----

----

----

----

| 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 1934For the fiscal year ended December 31, 2010 |
|---|---------------------------------------------------------------------------------------------------------------------------------|

| 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 1934 |
|--------|---------------------------------------------------------------------------------------------|
|   |                                                                                        |
|   | Date of event requiring this shell company report ___________                               |
|   |                                                                                        |
|   | Commission file number 1-14968                                                              |

----

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

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

----

| 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                                                    | 37 |
| ITEM 4A. UNRESOLVED STAFF COMMENTS                                                    | 65 |
| ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  | 65 |
| ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    | 90 |
| ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             | 106 |
| ITEM 8. FINANCIAL INFORMATION                                                         | 110 |
| ITEM 9. THE OFFER AND LISTING                                                         | 112 |
| ITEM 10. ADDITIONAL INFORMATION                                                       | 113 |
| ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 123 |
| ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 126 |
| ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 126 |
| ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 126 |
| ITEM 15. CONTROLS AND PROCEDURES                                                      | 126 |
| ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            | 127 |
| ITEM 16B. CODE OF ETHICS                                                              | 127 |
| ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      | 127 |
| ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  | 128 |
| ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      | 128 |
| ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACOUNTANT                           | 128 |
| ITEM 16G. CORPORATE GOVERNANCE                                                        | 128 |
| ITEM 17. FINANCIAL STATEMENTS                                                         | 128 |
| ITEM 18. FINANCIAL STATEMENTS                                                         | 128 |
| ITEM 19. EXHIBITS                                                                     | 129 |
| GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS                                         | 131 |

----

----

ITEM 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

ITEM 3. KEY INFORMATION

----

| IFRS                                                         |   | Year ended December 31,                                |    |
|--------------------------------------------------------------|--------|--------------------------------------------------------|---------|
|                                                         |   | 2008                                                   |    |   | 2009 |   |   | 2010 |   |   | 2010 |   |
|                                                         |   | New Israeli Shekels in millions(except per share data) |    |   | US$ inmillions (1) |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |
| Consolidated Statement of Income Data                        |   |                                                   |    |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |
| Revenues                                                     |   |                                                   | 6,302   |   |   |   | 6,079 |   |   |   | 6,674 |   |   |   | 1,880 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues                                             |   |                                                   | 3,868   |   |   |   | 3,770 |   |   |   | 4,093 |   |   |   | 1,153 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                 |   |                                                   | 2,434   |   |   |   | 2,309 |   |   |   | 2,581 |   |   |   | 727 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing Expenses                               |   |                                                   | 388     |   |   |   | 387 |   |   |   | 479 |   |   |   | 135 |   |
| General and administrative Expenses                          |   |                                                   | 284     |   |   |   | 290 |   |   |   | 306 |   |   |   | 86 |   |
| Other income - Net                                           |   |                                                   | 64      |   |   |   | 69 |   |   |   | 64 |   |   |   | 18 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating profit                                             |   |                                                   | 1,826   |   |   |   | 1,701 |   |   |   | 1,860 |   |   |   | 524 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Finance income                                               |   |                                                   | 30      |   |   |   | 28 |   |   |   | 28 |   |   |   | 8 |   |
| Finance expenses                                             |   |                                                   | 214     |   |   |   | 204 |   |   |   | 209 |   |   |   | 59 |   |
| Finance costs, net                                           |   |                                                   | 184     |   |   |   | 176 |   |   |   | 181 |   |   |   | 51 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit before income tax                                     |   |                                                   | 1,642   |   |   |   | 1,525 |   |   |   | 1,679 |   |   |   | 473 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expenses                                          |   |                                                   | 444     |   |   |   | 384 |   |   |   | 436 |   |   |   | 123 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit for the year                                          |   |                                                   | 1,198   |   |   |   | 1,141 |   |   |   | 1,243 |   |   |   | 350 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per ordinary share and per ADS                      |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic:                                                       |   |                                                   | 7.71    |   |   |   | 7.42 |   |   |   | 8.03 |   |   |   | 2.26 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                      |   |                                                   | 7.65    |   |   |   | 7.37 |   |   |   | 7.95 |   |   |   | 2.24 |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares outstanding (in thousands) |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic:                                                       |   |                                                   | 155,350 |   |   |   | 153,809 |   |   |   | 154,866 |   |   |   | 154,866 |   |
| Diluted:                                                     |   |                                                   | 156,520 |   |   |   | 154,817 |   |   |   | 156,296 |   |   |   | 156,296 |   |

----

|  IFRS                                                                        |   | Year ended December 31,                                |   |
|-----------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                                              |   | 2008                                                   |   |   | 2009 |   |   | 2010 |   |   | 2010 |   |
|                                                                              |   | New Israeli Shekels in millions(except per share data) |   |   | US$ inmillions (1) |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |
| Other Financial Data                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures  (2)                                               |   |                                                   | 589    |   |   |   | 522 |   |   |   | 435 |   |   |   | 123 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA(3)                                                                         |   |                                                   | 2,298  |   |   |   | 2,304 |   |   |   | 2,570 |   |   |   | 724 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividend per share (4)                                                            |   |                                                   | 5.45   |   |   |   | 6.86 |   |   |   | 7.85 |   |   |   | 2.21 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital reduction (4)                                                             |   |                                                   | -      |   |   |   | - |   |   |   | 9.04 |   |   |   | 2.55 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Statement of Cash Flow Data                                                       |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                                         |   |                                                   | 1,915  |   |   |   | 1,753 |   |   |   | 1,958 |   |   |   | 552 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash used in investing activities                                             |   |                                                   | (514   | ) |   |   | (732 | ) |   |   | (486 | ) |   |   | (139 | ) |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash used in financing activities                                             |   |                                                   | (1,365 | ) |   |   | (876 | ) |   |   | (1,480 | ) |   |   | (416 | ) |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Data (at year end)                                                  |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current assets                                                                    |   |                                                   | 1,472  |   |   |   | 1,807 |   |   |   | 1,830 |   |   |   | 515 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non current assets                                                                |   |                                                   | 3,693  |   |   |   | 3,816 |   |   |   | 3,797 |   |   |   | 1,070 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Advance payment in respect of the acquisition of 012    smile |   |                                                   |   |   |   |   |   |   |   |   | 30 |   |   |   | 8 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property and equipment                                                            |   |                                                   | 1,935  |   |   |   | 2,064 |   |   |   | 2,058 |   |   |   | 580 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| License and other intangible assets                                               |   |                                                   | 1,260  |   |   |   | 1,260 |   |   |   | 1,077 |   |   |   | 304 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deferred income taxes                                                             |   |                                                   | 81     |   |   |   | 14 |   |   |   | - |   |   |   | - |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Derivative financial instruments                                                  |   |                                                   | -      |   |   |   | 4 |   |   |   | - |   |   |   | - |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                      |   |                                                   | 5,165  |   |   |   | 5,623 |   |   |   | 5,627 |   |   |   | 1,585 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities (5)                                                           |   |                                                   | 1,734  |   |   |   | 1,915 |   |   |   | 1,826 |   |   |   | 514 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term liabilities (5)                                                         |   |                                                   | 1,699  |   |   |   | 1,746 |   |   |   | 3,175 |   |   |   | 894 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                                 |   |                                                   | 3,433  |   |   |   | 3,661 |   |   |   | 5,001 |   |   |   | 1,408 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                                        |   |                                                   | 1,732  |   |   |   | 1,962 |   |   |   | 626 |   |   |   | 177 |   |
|                                                                              |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity                                  |   |                                                   | 5,165  |   |   |   | 5,623 |   |   |   | 5,627 |   |   |   | 1,585 |   |

----

| US. GAAP                                                                      |   | Year ended December 31,                                 |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                                          |   | 2006                                                    |   |   | 2007 |   |   | 2008 |   |
|                                                                          |   | New Israeli Shekels in millions (except per share data) |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |
| Statement of Operations Data                                                  |   |                                                    |   |   |   |   |   |   |   |
| Revenues, net                                                                 |   |                                                    |   |   |   |   |   |   |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |
|     Services                                              |   |                                                    | 5,027  |   |   |   | 5,329 |   |   |   | 5,546 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
|     Equipment                                             |   |                                                    | 580    |   |   |   | 785 |   |   |   | 756 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   |                                                    | 5,607  |   |   |   | 6,114 |   |   |   | 6,302 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues                                                              |   |                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
|     Services                                              |   |                                                    | 3,088  |   |   |   | 3,090 |   |   |   | 3,209 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
|     Equipment                                             |   |                                                    | 812    |   |   |   | 1,002 |   |   |   | 843 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   |                                                    | 3,900  |   |   |   | 4,092 |   |   |   | 4,052 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                                  |   |                                                    | 1,706  |   |   |   | 2,022 |   |   |   | 2,250 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing Expenses                                                |   |                                                    | 309    |   |   |   | 392 |   |   |   | 389 |   |
| General and administrative Expenses                                           |   |                                                    | 184    |   |   |   | 231 |   |   |   | 256 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
| Operating profit                                                              |   |                                                    | 1,214  |   |   |   | 1,399 |   |   |   | 1,605 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
| Financial expenses, net                                                       |   |                                                    | 162    |   |   |   | 121 |   |   |   | 158 |   |
| Loss on impairment of investments in non-marketable securities                |   |                                                    | -      |   |   |   | - |   |   |   | - |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
| Income before tax                                                             |   |                                                    | 1,052  |   |   |   | 1,278 |   |   |   | 1,447 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
| Tax expenses                                                                  |   |                                                    | 371    |   |   |   | 338 |   |   |   | 396 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
| Income before cumulative effect of a change in accounting Principles          |   |                                                    | 681    |   |   |   | 940 |   |   |   | 1,051 |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
| Cumulative effect, at beginning of year, of a change in accounting Principles |   |                                                    | 1      |   |   |   | – |   |   |   | - |   |
|                                                                          |   |                                                    |   |   |   |   |   |   |   |   |   |   |
| Net income for the year                                                       |   |                                                    | 682    |   |   |   | 940 |   |   |   | 1,051 |   |

----

| US. GAAP                                                     |   | Year ended December 31,                                 |    |
|--------------------------------------------------------------|--------|---------------------------------------------------------|---------|
|                                                         |   | 2006                                                    |    |   | 2007 |   |   | 2008 |   |
|                                                         |   | New Israeli Shekels in millions (except per share data) |    |
|                                                         |   |                                                    |    |   |   |   |   |   |   |
| Earnings per ordinary share and per ADS                      |   |                                                    |    |   |   |   |   |   |   |
| Basic:                                                       |   |                                                    |    |   |   |   |   |   |   |
| Before cumulative effect                                     |   |                                                    | 4.43    |   |   |   | 6.01 |   |   |   | 6.77 |   |
| Cumulative effect                                            |   |                                                    | 0.01    |   |   |   | - |   |   |   | - |   |
|                                                         |   |                                                    | 4.44    |   |   |   | 6.01 |   |   |   | 6.77 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Diluted:                                                     |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Before cumulative effect                                     |   |                                                    | 4.40    |   |   |   | 5.96 |   |   |   | 6.73 |   |
| Cumulative effect                                            |   |                                                    | 0.01    |   |   |   | - |   |   |   | - |   |
|                                                         |   |                                                    | 4.41    |   |   |   | 5.96 |   |   |   | 6.73 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares outstanding (in thousands) |   |                                                    |    |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Basic:                                                       |   |                                                    | 153,634 |   |   |   | 156,415 |   |   |   | 155,350 |   |
| Diluted:                                                     |   |                                                    | 154,678 |   |   |   | 157,787 |   |   |   | 156,520 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Other Financial Data                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Capital expenditures (2)                                     |   |                                                    | 507     |   |   |   | 499 |   |   |   | 590 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| EBITDA(3)                                                    |   |                                                    | 1,846   |   |   |   | 2,009 |   |   |   | 2,257 |   |
| Dividend per share (4)                                       |   |                                                    | 2.63    |   |   |   | 4.77 |   |   |   | 5.45 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Statement of Cash Flow Data                                  |   |                                                    |    |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                    |   |                                                    | 1,216   |   |   |   | 1,446 |   |   |   | 1,839 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Net cash used in investing activities                        |   |                                                    | (442    | ) |   |   | (529 | ) |   |   | (531 | ) |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Net cash provided by used in financing activities            |   |                                                    | (701    | ) |   |   | (846 | ) |   |   | (1,273 | ) |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Balance Sheet Data (at year end)                             |   |                                                    |    |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Current assets                                               |   |                                                    | 1,274   |   |   |   | 1,520 |   |   |   | 1,542 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Investments and long-term receivables                        |   |                                                    | 356     |   |   |   | 535 |   |   |   | 499 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Fixed assets, net                                            |   |                                                    | 1,748   |   |   |   | 1,728 |   |   |   | 1,756 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| License and deferred charges, net                            |   |                                                    | 1,247   |   |   |   | 1,154 |   |   |   | 1,061 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Deferred income taxes                                        |   |                                                    | 76      |   |   |   | 94 |   |   |   | 110 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Total assets                                                 |   |                                                    | 4,701   |   |   |   | 5,031 |   |   |   | 4,968 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Current liabilities (5)                                      |   |                                                    | 1,028   |   |   |   | 1,157 |   |   |   | 1,734 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Long-term liabilities (5)                                    |   |                                                    | 2,418   |   |   |   | 2,219 |   |   |   | 1,794 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Total liabilities                                            |   |                                                    | 3,446   |   |   |   | 3,376 |   |   |   | 3,529 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                   |   |                                                    | 1,255   |   |   |   | 1,655 |   |   |   | 1,439 |   |
|                                                         |   |                                                    |    |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity             |   |                                                    | 4,701   |   |   |   | 5,031 |   |   |   | 4,968 |   |

----

| (1) | The translations of NIS amounts into US dollars appearing throughout this annual report have been made at the exchange rate on December 31, 2010, of NIS 3.549 = 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) | Capital Expenditure represents additions to property and equipment and computer software. |
|-----|-------------------------------------------------------------------------------------------|

| (3) | EBITDA as reviewed by the Chief Operator Decision Maker (CODM), represents earnings before interest (finance costs, net), taxes, depreciation and amortization, as a measure of operating profit. EBITDA is not a financial measure under IFRS and may not be comparable to other similarly titled measures for other companies. EBITDA may not be indicative of the Company's 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. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The dividend per share was calculated in respect of the period for which it was announced.  For the year 2010, the Company declared a final dividend on February 23, 2011 (with respect to the fourth quarter of 2010), which in the aggregate amounted to approximately NIS 1,217 million (US$ 343 million), or NIS 7.85 per share.  Further, NIS 1,400 million (US$ 394 million) or NIS 9.04 per share was distributed to shareholders in March 2010 following the reduction of the shareholders’ equity as approved by the Courts (see "Item 5A.Operating Results - Capital Reduction"). |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (5) | See Notes 14, 15, and 16 to our consolidated financial statements for information regarding long-term liabilities and current maturities of long-term bank loans. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| IFRS                                                                        |   | Year ended December 31,         |   |
|-----------------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                        |   | 2008                            |   |   | 2009 |   |   | 2010 |   |   | 2010 |   |
|                                                                        |   | New Israeli Shekels in millions |   |   | US $ inmillions(1) |   |
|                                                                        |   |                            |   |   |   |   |   |   |   |   |   |   |
| Reconciliation Between Operating Cash flow and EBITDA                       |   |                            |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                                   |   |                            | 1,915  |   |   |   | 1,753 |   |   |   | 1,958 |   |   |   | 552 |   |
| Liability for employee rights upon retirement                               |   |                            | (5     | ) |   |   | (1 | ) |   |   | (8 | ) |   |   | (2 | ) |
| Accrued interest, exchange and linkage differences on long-term liabilities |   |                            | (182   | ) |   |   | (167 | ) |   |   | (160 | ) |   |   | (45 | ) |
| Increase (Decrease) in accounts receivable:                                 |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade                                                                       |   |                            | (47    | ) |   |   | 229 |   |   |   | 214 |   |   |   | 60 |   |
| Other (*)                                                                   |   |                            | (4     | ) |   |   | 16 |   |   |   | 34 |   |   |   | 10 |   |
|                                                                        |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Decrease (Increase) in accounts payable and accruals:                       |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade                                                                       |   |                            | (10    | ) |   |   | (43 | ) |   |   | 40 |   |   |   | 11 |   |
| Parent group-trade                                                          |   |                            | (1     | ) |   |   | 17 |   |   |   | (38 | ) |   |   | (11 | ) |
| Other (*)                                                                   |   |                            | 48     |   |   |   | (43 | ) |   |   | (15 | ) |   |   | (4 | ) |
| Increase (decrease) in inventories                                          |   |                            | (8     | ) |   |   | 33 |   |   |   | (57 | ) |   |   | (16 | ) |
| Decrease (Increase) in asset retirement obligation                          |   |                            | (1     | ) |   |   | 1 |   |   |   | (1 | ) |   |   | - |   |
| Income tax paid                                                             |   |                            | 420    |   |   |   | 339 |   |   |   | 426 |   |   |   | 120 |   |
| Financial expenses (**)                                                     |   |                            | 173    |   |   |   | 170 |   |   |   | 177 |   |   |   | 49 |   |
|                                                                        |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA                                                                      |   |                            | 2,298  |   |   |   | 2,304 |   |   |   | 2,570 |   |   |   | 724 |   |

----

| US. GAAP                                                                    |   | Year ended December 31,         |   |
|-----------------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                        |   | 2006                            |   |   | 2007 |   |   | 2008 |   |
|                                                                        |   | New Israeli Shekels in millions |   |
|                                                                        |   |                            |   |   |   |   |   |   |   |
| Reconciliation Between Operating Cash flow and EBITDA                  |   |                            |   |   |   |   |   |   |   |
| Net cash provided by operating activities                                   |   |                            | 1,216  |   |   |   | 1,446 |   |   |   | 1,839 |   |
| Liability for employee rights upon retirement                               |   |                            | (11    | ) |   |   | (18 | ) |   |   | (16 | ) |
| Accrued interest, exchange and linkage differences on long-term liabilities |   |                            | 5      |   |   |   | (60 | ) |   |   | (94 | ) |
| Amount carried to deferred charges                                          |   |                            | -      |   |   |   | - |   |   |   | - |   |
| Gain (loss) from assets in respect of severance pay funds                   |   |                            | 5      |   |   |   | 6 |   |   |   | (16 | ) |
| Increase (Decrease) in accounts receivable:                                 |   |                            |   |   |   |   |   |   |   |   |   |   |
| Trade                                                                       |   |                            | 255    |   |   |   | 329 |   |   |   | (47 | ) |
| Other (*)                                                                   |   |                            | 311    |   |   |   | 2 |   |   |   | (13 | ) |
|                                                                        |   |                            |   |   |   |   |   |   |   |   |   |   |
| Decrease (Increase) in accounts payable and accruals:                       |   |                            |   |   |   |   |   |   |   |   |   |   |
| Trade                                                                       |   |                            | 58     |   |   |   | (101 | ) |   |   | (9 | ) |
| Related parties                                                             |   |                            | (5     | ) |   |   | 12 |   |   |   | (1 | ) |
| Other (*)                                                                   |   |                            | (50    | ) |   |   | 276 |   |   |   | 476 |   |
| Decrease (Increase) in inventories                                          |   |                            | (87    | ) |   |   | 9 |   |   |   | (8 | ) |
| Decrease (Increase) in asset retirement obligation                          |   |                            | (1     | ) |   |   | (1 | ) |   |   | (1 | ) |
| Financial expenses (**)                                                     |   |                            | 150    |   |   |   | 109 |   |   |   | 147 |   |
|                                                                        |   |                            |   |   |   |   |   |   |   |   |   |   |
| EBITDA                                                                      |   |                            | 1,846  |   |   |   | 2,009 |   |   |   | 2,257 |   |

