTHER INTANGIBLE ASSETS:

| |                                             | December 31
| | ------------------------------------------- | -----------
|
|
|
|
| | Licenses  (note 1a(2))                      |            
| | Less - accumulated amortization             |            
| |                                             |            
| |                                             |            
| |                                             |            
| | Customers relationship                      |            
| | Less - accumulated amortization             |            
| |                                             |            
| |                                             |            
| |                                             |            
| | Deferred charges - in respect of obtaining: |            
| | Long-term credit lines                      |            
| | Notes payable                               |            
| |                                             |            
| |                                             |            
| | Less - accumulated amortization             |            
| |                                             |            
| |                                             |            
| |                                             |            
| |                                             |            
| |                                             |            

| | License
amortization expenses for the years ended December 31, 2006, 2007 and 2008 totaled, NIS
79,395,000 , NIS 79,470,000 and NIS 79,474,000 (USD 18,860,000), respectively.
Amortization expenses on deferred charges for the years ended December 31, 2006, 2007 and
2008 totaled NIS 11,950,000 , NIS 11,297,000 and NIS 10,860,000 (USD 2,577,000),
respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amortization
expenses on customers relationship for the years ended December 31, 2006, 2007 and 2008
totaled NIS 1,529,000 , NIS 3,091,000 and NIS 3,089,000 (USD 733,000), respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                        | NIS | Convenience
translation into
dollars
|----------------------- | --- | ------------------------------------
|
|
|
|
|Year ended December 31: |     |                                     
|2009                    |     |                                     
|2010                    |     |                                     
|2011                    |     |                                     
|2012                    |     |                                     
|2013                    |     |                                     

F - 26

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---

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

# NOTE 4  LONG-TERM
BANK LOANS

| | The
Company has a senior credit facility with Bank Hapoalim B.M., Bank Leumi Le-Israel B.M.
and Israel Discount Bank Ltd., in which United Mizrahi Bank Ltd. also participates. The
facility is divided into two tranches: a USD 150 million term loan facility (Facility
A) and a USD 100 million revolving loan facility (Facility B), both
expiring on September 1, 2009.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2008 Facility A was reduced completely according to the credit facility
agreement, aside from the advanced amount of approximately USD 6 million. On March 31,
2009 the advance is expected to be repaid and the remaining sum of approximately USD 3
million is expected to be repaid on June 30, 2009. No further amounts can be drawn on
facility A. Facility B was reduced to USD75 million.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
credit facility is a US dollar denominated facility, and advances may be drawn in US
dollars and New Israeli Shekels, as set forth in c below.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | Status
of the credit facility at December 31, 2008 is as follows:
| | -- | -----------------------------------------------------------------

|           | Total
availability | Amounts
drawn | Amounts
available for
drawing
|---------- | ------------------ | ------------- | -----------------------------
|
|
|
|
|Facility A |                    |               |                              
|Facility B |                    |               |                              
|           |                    |               |                              
|           |                    |               |                              
|           |                    |               |                              

| | ** | The
difference between the amounts displayed is the difference in exchange rates between the
date the amounts were drawn and that at the balance sheet date. Presented as part of
Current maturities of long-term liabilities and short term loans.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 27

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---

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

# NOTE 4  LONG-TERM
BANK LOANS (continued)

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

|                               | December 31
|------------------------------ | -----------
|
|
|
|
|                               |            
|In NIS - linked to the Israeli |            
|consumer price index (CPI)*    |            
|                               |            
|                               |            
|Less - current maturities      |            
|                               |            
|                               |            
|                               |            
|                               |            

| | * | Linkage
terms apply both to principal and interest.
| | - | ---------------------------------------------------

| | c. | Facilities
A and B, may be drawn in NIS or US dollars, provided that the amount                of
principal outstanding in US dollars under the credit facility with respect to
               each participating lender shall not exceed 10% of that lenders total
               commitment unless otherwise agreed in advance.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | There
is a range of options as to how interest is calculated on borrowings under
               the credit facility. These options include fixed and variable rates, based
upon                the lending rates of each participating banks with a margin of 0.85%.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | Under
the credit facility the Company is required, inter alia, to fulfill
               certain operational conditions and to maintain certain financial ratios.
If the                Company defaults on the covenants, the banks are entitled to demand
early                repayment of the credit facility  in whole or in part. Under
the credit                facility. The Company believes that it is in compliance with
all covenants                stipulated in the credit facility.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 28

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

# NOTE 5  NOTES
PAYABLE:

| | a. | On
March 31, 2005, the Company completed an offering of NIS 2,000 million of
               unsecured notes, which were issued at their NIS par value. The notes have
been                registered in Israel and are traded on the Tel-Aviv Stock Exchange
(TASE). Of                these notes approximately NIS 36.5 million were purchased by
Partner Future                Communications 2000 Ltd., (PFC) a wholly owned
subsidiary of the                Company. PFC also received an additional allocation of
notes having an aggregate                principal amount of NIS 500 million. These notes
that PFC received pursuant to                this additional allocation do not confer the
right to receive any payment                whatsoever on account of principal or
interest until they are sold by PFC to a                third party.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
net proceeds from the offering were approximately NIS 1,929 million after deducting the
notes purchased by PFC, commissions and offering expenses.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
principal amount of the Notes is payable in 12 equal quarterly installments, beginning
June 30, 2009. The Notes bear NIS interest at the rate of 4.25% per annum, linked to the
Israeli Consumer Price Index, which is payable quarterly on the last day of each quarter,
commencing June 30, 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 31, 2008, the Notes closing price was 110.46 points par value. The fair value of
the note as of December 31, 2007 and 2008 was NIS 2,121,745 thousands and NIS 2,168,869
thousands ( USD 514,682 thousands), respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Commission
fees and offering expenses in respect of the offering of the Notes totaled approximately
NIS 34 million. These expenses are presented as deferred charges and the
amortization in respect thereof is included in financial expenses, net.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | The
amounts outstanding are as follows:
| | -- | ---------------------------------------

| |                           | December 31
| | ------------------------- | -----------
|
|
|
|
| | Total amount              |            
| | Less - current maturities |            
| |                           |            
| |                           |            
| |                           |            