----

|                                                               |   | At December 31, |   |
|--------------------------------------------------------------------|--------|-----------------|--------|
|                                                               |   | 2008            |   |   | 2009 |   |   | 2010 |   |
|                                                               |   |            |   |   |   |   |   |   |   |
| Industry Data                                                      |   |            |   |   |   |   |   |   |   |
|                                                               |   |            |   |   |   |   |   |   |   |
| Estimated population of Israel (in millions) (1)                   |   |            | 7.4    |   |   |   | 7.5 |   |   |   | 7.7 |   |
| Estimated Israeli cellular telephone subscribers (in millions) (2) |   |            | 9.1    |   |   |   | 9.5 |   |   |   | 9.8 |   |
| Estimated Israeli cellular telephone penetration (3)               |   |            | 124    | % |   |   | 126 | % |   |   | 128 | % |

|                                                                                                | Year ended December 31, |   |
|-----------------------------------------------------------------------------------------------------|-------------------------|--------|
|                                                                                                | 2006                    |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |   | 2010 |   |
|                                                                                                |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Partner Data                                                                                        |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cellular subscribers (000’s) (at period end) (4)                                              |                    | 2,668  |   |   |   | 2,860 |   |   |   | 2,898 |   |   |   | 3,042 |   |   |   | 3,160 |   |
| Pre-paid cellular subscribers (000’s) (at period end) (4)                                     |                    | 781    |   |   |   | 792 |   |   |   | 745 |   |   |   | 811 |   |   |   | 870 |   |
|                                                                                                |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Post-paid cellular subscribers (000’s) (at period end) (4)                                    |                    | 1,887  |   |   |   | 2,068 |   |   |   | 2,153 |   |   |   | 2,231 |   |   |   | 2,290 |   |
|                                                                                                |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Share of total Israeli cellular subscribers (at period end) (5)                                     |                    | 32     | % |   |   | 32 | % |   |   | 32 | % |   |   | 32 | % |   |   | 32 | % |
| Average monthly usage per cellular subscriber (“MOU”) (mins.) (6)                       |                    | 311    |   |   |   | 336 |   |   |   | 365 |   |   |   | 364 |   |   |   | 366 |   |
| Average monthly revenue per cellular subscriber including in roaming (“ARPU”) (NIS) (7) |                    | 161    |   |   |   | 161 |   |   |   | 161 |   |   |   | 151 |   |   |   | 148 |   |
| Churn rate  for cellular subscribers (8)                                                  |                    | 15.6   | % |   |   | 15.0 | % |   |   | 17.8 | % |   |   | 17.7 | % |   |   | 21.4 | % |
|                                                                                                |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Estimated coverage of Israeli population (at period end) (9)                                        |                    | 97     | % |   |   | 97 | % |   |   | 98 | % |   |   | 98 | % |   |   | 99 | % |
|                                                                                                |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number of employees (full time equivalent) (at period end) (10)                                     |                    | 3,714  |   |   |   | 4,130 |   |   |   | 4,671 |   |   |   | 5,670 |   |   |   | 6,068 |   |

| (1) | The population estimates are as published by the Central Bureau of Statistics in Israel as of December 31, 2010. |
|-----|------------------------------------------------------------------------------------------------------------------|

| (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. The number of subscribers of Mirs is estimated by Partner since Mirs does not disclose operating information. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| (7) | We have calculated Partner average monthly revenue per cellular subscriber by (i) dividing, for each month in the relevant year, the Partner revenue during the month, excluding revenue from equipment sales but including revenues from handset warranties 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 cellular subscribers during that month, and (ii) dividing the sum of all such results by the number of months in the relevant period. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  (8) | We define the “churn rate” as the total number of cellular subscribers who disconnect from our network, either involuntarily or voluntarily, in a given period expressed as a percentage of the average of the number of our subscribers at the beginning and end of such period. Our churn rate includes subscribers who have not generated revenue for us for a period of the last six consecutive months ending at a reporting date. This includes cellular subscribers who have generated minute revenues only from incoming calls directed to their voice mail. Involuntary churn includes disconnections due to non-payment of bills or suspected fraudulent use, and voluntary churn includes disconnections due to subscribers terminating their use of our services. |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | 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. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|          |   | Year ended December 31, |   |
|---------------|--------|-------------------------|--------|
|          |   | 2006                    |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |   | 2010 |   |
|          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average(1)    |   |                    | 4.457  |   |   |   | 4.108 |   |   |   | 3.588 |   |   |   | 3.927 |   |   |   | 3.732 |   |
| High          |   |                    | 4.725  |   |   |   | 4.342 |   |   |   | 4.022 |   |   |   | 4.256 |   |   |   | 3.894 |   |
| Low           |   |                    | 4.176  |   |   |   | 3.830 |   |   |   | 3.230 |   |   |   | 3.690 |   |   |   | 3.549 |   |
| End of period |   |                    | 4.225  |   |   |   | 3.846 |   |   |   | 3.802 |   |   |   | 3.775 |   |   |   | 3.549 |   |

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

|   |   | September2010 |   |   | October2010 |   |   | November2010 |   |   | December2010 |   |   | January2011 |   |   | February2011 |   | March 2011(throughMarch 16) |   |
|--------|--------|---------------|--------|--------|-------------|--------|--------|--------------|--------|--------|--------------|--------|--------|-------------|--------|--------|--------------|--------|-----------------------------|--------|
|   |   |          |   |   |        |   |   |         |   |   |         |   |   |        |   |   |         |   |                        |   |
| High   |   |          | 3.798  |   |        |   | 3.645  |         |   |   | 3.684        |   |   |        | 3.665  |   |         |   | 3.710                       |   |   |   | 3.713 |   | 3.635 |   |
| Low    |   |          | 3.665  |   |        |   | 3.569  |         |   |   | 3.580        |   |   |        | 3.549  |   |         |   | 3.528                       |   |   |   | 3.602 |   | 3.553 |   |

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| · | increasing our vulnerability to adverse economic, industry or business conditions or increases in the CPI, particularly because a substantial portion of our borrowings is linked to the CPI; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| · | requiring us to dedicate a substantial portion of our cash flow from operations to service our debt, which reduces the funds available for dividend distributions and future business development; and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

----

ITEM 4. INFORMATION ON THE COMPANY

| · | 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. These notes were redeemed in August 2005. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | 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 the third quarter of 2005, our Board of Directors and shareholders approved the distribution of our first cash dividend, in the amount of NIS 0.57 per share, totaling approximately NIS 86.4 million. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In March 2006, we launched services based on the High Speed Downlink Packet Access (“HSDPA”) technology. HSDPA is a technological enhancement to our 3G services that offers subscribers the ability to access our 3G services at higher speeds. The HSDPA technology has already been deployed to support up to 21 Mbps on the downlink and 5.76 Mbps on the uplink. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | In July 2006, we purchased Med-1 I.C.–1 (1999) Ltd.’s fiber-optic transmission business for approximately NIS 71 million (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). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | On October 28, 2009, Scailex Corporation Ltd. became our principal shareholder through acquiring the entire interest in the Company of our previous controlling shareholder.  As of January 31, 2010, Scailex held 44.82% of our capital and voting rights.  Scailex is indirectly controlled by  Mr. Ilan Ben-Dov.  See “Item 3D. Risk Factors – 46.05% of our shares and voting rights are indirectly controlled by a single shareholder”. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | On February 22, 2010, the District Court approved the application submitted by the Company for a distribution in the total amount of NIS 1.4 billion (exceeding the surpluses for distribution) to the Company's shareholders ("the capital reduction"). Following the District Court's approval, a total amount of approximately NIS 1.4 billion or NIS 9.04 per share was paid on March 18, 2010, to shareholders and ADS holders of record on March 7, 2010, which resulted in a reduction of the shareholders' equity by an equal amount. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | On October 13, 2010, we entered into a share purchase agreement to acquire all of the outstanding shares of 012 Smile Telecom Ltd., an Israeli operator of international telecommunication services and local telecommunication fixed services and a provider of internet services.  After receipt of approval from the Anti Trust Commissioner and the Ministry of Communications, the transaction was completed on March 3, 2011. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | the cellular business segment, our core business, which represents the substantial majority of our total revenues.  The cellular business segment includes all services provided over our cellular networks including airtime, interconnect, roaming and content services. In addition, the cellular business segment's activities include sales of relevant equipment including cellular handsets, datacards, modems (including built-in modems in laptops) and related equipment and accessories; and |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | the fixed line business segment, which includes a number of services provided over fixed line networks including transmission services, Primary Rate Interface ("PRI") lines for business sector customers, VoB telephony services, and ISP services.  Approximately 63,000 VoB and ISP subscribers joined the company during the ramp up period in 2009 and as of December 31, 2010, the Company had approximately 115,000 fixed line and ISP subscribers. (Subscribers to both cellular and fixed line services are counted separately for each service for the purposes of subscriber count) |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | 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 Ratio of Post-Paid Subscribers. In Israel it is estimated that approximately 78% of the cellular companies' subscribers subscribe to post-paid plans, which is relatively high compared to the European average. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | 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, 2010, of 129%, representing more than 9.9 million subscribers out of an estimated population of approximately 7.7 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 billion people worldwide as of December 31, 2009. Other technologies currently used by Israeli cellular telephone licensees include the N-AMPS analog, TDMA, CDMA and CDMA1x RTT, EVDO, D-AMPS, EDGE, UMTS/HSPA (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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · |  Evolve intoa Diversified Multi-service Communications Group. We are continuing to broaden and diversify our portfolio of products and services to evolve into a diversified multi-service communications and media service provider.    In addition to our core business providing cellular telecommunications services, our services offering range now includes fixed-line telephony, transmission services, ISP services and other accompanying telecom and media services. The recent acquisition of 012 Smile will enable us to continue to focus on our current core business while 012 Smile will continue to focus on its current ILD, ISP and VOB businesses. In order to reach customers, we use our own mobile and fiber optic networks, leased access and transmission lines, or, with respect to 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 further enrich our media and content offerings in order to attract new customers and increase the level of loyalty and satisfaction of our existing customer base. Our licenses to operate in various telecommunications areas enable us to provide a wide range of services that will potentially be used to create a bundle of telecom and other adjacent services which we believe will favorably affect our ability to limit cellular churn rates, increase customer loyalty, maximize the synergy between our lines of business and generate additional streams of revenues. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| · | Maintain Strong Branding. We believe that a focused marketing strategy based upon strong branding for our products and services has substantially reinforced our subscriber growth and loyalty. We intend to continue to promote a strong brand. We also intend to support our branded image by continuing to focus on service, innovation and advanced technology. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Wide variety of communication products. We believe that our offering of VoB, ISP and VOD services, as well as our ILD services which will be provided by 012 Smile, strengthens 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 bundled services of other players, increase customer loyalty, and serve as an additional source of revenue. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Focus on Customer Service. We believe we provide quality 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| · | Strong Financial Performance and Financial Position. Our net cash provided by operating activities less net cash used in investing activities has been NIS 1,021 million and NIS 1,472 million for the years ended December 31, 2009 and 2010, 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 and lead the Company. We believe that our performance-based incentive package aligns the interests of senior management with those of our shareholders. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Our management systems are certificated and monitored by IQC (The Institute for Quality and Control, an RVA accredited Certification Body authorized by Bureau Veritas Quality International) to the appropriate international standards: |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | ISO 9001:2008, which focuses on fulfillment of clients and legal requirements; |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | ISO 14001:2004, which coordinates our commitment to habitat and environment; and |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | OHSAS 18001:2007, which directs our efforts to provide a safe and healthy work environment at our premises. |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

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| · | VoB. 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. 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 Services. This service gives internet users (including those of other ISPs) access to our on-line media shop and enables them to view video items on their computers through internet streaming. 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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

|   | · | A team of corporate representatives and customer account managers who support large corporate customers. |
|--------|--------|----------------------------------------------------------------------------------------------------------|

|   | · | A “door to door” sales-force located in four regional offices 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. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | erection and operating permits from the Ministry of  Environmental Protection; |
|--------|------------------------------------------------------------------------------------------|

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

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

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| Market Share*                                                                                                                                                                                                                                                                                                   |   | 2006   |   |   | 2007   |   |   | 2008   |   |   | 2009   |   |   | 2010   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Partner                                                    |   |   | 32     | %      |   |   | 31.7   | %      |   |   | 32     | %      |   |   | 32     | % |   |   | 32 | % |
| Cellcom                                                    |   |   | 34     | %      |   |   | 34.1   | %      |   |   | 35     | %      |   |   | 35     | % |   |   | 35 | % |
| Pelephone                                                  |   |   | 29     | %      |   |   | 29.0   | %      |   |   | 29     | %      |   |   | 29     | % |   |   | 29 | % |
| MIRS                                                       |   |   | 5      | %      |   |   | 5.2    | %      |   |   | 4      | %      |   |   | 4      | % |   |   | 4 | % |

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|   | · | the maximum interconnect tariff payable by a telecommunications operator to a cellular operator for the completion of a call in its cellular network will be reduced from the current tariff of NIS 0.251 per minute to NIS 0.0687 per minute effective January 1, 2011; to NIS 0.0634 per minute effective January 1, 2012; to 0.0591 per minute effective January 1, 2013; and to NIS 0.0555 per minute effective January 1, 2014; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the maximum interconnect tariff payable by a telecommunications operator to a cellular operator for sending an SMS message to its cellular network will be reduced from the current tariff of NIS 0.0285 to NIS 0.0016 effective January 1, 2011; to NIS 0.0015 effective January 1, 2012; to NIS 0.0014 effective January 1, 2013; and to NIS 0.0013 effective January 1, 2014. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | 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. The Ministry of Communications has requested additional and more specific international roaming data from the cellular companies. Because we consider roaming charges to be a significant source of revenue, such regulatory limits could adversely affect our revenues. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| · | On August 31, 2009, the Ministry of Communications announced that it would conduct a public hearing process regarding the regulation of broad band access services over cellular networks.  Currently, a customer who obtains broad band access services over a cellular network must purchase both the broad band infrastructure and the ISP services from the cellular operator (which has itself entered into an agreement with an ISP provider), whereas a customer who obtains broad band access services over a fixed line network can purchase the broad band infrastructure and the ISP services from different vendors.  The Ministry of Communications is examining the current method by which broad band access services based on cellular networks are provided to customers and has asked for public comments with regard to the current framework, as well as regarding possible alternative regulatory frameworks.  As a result of this hearing, new regulations regarding broad band access services over cellular services could be introduced.  We cannot assure you that, if introduced, such regulations would not adversely affect our business or operating results.  See "Risk Factors – 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". |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In March 2010, the Ministry of Communications began conducting a hearing in order to allow exclusive general licensees, mobile radio telephone licensees, and domestic land-line licensees to supply VoB services to subscribers that are abroad, through a telephone number that will be allocated to them by the licensee. The licensees have submitted their positions to the Ministry of Communications. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In October 2010, the Ministry of Communications published a hearing regarding the technical arrangements for national roaming which will be reflected in an amendment to the cellular operators' licenses. The Company submitted its initial response on November 25, 2010 and its second response on January 25, 2011. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In December 2010, the Ministry of Communications published a hearing regarding the granting of VoC licenses either as part of MVNO licenses or by granting a general special license for the provision of national fixed telecommunication services. The Company submitted its response in January 2011. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | The Ministry of Communications is conducting a re-assessment of the frequency fees set forth in the law in order to support effective allocation and the utmost utilization of the frequencies. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In February 2011 the Ministry of Communications published a hearing regarding the increase of transparency with regards to the data speed promised by ISPs in uploading and downloading data over the internet and by cellular operators who provide cellular internet services. In accordance with the hearing, the publication with regards to the minimum data service speeds shall be similar to those of the maximum speeds and shall include a clear notice that in order to use the said speed, the customer must order separately the service from his infrastructure provider with corresponding speed. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In February 2011, the Ministry of Communications published a hearing regarding allowing Bezeq and its subsidiaries to offer integrated packages of services to the business sector under certain conditions and restrictions. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In March 2011, as part of the consumer license amendments to the licenses of all the cellular telecommunication companies, the Ministry of Communications published a hearing regarding subscribers' requests for services by enrollment in either the cellular operators' website or the content providers' websites and the required documentation for the said enrollment. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The Ministry of Communications shall examine the possibility of shortening the commitment period for subscribers so that they do not exceed 12 months. The Ministry of Communications is expected to publish a hearing on the matter during 2011. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | An inter-ministry committee headed by the director of the Ministry of Communications shall be established to submit recommendations regarding a model for cellular infrastructure sharing, including necessary statutory amendments and submit such recommendations for the government's approval by March 31, 2011. The Company has submitted its position. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | An inter-ministry committee shall be established to examine the implementation of vacating frequencies for 4th generation cellular activities including frequencies in the 2,500 Mhz-2,700 Mhz, while examining the possibility for compensation. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In order to increase transparency in the cellular market, and facilitate the consumers' ability to choose telecommunication services, the Minister of Communications shall conduct periodic comparisons between the service prices of the cellular operators and bring this to the public's attention on the ministry's website. The ministry should publish on its website at the beginning of each year a report regarding the service levels and prices provided to cellular subscribers including changes in price levels, consumer complaint details that were received by the ministry regarding the activity of a cellular operator and details of breaches and monetary sanctions imposed by the ministry on cellular operators. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | Our founding shareholders and their approved substitutes must hold, in the aggregate, at least 26% of each of our means of control. Furthermore, the maintenance of at least 26% of our means of control by our founding shareholders and their approved substitutes allows Partner to be protected from a license breach that would result from a transfer of shares for which the authorization of the Ministry of Communications was required, but not obtained. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Israeli entities from among our founding shareholders and their approved substitutes must hold at least 5% of our issued and outstanding share capital and of each of our means of control. “Israeli entities” are defined as individuals who are citizens and residents of Israel and entities formed in Israel and controlled, directly or indirectly, by individuals who are citizens and residents of Israel, provided that indirect control is only through entities formed in Israel, unless otherwise approved by the Israeli Prime Minister or Minister of Communications. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | At least 10% of our Board of Directors must be appointed by Israeli entities, as defined above, provided that if the Board of Directors is comprised of up to 14 members, only one such director must be so appointed, and if the Board of Directors is comprised of between 15 and 24 members, only two such directors must be so appointed. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Matters relating to national security shall be dealt with only by a Board of Directors committee that has been formed for that purpose. The committee includes at least 4 members, of which at least one is an external director. Only directors with the required clearance and those deemed appropriate by Israel’s General Security Service may be members of this committee. Resolutions approved by this committee shall be deemed adopted by the Board of Directors. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| · | acting to continuously improve our mobile telephone services, their scope, availability, quality and technology, and that there has been no act or omission by us harming or limiting competition in the mobile telephone sector; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | having the ability to continue to provide mobile telephone services of a high standard and to implement the required investments in the technological updating of our system in order to improve the scope of such services, as well as their availability and quality; and |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

| · | 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 Ministry, 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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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| · | “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 matter of issuance of means of control in a corporation or decisions in the matters of sale or liquidation of most businesses of the corporation, or fundamental changes of these businesses. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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ITEM 4A. UNRESOLVED STAFF COMMENTS

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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|   | · | NIS 500 million in bank loans have an average duration of approximately three years and have an index-linked rate of 4.2%; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|

|   | · | NIS 200 million of loans have an index-linked rate of 5.1%, with a redemption date of 2017; and |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | · | a revolving loan of 100 million shekels which charges the prime interest-rate plus three-quarters of a percent, with a final maturity in mid-2013. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                  |   | Year ended December 31, |   |
|---------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                  |   | 2008                    |   |   | 2009 |   |   | 2010 |   |
|                                                                                  |   |                    |   |   |   |   |   |   |   |
| Revenues (NIS million)                                                                |   |                    | 6,302  |   |   |   | 6,079 |   |   |   | 6,674 |   |
| Operating profit (NIS million)                                                        |   |                    | 1,826  |   |   |   | 1,701 |   |   |   | 1,860 |   |
| Income before taxes (NIS million)                                                     |   |                    | 1,642  |   |   |   | 1,525 |   |   |   | 1,679 |   |
| Net income (NIS million)                                                              |   |                    | 1,198  |   |   |   | 1,141 |   |   |   | 1,243 |   |
| Capital expenditures (NIS million)                                                    |   |                    | 589    |   |   |   | 522 |   |   |   | 435 |   |
| Cash flow provided by operating activities net of investment activities (NIS million) |   |                    | 1,401  |   |   |   | 1,021 |   |   |   | 1,472 |   |
| Subscribers (thousands)                                                               |   |                    | 2,898  |   |   |   | 3,042 |   |   |   | 3,160 |   |
| Annual churn rate (%)                                                                 |   |                    | 17.8   | % |   |   | 17.7 | % |   |   | 21.4 | % |
| Average monthly usage per subscriber (MOU) (in minutes)                               |   |                    | 365    |   |   |   | 364 |   |   |   | 366 |   |
| Average monthly revenue per subscriber (ARPU) (NIS)                                   |   |                    | 161    |   |   |   | 151 |   |   |   | 148 |   |

----

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

|   | • | Cost of handsets, accessories and ISP related equipment |
|--------|---------|---------------------------------------------------------|

|   | • | Depreciation and amortization |
|--------|---------|-------------------------------|

|   | • | Wages and employee benefits expenses plus car maintenance |
|--------|---------|-----------------------------------------------------------|

|   | • | Operating lease, rent and overhead expenses |
|--------|---------|---------------------------------------------|

----

|   | • | Cost of replacing or repairing damaged handsets |
|--------|---------|-------------------------------------------------|

|   | • | Car kit installation, IT support, and other operating expenses |
|--------|---------|----------------------------------------------------------------|

|   | • | Network maintenance |
|--------|---------|---------------------|

|   | • | Royalty expenses |
|--------|---------|------------------|

|   | • | Other |
|--------|---------|-------|

|   | • | Wages and employee benefits expenses plus car maintenance |
|--------|---------|-----------------------------------------------------------|

|   | • | Advertising and marketing |
|--------|---------|---------------------------|

|   | • | Selling commissions, net |
|--------|---------|--------------------------|

|   | • | Depreciation |
|--------|---------|--------------|

|   | • | Other |
|--------|---------|-------|

|   | • | Wages and employee benefits expenses plus car maintenance |
|--------|---------|-----------------------------------------------------------|

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

|   | • | Professional fees |
|--------|---------|-------------------|

|   | • | Credit card commissions |
|--------|---------|-------------------------|

|   | • | Depreciation |
|--------|---------|--------------|

|   | • | Other |
|--------|---------|-------|

|   | • | Unwinding of trade receivables |
|--------|---------|--------------------------------|

|   | • | Other income |
|--------|---------|--------------|

|   | • | Capital loss from sale of property and equipment |
|--------|---------|--------------------------------------------------|

|   | • | Interest expenses |
|--------|---------|-------------------|

|   | • | Linkage expenses to CPI |
|--------|---------|-------------------------|

|   | • | Interest costs in respect of liability for employee rights upon retirement |
|--------|---------|----------------------------------------------------------------------------|

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|   | • | Fair value loss from derivative financial instruments, net |
|--------|---------|------------------------------------------------------------|

|   | • | Factoring costs, net |
|--------|---------|----------------------|

|   | • | Other finance costs |
|--------|---------|---------------------|

|   | · | Expected return on plan assets |
|--------|--------|--------------------------------|

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

|   | · | Other finance income |
|--------|--------|----------------------|

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

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

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

|   | · | churn rate. |
|--------|--------|-------------|

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|                               |   | New Israeli Shekels     |   |
|------------------------------------|--------|-------------------------|--------|
|                               |   | Year ended December 31, |   |
|                               |   | 2009                    |   |   | 2010 |   |
|                               |   | In millions             |   |
| Service revenues                   |   |                    | 5,424  |   |   |   | 5,662 |   |
| Equipment revenues                 |   |                    | 655    |   |   |   | 1,012 |   |
| Total revenues                     |   |                    | 6,079  |   |   |   | 6,674 |   |
|                               |   |                    |   |   |   |   |   |   |
| Cost of revenues – Services  |   |                    | 3,206  |   |   |   | 3,307 |   |
| Cost of revenues – Equipment |   |                    | 564    |   |   |   | 786 |   |
| Total Cost of revenues             |   |                    | 3,770  |   |   |   | 4,093 |   |
| Gross profit                       |   |                    | 2,309  |   |   |   | 2,581 |   |

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|                                                          |   | New Israeli Shekels               |   |
|---------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                          |   | Year ended December 31, 2010 |   |
|                                                          |   | In millions                       |   |
|                                                          |   | Cellular segment                  |   |   | Fixed line segment |   |   | Elimination |   |   | Consolidated |   |
| Segment revenue - Services                                    |   |                              | 5,555  |   |   |   | 107 |   |   |   |   |   |   | 5,662 |   |
| Inter-segment revenue - Services                              |   |                              | 20     |   |   |   | 57 |   |   |   | (77 | ) |   |   |   |   |
| Segment revenue - Equipment                                   |   |                              | 987    |   |   |   | 25 |   |   |   |   |   |   |   | 1,012 |   |
| Total revenues                                                |   |                              | 6,562  |   |   |   | 189 |   |   |   | (77 | ) |   |   | 6,674 |   |
| Segment cost of revenues – Services                     |   |                              | 3,174  |   |   |   | 133 |   |   |   |   |   |   |   | 3,307 |   |
|                                                          |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Inter-segment cost of  revenues- Services           |   |                              | 57     |   |   |   | 20 |   |   |   | (77 | ) |   |   |   |   |
| Segment cost of revenues - Equipment                          |   |                              | 751    |   |   |   | 35 |   |   |   |   |   |   |   | 786 |   |
| Cost of revenues                                              |   |                              | 3,982  |   |   |   | 188 |   |   |   | (77 | ) |   |   | 4,093 |   |
| Gross profit                                                  |   |                              | 2,580  |   |   |   | 1 |   |   |   |   |   |   |   | 2,581 |   |
| Operating expenses                                            |   |                              | 760    |   |   |   | 25 |   |   |   |   |   |   |   | 785 |   |
| Other income                                                  |   |                              | 64     |   |   |   |   |   |   |   |   |   |   |   | 64 |   |
| Operating profit (loss)                                       |   |                              | 1,884  |   |   |   | (24 | ) |   |   |   |   |   |   | 1,860 |   |
| Adjustments to presentation of EBITDA                         |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| –depreciation and amortization                          |   |                              | 633    |   |   |   | 36 |   |   |   |   |   |   |   | 669 |   |
| - Impairment of intangible assets                             |   |                              | 16     |   |   |   |   |   |   |   |   |   |   |   | 16 |   |
|  –other (1)                                   |   |                              | 25     |   |   |   |   |   |   |   |   |   |   |   | 25 |   |
| EBITDA                                                        |   |                              | 2,558  |   |   |   | 12 |   |   |   |   |   |   |   | 2,570 |   |
| Reconciliation of EBITDA to profit before tax  :    |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (669 | ) |
| Impairment of intangible assets                               |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (16) |   |
|     -  Finance costs, net       |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (181 | ) |
|     -  Other (1)                |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (25 | ) |
| Profit before tax                                             |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | 1,679 |   |

----

|                                                          |   | New Israeli Shekels               |   |
|---------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                          |   | Year ended December 31, 2009 |   |
|                                                          |   | In millions                       |   |
|                                                          |   | Cellular segment                  |   |   | Fixed line segment |   |   | Elimination |   |   | Consolidated |   |
| Segment revenue - Services                                    |   |                              | 5,369  |   |   |   | 55 |   |   |   |   |   |   | 5,424 |   |
| Inter-segment revenue - Services                              |   |                              | 11     |   |   |   | 33 |   |   |   | (44 | ) |   |   |   |   |
| Segment revenue - Equipment                                   |   |                              | 628    |   |   |   | 27 |   |   |   |   |   |   |   | 655 |   |
| Total revenues                                                |   |                              | 6,008  |   |   |   | 115 |   |   |   | (44 | ) |   |   | 6,079 |   |
| Segment cost of revenues – Services                     |   |                              | 3,091  |   |   |   | 115 |   |   |   |   |   |   |   | 3,206 |   |
|                                                          |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Inter-segment cost of  revenues- Services           |   |                              | 33     |   |   |   | 11 |   |   |   | (44 | ) |   |   |   |   |
| Segment cost of revenues - Equipment                          |   |                              | 518    |   |   |   | 46 |   |   |   |   |   |   |   | 564 |   |
| Cost of revenues                                              |   |                              | 3,642  |   |   |   | 172 |   |   |   | (44 | ) |   |   | 3,770 |   |
| Gross profit (loss)                                           |   |                              | 2,366  |   |   |   | (57 | ) |   |   |   |   |   |   | 2,309 |   |
| Operating expenses                                            |   |                              | 626    |   |   |   | 51 |   |   |   |   |   |   |   | 677 |   |
| Other income                                                  |   |                              | 69     |   |   |   |   |   |   |   |   |   |   |   | 69 |   |
| Operating profit (loss)                                       |   |                              | 1,809  |   |   |   | (108 | ) |   |   |   |   |   |   | 1,701 |   |
| Adjustments to presentation of EBITDA                         |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  –depreciation and amortization                    |   |                              | 552    |   |   |   | 25 |   |   |   |   |   |   |   | 577 |   |
|  –other (1)                                        |   |                              | 26     |   |   |   |   |   |   |   |   |   |   |   | 26 |   |
| EBITDA                                                        |   |                              | 2,387  |   |   |   | (83 | ) |   |   |   |   |   |   | 2,304 |   |
| Reconciliation of EBITDA to profit before tax  :    |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (577 | ) |
|     -  Finance costs, net       |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (176 | ) |
|     -  Other (1)                |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (26 | ) |
| Profit before tax                                             |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | 1,525 |   |

|   | (1) | Mainly employee share based compensation expenses. |
|--------|-----|----------------------------------------------------|

----

----

|                              |   | New Israeli Shekels     |   |
|-----------------------------------|--------|-------------------------|--------|
|                              |   | Year ended December 31, |   |
|                              |   | 2008                    |   |   | 2009 |   |
|                              |   | In millions             |   |
| Service revenues                  |   |                    | 5,546  |   |   |   | 5,424 |   |
| Equipment revenues                |   |                    | 756    |   |   |   | 655 |   |
| Total revenues                    |   |                    | 6,302  |   |   |   | 6,079 |   |
|                              |   |                    |   |   |   |   |   |   |
| Cost of revenues – Services |   |                    | 3,025  |   |   |   | 3,206 |   |
| Cost of revenues - Equipment      |   |                    | 843    |   |   |   | 564 |   |
| Total Cost of revenues            |   |                    | 3,868  |   |   |   | 3,770 |   |
| Gross profit                      |   |                    | 2,434  |   |   |   | 2,309 |   |

----

|                                                                       |   | New Israeli Shekels               |   |
|----------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                       |   | Year ended December 31, 2008 |   |
|                                                                       |   | In millions                       |   |
|                                                                       |   | Cellular segment                  |   |   | Fixed line segment |   |   | Reconciliationfor consolidation |   | Consolidated |   |
| Segment revenue - Services                                                 |   |                              | 5,521  |   |   |   | 25 |   |   |   |   | 5,546 |   |
| Inter-segment revenue - Services                                           |   |                              | 2      |   |   |   | 15 |   |   |   | (17 | ) |   |   |
| Segment revenue - Equipment                                                |   |                              | 756    |   |   |   | - |   |   |   |   |   | 756 |   |
| Total revenues                                                             |   |                              | 6,279  |   |   |   | 40 |   |   |   | (17 | ) | 6,302 |   |
|                                                                       |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment cost of revenues – Services                                  |   |                              | 2,969  |   |   |   | 56 |   |   |   |   |   | 3,025 |   |
| Inter-segment cost of  revenues- Services                        |   |                              | 15     |   |   |   | 2 |   |   |   | (17 | ) |   |   |
| Segment cost of revenues - Equipment                                       |   |                              | 842    |   |   |   | 1 |   |   |   |   |   | 843 |   |
| Cost of revenues                                                           |   |                              | 3,826  |   |   |   | 59 |   |   |   | (17 | ) | 3,868 |   |
| Gross profit (loss)                                                        |   |                              | 2,453  |   |   |   | (19 | ) |   |   |   |   | 2,434 |   |
|                                                                       |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                         |   |                              | 656    |   |   |   | 16 |   |   |   |   |   | 672 |   |
| Other income                                                               |   |                              | 64     |   |   |   |   |   |   |   |   |   | 64 |   |
| Operating profit (loss)                                                    |   |                              | 1,861  |   |   |   | (35 | ) |   |   |   |   | 1,826 |   |
| Adjustments to presentation of EBITDA –depreciation and amortization |   |                              | 445    |   |   |   | 18 |   |   |   |   |   | 463 |   |
|     –other                                       |   |                              | 9      |   |   |   |   |   |   |   |   |   | 9 |   |
| EBITDA                                                                     |   |                              | 2,315  |   |   |   | (17 | ) |   |   |   |   | 2,298 |   |
| Reconciliation of EBITDA to profit before tax                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization              |   |                              |   |   |   |   |   |   |   |   |   |   | (463 | )  |
|     -  Finance costs, net                    |   |                              |   |   |   |   |   |   |   |   |   |   | (184 | )  |
|     -  Other                                 |   |                              |   |   |   |   |   |   |   |   |   |   | (9 | )  |
| Profit before tax                                                          |   |                              |   |   |   |   |   |   |   |   |   |   | 1,642 |   |
| Allowance for decline in value of  inventories                   |   |                              | 5      |   |   |   | - |   |   |   |   |   | 5 |   |

----

----

|                                                                                                                                                                                                                                                                                                                                     |   | Three months ended |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|
| NIS in millions                                                                                                                                                                                                                                                                                                                          |   | March 31           |   |   | June 30 |   |   | Sept. 30 |   |   | Dec. 31 |   |
|                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |   |   |   |   |
| Service Revenues                                                                                                                                                                                                                                                                                                                         |   |               |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |   |   |   |   |
| 2008                                                       |   |               | 1,342  |   |   |   | 1,376 |   |   |   | 1,458 |   |   |   | 1,397 |   |
| 2009                                                       |   |               | 1,298  |   |   |   | 1,360 |   |   |   | 1,389 |   |   |   | 1,377 |   |
| 2010                                                                                                                                                                                                                                                                                                                                     |   |               | 1,354  |   |   |   | 1,405 |   |   |   | 1,447 |   |   |   | 1,456 |   |

----

|                       |   | NIS in millions |   |
|----------------------------|--------|-----------------|--------|
|                       |   |            |   |
| Principal payments due in: |   |            |
|                       |   |            |   |
| 2011                       |   |            | 575    |   |
| 2012                       |   |            | 383    |   |
|                       |   |            |   |   |
| Total                      |   |            | 958    |   |

----

|                       |   | NIS in millions |   |
|----------------------------|--------|-----------------|--------|
|                       |   |            |   |
| Principal payments due in: |   |            |
| 2013                       |   |            | 115    |   |
| 2014                       |   |            | 115    |   |
| 2015                       |   |            | 115    |   |
| 2016                       |   |            | 115    |   |
|                       |   |            |   |   |
| Total                      |   |            | 460    |   |

|                       |   | NIS in millions |   |
|----------------------------|--------|-----------------|--------|
|                       |   |            |   |
| Principal payments due in: |   |            |
|                       |   |            |   |
| 2016                       |   |            | 68.67  |   |
| 2017                       |   |            | 68.67  |   |
| 2018                       |   |            | 68.67  |   |
| Total                      |   |            | 206    |   |

----

|                       |   | NIS in millions |   |
|----------------------------|--------|-----------------|--------|
|                       |   |            |   |
| Principal payments due in: |   |            |
|                       |   |            |   |
| 2017                       |   |            | 80     |   |
| 2018                       |   |            | 80     |   |
| 2019                       |   |            | 80     |   |
| 2020                       |   |            | 80     |   |
| 2021                       |   |            | 80     |   |
| Total                      |   |            | 400    |   |

|                       |   | NIS in millions |   |
|----------------------------|--------|-----------------|--------|
|                       |   |            |   |
| Principal payments due in: |   |            |
|                       |   |            |   |
| 2013                       |   |            | 80     |   |
| 2014                       |   |            | 80     |   |
| 2015                       |   |            | 80     |   |
| 2016                       |   |            | 80     |   |
| 2017                       |   |            | 80     |   |
| Total                      |   |            | 400    |   |

|   | In 2009 and 2010, we established three new credit facilities (two of which, Facilities C and E, were cancelled in November 2010) and took out the following loans: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | On October 1, 2009, a new facility ("Facility C") was established with a leading commercial bank in the amount of NIS 250 million for a maximum period of five years, at a wholesale interest rate plus a margin of 0.85%. The facility is to be used for short term financing. The wholesale interest rate of the bank as of December 31, 2009 was 1.1% per year. The Company is charged a commitment fee of 0.4% per year for undrawn amounts.  This facility was cancelled on November 11, 2010. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 2. | On November 24, 2009, a new facility ("Facility D") was established with a leading commercial bank in the amount of NIS 700 million for a maximum period of 3 years, at a wholesale interest rate plus a margin of 0.85%, effective from January 1, 2010. The facility is to be used for short-term financing. The wholesale interest rate of the bank as of December 31, 2009 and 2010 was 1.15% and 2.15% per year respectively. The Company is charged a commitment fee of 0.4% per year for undrawn amounts. As of December 31, 2010, and March 15, 2011, no funds had been drawn from this facility. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | On December 2, 2009, a new facility ("Facility E") was established with a leading commercial bank in the amount of NIS 250 million for a maximum period of 3 years, at a wholesale interest rate plus a margin of 0.85%, effective from January 1, 2010. The facility is to be used for short-term financing. The wholesale interest rate of the bank as of December 31, 2009 was 1.1% per year. The Company is charged a commitment fee of 0.4% per year for undrawn amounts. This facility was cancelled on November 11, 2010. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | On November 11, 2010, a new long-term loan was established with a leading Israeli commercial bank in the amount of NIS 500 million. The loan is linked (principal and interest) to the Israeli CPI. The principal amount is repayable in three equal annual installments between 2016 and 2018 and bear interest at an annual rate of 2.75%. The interest is payable on a semi-annual basis. This loan has replaced bank facilities C and E which were cancelled. The Company may, at its discretion, at any time, prepay the loan, in whole or in part, subject to the following conditions: the amount to be prepaid shall not be less than NIS 5 million; and the Company shall reimburse the bank for any loss sustained by the bank, if any, as a result of the prepayment in an amount equal to the actual financing costs of the bank arising from such prepayment. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | On December 28, 2009, a new long-term loan was established with a leading commercial bank in the amount of NIS 300 million for a period of 4 years, bearing variable interest at the rate of the Israeli Prime interest rate minus a margin of 0.35%. The interest is payable quarterly and the principal is payable in one payment at the end of the loan period. The Israeli Prime interest rate as of December 31, 2009 and 2010 was 2.5% and 3.5% per year respectively. The Israeli Prime interest rate is determined by the Bank of Israel and updated on a monthly basis. The Company may, at its discretion, at any time, prepay the loan, in whole or in part, provided that the Company shall reimburse the bank for losses sustained by the bank, as a result of the prepayment calculated according to provisions detained in the loan agreement. The loan contract requires that at any time the loan principal will not exceed 20% of all bank credits, loans, facilities (both utilized and committed facilities) and any other indebtedness of the company to the banks. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | On June 8, 2010, a new long-term loan was established with a leading commercial bank in the amount of NIS 250 million for a period of 10 years, bearing fixed interest at the rate of 5.7%. The principal and interest are payable annually. The Company may, at its discretion, at any time, prepay the loan, in whole or in part, subject to the following conditions: the amount to be prepaid shall not be less than NIS 5 million; and the Company shall reimburse the bank for any loss sustained by the bank, if any, as a result of the prepayment in an amount equal to the increase in the financing costs of the bank arising from such prepayment. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | On June 9, 2010, a new long-term loan was established with a leading commercial bank in the amount of NIS 250 million for a period of 10 years, bearing fixed interest at the rate of 5.7%. The principal and interest are payable annually. The Company may, at its discretion, at any time, prepay the loan, in whole or in part, provided that the Company shall reimburse the bank for any loss sustained by the bank, if any, as a result of the prepayment in an amount equal to the increase in the financing costs of the bank arising from such prepayment. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | a. | Loan A received on January 31, 2010 in a principal amount of NIS 500 million. The loan is linked (principal and interest) to the CPI. The principal amount is payable in 14 equal semi-annual installments starting July 31, 2010 and until January 31, 2017, and bears interest at an annual rate of 4.2%. The interest is payable every three months. As of March 1, 2011 two principal installments were repaid. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Loan B received on January 31, 2010 in a principal amount of NIS 200 million. The loan is linked (principal and interest) to the CPI. The principal amount is payable in one payment on January 31, 2017, and bears interest at an annual rate of 5.1%. The interest is payable every three months. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Credit Facility C received on January 31, 2010 for a period of 42 months, allowing 012 Smile to draw short-term loans of up to an amount of NIS 100 million, for periods of 3, 6, or 12 months. The loans bear variable interest in a wholesale interest rate plus a margin of an annual rate of 2%.The banks are committed to provide this credit line, a portion of which may have been withdrawn by 012 Smile as of the date hereof. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Current Portion Payable in 2011 as of December 31, 2010 |   | NIS in millions |   |
|---------------------------------------------------------|--------|-----------------|--------|
|                                                    |   |            |   |
| Principal on notes payable                              |   |            | 575    |   |
| Principal on long term bank loans                       |   |            | 50     |   |
| Principal on capital lease                              |   |            | 3      |   |
| Interest on notes payables                              |   |            | 85     |   |
| Interest on long term bank loans                        |   |            | 51     |   |
| Total                                                   |   |            | 764    |   |

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

|   | · | Operating cash flows, net of cash flow from investing activities; and |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Existing credit facilities. |
|--------|--------|----------------------------------|

----

----

|                                                                                  |   | Payments Due by Period (NIS in millions) |   |
|---------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
| Contractual Obligations                                                               |   | Total                                    |   |   | less than 1year |   |   | 1-3 years |   |   | 3-5 years |   |   | more than 5years |   |
|                                                                                  |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-Term Debt*                                                                       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes Series A                                                                        |   |                                     | 958    | * |   |   | 575 |   |   |   | 383 |   |   |   | - |   |   |   | - |   |
| Notes Series B                                                                        |   |                                     | 460    | * |   |   | - |   |   |   | 115 |   |   |   | 230 |   |   |   | 115 |   |
| Notes Series C**                                                                      |   |                                     | 206    | *  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 206 |   |
| Notes Series D                                                                        |   |                                     | 400    | *  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 400 |   |
| Notes Series E                                                                        |   |                                     | 400    | *  |   |   | - |   |   |   | 80 |   |   |   | 160 |   |   |   | 160 |   |
| Long term bank borrowing                                                              |   |                                     | 1,302  | * |   |   | 50 |   |   |   | 400 |   |   |   | 100 |   |   |   | 752 |   |
| Capital Lease Obligations                                                             |   |                                     | 3      |   |   |   | 3 |   |   |   |   |   |   |   | - |   |   |   | - |   |
| Operating Leases                                                                      |   |                                     | 1,437  |   |   |   | 240 |   |   |   | 418 |   |   |   | 340 |   |   |   | 439 |   |
|                                                                                  |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Contribution to funds in respect of Employee rights in respect of severance pay funds |   |                                     | 34     |   |   |   | 34 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Commitments to pay for  inventory purchases                                 |   |                                     | 642    |   |   |   | 455 |   |   |   | 187 |   |   |   | - |   |   |   | - |   |
| Commitments to pay for property and equipment purchases***                            |   |                                     | 326    |   |   |   | 132 |   |   |   | 139 |   |   |   | - |   |   |   | - |   |
|                                                                                  |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Contractual Cash Obligations                                                    |   |                                     | 6,168  |   |   |   | 1,489 |   |   |   | 1,722 |   |   |   | 885 |   |   |   | 2,072 |   |