F - 29

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---

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

NOTE 5  NOTES PAYABLE
(continued):

| | c. | The
minimum payments, at rates in effect at December 31, 2008, are as follows:
| | -- | ------------------------------------------------------------------------------

|                        | NIS | Convenience
translation
into dollars
|----------------------- | --- | ------------------------------------
|
|
|
|
|Year ended December 31: |     |                                     
|2009                    |     |                                     
|2010                    |     |                                     
|2011                    |     |                                     
|2012                    |     |                                     
|                        |     |                                     
|                        |     |                                     
|                        |     |                                     

| | d. | The
Company intends to fund the repayment of its current portion of its                notes
payable (NIS 542 million) through additional bank loans or via the
               issuance of new corporate notes.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 6  LIABILITY
FOR EMPLOYEE RIGHTS UPON RETIREMENT:

| | a. | Israeli
labor laws and agreements require payment of severance pay upon                dismissal
of an employee or upon termination of employment in certain other
               circumstances. The Companys severance pay liability to its
employees,                mainly based upon length of service and the latest monthly
salary (one                months salary for each year worked), is reflected by the
balance sheet                accrual under the liability for employee rights upon
retirement. The                Company records the liability as if it was payable
at each balance sheet date on                an undiscounted basis. The liability is
partly funded by purchase of insurance                policies and the amounts funded are
included in the balance sheet under                investments and long-term receivables,
as funds in respect of employee                rights upon retirement. The
policies are the Companys assets and                under labor agreements, subject
to certain limitations, they may be transferred                to the ownership of the
employees.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | The
severance pay expenses for the years ended December 31, 2006, 2007 and
               2008 were approximately NIS 33 million, NIS 54 million and NIS 32
million                (approximately USD 8 million), respectively.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Company expects to contribute NIS 27 million (USD 6 million) in respect of severance
pay in 2009.
| | -----------------------------------------------------------------------------------------------------

| | Due
to the relatively young age of the Companys employees, benefit payments to
employees reaching retirement age in the next 10 years, are not material. The amounts
were determined based on the employees current salary rates and the number of
service years that will accumulate upon their retirement date. These amounts do not
include amounts that might be paid to employees who will cease working for the Company
before their normal retirement age.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 30

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---

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

# NOTE 7 
COMMITMENTS AND CONTINGENT LIABILITIES:

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

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

| | The
Company is committed to pay royalties to the Government of Israel on its income
from cellular services as defined in the Telecommunications (Royalties)
Regulations, 2001 (hereafter  the Regulations), which includes all kinds of
income of the Company from the granting of communication services under the license including
airtime, roaming services and non-recurring connection fees, but excluding income
transferred to another holder of a communications license and deducting bad debts,
payments to another communication licensee in respect of interconnection, payments for
roaming services to foreign operators and expenses related to the sale of equipment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2004, a reduction in the percentage of royalties was approved; accordingly, the rate of
royalty payments (3.5%) paid by cellular operators is reduced annually by 0.5%, starting
January 1st 2006, to a level of 1% at 2010.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
royalty expenses for the periods ended December 31, 2006, 2007 and 2008 were
approximately NIS 114,462,000, NIS 96,799,000 and NIS 68,160,000 (USD 16,175,000),
respectively, and are included under cost of services revenues.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | Under
the Telegraph Regulations the Company is committed to pay an annual fixed
               fee for each frequency used. The Company paid a total amount of
approximately                NIS 55 million, NIS 55 million and NIS 55 million (USD 13
million),                for the years 2006, 2007 and 2008, respectively. Under the above
Regulations                should the Company choose to return a frequency, such payment
is no longer due.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | Operating
leases
| | -- | ----------------

| | The
Company has entered into operating lease agreements as follows:
| | -------------------------------------------------------------------

| | a) | Lease
agreements for its headquarters facility in Rosh Haayin for a
          fifteen-year period (until 2018). The Company has an option to shorten the
lease           periods by 3.5 to 8.5 years. The rental payments are linked to the
Israeli CPI.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Lease
agreements for service centers and retail stores for a period of two to           five
years. The Company has an option to extend the lease periods for up to           twenty
years (including the original lease periods). The rental payments are           linked
partly to the dollar and partly to the Israeli CPI. Some of the extension
          options include an increase of the lease payment in a range of 2%-10%.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 31

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---

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

NOTE 7  COMMITMENTS AND
CONTINGENT LIABILITIES (continued):

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

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

| | e) | The
minimum projected rental payments (including the payments in the periods of           the
reasonably assured option terms) for the next five years, at rates in effect           at
December 31, 2008, are as follows:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | NIS | Convenience
translation
into dollars
|----------------------- | --- | ------------------------------------
|
|
|
|
|Year ended December 31: |     |                                     
|2009                    |     |                                     
|2010                    |     |                                     
|2011                    |     |                                     
|2012                    |     |                                     
|2013                    |     |                                     
|2014 and the reafter    |     |                                     
|                        |     |                                     
|                        |     |                                     
|                        |     |                                     

| | f) | The
rental expenses for the years ended December 31, 2006, 2007 and 2008 were
               approximately NIS 198 million, NIS 205 million, and NIS 233 million (USD
55                million), respectively.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | At
December 31, 2008, the Company is committed to acquire fixed assets, for
          approximately NIS 219 million (approximately USD 52 million).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 5) | At
December 31, 2008, the Company is committed to acquire handsets for
          approximately NIS 156 million (approximately USD 37 million).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------

| | 6) | As
to cost sharing agreement with Hutchison Telecommunications Limited, see           note 12b.
As to an agreement with H3G PROCUREMENT SERVICES S aR.L,           see note 12c.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7) | As
to the Agreement with LM Ericsson Israel Ltd. See note 1e7.
| | -- | --------------------------------------------------------------

F - 32

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---

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

NOTE 7  COMMITMENTS AND
CONTINGENT LIABILITIES(continued):

| | b. | Contingent
Liabilities:
| | -- | -----------------------

| | 1) | On
April 13, 2003, a claim was filed against the Company and other cellular
          telecommunication companies, together with a request to recognize this claim as
          a class action, for alleged violation of antitrust law, alleging that no fee
          should have been collected for incoming SMS messages or alternatively, that the
          fee collected is excessive and that it is a result of illegal co-operation
          between the defendants. The amount of the claim against all the defendants is
          estimated at approximately NIS 120 million (if the court rules that no fee
          should have been collected) or alternatively NIS 90 million (if the court rules
          that the fees are excessive).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and unless and until the claim is recognized as a class action, the Company
and its legal counsel are unable to evaluate the probability of success of such claim,
and therefore no provision has been made.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | On
August 8, 2006, a claim was filed against the Company and other cellular
          telecommunication companies together with a request to recognize this claim as
a           class action for collecting undue payment from its customers on calls to land
          line companies when the receiver of the call hangs up first. The amount of the
          claims against all the defendants is estimated at approximately NIS 100
          million for the seven year period leading up to the filing of the claim.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and unless and until the claim is recognized as a class action, the Company
and its legal counsel are unable to evaluate the probability of success of such claim,
and therefore no provision has been made.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | In
August 2006 the Company, together with the other cellular operators,           submitted
a request to hold an urgent hearing, and a motion for an order nisi           against the
Government of Israel and the Minister of Communications to explain           why they do
not act immediately to postpone the date for implementing and           activating the
number portability plan from September 1, 2006, as provided in           the
Communications law (Bezeq and Broadcasts)  1982 (the           Communications
Law).
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 18, 2007 the request was dismissed.
| | -----------------------------------------------

| | On
January 25, 2007 a claim of NIS 10.61 billion, together with a request for a
certification as a class action, was filed against the Company and against other cellular
and land-line telecommunication companies.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
claim was that the defendants had not implemented number portability and were in
violation of the Communication Law, mandating the implementation of telephone number
portability on September 1, 2006. It was claimed that the defendants harmed the claimants
and consumers of telephone services in general.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
claimants demanded NIS 1,000 for each of the Companys 2,626,000 related
subscribers for a total demand of approximately NIS 2,600 million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 5, 2008 the claim was dismissed.
| | -----------------------------------------

F - 33

---

---

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

NOTE 7  COMMITMENTS AND CONTINGENT
LIABILITIES(continued):

| | 4) | On
February 27, 2007, a claim was filed against the Company and two other           cellular
telecommunication companies together with a request to recognize this           claim as
a class action. The claim is for sums that were allegedly overcharged           in breach
of the Companys licenses, based on intervals larger than the           intervals
the defendants were allegedly authorized to charge under their           licenses, for
calls initiated or received by the subscribers while abroad. If           the claim is
recognized as a class action, the total amount claimed from the           defendants is
estimated by the plaintiffs to be approximately NIS 449 million,           of which,
approximately NIS 88 million is attributed to the Company.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5) | On
July 3, 2007 a claim was filed against the Company together with a request           to
recognize this claim as class action. The claim alleges that the Company           over-
billed one million subscribers. The amount of the claim against the           Company is
approximately NIS 1.5 billion.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
April 16, 2008 the claim was dismissed.
| | ------------------------------------------

| | 6) | On
August 9, 2007, a claim was filed against the Company, together with a           request
to recognize this claim as a class action. The claim is that the Company
          discontinues providing services to Prepaid subscribers that have not used their
          number for a period of thirteen months and transferred the number to other
          subscribers. The claimants allege that this violates the terms of the
          Companys license as well as the requirements against deception and the
          disclosure requirements in the Consumer Protection Law.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 197 million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7) | On
September 19, 2007, a claim was filed against the Company and two other
          cellular operators, together with a request to recognize this claim as a class
          action.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
claim alleged that the Company charged subscribers for SMS messages sent to certain
intended recipients who cannot receive such messages, and that the Company misled
subscribers who sent such messages by network notification that the messages had been
sent.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If
the claim is recognized as a class action, the total amount claimed from the defendants
is estimated by the plaintiffs to be approximately NIS 183 million.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
July 2, 2008, following the agreed upon request of the plaintiffs to withdraw their
claim, the claim was dismissed with prejudice, and a request for the certification of the
claim as a class action was dismissed without prejudice.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 34

---

---

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

NOTE 7  COMMITMENTS AND
CONTINGENCIES(continued):

| | The
Company agreed, without prejudice as a matter of costumer relations service that, in
cases of failure of receipt of a message by a certain intended recipients, no fee shall
be charged and a network notification of such failure will be provided. Further, the
Company agreed to refund its subscribers who had been charged for such sent but
unreceived messages for certain intended recipients.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 8) | On
November 19, 2007 a claim and a motion to certify the claim as a class           action
was filed against the Company for alleged unlawful collection of payments           from
customers, for content services that the customers did not ask for.
          Alternatively the plaintiff claims that the Company has not revealed to its
          subscribers the full details about these services.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
plaintiffs claim is for a period of 3 years. The total amount of the claim is
NIS 381 million.
| | ---------------------------------------------------------------------------------------------------

| | On
April 1, 2009 the Court decided to approve the motion and dismissed the claims and the
class action.
| | -------------------------------------------------------------------------------------------------------

| | 9) | On
December 17, 2007 a claim and a motion to certify the claim as a class           action
was filed against the Company and two other cellular communications           companies.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
plaintiffs allege that cell sites were erected near their properties illegally, causing
environmental damage. They seek various remedies, including removal of all alleged
illegal devices, and a sum of NIS 1 billion (1,000 NIS per person times 1 million people
allegedly effected) that would be given to a fund managed by environment and cellular
specialists
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10) | On
November 29, 2007 a petition was filed in the Supreme Court against the
          Minister of Communications, the Attorney General in the Ministry of
          Communications and the Chief Executive Officer in the Ministry of
          Communications, and also against the Company (as well as two other cellular
          communications companies) as formal respondents.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
petition deals with the decision of the Minister of Communications according to which
cellular companies are not allowed to market programs that include limitation to 1 minute
minimum (programs that charge the subscriber for the whole first minute even if he used
only a part of it).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
petitioners motion is to implement the above mentioned decision retroactively and
alternatively to instruct the cellular companies to forfeit the fines they collect from
customers who wish to leave these programs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage the court has yet to order the cellular companies to respond to the petition.
| | -------------------------------------------------------------------------------------------

F - 35

---

---

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

NOTE 7  COMMITMENTS AND
CONTINGENCIES(continued):

| | 11) | On
March 23, 2008, a claim and a motion to certify the claim as a class action
          were filed against the Company. The claim is that the Company overcharges
          subscribers for calls and that the subscribers bill includes incorrect
and           unclear information.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
total amount to be claimed under the class action is not estimated by the plaintiff.
| | ----------------------------------------------------------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 12) | On
June 26, 2008, a claim and a motion to certify the claim as a class action           were
filed against the Company. The claim is that the Company is charging           consumers
for providing special numbers, allegedly in breach of the           Companys
license.If the claim is recognized as a class action, the total           amount claimed
from the defendants is estimated by the plaintiffs to be           approximately NIS 90
million.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 13) | On
January 19, 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           mislead its
customers who purchased a particular model of handset by not           highlighting the
fact that there were faults with certain of that models           functions and not
offering replacement models free of additional obligation. 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 70 million.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 14) | On
March 24, 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 should not
          have charged its subscribers for various different services under certain
          circumstances. 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
          1,250 million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 15) | 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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claim is recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claim, and
therefore no provision has been made.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 36

---

---

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

NOTE 7  COMMITMENTS AND
CONTINGENCIES(continued):

| | 16) | Additional
claims were filed against the Company, together with a request to           recognize
these claims as class actions. The total amount of the claims against           the
Company is estimated at approximately NIS 265 million.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
this stage, and until the claims are recognized as a class action, the Company and its
legal counsel are unable to evaluate the probability of success of such claims and
therefore no provision has been made.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 17) | On
May 20, 2008 Ministry of Communications (MOC) informed the Company that
          following an audit of the MOC by the State Comptroller they are reconsidering
          the Companys continued use of the frequency band and claiming payment for
          its past use (which according to the MOC claims is approx NIS 42.5 million).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
MOC has requested that the Company present its position on the issue for consideration,
before the MOC renders its final decision.
| | --------------------------------------------------------------------------------------------------------------------------------------

| | The
frequency band in question was initially allocated for the use of a Palestinian mobile
operator in the Palestinian-administered areas. The Companys position is that it is
entitled to use this band since it is based upon an agreement with the Palestinian
operator, which has been endorsed by the MOC.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys position is that no additional consideration for the use of this band,
should be paid, and therefore intends to defend its position vigorously.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has filed its position on the issue.
| | ------------------------------------------------

| | At
this stage, the Company is unable to evaluate the potential liability, if any, and
therefore no provision has been made.
| | ---------------------------------------------------------------------------------------------------------------------------

| | 18) | Section
197 of the Building and Planning Law states that a property owner has                the
right to be compensated by a local planning committee for reductions in
               property value as a result of a new building plan.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2006, the Non-ionizing Radiation Law was published, amending the Planning and
Building Law so that local Planning and Building committees must require indemnification
letters against reduction in property value from the cellular operators requesting
building permits.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accordingly,
on January 3, 2006, the National Council for Planning and Building published an interim
decision conditioning the issuance of building permits for cell site permits by local
planning and building councils upon provision of a 100% indemnification undertaking by
the cellular operators.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | This
decision shall remain in effect until it is replaced with an amendment to the National
Zoning Plan 36.
| | -----------------------------------------------------------------------------------------------------------