----

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

| Name of Director*                     |   | Age    |   | Position |
|---------------------------------------|--------|--------|--------|----------|
|                                  |   |   |   |     |
| Ilan Ben Dov (1)(3)(4)                |   |   | 54     |     | Chairman of the Board of Directors |
| Dr. Michael J. Anghel (1)(2)(3)(6)(7) |   |   | 72     |     | Director |
| Barry Ben -Zeev(2)(3)(4)(5)(6)(7)     |   |   | 58     |     | Director |
| Avi Zeldman (1)(8)                    |   |   | 62     |     | Director |
| Erez Gissin (2)(6)(7)                 |   |   | 52     |     | Director |
| Dr. Shlomo Nass(1)(2)(6)              |   |   | 50     |     | Director |
| Osnat Ronen(4)(6)                     |   |   | 48     |     | Director |
| Yahel Shachar(1)(3)                   |   |   | 48     |     | Director |

----

| * | On August 26, 2010, Yacov Gelbard resigned as a director of the Company to become its new Chief Executive Officer effective October 1, 2010. |
|---|----------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

| (4) | Member of the Hedging Committee. |
|-----|----------------------------------|

| (5) | External Director under the Companies Law. |
|-----|--------------------------------------------|

| (6) | Independent Director under NASDAQ rules. |
|-----|------------------------------------------|

| (7) | Independent Director under the Companies Law. |
|-----|-----------------------------------------------|

| (8) | Appointed on behalf of Leumi Partners Ltd.  See “Item 7A. Major Shareholders - Agreement between Scailex and Bank Leumi Ltd”. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------|

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| Name of Officer  |   | Age    |   | Position |
|------------------|--------|--------|--------|----------|
|             |   |   |   |     |
| Yacov Gelbard*   |   |   | 63     |     | Chief Executive Officer |
| Emanuel Avner    |   |   | 50     |     | Chief Financial Officer |
| Shachar Landau** |   |   | 52     |     | Vice President, Operations |
| Avi Berger       |   |   | 48     |     | Vice President, Technologies |
| Michal Dana      |   |   | 55     |     | Vice President, Human Resources |
| Amit Lang***     |   |   | 40     |     | Senior Director Business Development & Regulation |
| Ronit Rubin****  |   |   | 46     |     | Vice President, Information Technology |
| Yacov Kedmi      |   |   | 59     |     | Head of  Marketing, Content & Growth Engines Division |
| Roly Klinger     |   |   | 51     |     | Vice President, Legal, Chief Legal Counsel and Joint Company Secretary |
| Einat Rom*****   |   |   | 45     |     | Vice President, Private Customers Division, |
| Gil Rosenfeld    |   |   | 45     |     | Vice President, Business Customers Division |

----

----

----

| In order to encourage the Company’s executive officers to remain with the Company following the sale by Advent of its controlling interest, the Company’s Board of Directors, upon the recommendation and approval of its Audit and Compensation Committees, adopted a two-year retention plan on September 9, 2009.  According to the terms of the plan, retention payments will be made to each of the Company’s eligible executive officers at the first and second anniversaries of the date of adoption of the retention plan, provided the executive officer has not resigned for reasons other than for certain justified reasons, as specified in the retention plan or in case of termination by the Company.  The maximum aggregate amount of all retention payments together is $6.5 million, out of which an amount of US$ 4 million was paid during 2010. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

|   | – | 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. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | – | In compliance with Israeli Companies Law and our Articles of Association, the compensation committee is authorized among other things, to evaluate and recommend 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.  Our compensation committee consists of four Board of Directors members, two of whom are external, independent directors, rather than entirely of independent directors.  As a result, the conditions of NASDAQ Rule 5605(d), that compensation for the CEO and all other executive officers must be determined or recommended to the Board by the independent directors or a compensation committee comprised solely of independent directors, are not satisfied. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | – | As permitted under Israeli Companies Law, the Company’s Board of Directors selects director nominees for shareholder approval based on a majority decision taken in accordance with the Company’s Articles of Association.   The conditions of NASDAQ Rule 5605(e), that director nominees must either be selected or recommended to the Board by the independent directors or a nomination committee comprised solely of independent directors, are thus not satisfied. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

|   | · | A higher shareholder approval threshold was adopted to permit a chief executive officer to also serve as chairman of the board and vice versa, and a prohibition was adopted on the chairman's ability to serve the company in any capacity other than as the chief executive officer; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | The majority of the members of the audit committee is now required to be "independent" (as such term is defined under the Israeli Companies Law); the chairman of the audit committee is required to be an external director, and the following are disqualified from serving as members of the audit committee: the chairman, any director employed by the company or by its controlling shareholder or by an entity controlled by the controlling shareholder, a director who regularly provides services to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder, and any director who derives most of its income from the controlling shareholder; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The functions to be performed by the audit committee were expanded to include, inter alia, the following: determination whether certain related party actions and transactions are "material" or "extraordinary" in connection with their approval procedures, to assess the scope of work and compensation of the company's independent accountant, to assess the company's internal audit system and the performance of its internal auditor and to set whistle blower procedures (including in respect of the protections afforded to whistle blowers); |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The threshold to elect external directors was increased, such that the election of external directors now requires a majority vote at a shareholders’ meeting, provided that either: at least a majority (previously, one-third) of the shares of non-controlling shareholders cast at the meeting vote in favor of the election of the external director, or the total number of shares of non-controlling shareholders voted against the election of the external director does not exceed 2% (previously, 1%) of the voting rights in the company; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The independence requirements of external directors were enhanced such that an individual may not be appointed as an external director in a company that does not have a controlling shareholder, in the event that he has affiliation, at the time of his appointment, to the chairman, chief executive officer, a 5% shareholder or the chief financial officer; in addition, an individual may not be appointed as an external director if his relative, partner, employer, supervisor, or an entity he controls, has other than negligible business or professional relations with any of the persons with which the external director himself may not be affiliated; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | External directors may be re-elected for an additional term by means of one of the following mechanisms: (i) the board of directors proposed the nominee and his appointment was approved by the shareholders in the manner required to appoint external directors for their initial term (which was the only available way to re-elect external directors prior to the adoption of Amendment No. 16), or (ii) a shareholder holding 1% or more of the voting rights proposed the nominee, and the nominee is approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the controlling shareholders, provided that, the aggregate votes cast by shareholders who are not controlling shareholders and do not have a personal interest in the matter as a result of their relations with the controlling shareholders in favor of the nominee constitute more than 2% of the voting rights in the company; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The terms of employment of an officer now require the approval of the audit committee as well as the board of directors; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | The threshold to approve extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest was increased, such that: (i) at least a majority (previously one-third) of the votes cast by shareholders who have no personal interest in the transaction and who vote on the matter are voted in favor of the transaction, or (ii) the votes cast by shareholders who have no personal interest in the transaction voted against the transaction do not represent more than 2% (previously 1%) of the voting rights in the company; in addition, any such extraordinary transaction whose term is more than three years, require approval as described above every three years, unless (with respect to transactions not involving management fees) the audit committee approves that a longer term is reasonable under the circumstances. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | With respect to full tender offers (tender offers for the acquisition of all outstanding shares in a company, the time-frame for a shareholder to a request appraisal rights with respect to the tender offer was extended from three to six months following the consummation of a the tender, but it is now permitted for the acquirer to elect that any shareholder tendering his shares will not be entitled to appraisal rights. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

| (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 done intentionally or recklessly ("pzizut") except for negligence; |
|-----|-------------------------------------------------------------------------------------------------|

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

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

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | December 31 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2008        |   |   | 2009 |   |   | 2010 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |   |   |   |
| Customer service                                                                                 |   |        | 2,902  |   |   |   | 3,750 |   |   |   | 4,041 |   |
| Engineering                                                                                      |   |        | 306    |   |   |   | 322 |   |   |   | 302 |   |
| Sales and sales support                                                                          |   |        | 569    |   |   |   | 517 |   |   |   | 586 |   |
| Information technology                                                                           |   |        | 165    |   |   |   | 249 |   |   |   | 277 |   |
| Marketing and Content                                                                            |   |        | 127    |   |   |   | 135 |   |   |   | 140 |   |
| Finance                                                                                          |   |        | 114    |   |   |   | 119 |   |   |   | 132 |   |
| Human resources                                                                                  |   |        | 124    |   |   |   | 125 |   |   |   | 130 |   |
| Remaining operations                                                                             |   |        | 364    |   |   |   | 456 |   |   |   | 460 |   |
| TOTAL                                                                                            |   |        | 4,671  |   |   |   | 5,673 |   |   |   | 6,068 |   |

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| Option exercise price(NIS) |   | Number of optionsheld |   | Option expiration Date |
|----------------------------|--------|-----------------------|--------|------------------------|
|                       |   |                  |   |                   |
| 64.16                      |   | 266,666               |   | September 2014         |
| 64.16                      |   | 266,667               |   | September 2015         |
| 30.11                      |   | 21,250                |   | September 2016         |
| 64.16                      |   | 266,667               |   | September 2016         |
| 53.44                      |   | 68,750                |   | June 2017              |
| 61.53                      |   | 12,500                |   | February 2018          |
| 48.83                      |   | 1,860,000             |   | March 2019             |
| 60.12                      |   | 1,718,500             |   | July 2020              |
| 75.16                      |   | 158,750               |   | December 2020          |
| 71.34                      |   | 126,250               |   | February 2021          |

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

| Name                                                            |   | Shares beneficiallyowned |        |   | IssuedShares (1)% |   |   | Issued andOutstandingShares (1)% |   |
|-----------------------------------------------------------------|--------|--------------------------|-------------|--------|-------------------|--------|--------|----------------------------------|--------|
|                                                            |   |                     |        |   |              |   |   |                             |   |
| Scailex Corporation Ltd, together with Suny Electronics Ltd (2) |   |                     | 71,498,719  |   |              |   | 44.76  |                             |   |   | 46.05 |   |
|                                                            |   |                     |        |   |              |   |   |                             |   |   |   |   |
| Treasury shares (3)                                             |   |                     | 4,467,990   |   |              |   | 2.80   |                             |   |   | – |   |
|                                                            |   |                     |        |   |              |   |   |                             |   |   |   |   |
| Public (4)                                                      |   |                     | 83,760,577  |   |              |   | 52.44  |                             |   |   | 53.95 |   |
|                                                            |   |                     |        |   |              |   |   |                             |   |   |   |   |
| Total                                                           |   |                     | 159,727,286 |   |              |   | 100.00 |                             |   |   | 100.00 |   |

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

| (2) | Scailex, an Israeli corporation listed on the Tel Aviv Stock Exchange, held on January 31, 2011, 44.65% of our Issued and Outstanding shares and voting rights. Scailex is a majority owned subsidiary of Suny, an Israeli corporation listed on the Tel Aviv Stock Exchange which is indirectly controlled by Mr. Ilan Ben-Dov. Suny has acquired 1.40% of our Issued and Outstanding shares and total voting rights. As a result of his indirect control of Scailex and Suny, Mr. Ilan Ben-Dov indirectly controlled 46.05% of our Issued and Outstanding shares and total voting rights as of January 31, 2011.  See “Item 3D. Risk Factors – 46.05% of our shares and voting rights are indirectly controlled by a single shareholder”. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Treasury shares do not have a right to dividends or to vote. |
|-----|--------------------------------------------------------------|

| (4) | The shares under "Public" include 5,015,457 shares held by Israeli entities from among our founding shareholders and their approved substitutes. These shares, together with 2,173,126 shares held by Suny and 869,129 shares held by Scailex, which are included in the table above, constitute 5.04% of our issued shares (approximately 5.19% of the Issued and Outstanding Shares). 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. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

|   | · | Leumi Partners acted as a pricing underwriter and distributor, in connection with a private offering to institutional investors in Israel following which on November 29, 2009, the Company issued NIS 448 million in principal amount. Pursuant to the underwriting agreement, the Company paid Leumi Partners a  sum of NIS 380,000 representing a commission at the rate of 28.27% from the total commission paid by Partner at the rate of 0.25% of the total immediate consideration for the offering plus an additional performance based commission at a rate of 0.05% of the total immediate consideration for the offering which the Company elected to pay at its sole discretion; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Leumi Partners acted as distributor in connection with a public offering following which on April 15, 2010, the Company  issued NIS 1 billion of Series C, Series D and Series E Notes. Pursuant to the underwriting agreement, the Company paid Leumi Partners  a  sum of NIS 900,000 representing a commission at the rate of 30% from the total commission paid by Partner at the rate of 0.25% of the total immediate consideration for the Public Offering plus an additional performance based commission at a rate of 0.05% of the total immediate consideration for the Public Offering which the Company elected to pay at its sole discretion; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Leumi Partners acted as distributor in connection with a private offering to institutional investors in Israel following which on February 24, 2011, the Company issued NIS 443 million of Notes Series C for a gross consideration of NIS 463 million. Pursuant to the underwriting agreement, the Company paid Leumi Partners a sum of NIS 694,000 representing a commission of 0.15% of the total immediate consideration for this offering. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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ITEM 8. FINANCIAL INFORMATION

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ITEM 9. THE OFFER AND LISTING

|                                                                                                                                                                                                             |   | NASDAQ      |   |   | Tel Aviv Stock Exchange  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|--------|--------------------------|--------|
|                                                                                                                                                                                                             |   | ($ per ADS) |   |   | (NIS per ordinary share) |   |
|                                                                                                                                                                                                             |   | High        |   |   | Low                      |   |   | High |   |   | Low |   |
|                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| 2006                                   |   |        | 12.52  |   |                     |   | 7.20 |   |   |   | 51.92 |   |   |   | 33.85 |   |
|                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| 2007                                   |   |        | 22.23  |   |                     |   | 11.50 |   |   |   | 85.20 |   |   |   | 48.42 |   |
|                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| 2008                                                                                                                                                                                                             |   |        | 24.62  |   |                     |   | 15.15 |   |   |   | 85.48 |   |   |   | 58.40 |   |
|                                                                                                                                                                                                             |   |        |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| 2009                                                                                                                                                                                                             |   |        | 20.46  |   |                     |   | 13.46 |   |   |   | 77.20 |   |   |   | 57.30 |   |

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| 2010                                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| First Quarter                                    |   |   | 24.13  |   |   |   | 20.17  |   |   |   | 94.29  |   |   |   | 74.00 |   |
| Second Quarter                                   |   |   | 22.87  |   |   |   | 15.26  |   |   |   | 84.07  |   |   |   | 60.00 |   |
| Third Quarter                                    |   |   | 18.38  |   |   |   | 15.17  |   |   |   | 67.50  |   |   |   | 59.00 |   |
| Fourth Quarter                                   |   |   | 21.75  |   |   |   | 18.30  |   |   |   | 79.25  |   |   |   | 65.96 |   |

| September  2010     |   |   | 18.38 |   |   |   | 16.70 |   |   |   | 67.50 |   |   |   | 63.57 |   |
|-------------------------------|--------|--------|-------|--------|--------|--------|-------|--------|--------|--------|-------|--------|--------|--------|-------|--------|
| October  2010       |   |   | 20.32 |   |   |   | 18.30 |   |   |   | 73.40 |   |   |   | 65.96 |   |
| November  2010      |   |   | 20.96 |   |   |   | 20.01 |   |   |   | 76.76 |   |   |   | 71.39 |   |
| December  2010      |   |   | 21.75 |   |   |   | 19.77 |   |   |   | 79.25 |   |   |   | 70.80 |   |
| January 2010                  |   |   | 20.62 |   |   |   | 19.00 |   |   |   | 74.00 |   |   |   | 70.45 |   |
| February 2010                 |   |   | 19.49 |   |   |   | 18.50 |   |   |   | 71.64 |   |   |   | 66.87 |   |
| March 2010 (through March 16) |   |   | 18.82 |   |   |   | 17.93 |   |   |   | 66.48 |   |   |   | 65.37 |   |

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ITEM 10. ADDITIONAL INFORMATION

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| · | 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 2010, 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, (24% in 2011) 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| · | 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: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| • | 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. Israeli stockbrokers and any financial institution through which the sold securities are held, are obliged, subject to some exemptions, to withhold tax on the amount of consideration paid with respect to such sale (or on the capital gain realized on the sale, if known) at the rate of 25% for corporations and 20% for individuals. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| · | a corporation (or an entity taxable as a corporation for US federal income tax purposes) created or organized in or under the laws of the United States 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

----

|                                                   |   | Fair Value(NIS equivalent in millions,except percentages) |        |    | Book Value(NIS equivalent in millions,except percentages) |   |
|--------------------------------------------------------|--------|----------------------------------------------------------------|-------------|---------|----------------------------------------------------------------|--------|
|                                                   |   |                                                           |        |    |                                                           |   |
| NIS-denominated debt linked to the CPI (1)             |   |                                                           |        |    |                                                           |   |
|                                                   |   |                                                           |        |    |                                                           |   |
| Long-term fixed Notes payable series A due 2012        |   |                                                           | 986         |    |                                                           |   | 956 |   |
| Weighted average interest rate payable                 |   |                                                           | 4.25        | %       |                                                           |   | 4.25 | % |
| Long-term fixed Notes payable series B due 2016        |   |                                                           | 484         |    |                                                           |   | 458 |   |
| Weighted average interest rate payable                 |   |                                                           | 3.4         | %       |                                                           |   | 3.4 | % |
| Long-term fixed Notes payable series C due 2018        |   |                                                           | 209         |    |                                                           |   | 204 |   |
| Weighted average interest rate payable                 |   |                                                           | 3.35        | %       |                                                           |   | 3.35 | % |
| Long-term bank borrowing bearing fixed interest        |   |                                                           | 490         |    |                                                           |   | 502 |   |
| Weighted average interest rate payable                 |   |                                                           | 2.75        | %       |                                                           |   | 2.75 | % |
| Finance lease (2)                                      |   |                                                           | 3           |    |                                                           |   | 3 |   |
| Weighted average interest rate payable                 |   |                                                           | 4.6         | %       |                                                           |   | 4.6 |   |
|                                                   |   |                                                           |        |    |                                                           |   |   |   |
| NIS-denominated debt not linked to the CPI             |   |                                                           |        |    |                                                           |   |   |   |
| Long-term fixed Notes payable series D due 2021        |   |                                                           | 393         |    |                                                           |   | 396 |   |
| Weighted average interest rate payable                 |   |                                                           | 3.53        | %       |                                                           |   | 3.53 | % |
| Long-term fixed Notes payable series E due 2017        |   |                                                           | 405         |    |                                                           |   | 397 |   |
| Weighted average interest rate payable                 |   |                                                           | 5.5         | %       |                                                           |   | 5.5 | % |
| Long-term bank borrowing bearing variable interest (2) |   |                                                           | 300         |    |                                                           |   | 300 |   |
| Weighted average interest rate payable                 |   |                                                           | 2.8         | %  |                                                           |   | 2.8 | %  |
| Long-term bank borrowing bearing fixed interest        |   |                                                           | 524         |    |                                                           |   | 500 |   |
| Weighted average interest rate payable                 |   |                                                           | 5.75        | %       |                                                           |   | 5.75 | % |
|                                                   |   |                                                           |        |    |                                                           |   |   |   |
| Payables-trade (2)                                     |   |                                                           | 588         |    |                                                           |   | 588 |   |
| Weighted average interest rate payable                 |   |                                                           |        |    |                                                           |   |   |   |
| Debt denominated in foreign currencies(mainly USD) (2) |   |                                                           |        |    |                                                           |   |   |   |
|                                                   |   |                                                           |        |    |                                                           |   |   |   |
| Payables-trade                                         |   |                                                           | 183         |    |                                                           |   | 183 |   |
| Weighted average interest rate payable                 |   |                                                           |        |    |                                                           |   |   |   |
|                                                   |   |                                                           |        |    |                                                           |   |   |   |
| Total                                                  |   |                                                           | 4,565  |    |                                                           |   | 4,487 |   |

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

| (2) | Book value approximates fair value at December 31, 2010. |   |
|-----|----------------------------------------------------------|--------|