F - 37

---

---

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

NOTE 7  COMMITMENTS AND
CONTINGENCIES(continued):

| | Between
January 3, 2006 and December 31, 2008 the Company provided the local authorities with 307
indemnification letters as a pre-condition for obtaining building permits.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Due
to the fact that an enactment of law regarding this matter is not yet in place, at this
stage the extent of the Companys exposure from granting such indemnification
letters cannot be evaluated.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | However,
if the Company shall be required to make substantial payments under the indemnity
letters, it could have an adverse effect on the Companys financial results.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company assumes that the requirement to provide indemnification letters might require it
to change locations of sites to different, less suitable locations and to dismantle some
of their sites. These changes in the deployment of the sites might have an adverse effect
on the extent, quality and capacity of our network coverage.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 19) | The
Company is a party to various claims arising in the ordinary course of its
          operations. Management, based upon the opinion of its legal counsel, is of the
          opinion that the ultimate resolution of these claims will not have a material
          effect on the financial position of the Company, its result of operations and
          cash flows. The accounts do not include a provision in respect thereof.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 38

---

---

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

# NOTE 8 
SHAREHOLDERS EQUITY:

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

| | The
Companys shares are traded on the Tel-Aviv stock exchange (TASE) and in the form of
American Depository Receipts (ADRs), each represent one ordinary share, on
the NASDAQ National Market (Nasdaq  NM). During 2001, the Company
listed its shares in the TASE according to the dual listing regulations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the provisions of the license granted to the Company (note 1a(2)), restrictions are
placed on transfer of Company shares and placing liens thereon. The restrictions include
the requirement that the advance written consent of the Minister of Communications be
received prior to transfer of 10% or more of the Companys shares to a third party.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 6, 2008, the Companys Board of Directors approved a share buyback of up to
NIS 600 million in 2008. Through December 31, 2008 the Company purchased 4,467,990 shares
at the cost of NIS 351 million. In view of the significant market turbulence, the Board
of Directors subsequently suspended the share buy-back plan.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
accordance with Israeli Companies Law, Company shares that have been acquired and are
held by the Company are dormant shares as long as they are held by the Company, and as
such they do not bear any rights until they are transferred to a third party.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Employees
stock option plans:
| | -- | ------------------------------

| | 1) | a. | On
March 3, 1999, the Companys Board of Directors approved           an employee
stock option plan (hereafter  the 1998 Plan),           pursuant to
which 5,833,333 ordinary shares were reserved for issuance upon the           exercise of
5,833,333 options to be granted to key employees without           consideration. In
2000, options to purchase 729,166 shares were transferred to           the 2000 plan
which left options to purchase 5,104,167 shares remaining in the           1998 plan.
Through December 31, 2008  5,505,557 options have been granted           pursuant
to the 1998 Plan, of which 4,908,411 options have been exercised and           597,139
options were forfeited and 7 expired (options forfeited and expired were
          available for subsequent grants).
| | -- | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
options vest in five equal annual batches over a period of five years from the beginning
of employment of each employee, unless otherwise provided in the grant instrument,
provided the employee is still in the Companys employ. An option not exercised
within 8 years from the date of its allotment shall expire. The exercise price per share
of the options granted through December 31, 2000, which is denominated in dollars, is USD
0.343. During 2002, the Company granted options under the 1998 Plan in accordance with
the terms of the 2000 plan, including the exercise price, vesting schedule and expiration
date (see b. below).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 2008 all options that were not exercised or granted expired.
| | ---------------------------------------------------------------------------

F - 39

---

---

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

NOTE 8  SHAREHOLDERS
EQUITY(continued):

| | b. | In
October 2000, the Companys Board of Directors approved an employee           stock
option plan (hereafter  the 2000 Plan), pursuant to           which
4,472,222 ordinary shares were reserved for issuance upon the exercise of
          4,472,222 options to be granted to employees without consideration. The options
          vest in four equal annual batches over a period of four years from the date of
          grant of the option, provided the employee is still in the Companys
          employ. The option holder may exercise all or part of his options at any time
          after the date of vesting but no later than the expiration of the exercise
          period, which will fixed by the Employee Stock Option Committee and will not
          exceed ten years from the date of option grant.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
NIS denominated exercise price per share of the options, is equal to the market price of
the Companys shares on the date on which the options are granted.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
November 2003, 419,930 options of this plan were transferred to options under the 2003
amendment Plan (see c. below).
| | ----------------------------------------------------------------------------------------------------------------------------

| | Through
December 31, 2008  5,317,555 options were granted pursuant to the 2000 Plan, of
which 3,675,172 options have been exercised, 1,395,333 options were forfeited and 102,250
expired (options forfeited and expired were available for subsequent grants).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | On
November 13, 2003, the Companys Board of Directors approved an           amendment
to the terms and provision of the 2000 Plan, in order to adjust the           terms of
the 2000 Plan to comply with new tax legislation that came into force           in
January 2003. On December 2003, the Company offered the employees, who           received
options under the 2000 plan, to exchange their unvested options, with           the same
amount of identical options, under the amended plan and to benefit from           the
capital gains tax route pursuant to Section 102(b)(2) of the           Israeli
Income Tax Ordinance. Employees holding options to purchase 962,104           ordinary
shares accepted this offer.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 30, 2003, the Companys Board of Directors approved the grant of 195,000
options (out of the 419,930 options that were transferred from the 2000 Plan) under the
2003 amended Plan with an exercise price of NIS 20.45  which was less than the
market price on the date of grant. Through December 31, 2007 all 195,000 options that
were granted have been exercised.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
options vest in four equal annual batches over a period of four years from the date of
grant of the option, provided the employee is still in the Companys employ.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
26 March 2008, the Board of Directors of Partner Communications approved the termination
of the 1998 Plan, the 2000 Plan and 2003 Amended Plan. Since then, no further share
options were granted under these three plans, and all outstanding share options
thereunder will remain valid and bear all terms and conditions of the relevant option
plans.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 40

---

---

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

NOTE 8  SHAREHOLDERS
EQUITY(continued):

| | d. | In
July 2004, the Companys Board of Directors approved a stock option           plan
(hereafter  the 2004 Plan), pursuant to which 5,775,000
          ordinary shares were reserved for issuance upon the exercise of 5,775,000
          options to be granted without consideration. The options vest in four equal
          annual batches, provided the employee is still in the Companys employ.
The           option holder may exercise all or part of his options at any time after the
date           of vesting but no later than the expiration of the exercise period, which
will           fixed by the Employee Stock Option Committee and will not exceed ten years
from           the date of option grant.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 26, 2008, the 2004 Share Option Plan was amended by the Board of Directors to
include the following material amendments for new grants: to increase the total number of
the Companys shares reserved for issuance upon exercise of all options granted
under the 2004 Share Option Plan by 8,142,000 shares; to introduce the acceleration of
option vesting and exercisability in the event of a change of control or voluntary
winding up; and to allow, upon compliance with certain conditions, the cashless exercise
of vested options, according to which, upon exercise by the option holder of a given
number of options, but without payment of the exercise price, the option holder would
receive from the Company 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 23, 2009, the 2004 Share Option Plan, was further amended by the Board of
Directors (the Plan Amendments) to include the following two material
amendments: (i) with respect to options granted on or after February 23, 2009, the date
of approval of the Plan Amendments by the Board of Directors (the Board Approval),a
dividend-adjustment mechanism, reducing the exercise price of such options following each
dividend distribution in the ordinary course and with respect to all options granted
under the 2004 Share Option Plan, following each dividend distribution other than in the
ordinary course in an amount in excess of 40% (forty percent) or of another percent
resolved by the Board of Directors, of the Companys net income for the relevant
period, a dividend adjustment, reducing the exercise price by an amount determined by the
Board of Directors; and (ii) with respect to options granted on or after the Board
Approval date, provisions authorizing the Board of Directors to allow option holders to
exercise their vested options during a fixed period, only through a cashless exercise
procedure, pursuant to which each vested option will entitle its holder to the right to
purchase Ordinary Shares (subject to the adjustments). The Plan Amendments are subject
to, and conditional upon, the relevant approvals in the general meetings of the
shareholders of Partner, Hutchison Telecommunications International Limited and Hutchison
Whampoa Limited respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2009 the Board of Directors approved the grant of 2,530,000 options to senior
officers. The options are subject to the Plan Amendments with respect to the Dividend
Adjustment Mechanism and the Cashless Exercise. The exercise price of options granted is
equal to the average of the closing sale price of Ordinary Shares during the 30 trading
days before the date the allocation is finally approved by the Board of Directors.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 41

---

---

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

NOTE 8  SHAREHOLDERS
EQUITY(continued):

| | Through
December 31, 2008  7,127,000 options have been granted to Companys employees
pursuant to the 2004 Plan, of which 3,537,849 options have been exercised, 1,498,139
options were forfeited and 4,625 options expired (options forfeited and expired are
available for subsequent grants).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2008  8,292,764 of the 2004 Plan remain ungranted.
| | ----------------------------------------------------------------------

| | The
NIS denominated exercise price per share of the options, is equal to the average market
price of the Companys shares for the 30 trading days preceding the day on which the
options are granted, less 15%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | The
ordinary shares derived from the exercise of the options confer the same           rights
as the other ordinary shares of the Company.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------

| | f. | The plans are subject to the terms stipulated by Section 102 of the Israeli
          Income Tax Ordinance. Inter alia, these terms provide that the Company will be
          allowed to claim, as an expense for tax purposes, the amounts credited to
          the employees as a benefit in respect of shares or options granted under
          the plans, as follows:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Through
December 31, 2003, the amount that the Company will be allowed to claim as an
expense for tax purposes will be the amount of the benefit taxable in the hands of the
employee.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | From
January 1, 2004, the amount that the Company will be allowed to claim as an expense
for tax purposes, will be the amount of the benefit taxable as work income in the hands
of the employee, while that part of the benefit that is taxable as capital gains in the
hands of the employee shall not be allowable.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
aforementioned expense for tax purposes will be recognized in the tax year that the
employee is taxed, except as described below.
| | -------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2002, the Company signed an agreement with the tax authorities concerning the
tax liabilities of its employees regarding the benefit arising from the options granted
to them and were exercised by December 31, 2002; and/or (2) options that vest by December
31, 2003 and were exercised by March 31, 2004. According to the agreement, the
individual tax rate on the taxable income received by the employees in connection with
the benefit arising from the options will be reduced; in return, the Company will defer
the deduction of such an expense, for a period of 4 years from the date it commences
paying income taxes.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company will recognize these expenses during 2009 for tax purposes.
| | -----------------------------------------------------------------------

F - 42

---

---

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

NOTE 8  SHAREHOLDERS
EQUITY(continued):

| | 2) | Following
is a summary of the status of the plans as of December 31, 2006, 2007           and 2008
and the changes therein during the years ended on those dates:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | Year ended December 31
|---------------------------------- | ----------------------
|
|
|
|
|Balance outstanding at beginning   |                       
|of year                            |                       
|Changes during the year:           |                       
|Granted**                          |                       
|Exercised                          |                       
|Forfeited                          |                       
|Expired                            |                       
|                                   |                       
|Balance outstanding at end of year |                       
|                                   |                       
|Balance exercisable at end of year |                       
|                                   |                       

| | * | Includes
options under the 1998 Plan, the exercise price of which is weighted based on the
applicable dates NIS  dollar exchange rate.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | ** | Below
market price.
| | -- | -------------------

| | *** | The
total intrinsic value of options exercised during 2006, 2007 and 2008 is, NIS 36.8
million , NIS 100.3 million and NIS 26.8 million respectively.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted average fair value of options granted using the Black & Scholes
option-pricing model during 2006, 2007 and 2008 is NIS 10.82 , NIS 12.50 and NIS 14.46
(USD 3.43), respectively. The fair value of each option granted is estimated on the
date of grant based on the following weighted average assumptions: weighted average
dividend yield of 2006  6.14%, 2007 5.69% and 2008 6.21%; expected volatility of
39%, 26% and 24%, respectively; risk-free interest rate: 2006  5.5%, 2007 4.1%,
2008  4.3%; weighted average expected life: 2006  5 years 2007  4 years
and 2008-3 years. The expected volatility is based on a historical volatility, by
statistical analysis of the daily share price for periods corresponding the options
expected life. The expected life is expected length of time until expected date of
exercising the options, based on historical data on employees exercise behavior and
anticipated future condition.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 43

---

---

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

NOTE 8  SHAREHOLDERS
EQUITY(continued):

| | The
annual tax benefit regarding the exercised options during the years 2006, 2007 and 2008
is NIS 7.8 million, NIS 7.6 million and NIS 1.7 million (USD 0.4 million), respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Total
compensation cost for  share-based payment arrangements recognized in income during
the years 2006, 2007 and 2008 was NIS 21.0 million, NIS 16.8 million and NIS 8.7 million
($ 2.1  million), respectively. Total recognized tax benefit related thereto during
the years 2006, 2007 and 2008 was NIS 6.7, NIS 6.0  and NIS 2.2 million ($ 0.5  million),
respectively. There were no capitalized share-based compensation costs at December 31,
2006, 2007 and 2008.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2008, there was NIS 4.9 million of total unrecognized compensation
cost (net of forfeitures) related to non-vested share-based compensation arrangements
granted under the plans. The weighted average remaining life of the unrecognized
compensation cost is 1.3 years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes information about options outstanding and exercisable at
December 31, 2008:
| | ----------------------------------------------------------------------------------------------------------

| | Options outstanding
| | -------------------
|
|
|
|
|
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    

| | Options exercisable
| | -------------------
|
|
|
|
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    

F - 44

---

---

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

NOTE 8  SHAREHOLDERS
EQUITY(continued):