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

----

|                                                         |   | As ofDecember 31,2010        |   |   | As of December 31, 2009 |   |   | Fair ValueatDecember 31,2010 |   |
|--------------------------------------------------------------|--------|------------------------------|--------|--------|-------------------------|--------|--------|------------------------------|--------|
|                                                         |   | (NIS equivalent in millions) |
|                                                         |   |                         |   |   |                    |   |   |                         |   |
| Forward transactions - for the exchange of: Dollars into NIS |   |                         | 334    |   |                    |   | 113    |                         |   |   | (3 | ) |
| Forward transactions-for the exchange of Euros into NIS      |   |                         | -      |   |                    |   |   |                         |   |   |   |   |
| Embedded derivatives - Dollars into NIS                      |   |                         | 144    |   |                    |   | 163    |                         |   |   | 3 |   |
| Forward transactions - for changes in the Israeli CPI        |   |                         | 80     |   |                    |   | 430    |                         |   |   | 3 |   |

|                   |   | Change |   |   | Equity                         |   |   | Profit |   |
|------------------------|--------|--------|--------|--------|--------------------------------|--------|--------|--------|--------|
|                   |   |   |   |   | New Israeli Shekelsin millions |   |
| December 31, 2009      |   |   |   |   |                           |   |   |   |   |
| Increase in the CPI of |   |   | 2.0    | %      |                           |   | (41    | )      |   |   | (41 | ) |
| Decrease in the CPI of |   |   | (2.0   | )%     |                           |   | 41     |   |   |   | 41 |   |
|                   |   |   |   |   |                           |   |   |   |   |   |   |   |
| December 31, 2010      |   |   |   |   |                           |   |   |   |   |   |   |   |
| Increase in the CPI of |   |   | 2.0    | %      |                           |   | (40    | )      |   |   | (40 | ) |
| Decrease in the CPI of |   |   | (2.0   | )%     |                           |   | 40     |   |   |   | 40 |   |

|                   |   | Change |   |   | Equity                         |   |   | Profit |   |
|------------------------|--------|--------|--------|--------|--------------------------------|--------|--------|--------|--------|
|                   |   |   |   |   | New Israeli Shekelsin millions |   |
| December 31, 2009      |   |   |   |   |                           |   |   |   |   |
| Increase in the USD of |   |   | 5.0    | %      |                           |   | (12    | )      |   |   | (12 | ) |
| Decrease in the USD of |   |   | (5.0   | )%     |                           |   | 10     |   |   |   | 10 |   |
|                   |   |   |   |   |                           |   |   |   |   |   |   |   |
| December 31, 2010      |   |   |   |   |                           |   |   |   |   |   |   |   |
| Increase in the USD of |   |   | 5.0    | %      |                           |   | 1      |   |   |   | 1 |   |
| Decrease in the USD of |   |   | (5.0   | )%     |                           |   | (1     | )      |   |   | (1 | ) |

----

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

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

ITEM 15. CONTROLS AND PROCEDURES

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

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

ITEM 16B. CODE OF ETHICS

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

|                   |   | 2010(NIS thousands) |   |   | 2009(NIS thousands) |   |
|------------------------|--------|---------------------|--------|--------|---------------------|--------|
|                   |   |                |   |   |                |   |
| Audit Fees (1)         |   |                | 2,680  |   |                |   | 2,904 |   |
| Audit-related Fees (2) |   |                | 1,122  |   |                |   | 766 |   |
| Tax Fees (3)           |   |                | 398    |   |                |   | 330 |   |
| TOTAL                  |   |                | 4,200  |   |                |   | 4,000 |   |

----

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

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

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

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACOUNTANT

ITEM 16G. CORPORATE GOVERNANCE

ITEM 17. FINANCIAL STATEMENTS

ITEM 18. FINANCIAL STATEMENTS

----

ITEM 19. EXHIBITS

| Exhibit No.         | Description                                                                     |
|---------------------|---------------------------------------------------------------------------------|
|                |                                                                            |
| >>>>1.1 | Articles of Association last updated and approved on October 22, 2009           |
| **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).1            | Form of Indenture between Partner and the Trust Company of Union Bank Ltd.      |

| >>>>2.(b).2>>>>2.(b).3 | Trust DeedAmendment no. 1 to the Trust Deed of November 26, 2009                                                                                                                                                                                                                                                                                                                                                |
|------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ^4.(a).1                                       | Restatement of the Relationship Agreement dated April 20, 2005                                                                                                                                                                                                                                                                                                                                                  |
| >>>>4.(a).1.1                      | Letter of Undertaking by which Scailex entered into the Restated Relationship Agreement with the Company, October 28, 2009                                                                                                                                                                                                                                                                                      |
| **4.(a).2                                      | License from the Israeli Ministry of Communications issued April 8, 1998, as amended by the amendments filed with the SEC as exhibits to our Annual Reports on Form 20-F for each of the years ended December 31, 2000, through December 31, 2009 (the "Amended License").                                                                                                             |
| **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).9                                      | Lease Agreement with Mivnei Taasia dated July 2, 1998                                                                                                                                                                                                                                                                                                                                                           |
| ^^^4.(a).13                                    | Asset Purchase Agreement with Med-1 dated as of January 22, 2006                                                                                                                                                                                                                                                                                                                                                |
| 4.(a).14                                       | Amendment No. 54 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                     |
| 4.(a).15                                       | Amendment No. 55 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                     |
| 4.(a).16                                       | Amendment No. 56 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                     |
| 4.(a).17                                       | Amendment No. 57 to our License from the Israeli Ministry of Communications                                                                                                                                                                                                                                                                                                                                     |
| 4.(a).18-57                                    | [Reserved]                                                                                                                                                                                                                                                                                                                                                                                                      |
| >4.(a).58                                   | Special License from the Israeli Ministry of Communications for the Provision of Fixed-Line Domestic Transmission and Data Communications Services issued August 14, 2006.                                                                                                                                                                                                                                      |
| >4.(a).59                                   | Amendment No. 1 to Special License for the Provision of Fixed-Line Domestic Transmission and Data Communications Services issued September 10, 2006.                                                                                                                                                                                                                                                            |
| >4.(a).60                                   | Exclusive General License from the Israeli Ministry of Communication for the Provision of Domestic Fixed Line Telecommunications Services issued January, 15 2007 as amended by the amendments filed with the SEC as exhibits to our Annual Reports on Form 20-F for each of the years ended December 31, 2006, through December 31, 2009 (the "Amended Domestic Fixed Line License"). |

| #+++4.(a).65                                         | Purchase Agreement with Nortel Networks Israel (Sales and Marketing) Ltd. dated November 12, 2003.                                                  |
|------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| #>>4.(a).67                                    | Swap Agreement with LM Ericsson Israel Ltd. dated December 20, 2007                                                                                 |
| #4.(a).68#4.(a).69>>>>#4.(a).70#4.(a).71 | [reserved]Facility Agreement dated November 24, 2009[reserved][reserved]                                                                            |
| 4.(a) 72                                             | 012 Smile Share Purchase Agreement                                                                                                                  |
| 4.(a) 73                                             | English translation of the original Hebrew language 012 Smile Credit Facility, dated January 31, 2010                                               |
| #>>>>4.(b).1>>>>4.(b).2      | Addendum to Lease Agreements from November 1, 2002 and Lease Agreements in Beit OfekRegistration Rights Agreement with Scailex                      |
| 6.                                                   | See Note 2v to our consolidated 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. |
|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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. 333-10992).                                                                                                                                   |
|----------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ***                  | 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.Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2008.  |
| >>>>     | Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2009.                                                                                                          |
| #                    | Confidential treatment requested.                                                                                                                                                                                      |

----

GLOSSARY 

| 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 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.                                                                                                               |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                             |
| 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.                                                                                                                                                                                                          |
|                                        |                                                                                                                                                                                                                                                                                                                                                                                             |
| HSPA                                        | HSPA 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.                                                                                                                                                                                                                                                                                             |
| ISP                                         | Internet service provider.                                                                                                                                                                                                                                                                                                                                                                  |
| 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.                                                                                                                                                                                                                                              |
| Roaming                                     | The mobile telephone feature that permits subscribers of one network to use their mobile telephones and telephone numbers when in another operator's network.                                                                                                                                                                                                                               |
| 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/3G                                     | 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 Broadbandover cellular (“VoC”) | 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.  |
|-------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| VOD                                                   | Video on demand.                                                                                                                                                                              |
| WAP                                                   | Wireless Application Protocol, a language specifically developed for cellular telephones that facilitates internet usage.                                                                          |
|  WLAN                                            |  Wireless local area network.                                                                                                                                                                 |

----

|   | Partner Communications Company Ltd. |   |
|--------|-------------------------------------|--------|
|   |                                |   |
|   | By: /s/ Yacov Gelbard               |   |
|   | Yacov Gelbard                       |   |
|   | Chief Executive Officer             |   |
|   |                                |   |
|   | March 21, 2011                      |   |
|   |                           |   |
|   | By: /s/ Emanuel Avner               |   |
|   | Emanuel Avner                       |   |
|   | Chief Financial Officer             |   |
|   |                                |   |
|   | March 21, 2011                      |   |

----

----

|                                                                                         | Page                    |
|----------------------------------------------------------------------------------------------|-------------------------|
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                      |  F- 2 - F - 3      |
| CONSOLIDATED FINANCIAL STATEMENTS                                                            |                    |
| Statements of Financial Position as of December 31, 2009 and 2010                            |  F- 4-  F - 5 |
| Statements of Income for the years ended December 31, 2008, 2009 and 2010               |  F - 6             |
| Statements of Comprehensive Income for the years ended December 31, 2008, 2009 and 2010 |  F - 7             |
| Statements of Changes in Equity for the years ended December 31, 2008, 2009 and 2010    |  F - 8             |
| Statements of Cash Flows for the years ended December 31, 2008, 2009 and 2010      |  F - 9 - F - 10    |
| Notes to financial statements                                                                | F - 11 - F -  91   |

----

----

| Tel-Aviv, Israel          | Kesselman & Kesselman                                     |
|---------------------------|---------------------------------------------------------------|
| March 17,  2011 | Certified Public Accountants (lsr.)                           |
|                      | A member firm of PricewaterhouseCoopers International Limited |

----

----

  

|                                                       |   |   |   |   |    New Israeli Shekels |   |   | Convenience translation into U.S. dollars(note 2a) |   |
|------------------------------------------------------------|--------|--------|--------|--------|---------------------------------------|--------|--------|----------------------------------------------------|--------|
|                                                       |   |   |   |   | December 31,                          |   |
|                                                       |   |   |   |   | 2009                                  |   |   | 2010                                               |   |   | 2010 |   |
|                                                       |   | Note   |   |   | In millions                           |   |
| CURRENT ASSETS                                             |   |   |   |   |                                  |   |   |                                               |   |   |   |   |
| Cash and cash equivalents                                  |   |   |   |   |                                  | 329    |   |                                               |   | 321 |   |   |   | 90 |   |
| Trade receivables                                          |   |   | 7      |   |                                  |   | 1,275  |                                               |   |   | 1,331 |   |   |   | 375 |   |
| Other receivables and prepaid expenses                     |   |   | 8      |   |                                  |   | 31     |                                               |   |   | 71 |   |   |   | 20 |   |
| Inventories                                                |   |   | 9      |   |                                  |   | 158    |                                               |   |   | 101 |   |   |   | 28 |   |
| Derivative financial instruments                           |   |   | 6      |   |                                  |   | 14     |                                               |   |   | 6 |   |   |   | 2 |   |
|                                                       |   |   |   |   |                                  |   | 1,807  |                                               |   |   | 1,830 |   |   |   | 515 |   |
|                                                       |   |   |   |   |                                  |   |   |                                               |   |   |   |   |   |   |   |   |
| NON CURRENT ASSETS                                         |   |   |   |   |                                  |   |   |                                               |   |   |   |   |   |   |   |   |
| Trade Receivables                                          |   |   | 7      |   |                                  |   | 474    |                                               |   |   | 632 |   |   |   | 178 |   |
| Advance payment in respect of the acquisition of 012 smile |   |   | 26     |   |                                  |   |   |                                               |   |   | 30 |   |   |   | 8 |   |
| Property and equipment                                     |   |   | 10     |   |                                  |   | 2,064  |                                               |   |   | 2,058 |   |   |   | 580 |   |
| Licenses and other intangible assets                       |   |   | 11     |   |                                  |   | 1,260  |                                               |   |   | 1,077 |   |   |   | 304 |   |
| Deferred income tax asset                                  |   |   | 23     |   |                                  |   | 14     |                                               |   |   |   |   |   |   |   |   |
| Derivative financial instruments                           |   |   | 6      |   |                                  |   | 4      |                                               |   |   |   |   |   |   |   |   |
|                                                       |   |   |   |   |                                  |   | 3,816  |                                               |   |   | 3,797 |   |   |   | 1,070 |   |
|                                                       |   |   |   |   |                                  |   |   |                                               |   |   |   |   |   |   |   |   |
| TOTAL ASSETS                                               |   |   |   |   |                                  |   | 5,623  |                                               |   |   | 5,627 |   |   |   | 1,585 |   |

|                    |   |                    |   |                      |
|-------------------------|--------|-------------------------|--------|---------------------------|
| Yacov Gelbard           |   | Emanuel Avner           |   | Barry Ben-Zeev (Woolfson) |
| Chief Executive Officer |   | Chief Financial Officer |   | Director                  |

----

|                                                                                                                                                          |   |   |             |   |   New Israeli Shekels |   |   | Convenience translation into U.S. dollars(note 2a) |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------|--------|---------------------------------|--------|--------|----------------------------------------------------|--------|
|                                                                                                                                                          |   |   |             |   | December 31,                    |   |
|                                                                                                                                                          |   |   |             |   | 2009                            |   |   | 2010                                               |   |   | 2010 |   |
|                                                                                                                                                          |   | Note   |             |   | In millions                     |   |
| CURRENT LIABILITIES                                                                                                                                           |   |   |             |   |                            |   |   |                                               |   |   |   |   |
| Current maturities of notes payable and other liabilities and current borrowings                                                                              |   |   |   14,15, 16 |   |                            |   | 752    |                                               |   |   | 628 |   |   |   | 177 |   |
| Trade payables                                                                                                                                                |   |   |             |   |                            |   | 777    |                                               |   |   | 771 |   |   |   | 217 |   |
| Parent group - trade                                                                                                                                          |   |   | 24               |   |                            |   | 34     |                                               |   |   | 72 |   |   |   | 20 |   |
| Other payables                                                                                                                                                |   |   | 12               |   |                            |   | 238    |                                               |   |   | 264 |   |   |   | 74 |   |
| Deferred revenue                                                                                                                                              |   |   |             |   |                            |   | 56     |                                               |   |   | 51 |   |   |   | 15 |   |
| Provisions                                                                                                                                                    |   |   | 13               |   |                            |   | 34     |                                               |   |   | 26 |   |   |   | 7 |   |
| Derivative financial instruments                                                                                                                              |   |   | 6                |   |                            |   | 4      |                                               |   |   | 3 |   |   |   | 1 |   |
| Income tax liability                                                                                                                                          |   |   |             |   |                            |   | 20     |                                               |   |   | 11 |   |   |   | 3 |   |
|                                                                                                                                                          |   |   |             |   |                            |   | 1,915  |                                               |   |   | 1,826 |   |   |   | 514 |   |
|                                                                                                                                                          |   |   |             |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |
| NON CURRENT LIABILITIES                                                                                                                                       |   |   |             |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |
| Notes payable                                                                                                                                                 |   |   | 15               |   |                            |   | 1,379  |                                               |   |   | 1,836 |   |   |   | 517 |   |
| Bank borrowings                                                                                                                                               |   |   | 14               |   |                            |   | 300    |                                               |   |   | 1,252 |   |   |   | 353 |   |
| Liability for employee rights upon retirement, net                                                                                                            |   |   | 17               |   |                            |   | 38     |                                               |   |   | 54 |   |   |   | 15 |   |
| Dismantling and restoring sites obligation                                                                                                                    |   |   | 13               |   |                            |   | 23     |                                               |   |   | 23 |   |   |   | 6 |   |
| Other non current liabilities                                                                                                                                 |   |   | 16               |   |                            |   | 6      |                                               |   |   | 8 |   |   |   | 2 |   |
| Deferred income tax liability                                                                                                                                 |   |   | 23               |   |                            |   |   |                                               |   |   | 2 |   |   |   | 1 |   |
|                                                                                                                                                          |   |   |             |   |                            |   | 1,746  |                                               |   |   | 3,175 |   |   |   | 894 |   |
|                                                                                                                                                          |   |   |             |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |
| TOTAL LIABILITIES                                                                                                                                             |   |   |             |   |                            |   | 3,661  |                                               |   |   | 5,001 |   |   |   | 1,408 |   |
|                                                                                                                                                          |   |   |             |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |
| EQUITY                                                                                                                                                        |   |   | 19               |   |                            |   |   |                                               |   |   |   |   |   |   |   |   |
| Share capital - ordinary shares of NIS 0.01 par value: authorized - December 31, 2009, and 2010 - 235,000,000 shares; issued and outstanding - |   |   |             |   |                            |   |   |                                               |   |   |   |   |   |
| December 31, 2009 – *154,440,136 shares                                                                                                                 |   |   |             |   |                            |   |   |                                               |   |   |   |   |   |
| December 31, 2010 – ­*155,249,176 shares                                                                                                           |   |   |             | 2      |                            |   |   | 2                                                  |   |   |   | 1 |   |
| Capital surplus                                                                                                                                               |   |   |             |   |                            |   | 2,483  |                                               |   |   | 1,099 |   |   |   | 311 |   |
| Accumulated deficit                                                                                                                                           |   |   |             |   |                            |   | (172   | )                                                  |   |   | (124 | ) |   |   | (36 | ) |
| Treasury shares, at cost - December 31, 2009        and 2010 - 4,467,990 shares                                       |   |   |             | (351   | )                               |   |   | (351                                               | )      |   |   | (99 | ) |
| TOTAL EQUITY                                                                                                                                                  |   |   |             |   |                            |   | 1,962  |                                               |   |   | 626 |   |   |   | 177 |   |
| TOTAL LIABILITIES AND EQUITY                                                                                                                                  |   |   |             |   |                            |   | 5,623  |                                               |   |   | 5,627 |   |   |   | 1,585 |   |

----

   

|                                |   |   |   |   |                                    |   |   |      |   |   |   |   |   | Convenience       |   |
|-------------------------------------|--------|--------|--------|--------|-----------------------------------------|--------|--------|-----------|--------|--------|--------|--------|--------|-------------------|--------|
|                                |   |   |   |   |                                    |   |   |      |   |   |   |   |   | translation       |   |
|                                |   |   |   |   |                                    |   |   |      |   |   |   |   |   | Into U.S. Dollars |   |
|                                |   |   |   |   | New Israeli Shekels                     |   |   | (note 2a) |   |
|                                |   |   |   |   | Year ended December 31                  |   |
|                                |   |   |   |   | 2008                                    |   |   | 2009      |   |   | 2010   |   |   | 2010              |   |
|                                |   | Note   |   |   | In millions (except earnings per share) |   |
| Revenues                            |   |   | 5      |   |                                    |   | 6,302  |      |   |   | 6,079  |   |   |              | 6,674  |   |   |   | 1,880 |   |
| Cost of revenues                    |   |   | 5, 20  |   |                                    |   | 3,868  |      |   |   | 3,770  |   |   |              | 4,093  |   |   |   | 1,153 |   |
| Gross profit                        |   |   |   |   |                                    |   | 2,434  |      |   |   | 2,309  |   |   |              | 2,581  |   |   |   | 727 |   |
|                                |   |   |   |   |                                    |   |   |      |   |   |   |   |   |              |   |   |   |   |   |   |
| Selling and marketing expenses      |   |   | 20     |   |                                    |   | 388    |      |   |   | 387    |   |   |              | 479    |   |   |   | 135 |   |
| General and administrative expenses |   |   | 20     |   |                                    |   | 284    |      |   |   | 290    |   |   |              | 306    |   |   |   | 86 |   |
| Other income - net                  |   |   | 21     |   |                                    |   | 64     |      |   |   | 69     |   |   |              | 64     |   |   |   | 18 |   |
| Operating profit                    |   |   |   |   |                                    |   | 1,826  |      |   |   | 1,701  |   |   |              | 1,860  |   |   |   | 524 |   |
| Finance income                      |   |   | 22     |   |                                    |   | 30     |      |   |   | 28     |   |   |              | 28     |   |   |   | 8 |   |
| Finance expenses                    |   |   | 22     |   |                                    |   | 214    |      |   |   | 204    |   |   |              | 209    |   |   |   | 59 |   |
| Finance costs, net                  |   |   | 22     |   |                                    |   | 184    |      |   |   | 176    |   |   |              | 181    |   |   |   | 51 |   |
| Profit before income tax            |   |   |   |   |                                    |   | 1,642  |      |   |   | 1,525  |   |   |              | 1,679  |   |   |   | 473 |   |
| Income tax expenses                 |   |   | 23     |   |                                    |   | 444    |      |   |   | 384    |   |   |              | 436    |   |   |   | 123 |   |
| Profit for the year                 |   |   |   |   |                                    |   | 1,198  |      |   |   | 1,141  |   |   |              | 1,243  |   |   |   | 350 |   |
|                                |   |   |   |   |                                    |   |   |      |   |   |   |   |   |              |   |   |   |   |   |   |
| Earnings per share                  |   |   |   |   |                                    |   |   |      |   |   |   |   |   |              |   |   |   |   |   |   |
| Basic                               |   |   |   |   |                                    |   | 7.71   |      |   |   | 7.42   |   |   |              | 8.03   |   |   |   | 2.26 |   |
| Diluted                             |   |   | 25     |   |                                    |   | 7.65   |      |   |   | 7.37   |   |   |              | 7.95   |   |   |   | 2.24 |   |