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

| | During
the years 2006, 2007 and 2008 the Company distributed to its shareholders a cash dividend
in the amount of NIS 307 million (NIS 2 per share), NIS 631 million (NIS 4.03 per share)
and NIS 941 million (NIS 6.06 per share), respectively out of which approximately NIS 18
million (7 million in 2007) tax withholding related to dividend was paid in January 2009.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 23, 2009, the Companys Board of Directors resolved and recommended the
distribution of a cash dividend in the amount of NIS 1.41 per share (approximately NIS 217
million (USD 51.5 million) to shareholders of record on March 18, 2009. Cash dividends
are paid in Israeli currency.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 9  TAXES ON
INCOME:

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

| | Under
this law, results for tax purposes through tax-year 2007, are measured in real terms,
having regard to the changes in the Israeli CPI. The Company and its subsidiary are taxed
under this law.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 6, 2008, Amendment number 20 to this law was published, according to which the
provisions of the Inflationary Adjustments Law will no longer apply to the Company in
2008 and thereafter, and therefore the Company and its subsidiary are measured for tax
purposes from tax-year 2008 in nominal values.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Tax
rates applicable to income of the Company and its subsidiary
| | -- | ----------------------------------------------------------------

| | The
income of the Company and its Israeli subsidiary is taxed at the regular rate. Through
December 31, 2003, the corporate tax was 36%. In July 2004, Amendment No. 140
to the Income Tax Ordinance was enacted. One of the provisions of this amendment is that
the corporate tax rate is to be gradually reduced from 36% to 30%. In August 2005, a
further amendment (No. 147) was published, which makes a further revision to the
corporate tax rates prescribed by Amendment No. 140. As a result of the
aforementioned amendments, the corporate tax rates for are as follows: 2006  31%,
2007  29%, 2008  27%, 2009  26% and for 2010 and thereafter  25%.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Losses
carried forward to future years
| | -- | --------------------------------------

| | At
December 31, 2008, the subsidiary of the Company had carryforward losses of approximately
NIS 14 million (approximately USD 3 million). The carryforward tax losses can
be utilized indefinitely.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 45

---

---

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

NOTE 9  TAXES ON INCOME(continued):

| | d. | Deferred
income taxes
| | -- | ---------------------

| | The
major components of the net deferred tax asset, current and non-current, in respect of
the balances of temporary differences and the related valuation allowance as of December
31, 2007 and 2008, are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                     | December 31
| | ----------------------------------- | -----------
|
|
|
|
| | In respect of carryforward tax      |            
| | losses (see c. above)               |            
| | Subscriber acquisition costs        |            
| | Allowance for doubtful accounts     |            
| | Provisions for employee rights      |            
| | Depreciable fixed assets            |            
| | Amortized license                   |            
| | Options granted to employees        |            
| | Financial expenses                  |            
| | Other                               |            
| |                                     |            
| |                                     |            
| | Valuation allowance - in respect of |            
| | carryforward tax losses *           |            
| |                                     |            
| |                                     |            
| |                                     |            

| | *
The carryforward tax losses are related to the wholly owned subsidiary.
| | -------------------------------------------------------------------------

| | The
changes in the valuation allowance for the years ended December 31, 2006, 2007 and 2008,
are as follows:
| | ------------------------------------------------------------------------------------------------------------

| |                              | 2006 | 2007 | 2008 | 2008 
| | ---------------------------- | ---- | ---- | ---- | -----
|
|
|
|
| | Balance at beginning of year |      |      |      | 3,239
| | Change during the year       |      |      |      | 82   
| |                              |      |      |      |      
| | Balance at end of year       |      |      |      | 3,321
| |                              |      |      |      |      

| | A
full valuation allowance was provided in respect of the wholly owned subsidiary, as it is
more likely than not that its deferred tax assets will not be realized.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 46

---

---

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

NOTE 9  TAXES ON INCOME(continued):

| | e. | Following
is a reconciliation of the theoretical tax expense, assuming all income is
taxed at the regular tax rates applicable to companies in Israel (see b.
above), and the actual tax expense:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                               | Year ended December 31
| | --------------------------------------------- | ----------------------
|
|
|
|
| | Income before taxes on income,                |                       
| | as reported in the income statements          |                       
| |                                               |                       
| | Theoretical tax expense                       |                       
| | Increase (decrease) in tax resulting from     |                       
| | disallowable deductions: *                    |                       
| | In respect of previous years                  |                       
| | For the current year                          |                       
| | Change in the estimated utilization period of |                       
| | the tax assets                                |                       
| | Difference between the basis of measurement   |                       
| | of income reported for tax purposes and       |                       
| | the basis of measurement of income for        |                       
| | financial reporting purposes - net            |                       
| | Other                                         |                       
| |                                               |                       
| | Taxes on income for the reported year         |                       
| |                                               |                       

| | * | Following
the ruling of the Supreme Court, on November 20, 2006 on the matter of Paz Gas Marketing
Company Ltd. and others vs. the assessing officer and others, which overturned the rules
regarding the recognition of financing expenses, the Company included in its financial
statements an additional provision for taxes in the amount of NIS 35 million. This
provision was an estimate of the additional tax expense relating to the possibility that
part of the financing expenses accrued in the years 2005 and 2006 in respect of a
financial debt, which is attributable, inter alia, to the financing of a repurchase of
Company shares, will not be recognized as an expense for tax purposes.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 28 and 29, 2007, the Israeli Supreme Court issued a new ruling readdressing the
same issue. The Company re-evaluated the provision in light of the new ruling and decided
to reduce the provision of unrecognized tax benefit to an amount of NIS 7 million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2008, the Company signed a final tax agreement with the Israeli tax authorities
for the tax years 2003-2006, and as a result the provision for unrecognized tax benefits
was cancelled.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 47

---

---

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

NOTE 9  TAXES ON INCOME(continued):

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

| | 1) | As
follows:
| | -- | -----------

| |                              | Year ended December 31
| | ---------------------------- | ----------------------
|
|
|
|
| | For the reported year:       |                       
| | Current                      |                       
| | Deferred, see d above        |                       
| | In respect of previous year: |                       
| | Current                      |                       
| | Deferred, see d above        |                       
| |                              |                       
| |                              |                       
| |                              |                       

| | g. | Tax
assessments:
| | -- | ----------------

| | 1) | The
Company has received final corporate tax assessments through the year ended
          December 31, 2006.
| | -- | ------------------------------------------------------------------------------------------------------------

| | 2) | The
subsidiary has not been assessed for tax purposes since incorporation.
| | -- | --------------------------------------------------------------------------

| | 3) | Tax
returns filed by the subsidiary through the year ended December 31, 2004           are
considered to be final.
| | -- | ------------------------------------------------------------------------------------------------------------------

| | h. | Uncertain
tax positions:
| | -- | ------------------------

| | As
described in Note 1o, the Company adopted the provisions of FIN 48 as of January 1, 2007.
| | --------------------------------------------------------------------------------------------

| | As
of December, 31 2006, the Company recognized a liability for unrecognized tax benefits in
amount of NIS 35 million (See also e above). This amount did not result in a change to
the balance of accumulated deficit, since the amount was fully provided for prior to the
adoption of FIN 48. As of December, 31 2007 a provision of NIS 7 million is presented as
short term liability in the balance sheet.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
2007 the Company recognized interest expense, in respect of those underpayments of income
taxes and penalties in an immaterial amount.
| | -----------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2008 there are no unrecognized tax benefits, see also note 9e, 9g.
| | -------------------------------------------------------------------------------------

F - 48

---

---

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

NOTE 9  TAXES ON INCOME(continued):

| | Following
is a reconciliation of the total amounts of the Companys unrecognized tax benefits
at the beginning and the end of the years ended on December 31, 2007 and 2008:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                     | 2007 | 2008
| | ------------------------------------------------------------------- | ---- | ----
|
|
|
|
| | Balance at beginning of year                                        |      |     
| | Increases in unrecognized tax benefits as a result of tax positions |      |     
| | taken during the current period resulted from final tax assessment  |      |     
| | Decreases in unrecognized tax benefits as a result of:              |      |     
| | Positions taken during a prior period                               |      |     
| | Settlement of tax provision                                         |      |     
| | Tax positions taken during the current period                       |      |     
| |                                                                     |      |     
| | Balance at end of year                                              |      |     
| |                                                                     |      |     

| | The
amounts of unrecognized tax benefits as of January 1, 2007 and December 31, 2007 that
would affect the effective tax rate if recognized are NIS 35 million and NIS 7 million,
respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 10  FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT:

| | a. | Linkage
of monetary balances:
| | -- | -----------------------------

| | 1) | As
follows:
| | -- | -----------

| |                                       | December 31, 2008
| | ------------------------------------- | -----------------
|
|
|
|
| | NIS:                                  |                  
| | Assets                                |                  
| |                                       |                  
| | Liabilities                           |                  
| |                                       |                  
| |                                       |                  
| | Convenience translation into dollars: |                  
| | Assets                                |                  
| |                                       |                  
| | Liabilities                           |                  
| |                                       |                  

| | 2) | Data
regarding the dollar exchange rate and the Israeli CPI:
| | -- | ------------------------------------------------------------

| |                                        | Exchange
rate of one
dollar | Israeli
CPI*
| | -------------------------------------- | --------------------------- | ------------
|
|
|
|
| | At December 31:                        |                             |             
| | 2008                                   |                             |             
| | 2007                                   |                             |             
| | 2006                                   |                             |             
| | 2005                                   |                             |             
| | Increase (decrease) during the period: |                             |             
| | 2008                                   |                             |             
| | 2007                                   |                             |             
| | 2006                                   |                             |             

| | Based
on the index for the month ending on each balance sheet date, on the basis of 1993
average = 100.
| | -------------------------------------------------------------------------------------------------------

F - 49

---

---

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

NOTE 10  FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT(continued):

| | b. | Derivative
financial instrument  foreign exchange risk management
| | -- | ------------------------------------------------------------------

| | The
Company enters into foreign currency derivative transactions in order to protect itself
against the risk that the eventual dollar cash flows resulting from the anticipated
payments in respect of purchases of handsets and capital expenditures in foreign currency
will be affected by changes in exchange rates. In addition the Company enters into
derivative transactions in order to protect itself against the increase in the CPI in
respect of the principal of the CPI-linked Notes payable. However, these contracts do not
qualify for hedge accounting under FAS 133.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company does not hold or issue derivative financial instruments for trading purposes.
| | -----------------------------------------------------------------------------------------

| | As
the counterparties to the derivatives are Israeli banks, the Company considers the
inherent credit risks remote, and examines it from time to time.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
notional amounts of derivatives as of December 31, 2007 and 2008 are as follows:
| | ------------------------------------------------------------------------------------

| |                                          | December 31
| | ---------------------------------------- | -----------
|
|
|
|
| | Forward transactions for the             |            
| | changes in the Israeli CPI               |            
| |                                          |            
| | Forward transactions for the             |            
| | exchange of dollars into NIS             |            
| |                                          |            
| | Forward transactions for the             |            
| | exchange of Euros into NIS               |            
| |                                          |            
| | Embedded derivatives -  for the exchange |            
| | NIS into dollars                         |            
| |                                          |            

| | The
freestanding derivatives are for a period of up to one year. The embedded derivatives are
through 2014
| | ----------------------------------------------------------------------------------------------------------

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

| | The
financial instruments of the Company as of December 31, 2008 consist mainly of
non-derivative assets and liabilities (items included in working capital and long-term
liabilities); the Company also has some derivatives, which are presented at their fair
value.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
view of their nature, the fair value of the financial instruments included in working
capital is usually identical or close to their carrying value. Regarding the fair value
of Notes payable see note 5. Regarding the fair value of trade receivables see note 11a.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 50

---

---

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

NOTE 10  FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT (continued):

| | Fair
values of derivatives:
| | ---------------------------

| |             | December 31
| | ----------- | -----------
|
|
|
|
| | Assets      |            
| |             |            
| | Liabilities |            
| |             |            

| | The
Company measures derivatives contracts and embedded derivatives under SFAS 133 according
to their fair values. Their fair values are determined based on significant other
observable inputs, such as the NIS exchange rates pronounced by the Bank of Israel, the
Israeli Consumer Price Index pronounced by the Israeli Central Bureau of Statistics, and
quotes from Israeli Banks (Level 2). See also note 1w. See description of the derivatives
in note 10 b.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 11 
SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

| | a. | Accounts
receivable:
| | -- | --------------------

| |    |                                               |     | December 31              
| | -- | --------------------------------------------- | --- | -------------------------
|
|
|
|
| | 1) | Trade (current and long-term)                 |     |                          
| |    | The item is presented after the deduction of: |    
| |    |                                               | (a) | Deferred interest income*
| |    |                                               |     |                          

| | * | Long-term
trade receivables (including current maturities) as of December 31, 2007 and 2008 in the
amount of NIS 1,009 million and NIS 967 million (USD 229 million), respectively,
bear no interest. These balances are in respect of handsets sold in installments (18-36
monthly payments).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income
in respect of deferred interest is the difference between the original and the present
value of the trade receivable. The current amount is computed on the basis of the
interest rate relevant at the date of the transaction (2008  4.35%  7.52%)
(2007 4.6%  5.85%).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
item is presented close to its fair value amount.
| | ------------------------------------------------------

| | (b) | Allowance
for doubtful accounts
| | --- | -------------------------------

| | The
changes in the allowance for the years ended December 31, 2006, 2007 and 2008, are as
follows:
| | --------------------------------------------------------------------------------------------------

| |                              | 2006 | 2007 | 2008 | 2008   
| | ---------------------------- | ---- | ---- | ---- | -------
|
|
|
|
| | Balance at beginning of year |      |      |      | 108,800
| | Utilization during the year  |      |      |      | (7,236 
| | Change during the year       |      |      |      | 26,470 
| |                              |      |      |      |        
| | Balance at end of year       |      |      |      | 128,034
| |                              |      |      |      |        