----

  

|                                                                                               |   |   |   |   |    New Israeli Shekels |   |   | Convenience translation into U.S. dollars(note 2a) |   |
|----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|---------------------------------------|--------|--------|----------------------------------------------------|--------|
|                                                                                               |   |   |   |   | Year ended December 31                |   |
|                                                                                               |   |   |   |   | 2008                                  |   |   | 2009                                               |   |   | 2010 |   |   | 2010 |   |
|                                                                                               |   | Note   |   |   | In millions                           |   |
| Profit for the year                                                                                |   |   |   |   |                                  | 1,198  |   |                                               |   | 1,141 |   |   |   | 1,243 |   |   |   | 350 |   |
| Other comprehensive income  (losses)                                                     |   |   |   |   |                                  |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |
| Actuarial gains (losses) on defined benefit plan                                                   |   |   | 17     |   |                                  |   | (18    | )                                                  |   |   | 16 |   |   |   | (8 | ) |   |   | (2 | ) |
| Income taxes relating to actuarial gains (losses) on defined benefit plan                          |   |   | 23     |   |                                  |   | 5      |                                               |   |   | (4 | ) |   |   | 2 |   |   |   | * |   |
| Other comprehensive income (losses)     for the year, net of income taxes |   |   |   |   |                                  |   | (13    | )                                                  |   |   | 12 |   |   |   | (6 | ) |   |   | (2 | ) |
|                                                                                               |   |   |   |   |                                  |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| TOTAL COMPREHENSIVE INCOME FOR THE YEAR                                                            |   |   |   |   |                                  |   | 1,185  |                                               |   |   | 1,153 |   |   |   | 1,237 |   |   |   | 348 |   |

----

  

|                                                                                                                                                                          |   |   |   |   | Share capital   |        |        |                     |   |   |          |   |   |              |   |   |           |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|-----------------|-------------|-------------|--------------------------|--------|--------|---------------|--------|--------|-------------------|--------|--------|----------------|--------|
|                                                                                                                                                                          |   |   |   |   |  Number of |        |        |                     |   |   |  Capital |   |   |  Accumulated |   |   |  Treasury |   |   |   |   |
|                                                                                                                                                                          |   |   |   |   | shares          |        |        | Amount                   |   |   | surplus       |   |   | deficit           |   |   | shares         |   |   | Total |   |
|                                                                                                                                                                          |   | Note   |   |   |            |        |        | I n m i l l i o n s |   |
| New Israeli  Shekels:                                                                                                                                               |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   |   |   |   |
| BALANCE AT JANUARY 1, 2008                                                                                                                                                    |   |   |   |   |            | 157,320,770 |        |                     |   | 2      |          |   |   | 2,429             |   |   |           | (616   | ) |   |   | - |   |   |   | 1,815 |   |
|                                                                                                                                                                          |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   |   |   |   |   |   |   |   |   |   |
| CHANGES DURING THE YEAR ENDEDDECEMBER 31,2008                                                                                                                                 |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   |   |   |   |   |   |   |   |   |   |
|             Total comprehensive income for the             year |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           | 1,185  |   |   |   |   |   |   |   | 1,185 |   |
| Exercise of options granted to employees                                                                                                                                      |   |   |   |   |            | 566,614     |        |                     |   | *      |          |   |   | 17                |   |   |           |   |   |   |   |   |   |   |   | 17 |   |
| Employee share-based compensation             expenses                                                       |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           | 8      |   |   |   |   |   |   |   | 8 |   |
| Dividend                                                                                                                                                                      |   |   | 19     |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   | (942 | ) |   |   |   |   |   |   | (942 | ) |
| Treasury Shares, at cost                                                                                                                                                      |   |   |   |   |            |        | (4,467,990  | )                        |   |   |          |   |   |              |   |   |           |   |   |   |   |   | (351 | ) |   |   | (351 | ) |
| BALANCE AT DECEMBER 31, 2008                                                                                                                                                  |   |   |   |   |            |        | 153,419,394 |                     |   |   | 2             |   |   |              | 2,446  |   |           |   | (365 | ) |   |   | (351 | ) |   |   | 1,732 |   |
|                                                                                                                                                                          |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   |   |   |   |   |   |   |   |   |   |   |
| CHANGES DURING THE YEAR ENDED       DECEMBER 31, 2009                                                                                                |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year                                                                                                                                  |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   | 1,153 |   |   |   |   |   |   |   | 1,153 |   |
| Exercise of options granted to employees                                                                                                                                      |   |   |   |   |            |        | 1,020,742   |                     |   |   | *             |   |   |              | 37     |   |           |   |   |   |   |   |   |   |   |   | 37 |   |
| Employee share-based compensation expenses                                                                                                                               |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   | 22 |   |   |   |   |   |   |   | 22 |   |
| Dividend                                                                                                                                                                      |   |   | 19     |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   | (982 | ) |   |   |   |   |   |   | (982 | ) |
| BALANCE AT DECEMBER 31, 2009                                                                                                                                                  |   |   |   |   |            |        | 154,440,136 |                     |   |   | 2             |   |   |              | 2,483  |   |           |   | (172 | ) |   |   | (351 | ) |   |   | 1,962 |   |
|                                                                                                                                                                          |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   |   |   |   |   |   |   |   |   |   |   |
| CHANGES DURING THE YEAR ENDED       DECEMBER 31, 2010                                                                                                |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year                                                                                                                                       |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   | 1,237 |   |   |   |   |   |   |   | 1,237 |   |
| Exercise of options granted to employees                                                                                                                                 |   |   |   |   |            |        | 809,040     |                     |   |   | *             |   |   |              | 16     |   |           |   |   |   |   |   |   |   |   |   | 16 |   |
| Employee share-based compensation expenses                                                                                                                                    |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   | 23 |   |   |   |   |   |   |   | 23 |   |
| Capital reduction (see note 19(d))                                                                                                                                            |   |   |   |   |            |        |        |                     |   |   |          |   |   |              | (1,400 | )      |           |   |   |   |   |   |   |   |   |   | (1,400 | ) |
| Dividend                                                                                                                                                                      |   |   | 19     |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   | (1,212 | ) |   |   |   |   |   |   | (1,212 | ) |
| BALANCE AT DECEMBER 31, 2010                                                                                                                                                  |   |   |   |   |            |        | 155,249,176 |                     |   |   | 2             |   |   |              | 1,099  |   |           |   | (124 | ) |   |   | (351 | ) |   |   | 626 |   |
|                                                                                                                                                                          |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Convenience translation into u..s. dollars(note 2a):                                                                                                                          |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE AT JANUARY 1, 2010                                                                                                                                                    |   |   |   |   |            |        | 154,440,136 |                     |   |   | 1             |   |   |              | 700    |   |           |   | (48 | ) |   |   | (99 | ) |   |   | 554 |   |
|        CHANGES DURING THE YEAR ENDED        DECEMBER 31, 2010                                                |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year                                                                                                                                       |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   | 348 |   |   |   |   |   |   |   | 348 |   |
| Exercise of options granted to employees                                                                                                                                 |   |   | 19     |   |            |        | 809,040     |                     |   |   | *             |   |   |              | 5      |   |           |   |   |   |   |   |   |   |   |   | 5 |   |
| Employee share-based compensation expenses                                                                                                                                    |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   | 6 |   |   |   |   |   |   |   | 6 |   |
| Capital reduction (see note 19(d))                                                                                                                                            |   |   |   |   |            |        |        |                     |   |   |          |   |   |              | (394   | )      |           |   |   |   |   |   |   |   |   |   | (394 | ) |
| Dividend                                                                                                                                                                      |   |   |   |   |            |        |        |                     |   |   |          |   |   |              |   |   |           |   | (342 | ) |   |   |   |   |   |   | (342 | ) |
| BALANCE AT DECEMBER 31, 2010                                                                                                                                                  |   |   |   |   |            |        | 155,249,176 |                     |   |   | 1             |   |   |              | 311    |   |           |   | (36 | ) |   |   | (99 | ) |   |   | 177 |   |

----

  

|                                                           |   |   |   |   | New Israeli Shekels    |   |   | Convenience translation into U.S. dollars(note 2a) |   |
|----------------------------------------------------------------|--------|--------|--------|--------|------------------------|--------|--------|----------------------------------------------------|--------|
|                                                           |   |   |   |   | Year ended December 31 |   |
|                                                           |   |   |   |   | 2008                   |   |   | 2009                                               |   |   | 2010 |   |   | 2010 |   |
|                                                           |   | Note   |   |   | In millions            |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                          |   |   |   |   |                   |   |   |                                               |   |   |   |   |   |   |   |
| Cash generated from operations (Appendix)                      |   |   |   |   |                   | 2,335  |   |                                               |   | 2,092 |   |   |   | 2,384 |   |   |   | 672 |   |
| Income tax paid                                                |   |   | 23     |   |                   |   | (420   | )                                                  |   |   | (339 | ) |   |   | (426 | ) |   |   | (120 | ) |
| Net cash provided by operating activities                      |   |   |   |   |                   |   | 1,915  |                                               |   |   | 1,753 |   |   |   | 1,958 |   |   |   | 552 |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                          |   |   |   |   |                   |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Acquisition of property and equipment                          |   |   | 10     |   |                   |   | (488   | )                                                  |   |   | (526 | ) |   |   | (361 | ) |   |   | (102 | ) |
| Increase in intangible assets                                  |   |   | 11     |   |                   |   | (31    | )                                                  |   |   | (231 | ) |   |   | (105 | ) |   |   | (30 | ) |
| Advance payment in respect of the acquisition of 012 smile     |   |   |   |   |                   |   |   |                                               |   |   |   |   |   |   | (30 | ) |   |   | (9 | ) |
| Interest received                                              |   |   | 22     |   |                   |   | 4      |                                               |   |   | 1 |   |   |   | 5 |   |   |   | 1 |   |
| Proceeds from derivative financial instruments, net            |   |   | 6      |   |                   |   | 1      |                                               |   |   | 24 |   |   |   | 5 |   |   |   | 1 |   |
| Net cash used in investing activities                          |   |   |   |   |                   |   | (514   | )                                                  |   |   | (732 | ) |   |   | (486 | ) |   |   | (139 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES:                          |   |   |   |   |                   |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from exercise of stock options granted to employees   |   |   |   |   |                   |   | 17     |                                               |   |   | 37 |   |   |   | 16 |   |   |   | 5 |   |
| Non-current bank borrowings received                           |   |   | 14     |   |                   |   |   |                                               |   |   | 300 |   |   |   | 1,000 |   |   |   | 282 |   |
| Proceeds from issuance of notes payable, net of issuance costs |   |   | 15     |   |                   |   |   |                                               |   |   | 446 |   |   |   | 990 |   |   |   | 279 |   |
| Dividend paid                                                  |   |   | 19     |   |                   |   | (930   | )                                                  |   |   | (986 | ) |   |   | (1,209 | ) |   |   | (341 | ) |
| Capital reduction (see note 19(d))                             |   |   |   |   |                   |   | (7     | )                                                  |   |   |   |   |   |   | (1,400 | )  |   |   | (394 | ) |
| Repayment of finance lease                                     |   |   | 16     |   |                   |   | (351   | )                                                  |   |   | (7 | ) |   |   | (3 | ) |   |   | (1 | ) |
| Interest paid                                                  |   |   | 22     |   |                   |   | (92    | )                                                  |   |   | (89 | ) |   |   | (118 | ) |   |   | (33 | ) |
| Current borrowings received (repaid), net                      |   |   | 14     |   |                   |   | 20     |                                               |   |   | (20 | ) |   |   |   |   |   |   |   |   |
| Repayment of non-current bank borrowings                       |   |   | 14     |   |                   |   | (22    | )                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Repayment of notes payable                                     |   |   | 15     |   |                   |   |   |                                               |   |   | (557 | ) |   |   | (756 | ) |   |   | (213 | ) |
| Net cash used in financing activities                          |   |   |   |   |                   |   | (1,365 | )                                                  |   |   | (876 | ) |   |   | (1,480 | ) |   |   | (416 | ) |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               |   |   |   |   |                   |   | 36     |                                               |   |   | 145 |   |   |   | (8 | ) |   |   | (3 | ) |
| CASH AND CASH EQUIVALENTS ATBEGINNING OF YEAR                  |   |   |   |   |                   |   | 148    |                                               |   |   | 184 |   |   |   | 329 |   |   |   | 93 |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                       |   |   |   |   |                   |   | 184    |                                               |   |   | 329 |   |   |   | 321 |   |   |   | 90 |   |

----

|                                                                      |   |   |   |   |   New Israeli Shekels |   |   | Convenience translation intoU.S. dollars(note 2a) |   |
|---------------------------------------------------------------------------|--------|--------|--------|--------|---------------------------------|--------|--------|---------------------------------------------------|--------|
|                                                                      |   |   |   |   | Year ended December 31,    |   |
|                                                                      |   |   |   |   | 2008                            |   |   | 2009                                              |   |   | 2010 |   |   | 2010 |   |
|                                                                      |   | Note   |   |   | In millions                     |   |
|                                                                      |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |
| Cash generated from operations:                                           |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |
|      Profit for the year                         |   |   |   |   |                            | 1,198  |   |                                              |   | 1,141 |   |   |   | 1,243 |   |   |   | 350 |   |
|                                                                      |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
|     Adjustments for:                                  |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                             |   |   | 10, 11 |   |                            |   | 463    |                                              |   |   | 577 |   |   |   | 669 |   |   |   | 188 |   |
| Impairment of intangible assets                                           |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   | 16 |   |   |   | 5 |   |
| Employee share based compensation expenses                                |   |   | 19     |   |                            |   | 9      |                                              |   |   | 22 |   |   |   | 23 |   |   |   | 6 |   |
| Liability for employee rights upon retirement, net                        |   |   | 17     |   |                            |   | 5      |                                              |   |   | 1 |   |   |   | 8 |   |   |   | 2 |   |
| Finance costs, net                                                        |   |   | 22     |   |                            |   | 101    |                                              |   |   | 84 |   |   |   | 53 |   |   |   | 15 |   |
| Gain (loss) from change in fair value of derivative financial instruments |   |   | 6      |   |                            |   | (13    | )                                                 |   |   | (18 | ) |   |   | 6 |   |   |   | 2 |   |
| Interest paid                                                             |   |   | 22     |   |                            |   | 92     |                                              |   |   | 89 |   |   |   | 118 |   |   |   | 33 |   |
| Interest received                                                         |   |   | 22     |   |                            |   | (4     | )                                                 |   |   | (1 | ) |   |   | (5 | ) |   |   | (1 | ) |
| Deferred income taxes                                                     |   |   | 23     |   |                            |   | 8      |                                              |   |   | 63 |   |   |   | 18 |   |   |   | 5 |   |
| Income tax paid                                                           |   |   | 23     |   |                            |   | 420    |                                              |   |   | 339 |   |   |   | 426 |   |   |   | 120 |   |
| Capital loss from property and equipment                                  |   |   | 10     |   |                            |   | 1      |                                              |   |   | 3 |   |   |   | 3 |   |   |   | 1 |   |
| Changes in operating assets and liabilities:                              |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Decrease (increase) in accounts receivable:                               |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade                                                                     |   |   | 7      |   |                            |   | 47     |                                              |   |   | (229 | ) |   |   | (214 | ) |   |   | (60 | ) |
| Other                                                                     |   |   |   |   |                            |   | 17     |                                              |   |   | 2 |   |   |   | (40 | ) |   |   | (11 | ) |
| Increase (decrease) in accounts payable and accruals:                     |   |   |   |   |                            |   |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Parent group - trade                                                      |   |   | 24     |   |                            |   | 1      |                                              |   |   | (17 | ) |   |   | 38 |   |   |   | 11 |   |
| Trade                                                                     |   |   |   |   |                            |   | 10     |                                              |   |   | 43 |   |   |   | (40 | ) |   |   | (11 | ) |
| Other payables                                                            |   |   | 12     |   |                            |   | (17    | )                                                 |   |   | 6 |   |   |   | 27 |   |   |   | 7 |   |
| Provisions                                                                |   |   | 13     |   |                            |   |   |                                              |   |   | 34 |   |   |   | (8 | ) |   |   | (2 | ) |
| Deferred revenue                                                          |   |   |   |   |                            |   | (5     | )                                                 |   |   | 8 |   |   |   | (5 | ) |   |   | (1 | ) |
| Current income tax liability                                              |   |   | 23     |   |                            |   | (6     | )                                                 |   |   | (22 | ) |   |   | (9 | ) |   |   | (3 | ) |
| Decrease (increase) in inventories                                        |   |   | 9      |   |                            |   | 8      |                                              |   |   | (33 | ) |   |   | 57 |   |   |   | 16 |   |
| Cash generated from operations:                                           |   |   |   |   |                            |   | 2,335  |                                              |   |   | 2,092 |   |   |   | 2,384 |   |   |   | 672 |   |

----

PARTNER 

|   | a. | Partner Communications Company Ltd. ("the Company", "Partner") is a leading Israeli provider of telecommunications services under the orangeTM brand. The address of the Company's Principal Executive Offices is 8 Amal Street, Afeq Industrial Park, Rosh-Ha'ayin 48103, Israel. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | The Company through its subsidiaries and partnership provides telecommunications services in the following segments (see also note 5): (a) cellular communication services: airtime and content; and (b) fixed-line communication services, that include: (1) 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; (2) Transmission services; (3) voice over broadband ("VOB") and Primary Rate Interface ("PRI") fixed-line telephone services. The Company sells related equipment for the cellular segment and for the fixed-line segment: mainly handsets, phones, domestic routers, and related equipment. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | c. | The Company was incorporated on September 29, 1997, and operates under a license granted by the Israeli Ministry of Communications ("MOC") to operate a cellular telephone network. The Company commenced full commercial operations on January 1, 1999. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The license is valid through 2022. 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under the terms of the 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The license authorizes the Company to provide mobile telephone services within the State of Israel as well as offer roaming services outside the State of Israel. In May 2000, the Company was 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 Company believes that it will be able to receive an extension to this license upon request. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In March 2001, the Company received a special license granted by the Ministry of Communications, allowing the Company through its own facilities to provide internet access to land-line network customers. The license was renewed in April 2008 and is valid until April 2013. The Company began supplying commercial ISP services in January 2009. The ISP equipment is also used for providing other services such as Voice Over Broadband. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 20 years but may be extended by the Ministry of Communications for successive periods of 10 years provided that the licensee has complied with the terms of the license and has acted consistently for the enhancement of telecom services. The Company 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 Company's obligations under the License. The license was amended in 2007 to grant the Company the right to offer Voice Over Broadband ("VoB") services using the infrastructure of Bezeq The Israel Telecommunication corp. ltd and HOT- Telecommunication Systems ltd (leading fixed communication infrastructure services providers in Israel) to access customers and to provide them with land-line telephony service. The License was further amended in 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, the Company was 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | D. | Main recent regulatory developments |
|--------|----|-------------------------------------|

|   | (1) | Reduction of interconnect tariffs to be paid to cellular operators |
|--------|-----|--------------------------------------------------------------------|

|   | · | The maximum interconnect tariff payable by a telecommunications operator to a cellular operator for the completion of a call in its cellular network will be reduced from the current tariff of NIS 0.251 per minute to NIS 0.0687 per minute effective January 1, 2011; to NIS 0.0634 per minute effective January 1, 2012; to 0.0591 per minute effective January 1, 2013; and to NIS 0.0555 per minute effective January 1, 2014. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The maximum interconnect tariff payable by a telecommunications operator to a cellular operator for sending an SMS message to its cellular network will be reduced from the current tariff of NIS 0.0285 to NIS 0.0016 effective January 1, 2011; to NIS 0.0015 effective January 1, 2012; to NIS 0.0014 effective January 1, 2013; and to NIS 0.0013 effective January 1, 2014. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Consumer license amendments |
|--------|-----|-----------------------------|

----

|   | d. | Main recent regulatory developments (continued) |
|--------|----|-------------------------------------------------|

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

----

|   | a. | Basis of preparation of the financial statements (continued) |
|--------|----|--------------------------------------------------------------|

|   | (a) | Derivative financial instruments are measured and presented at their fair values through profit or loss. |
|--------|-----|----------------------------------------------------------------------------------------------------------|

|   | (b) | Property and equipment were revalued to the fair value on the transition date to IFRS, see note 2(f). |
|--------|-----|-------------------------------------------------------------------------------------------------------|

|   | (c) | Liability for employee rights upon retirement, net, is valued based on the present value of the defined benefit obligation less fair value of the plan assets, see note 17. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Until December 31, 2003 the Israeli economy was considered hyperinflational according to IFRS, therefore the value of non-monetary assets, licenses and equity items have been adjusted for changes in the general purchasing power of the Israeli currency – NIS, based upon changes in the Israeli Consumer Price Index ("CPI") until December 31, 2003. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

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

|   | 1) | The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and Partnership. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | Intercompany balances and transactions between the Group's entities have been eliminated. |
|--------|----|-------------------------------------------------------------------------------------------|

| List of wholly owned Subsidiaries and partnership: |   |   |
|----------------------------------------------------|--------|--------|
| Partner Land-Line Communications Solutions - Limited Partnership             |   |   |
|-----------------------------------------------------------------------------------|--------|--------|
| Partner Future Communications 2000 Limited ("PFC")                           |   |   |
| Partner Business Communications Solution - Limited Partnership  - not active |   |   |
| Partner Net Limited – not active                                            |   |   |

|   | d. | Operating Segments |
|--------|----|--------------------|

|   | e. | Inventories |
|--------|----|-------------|

|   | f. | Property and equipment |
|--------|----|------------------------|

----

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

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

----

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

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

|   | 1) |  Licenses: |
|--------|----|-----------------|

----

|   | g. | Licenses and other intangible assets (continued) |
|--------|----|--------------------------------------------------|

|   | 2) | Customer relationships: |
|--------|----|-------------------------|

|   | 3) | Computer software: |
|--------|----|--------------------|

|   | 4) | Subscriber Acquisition and Retention Costs (SARC): |
|--------|----|----------------------------------------------------|

|      |  Costs to acquire or retain postpaid mobile telecommunication subscribers, pursuant to a contract with early termination penalties are capitalised if (1) such costs are identifiable and controlled; (2) it is probable that future economic benefits will flow from the subscribers to the Company; and (3) such costs can be measured reliably. If costs do not meet the aforementioned criteria they are recognized immediately as expenses. The cost of the subsidized handset less the subscriber's payment towards the handset, and sales commissions, are included in the subscriber acquisition and retention costs. Capitalized subscriber acquisition and retention costs are amortized over their expected useful life which is not longer than their minimum enforceable period, which is generally a period of 18 months, using the straight-line method. In the event that a subscriber churns off the network or the arrangement is canceled within the period, any unamortized subscriber acquisition or retention costs are written off in the period in which the subscriber churns. The criteria for capitalization of SARC are met for transaction occurring after January 1, 2009. See note 2(h). |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | PARTNER COMMUNICATIONS COMPANY LTD. |
|--------|-------------------------------------|

|   | h. | Impairment of non-financial assets |
|--------|----|------------------------------------|

|   | i. | Financial instruments |
|--------|----|-----------------------|

|   | 1.  | Financial instruments at fair value through profit or loss category: |
|--------|----------|----------------------------------------------------------------------|

|   |   | This category includes embedded derivative financial instruments and freestanding derivative financial instruments. These derivatives do not qualify for hedge accounting. Instruments in this category are classified as current if they are expected to mature within 12 months after the end of the reporting period; otherwise they are classified as non-current. Gains or losses arising from changes in the fair value of these derivative financial instruments are presented in the income statement within "finance costs, net" in the period in which they arise. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Loans and receivables category: |
|--------|----|---------------------------------|

|   |   | Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for arrangements longer than 12 months after the end of the reporting period, which are classified as non-current assets. Loans and receivables are recognized initially at fair value and subsequently measured at amortized costs using the effective interest method, less any impairment loss. The Company's loans and receivables comprise "trade receivables" and "other receivables" and "cash and cash equivalents" in the statement of financial position. See also note (q) (3) below regarding revenue recognition from non-current credit arrangements. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | 3. | Financial liabilities and borrowings at amortized cost category: |
|--------|----|------------------------------------------------------------------|

|   | j. | Cash and Cash equivalents |
|--------|----|---------------------------|

|   | k. | Trade Receivables |
|--------|----|-------------------|

----

|   | l. | Share capital |
|--------|----|---------------|

|   | m. | Trade payables |
|--------|----|----------------|

|   | n. | Employee benefits |
|--------|----|-------------------|

|   | (i) | Post employment benefits: |
|--------|-----|---------------------------|

|   | 1. | Defined contribution plan |
|--------|----|---------------------------|

----

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

|   | (i) | Post employment benefits (continued) |
|--------|-----|--------------------------------------|

|   | 2. | Defined benefit plan |
|--------|----|----------------------|

----

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

|   | (i) | Post employment benefits (continued) |
|--------|-----|--------------------------------------|

|   | 3. | Termination benefits |
|--------|----|----------------------|

|   | (ii) | Employment benefits |
|--------|------|---------------------|

|   | 1.  | Vacation and recreation benefits |
|--------|----------|----------------------------------|

|   | 2.  | Profit-sharing and bonus plans |
|--------|----------|--------------------------------|

|   | o. | Share based payment |
|--------|----|---------------------|

----

|   | p. | Provisions |
|--------|----|------------|

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

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

|   | (3) | Provisions for handset warranties include obligations to customers in respect of handsets sold. |
|--------|-----|-------------------------------------------------------------------------------------------------|

----

|   | q. | Revenues |
|--------|----|----------|

|   | (1) | Revenues from services: |
|--------|-----|-------------------------|

|   | (2) | Revenues from sales of equipment: |
|--------|-----|-----------------------------------|

----

|   | q. | Revenues (continued) |
|--------|----|----------------------|

|   | (3) | Revenues from non-current credit arrangements: |
|--------|-----|------------------------------------------------|

|   | r. | Leases |
|--------|----|--------|

----

|   | s. | Advertising expenses |
|--------|----|----------------------|

|   | t. | Tax expenses |
|--------|----|--------------|

----

|   | u. | Dividend distribution |
|--------|----|-----------------------|

|   | v. | Earning Per Share (EPS) |
|--------|----|-------------------------|

----

----

----

----

|   | (1) | Cellular business – consists mainly of cellular services as: airtime, interconnect and content. In addition, this segment includes selling of related equipments: mainly handsets cellular phones, and related equipment |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Fixed line business - consist of a number of services provided over fixed-line networks: Transmission services; Primary Rate Interface ("PRI") lines for business sector customers; Voice over Broadband ("VoB") telephony services; and Internet service provider ("ISP") services. In addition, this segment includes selling of related equipments such as routers and phones. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                       |   | New Israeli Shekels               |   |
|----------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                       |   | Year ended December 31, 2010 |   |
|                                                                       |   | In millions                       |   |
|                                                                       |   | Cellular segment                  |   |   | Fixed line segment |   |   | Elimination |   |   | Consolidated |   |
| Segment revenue - Services                                                 |   |                              | 5,555  |   |   |   | 107 |   |   |   |   |   |   | 5,662 |   |
| Inter-segment revenue - Services                                           |   |                              | 20     |   |   |   | 57 |   |   |   | (77 | ) |   |   |   |   |
| Segment revenue - Equipment                                                |   |                              | 987    |   |   |   | 25 |   |   |   |   |   |   |   | 1,012 |   |
| Total revenues                                                             |   |                              | 6,562  |   |   |   | 189 |   |   |   | (77 | ) |   |   | 6,674 |   |
|                                                                       |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment cost of revenues – Services                                  |   |                              | 3,174  |   |   |   | 133 |   |   |   |   |   |   |   | 3,307 |   |
| Inter-segment cost of  revenues- Services                        |   |                              | 57     |   |   |   | 20 |   |   |   | (77 | ) |   |   |   |   |
| Segment cost of revenues - Equipment                                       |   |                              | 751    |   |   |   | 35 |   |   |   |   |   |   |   | 786 |   |
| Cost of revenues                                                           |   |                              | 3,982  |   |   |   | 188 |   |   |   | (77 | ) |   |   | 4,093 |   |
| Gross profit (loss)                                                        |   |                              | 2,580  |   |   |   | 1 |   |   |   |   |   |   |   | 2,581 |   |
|                                                                       |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                         |   |                              | 760    |   |   |   | 25 |   |   |   |   |   |   |   | 785 |   |
| Other income                                                               |   |                              | 64     |   |   |   |   |   |   |   |   |   |   |   | 64 |   |
| Operating profit (loss)                                                    |   |                              | 1,884  |   |   |   | (24 | ) |   |   |   |   |   |   | 1,860 |   |
| Adjustments to presentation of EBITDA –depreciation and amortization |   |                              | 633    |   |   |   | 36 |   |   |   |   |   |   |   | 669 |   |
|      -  Impairment of intangible assets |   |                              | 16     |   |   |   |   |   |   |   |   |   |   |   | 16 |   |
|      -  Other (1)                       |   |                              | 25     |   |   |   |   |   |   |   |   |   |   |   | 25 |   |
| EBITDA                                                                     |   |                              | 2,558  |   |   |   | 12 |   |   |   |   |   |   |   | 2,570 |   |
| Reconciliation of EBITDA to profit before tax                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization              |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (669 | ) |
|      - Impairment of intangible assets            |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (16 | ) |
|     -  Finance costs, net                    |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (181 | ) |
|     -  other (1)                             |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (25 | ) |
| Profit before income tax                                                   |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | 1,679 |   |

----

|                                                           |   | New Israeli Shekels               |   |
|----------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                           |   | Year ended December 31, 2009 |   |
|                                                           |   | In millions                       |   |
|                                                           |   | Cellular segment                  |   |   | Fixed line segment |   |   | Elimination |   |   | Consolidated |   |
| Segment revenue - Services                                     |   |                              | 5,369  |   |   |   | 55 |   |   |   |   |   |   | 5,424 |   |
| Inter-segment revenue - Services                               |   |                              | 11     |   |   |   | 33 |   |   |   | (44 | ) |   |   |   |   |
| Segment revenue - Equipment                                    |   |                              | 628    |   |   |   | 27 |   |   |   |   |   |   |   | 655 |   |
| Total revenues                                                 |   |                              | 6,008  |   |   |   | 115 |   |   |   | (44 | ) |   |   | 6,079 |   |
| Segment cost of revenues – Services                      |   |                              | 3,091  |   |   |   | 115 |   |   |   |   |   |   |   | 3,206 |   |
| Inter-segment cost of  revenues- Services            |   |                              | 33     |   |   |   | 11 |   |   |   | (44 | ) |   |   |   |   |
| Segment cost of revenues - Equipment                           |   |                              | 518    |   |   |   | 46 |   |   |   |   |   |   |   | 564 |   |
| Cost of revenues                                               |   |                              | 3,642  |   |   |   | 172 |   |   |   | (44 | ) |   |   | 3,770 |   |
| Gross profit (loss)                                            |   |                              | 2,366  |   |   |   | (57 | ) |   |   |   |   |   |   | 2,309 |   |
| Operating expenses                                             |   |                              | 626    |   |   |   | 51 |   |   |   |   |   |   |   | 677 |   |
| Other income                                                   |   |                              | 69     |   |   |   |   |   |   |   |   |   |   |   | 69 |   |
| Operating profit (loss)                                        |   |                              | 1,809  |   |   |   | (108 | ) |   |   |   |   |   |   | 1,701 |   |
| Adjustments to presentation of EBITDA                          |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      – depreciation and amortization |   |                              | 552    |   |   |   | 25 |   |   |   |   |   |   |   | 577 |   |
|      – other (1)                |   |                              | 26     |   |   |   |   |   |   |   |   |   |   |   | 26 |   |
| EBITDA                                                         |   |                              | 2,387  |   |   |   | (83 | ) |   |   |   |   |   |   | 2,304 |   |
| Reconciliation of EBITDA to profit before tax                  |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization       |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (577 | ) |
|      - Finance costs, net             |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (176 | ) |
|      - Other (1)                      |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (26 | ) |
| Profit before income tax                                       |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | 1,525 |   |

----

|                                                          |   | New Israeli Shekels               |   |
|---------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                          |   | Year ended December 31, 2008 |   |
|                                                          |   | In millions                       |   |
|                                                          |   | Cellular segment                  |   |   | Fixed line segment |   |   | Reconciliation for consolidation |   |   | Consolidated |   |
| Segment revenue - Services                                    |   |                              | 5,521  |   |   |   | 25 |   |   |   |   |   |   | 5,546 |   |
| Inter-segment revenue - Services                              |   |                              | 2      |   |   |   | 15 |   |   |   | (17 | ) |   |   |   |   |
| Segment revenue - Equipment                                   |   |                              | 756    |   |   |   | - |   |   |   |   |   |   |   | 756 |   |
| Total revenues                                                |   |                              | 6,279  |   |   |   | 40 |   |   |   | (17 | ) |   |   | 6,302 |   |
| Segment cost of revenues – Services                     |   |                              | 2,969  |   |   |   | 56 |   |   |   |   |   |   |   |   |   |
| Inter-segment cost of  revenues- Services           |   |                              | 15     |   |   |   | 2 |   |   |   | (17 | ) |   |   | 3,025 |   |
| Segment cost of revenues - Equipment                          |   |                              | 842    |   |   |   | 1 |   |   |   |   |   |   |   | 843 |   |
| Cost of revenues                                              |   |                              | 3,826  |   |   |   | 59 |   |   |   | (17 | ) |   |   | 3,868 |   |
| Gross profit (loss)                                           |   |                              | 2,453  |   |   |   | (19 | ) |   |   |   |   |   |   | 2,434 |   |
| Operating expenses                                            |   |                              | 656    |   |   |   | 16 |   |   |   |   |   |   |   | 672 |   |
| Other income                                                  |   |                              | 64     |   |   |   |   |   |   |   |   |   |   |   | 64 |   |
| Operating profit (loss)                                       |   |                              | 1,861  |   |   |   | (35 | ) |   |   |   |   |   |   | 1,826 |   |
| Adjustments to presentation of EBITDA                         |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     –depreciation and amortization  |   |                              | 445    |   |   |   | 18 |   |   |   |   |   |   |   | 463 |   |
|     –other (1)                      |   |                              | 9      |   |   |   |   |   |   |   |   |   |   |   | 9 |   |
| EBITDA                                                        |   |                              | 2,315  |   |   |   | (17 | ) |   |   |   |   |   |   | 2,298 |   |
| Reconciliation of EBITDA to profit before tax                 |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      - Depreciation and amortization |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (463 | ) |
|     -  Finance costs, net       |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (184 | ) |
|     -  Other (1)                |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | (9 | ) |
| Profit before tax                                             |   |                              |   |   |   |   |   |   |   |   |   |   |   |   | 1,642 |   |

----

| 1 | mainly employee share based compensation expenses. |
|---|----------------------------------------------------|

----

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

----

|                                                                                |   | December 31, 2009                               |   |   | December 31, 2010 |   |
|-------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|--------|-------------------|--------|
|                                                                                |   | In or linked to foreign currencies (mainly USD) |   |   | NIS linked to CPI |   |   | NIS unlinked |   |   | In or linked to foreign currencies (mainly USD) |   |   | NIS linked to CPI |   |   | NIS unlinked |   |
|                                                                                |   | New Israeli Shekels In millions                 |   |
| Current assets                                                                      |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Cash and cash equivalents                                         |   |                                            |   |   |              |   |   |   | 329 |   |   |   |   |   |   |   |   |   | 321 |   |
|    Trade receivables                                                 |   |                                            |   |   |              |   |   |   | 1,275 |   |   |   |   |   |   |   |   |   | 1,331 |   |
|    Other receivables                                                 |   |                                            |   |   |              |   |   |   | 8 |   |   |   |   |   |   | 38 |   |   |   | 33 |   |
|    Derivative financial instruments (*)                              |   |                                            | 3      |   |              |   | 11 |   |   |   |   |   |   |   | 3 |   |   |   | 3 |   |   |   |   |   |
| Non- current assets                                                                 |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Trade receivables                                                 |   |                                            |   |   |              |   |   |   |   |   | 474 |   |   |   |   |   |   |   |   |   |   |   | 632 |   |
|    Derivative financial instruments (*)                              |   |                                            |   |   |              |   | 4 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                        |   |                                            | 3      |   |              |   | 15 |   |   |   | 2,086 |   |   |   | 3 |   |   |   | 41 |   |   |   | 2,317 |   |
|                                                                                |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities                                                                 |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current maturities of notes payable and of other liabilities and current borrowings |   |                                            |   |   |              |   | 752 |   |   |   |   |   |   |   |   |   |   |   | 578 |   |   |   | 50 |   |
| Trade payables                                                                      |   |                                            | 224    |   |              |   |   |   |   |   | 553 |   |   |   | 183 |   |   |   |   |   |   |   | 588 |   |
| Other payables                                                                      |   |                                            |   |   |              |   |   |   |   |   | 238 |   |   |   |   |   |   |   | 1 |   |   |   | 263 |   |
| Parent group - trade                                                                |   |                                            | 19     |   |              |   |   |   |   |   | 15 |   |   |   | 43 |   |   |   |   |   |   |   | 29 |   |
|    Derivative financial instruments (*)                              |   |                                            | 4      |   |              |   |   |   |   |   |   |   |   |   | 3 |   |   |   |   |   |   |   |   |   |
| Non- current liabilities                                                            |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-current borrowings                                                              |   |                                            |   |   |              |   |   |   |   |   | 300 |   |   |   |   |   |   |   | 502 |   |   |   | 750 |   |
| Notes payable                                                                       |   |                                            |   |   |              |   | 1,379 |   |   |   |   |   |   |   |   |   |   |   | 1,043 |   |   |   | 793 |   |
| Other                                                                               |   |                                            |   |   |              |   | 2 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                                   |   |                                            | 247    |   |              |   | 2,133 |   |   |   | 1,106 |   |   |   | 229 |   |   |   | 2,124 |   |   |   | 2,473 |   |
|                                                                                |   |                                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|   | (*) relates to freestanding forward derivative financial instruments and embedded derivative financial instruments |
|--------|--------------------------------------------------------------------------------------------------------------------|

----

|                   |   | Change |   |   | Equity                          |   |   | Profit |   |
|------------------------|--------|--------|--------|--------|---------------------------------|--------|--------|--------|--------|
|                   |   |   |   |   | New Israeli Shekels In millions |   |
| December 31, 2008      |   |   |   |   |                            |   |   |   |   |
| Increase in the CPI of |   |   | 2.0    | %      |                            |   | (27    | )      |   |   | (27 | ) |
| Decrease in the CPI of |   |   | (2.0   | %)     |                            |   | 27     |   |   |   | 27 |   |
|                   |   |   |   |   |                            |   |   |   |   |   |   |   |
| December 31, 2009      |   |   |   |   |                            |   |   |   |   |   |   |   |
| Increase in the CPI of |   |   | 2.0    | %      |                            |   | (41    | )      |   |   | (41 | ) |
| Decrease in the CPI of |   |   | (2.0   | %)     |                            |   | 41     |   |   |   | 41 |   |
|                   |   |   |   |   |                            |   |   |   |   |   |   |   |
| December 31, 2010      |   |   |   |   |                            |   |   |   |   |   |   |   |
| Increase in the CPI of |   |   | 2.0    | %      |                            |   | (40    | )      |   |   | (40 | ) |
| Decrease in the CPI of |   |   | (2.0   | %)     |                            |   | 40     |   |   |   | 40 |   |

|                   |   | Change |   |   | Equity                          |   |   | Profit |   |
|------------------------|--------|--------|--------|--------|---------------------------------|--------|--------|--------|--------|
|                   |   |   |   |   | New Israeli Shekels In millions |   |
| December 31, 2008      |   |   |   |   |                            |   |   |   |   |
| Increase in the USD of |   |   | 5.0    | %      |                            |   | (6     | )      |   |   | (6 | ) |
| Decrease in the USD of |   |   | (5.0   | %)     |                            |   | 5      |   |   |   | 5 |   |
|                   |   |   |   |   |                            |   |   |   |   |   |   |   |
| December 31, 2009      |   |   |   |   |                            |   |   |   |   |   |   |   |
| Increase in the USD of |   |   | 5.0    | %      |                            |   | (12    | )      |   |   | (12 | ) |
| Decrease in the USD of |   |   | (5.0   | %)     |                            |   | 10     |   |   |   | 10 |   |
|                   |   |   |   |   |                            |   |   |   |   |   |   |   |
| December 31, 2010      |   |   |   |   |                            |   |   |   |   |   |   |   |
| Increase in the USD of |   |   | 5.0    | %      |                            |   | 1      |   |   |   | 1 |   |
| Decrease in the USD of |   |   | (5.0   | %)     |                            |   | (1     | )      |   |   | (1 | ) |

----

|                                 |   | Exchange    |   |   |          |   |
|--------------------------------------|--------|-------------|--------|--------|---------------|--------|
|                                 |   | rate of one |   |   | Israeli       |   |
|                                 |   | dollar      |   |   | CPI*          |   |
| At December 31:                      |   |        |   |   |          |   |
| 2010                                 |   | NIS 3.549   |   |   | 211.67 points |   |
| 2009                                 |   | NIS 3.775   |   |   | 206.19 points |   |
| 2008                                 |   | NIS 3.802   |   |   | 198.42 points |   |
| Increase (decrease) during the year: |   |        |   |   |          |   |
| 2010                                 |   |        | (6%)   |   |          |   | 2.7% |   |
| 2009                                 |   |        | (0.7%) |   |          |   | 3.9% |   |
| 2008                                 |   |        | (1.1%) |   |          |   | 3.8% |   |

|                                                                |   | New Israeli Shekels |   |
|---------------------------------------------------------------------|--------|---------------------|--------|
|                                                                |   | December 31         |   |
|                                                                |   | 2008                |   |   | 2009 |   |   | 2010 |   |
|                                                                |   | In millions         |   |
| Forward transactions for the                                        |   |                |   |   |   |   |   |   |   |
| changes in the Israeli CPI                                          |   |                | 800    |   |   |   | 430 |   |   |   | 80 |   |
| Forward transactions for the                                        |   |                |   |   |   |   |   |   |   |   |   |   |
| exchange of dollars into NIS                                        |   |                | 380    |   |   |   | 113 |   |   |   | 334 |   |
| Forward transactions for the                                        |   |                |   |   |   |   |   |   |   |   |   |   |
| Exchange of Euros into NIS                                          |   |                | 32     |   |   |   | - |   |   |   | - |   |
|                                                                |   |                |   |   |   |   |   |   |   |   |   |   |
| Embedded derivatives -  for the exchange NIS into dollars |   |                | 310    |   |   |   | 163 |   |   |   | 144 |   |