F - 51

---

---

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

NOTE 11  SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION(continued):

| | 2) | Other:
| | -- | ------

| |                           | December 31
| | ------------------------- | -----------
|
|
|
|
| | Inventory held by dealers |            
| | Prepaid expenses          |            
| | Derivative instruments    |            
| | Sundry                    |            
| |                           |            
| |                           |            
| |                           |            

| | b. | Inventory:
| | -- | ----------

| |                                  | December 31
| | -------------------------------- | -----------
|
|
|
|
| | Handsets                         |            
| | Accessories and other            |            
| | Spare parts                      |            
| | ISP modems and related equipment |            
| |                                  |            
| |                                  |            
| |                                  |            

| | c. | Accounts
payable and accruals  other:
| | -- | --------------------------------------

| |                                           | December 31
| | ----------------------------------------- | -----------
|
|
|
|
| | Employees and employee institutions       |            
| | Provision for vacation and recreation pay |            
| | Government institutions                   |            
| | Unrecognized tax benefit                  |            
| | Income received in advance                |            
| | Derivative instruments                    |            
| | Handsets warranty                         |            
| | Sundry                                    |            
| |                                           |            
| |                                           |            
| |                                           |            

F - 52

---

---

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

NOTE 11  SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION(continued):

| | d. | Provision
for warranty  the changes in the provision for warranty           for the years
ended December 31, 2006, 2007 and 2008, are as follows:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------

| |                               | 2006 | 2007 | 2008 | 2008  
| | ----------------------------- | ---- | ---- | ---- | ------
|
|
|
|
| | Balance at beginning of year  |      |      |      | 1,064 
| | Product warranties issued for |      |     
| | new sales                     |      |      |      | 2,837 
| | Utilization during the year   |      |      |      | (2,138
| |                               |      |      |      |       
| | Balance at end of year        |      |      |      | 1,763 
| |                               |      |      |      |       

| | e. | Other
liabilities:
| | -- | ------------------

| | 1. | Asset
retirement obligations  the changes in the asset retirement           obligations
for the years ended December 31, 2006, 2007 and 2008, are as           follows:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                    | 2006 | 2007 | 2008 | 2008 
| | ---------------------------------- | ---- | ---- | ---- | -----
|
|
|
|
| | Balance at beginning of year       |      |      |      | 8,157
| | Liability incurred during the year |      |      |      | 620  
| | Liability settled during the year  |      |      |      | (618 
| | Accretion expenses                 |      |      |      | 1,558
| |                                    |      |      |      |      
| | Balance at December 31,            |      |      |      | 9,717
| |                                    |      |      |      |      

| | 2. | The
Company entered into several agreements to sell cable capacity. The           agreement
grants the customer an IRU of capacity or Dark fiber for the life of           the cable.
Prepaid revenues from sales of cable capacity for the year ended           December 31,
2008 is NIS 5 million.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Capital
lease:
| | -- | --------------

| |                                   | December 31
| | --------------------------------- | -----------
|
|
|
|
| | Total commitment                  |            
| | Less - deferred interest expenses |            
| |                                   |            
| | Long term lease                   |            
| | Less - current maturities         |            
| |                                   |            
| |                                   |            
| |                                   |            

F - 53

---

---

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

NOTE 11  SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION(continued):

| | a. | The
commitments for capital lease are classified by currency of repayment           linkage
term and interest rates are as follows:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------

| |                   | December 31
| | ----------------- | -----------
|
|
|
|
| |                   |            
| | Linked to the USD |            
| |                   |            
| | Linked to the CPI |            
| |                   |            
| |                   |            
| |                   |            
| |                   |            

| | b. | The
projected payments are as follows:
| | -- | --------------------------------------

| |      | Year ended December, 31:
| | ---- | ------------------------
|
|
|
|
| | 2009 |                         
| | 2010 |                         
| | 2011 |                         
| |      |                         
| |      |                         
| |      |                         

| | f. | Financial
expenses, net:
| | -- | ------------------------

| |                                   | Year ended December 31
| | --------------------------------- | ----------------------
|
|
|
|
| | Financial income:                 |                       
| | In respect of trade receivables   |                       
| | Other                             |                       
| | Financial expenses                |                       
| | Derivative instruments            |                       
| | Exchange rate differences         |                       
| | Factoring                         |                       
| | (Gain) loss from funds in respect |                       
| | of  employees rights              |                       
| | CPI Linkage differences           |                       
| |                                   |                       
| |                                   |                       
| |                                   |                       

F - 54

---

---

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

NOTE 11  SUPPLEMENTARY
FINANCIAL STATEMENT INFORMATION (continued):

| | g. | Diluted
EPS
| | -- | -----------

| | Following
are data relating to the net income and the weighted average number of shares that were
taken into account in computing the basic and diluted EPS:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                  | Year ended December 31
|--------------------------------------------------------------------------------- | ----------------------
|
|
|
|
|Net income used for the computation of    basic and diluted EPS  (in thousands) : |                       
|Before cumulative effect                                                          |                       
|Cumulative effect                                                                 |                       
|                                                                                  |                       
|Net income                                                                        |                       
|                                                                                  |                       
|Weighted average number of shares used                                            |                       
|in computation of basic EPS                                                       |                       
|Add - net additional shares from assumed                                          |                       
|exercise of employee stock options                                                |                       
|                                                                                  |                       
|Weighted average number of shares used in                                         |                       
|computation of diluted EPS                                                        |                       
|                                                                                  |                       

# NOTE 12 
TRANSACTIONS AND BALANCES WITH RELATED PARTIES:

| | a. | Transactions
with related parties:
| | -- | ----------------------------------

| |                                      | Year ended December 31
| | ------------------------------------ | ----------------------
|
|
|
|
| | Acquisition of handsets from related |                       
| | parties                              |                       
| |                                      |                       
| |                                      |                       
| | Selling commissions, maintenance and |                       
| | other expenses                       |                       
| |                                      |                       

| | The
transactions are carried out in the ordinary course of business. Management believes that
such transactions were carried out under normal market conditions.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 55

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---

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

NOTE 12  TRANSACTIONS AND
BALANCES WITH RELATED PARTIES (continued):

| | b. | Cost
sharing agreement and purchases from Hutchison group companies
| | -- | -------------------------------------------------------------------

| | The
Company entered, on August 15, 2002, into a Cost Sharing Agreement (the Agreement)
with Hutchison Telecommunications Limited, or HTL, and certain of its subsidiaries
(hereafter -the Hutchison group). The principal purpose of the Agreement is
to regulate the sharing of costs associated with various joint procurement and
development activities relating to the roll out and operation of a 3G Business.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Agreement sets out the basis upon which expenses and liabilities are paid or discharged
by the Hutchison group companies in connection with the joint procurement or development
activities. Under the Agreement, the Company has the right to decide, and give notice of,
which of the joint projects it wishes to participate in. Until December 31, 2008, the
Company had given notice of its participation in 9 projects.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, until December 31, 2008, the Company has entered into:(a) 5 transactions with
the Hutchison Group for the purchase of handsets from the Hutchison group ; (b) a
transaction with Hutchison Telephone Company ltd., a subsidiary of HWL, for the provision
of Blackberry services and handsets; and (c) a transaction with HI3G Access AB , a
subsidiary of HWL, for the purchase of 3G Datacards.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | The
Company has entered into a framework agreement with H3G procurement           services S a R.L
concerning the purchase of 3G handsets.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------

F - 56

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---