----

|                                            |   | New Israeli Shekels |   |
|-------------------------------------------------|--------|---------------------|--------|
|                                            |   | December 31         |   |
|                                            |   | 2009                |   |   | 2010 |   |
|                                            |   | In millions         |   |
| Cash and cash equivalents                       |   |                | 329    |   |   |   | 321 |   |
| Trade receivables including non-current amounts |   |                | 1,749  |   |   |   | 1,963 |   |
| Forward exchange contracts on CPI               |   |                | 15     |   |   |   | 3 |   |
| Other receivables                               |   |                | 8      |   |   |   | 12 |   |
|                                            |   |                | 2,101  |   |   |   | 2,299 |   |

----

| December 31, 2010                  |   | 1st year                        |   |   | 2nd year |   |   | 3rd year |   |   | 4 to 5 years |   |   | More than5 years |   |   | Total  |   |
|------------------------------------|--------|---------------------------------|--------|--------|----------|--------|--------|----------|--------|--------|--------------|--------|--------|------------------|--------|--------|--------|--------|
|                               |   | New Israeli Shekels In millions |   |
| Notes payable series A             |   |                            | 600    |   |     |   | 389    |     |   |   |         |   |   |             |   |   |   |   |   | 989 |   |
| Notes payable series B             |   |                            | 16     |   |     |   | 16     |     |   |   | 131          |   |   |             | 250    |   |   |   | 119 |   |   |   | 532 |   |
| Notes payable series C             |   |                            | 7      |   |     |   | 7      |     |   |   | 7            |   |   |             | 14     |   |   |   | 220 |   |   |   | 255 |   |
| Notes payable series D             |   |                            | 15     |   |     |   | 15     |     |   |   | 15           |   |   |             | 29     |   |   |   | 455 |   |   |   | 529 |   |
| Notes payable series E             |   |                            | 22     |   |     |   | 22     |     |   |   | 102          |   |   |             | 191    |   |   |   | 173 |   |   |   | 510 |   |
| Bank borrowings                    |   |                            | 101    |   |     |   | 99     |     |   |   | 395          |   |   |             | 166    |   |   |   | 822 |   |   |   | 1,583 |   |
| Trade and Other payables           |   |                            | 920    |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 920 |   |
| Parent group  - trade    |   |                            | 72     |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 72 |   |
| Other liabilities                  |   |                            | 3      |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 3 |   |
| Foreign currency forward contracts |   |                            | 3      |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 3 |   |
|                               |   |                            | 1,759  |   |     |   | 548    |     |   |   | 650          |   |   |             | 650    |   |   |   | 1,789 |   |   |   | 5,396 |   |

----

| December 31, 2009                  |   | 1st year                        |   |   | 2nd year |   |   | 3rd year |   |   | 4 to 5 years |   |   | More than5 years |   |   | Total  |   |
|------------------------------------|--------|---------------------------------|--------|--------|----------|--------|--------|----------|--------|--------|--------------|--------|--------|------------------|--------|--------|--------|--------|
|                               |   | New Israeli Shekels In millions |   |
| Notes payable series A             |   |                            | 809    |   |     |   | 778    |     |   |   | 189          |   |   |             |   |   |   |   |   |   | 1,776 |   |
| Notes payable series B             |   |                            | 16     |   |     |   | 15     |     |   |   | 15           |   |   |             | 252    |   |   |   | 236 |   |   |   | 534 |   |
| Non-current bank borrowings        |   |                            | 7      |   |     |   | 6      |     |   |   | 6            |   |   |             | 307    |   |   |   |   |   |   |   | 326 |   |
| Trade and other payables           |   |                            | 914    |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 914 |   |
| Parent group  - trade    |   |                            | 34     |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 34 |   |
| Other liabilities                  |   |                            | 2      |   |     |   | 2      |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 4 |   |
| Foreign currency forward contracts |   |                            | 3      |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 3 |   |
| Embedded derivatives               |   |                            | 1      |   |     |   |   |     |   |   |         |   |   |             |   |   |   |   |   |   |   |   | 1 |   |
|                               |   |                            | 1,786  |   |     |   | 801    |     |   |   | 210          |   |   |             | 559    |   |   |   | 236 |   |   |   | 3,592 |   |

| As at December 31, 2010                                    |   | 1st year                        |   |   2nd year | Total  |   |
|------------------------------------------------------------|--------|---------------------------------|--------|-----------------|--------|--------|
|                                                       |   | New Israeli Shekels In millions |   |
| Foreign currency forward contracts: amounts to be received |   |                            | *      |            |   |   |   | * |   |
| Foreign currency forward contracts: amounts to be paid     |   |                            | (3     | )               |   |   |   | (3 | ) |
|                                                       |   |                            | (3     | )               |   |   |   | (3 | ) |

| As at December 31, 2009                                                     |   | 1st year                        |   |   2nd year | Total  |   |
|-----------------------------------------------------------------------------|--------|---------------------------------|--------|-----------------|--------|--------|
|                                                                        |   | New Israeli Shekels In millions |   |
| Foreign currency forward   contracts: amounts to be received |   |                            | 75     |            |   |   |   | 75 |   |
| Foreign currency forward   contracts: amounts to be paid     |   |                            | (78    | )               |   |   |   | (78 | ) |
| CPI forward contracts to be settled net                                     |   |                            | (3     | )               |   |   |   | (3 | ) |

----

|   | · | Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | · | Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3) |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

----

|                                                       |         |   | December 31, 2009               |   |   | December 31, 2010 |   |
|------------------------------------------------------------|--------------|--------|---------------------------------|--------|--------|-------------------|--------|
|                                                       | Category     |   | Carrying amount                 |   |   | Fair value        |   |   | Interest rate used (**) |   |   | Carrying amount |   |   | Fair value |   |   | Interest rate used (**) |   |
|                                                       |         |   | New Israeli Shekels In millions |   |
| Assets                                                     |         |   |                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                  | L&R      |   |                            | 329    |   |              |   | 329 |   |   |   |   |   |   | 321 |   |   |   | 321 |   |   |   |   |
| Trade receivables                                          | L&R      |   |                            | 1,749  |   |              |   | 1,754 |   |   |   | 4.25 | % |   |   | 1,963 |   |   |   | 1,956 |   |   |   | 5.50 | % |
| Other receivables (*)                                      | L&R      |   |                            | 8      |   |              |   | 8 |   |   |   |   |   |   |   | 40 |   |   |   | 40 |   |   |   |   |   |
| Derivative financial instruments                           | FVTPLLevel 2 |   |                            | 18     |   |              |   | 18 |   |   |   |   |   |   |   | 6 |   |   |   | 6 |   |   |   |   |   |
| Liabilities                                                |         |   |                            |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes payable series A                                     | AC           |   |                            | 1,681  |   |              |   | 1,765 |   |   | Market quote |   |   |   | 956 |   |   |   | 986 |   |   | Market quote |   |
| Notes payable series B                                     | AC           |   |                            | 448    |   |              |   | 434 |   |   |   | 4.19 | % |   |   | 458 |   |   |   | 484 |   |   | Market quote |   |
| Notes payable series C                                     | AC           |   |                            |   |   |              |   |   |   |   |   |   |   |   |   | 205 |   |   |   | 209 |   |   | Market quote |   |
| Notes payable series D                                     | AC           |   |                            |   |   |              |   |   |   |   |   |   |   |   |   | 396 |   |   |   | 393 |   |   | Market quote |   |
| Notes payable series E                                     | AC           |   |                            |   |   |              |   |   |   |   |   |   |   |   |   | 397 |   |   |   | 405 |   |   | Market quote |   |
| Trade payables and other (*)                               | AC           |   |                            | 777    |   |              |   | 777 |   |   |   |   |   |   |   | 771 |   |   |   | 771 |   |   |   |   |   |
| Bank borrowing bearing variable interest (*)               | AC           |   |                            | 300    |   |              |   | 300 |   |   |   |   |   |   |   | 300 |   |   |   | 300 |   |   |   |   |   |
| Bank borrowings bearing fixed interest- unlinked           | AC           |   |                            |   |   |              |   |   |   |   |   |   |   |   |   | 500 |   |   |   | 524 |   |   |   | 5.29 | % |
| Bank borrowings bearing fixed interest - linked to the CPI | AC           |   |                            |   |   |              |   |   |   |   |   |   |   |   |   | 502 |   |   |   | 490 |   |   |   | 3.16 | % |
| Parent group – trade (*)                             | AC           |   |                            | 34     |   |              |   | 34 |   |   |   |   |   |   |   | 72 |   |   |   | 72 |   |   |   |   |   |
| Finance lease obligation (*)                               | AC           |   |                            | 4      |   |              |   | 4 |   |   |   |   |   |   |   | 3 |   |   |   | 3 |   |   |   |   |   |
| Derivative financial instruments                           | FVTPLLevel 2 |   |                            | 4      |   |              |   | 4 |   |   |   |   |   |   |   | 3 |   |   |   | 3 |   |   |   |   |   |

| (*) | The fair value of these current financial instrument does not differ significantly from its carrying amount, as the impact of discounting is not significant. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (**) | Weighted average of interest rate used to calculate the fair value based on discounted cash flows. |
|------|----------------------------------------------------------------------------------------------------|

----

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

|                            |   | New Israeli Shekels |
|---------------------------------|--------|---------------------|
|                            |   | December 31         |
|                            |   | 2009                |   |   | 2010 |
|                            |   | In millions         |
| Trade (current and non-current) |   |                | 2,056 |   |   |   | 2,294 |   |
| Deferred interest income        |   |                | (58 | ) |   |   | (75 | ) |
| Allowance for doubtful accounts |   |                | (249 | ) |   |   | (256 | ) |
|                            |   |                | 1,749 |   |   |   | 1,963 |   |
| Current                         |   |                | 1,275 |   |   |   | 1,331 |   |
| Non – current             |   |                | 474 |   |   |   | 632 |   |

|   | (b) | Allowance for doubtful accounts: |
|--------|-----|----------------------------------|

|                                                     |   | New Israeli Shekels |   |
|----------------------------------------------------------|--------|---------------------|--------|
|                                                     |   | Year ended          |   |
|                                                     |   | 2008                |   |   | 2009 |   |   | 2010 |   |
|                                                     |   | In millions         |   |
| Balance at beginning of year                             |   |                | 163    |   |   |   | 250 |   |   |   | 249 |   |
| Receivables written-off during the year as uncollectible |   |                | (4     | ) |   |   | (72 | ) |   |   | (43 | ) |
| Change during the year                                   |   |                | 91     |   |   |   | 71 |   |   |   | 50 |   |
| Balance at end of year                                   |   |                | 250    |   |   |   | 249 |   |   |   | 256 |   |

----

|                        |   | Gross                           |   |   | Allowance |   |   | Gross  |   |   | Allowance |   |
|-----------------------------|--------|---------------------------------|--------|--------|-----------|--------|--------|--------|--------|--------|-----------|--------|
|                        |   | New Israeli Shekels In millions |   |
|                        |   | December 31                     |   |
|                        |   | 2009                            |   |   | 2010      |   |
| Not past due                |   |                            | 1,734  |   |      |   | 57     |   |   |   | 1,950     |   |   |   | 58 |   |
| Past due less than one year |   |                            | 104    |   |      |   | 33     |   |   |   | 110       |   |   |   | 37 |   |
| Past due more than one year |   |                            | 218    |   |      |   | 159    |   |   |   | 234       |   |   |   | 161 |   |
|                        |   |                            | 2,056  |   |      |   | 249    |   |   |   | 2,294     |   |   |   | 256 |   |

|                       |   | New Israeli Shekels |   |
|----------------------------|--------|---------------------|--------|
|                       |   | December 31         |   |
|                       |   | 2009                |   |   | 2010 |   |
|                       |   | In millions         |   |
| Ministry of Communications |   |                | -      |   |   |   | 38 |   |
| Prepaid expenses           |   |                | 23     |   |   |   | 21 |   |
| Sundry                     |   |                | 8      |   |   |   | 12 |   |
|                       |   |                | 31     |   |   |   | 71 |   |

----

|   | a. | Composition |
|--------|----|-------------|

|                             |   | New Israeli Shekels |   |
|----------------------------------|--------|---------------------|--------|
|                             |   | December 31         |   |
|                             |   | 2009                |   |   | 2010 |   |
|                             |   | In millions         |   |
| Handsets                         |   |                | 106    |   |   |   | 62 |   |
| Accessories and other            |   |                | 27     |   |   |   | 19 |   |
| Spare parts                      |   |                | 18     |   |   |   | 15 |   |
| ISP modems and related equipment |   |                | 7      |   |   |   | 5 |   |
|                             |   |                | 158    |   |   |   | 101 |   |

|   | b.  Inventories at December 31, 2010, are presented net of an allowance for decline in value in the amount of NIS 5 million (December 31, 2009 – NIS 9 million). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                         |   | Communication network           |   |   | Computers(*) |   |   | Optic fibers and related assets |   |   | Office furniture and equipment |   |   | Leaseholdimprovements |   |   | Total  |   |
|------------------------------|--------|---------------------------------|--------|--------|--------------|--------|--------|---------------------------------|--------|--------|--------------------------------|--------|--------|-----------------------|--------|--------|--------|--------|
|                         |   | New Israeli Shekels In millions |   |
| Cost                         |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |
| Balance at January 1, 2008   |   |                            | 1,287  |   |         |   | 93     |                            |   |   | 134                            |   |   |                  | 11     |   |   |   | 165 |   |   |   | 1,690 |   |
| Additions                    |   |                            | 382    |   |         |   | 46     |                            |   |   | 108                            |   |   |                  | 7      |   |   |   | 15 |   |   |   | 558 |   |
| Disposals                    |   |                            | 9      |   |         |   | 1      |                            |   |   | -                              |   |   |                  | -      |   |   |   | - |   |   |   | 10 |   |
| Balance at December 31, 2008 |   |                            | 1,660  |   |         |   | 138    |                            |   |   | 242                            |   |   |                  | 18     |   |   |   | 180 |   |   |   | 2,238 |   |
|                         |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Additions                    |   |                            | 316    |   |         |   | 85     |                            |   |   | 59                             |   |   |                  | 9      |   |   |   | 20 |   |   |   | 489 |   |
| Disposals                    |   |                            | 45     |   |         |   | 1      |                            |   |   | -                              |   |   |                  | -      |   |   |   | - |   |   |   | 46 |   |
| Balance at December 31, 2009 |   |                            | 1,931  |   |         |   | 222    |                            |   |   | 301                            |   |   |                  | 27     |   |   |   | 200 |   |   |   | 2,681 |   |
|                         |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Additions                    |   |                            | 224    |   |         |   | 99     |                            |   |   | 27                             |   |   |                  | 4      |   |   |   | 28 |   |   |   | 382 |   |
| Disposals                    |   |                            | 26     |   |         |   | 4      |                            |   |   | -                              |   |   |                  | 10     |   |   |   | - |   |   |   | 40 |   |
| Balance at December 31, 2010 |   |                            | 2,129  |   |         |   | 317    |                            |   |   | 328                            |   |   |                  | 21     |   |   |   | 228 |   |   |   | 3,023 |   |
|                         |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Accumulated Depreciation     |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2008   |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Depreciation for the year    |   |                            | 242    |   |         |   | 26     |                            |   |   | 11                             |   |   |                  | 5      |   |   |   | 27 |   |   |   | 311 |   |
| Disposals                    |   |                            | 8      |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   | 8 |   |
| Balance at December 31, 2008 |   |                            | 234    |   |         |   | 26     |                            |   |   | 11                             |   |   |                  | 5      |   |   |   | 27 |   |   |   | 303 |   |
|                         |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Depreciation for the year    |   |                            | 267    |   |         |   | 39     |                            |   |   | 14                             |   |   |                  | 9      |   |   |   | 28 |   |   |   | 357 |   |
| Disposals                    |   |                            | 42     |   |         |   | 1      |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   | 43 |   |
| Balance at December 31, 2009 |   |                            | 459    |   |         |   | 64     |                            |   |   | 25                             |   |   |                  | 14     |   |   |   | 55 |   |   |   | 617 |   |
|                         |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Depreciation for the year    |   |                            | 278    |   |         |   | 50     |                            |   |   | 19                             |   |   |                  | 9      |   |   |   | 29 |   |   |   | 385 |   |
| Disposals                    |   |                            | 23     |   |         |   | 4      |                            |   |   | -                              |   |   |                  | 10     |   |   |   | - |   |   |   | 37 |   |
| Balance at December 31, 2010 |   |                            | 714    |   |         |   | 110    |                            |   |   | 44                             |   |   |                  | 13     |   |   |   | 84 |   |   |   | 965 |   |
|                         |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| Carrying amounts, net        |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   |   |   |
|                         |   |                            |   |   |         |   |   |                            |   |   |                           |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| At December 31, 2008         |   |                            | 1,426  |   |         |   | 112    |                            |   |   | 231                            |   |   |                  | 13     |   |   |   | 153 |   |   |   | 1,935 |   |
| At December 31, 2009         |   |                            | 1,472  |   |         |   | 158    |                            |   |   | 276                            |   |   |                  | 13     |   |   |   | 145 |   |   |   | 2,064 |   |
| At December 31, 2010         |   |                            | 1,415  |   |         |   | 207    |                            |   |   | 284                            |   |   |                  | 8      |   |   |   | 144 |   |   |   | 2,058 |   |

----

|                         |   | Licenses                        |   |   | Customer relationships |   |   | Subscriber acquisition and retention costs |   |   | Computer software |   |   | Total  |   |
|------------------------------|--------|---------------------------------|--------|--------|------------------------|--------|--------|--------------------------------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                         |   | New Israeli Shekels In millions |   |
| Cost                         |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   |   |
| Balance at January 1, 2008   |   |                            | 2,104  |   |                   |   | 18     |                                       |   |   |              |   |   | 610    |   |   |   | 2,732 |   |
| Additions                    |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   | 31     |   |   |   | 31 |   |
| Disposals                    |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   | 2      |   |   |   | 2 |   |
| Balance at December 31, 2008 |   |                            | 2,104  |   |                   |   | 18     |                                       |   |   |              |   |   | 639    |   |   |   | 2,761 |   |
|                         |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   |   |   |   |   |   |
| Additions                    |   |                            |   |   |                   |   |   |                                       |   |   | 199               |   |   |   | 33     |   |   |   | 232 |   |
| Disposals                    |   |                            | 12     |   |                   |   |   |                                       |   |   | 18                |   |   |   | 265    |   |   |   | 295 |   |
| Balance at December 31, 2009 |   |                            | 2,092  |   |                   |   | 18     |                                       |   |   | 181               |   |   |   | 407    |   |   |   | 2,698 |   |
|                         |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   |   |   |   |   |   |   |
| Additions                    |   |                            |   |   |                   |   |   |                                       |   |   | 72                |   |   |   | 52     |   |   |   | 124 |   |
| Disposals                    |   |                            | 7      |   |                   |   |   |                                       |   |   | 187               |   |   |   | 45     |   |   |   | 239 |   |
| Balance at December 31, 2010 |   |                            | 2,085  |   |                   |   | 18     |                                       |   |   | 66                |   |   |   | 414    |   |   |   | 2,583 |   |
|                         |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   |   |   |   |   |   |   |
| Accumulated amortization     |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2008   |   |                            | 932    |   |                   |   | 4      |                                       |   |   |              |   |   |   | 415    |   |   |   | 1,351 |   |
| Amortization for the year    |   |                            | 85     |   |                   |   | 3      |                                       |   |   |              |   |   |   | 64     |   |   |   | 152 |   |
| Disposals                    |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   | 2      |   |   |   | 2 |   |
| Balance at December 31, 2008 |   |                            | 1,017  |   |                   |   | 7      |                                       |   |   |              |   |   |   | 477    |   |   |   | 1,501 |   |
|                         |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   |   |   |   |   |   |   |
| Amortization for the year    |   |                            | 76     |   |                   |   | 3      |                                       |   |   | 88                |   |   |   | 53     |   |   |   | 220 |   |
| Disposals                    |   |                            |   |   |                   |   |   |                                       |   |   | 18                |   |   |   | 265    |   |   |   | 283 |   |
| Balance at December 31, 2009 |   |                            | 1,093  |   |                   |   | 10     |                                       |   |   | 70                |   |   |   | 265    |   |   |   | 1,438 |   |
|                         |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   |   |   |   |   |   |   |
| Amortization for the year    |   |                            | 80     |   |                   |   | 3      |                                       |   |   | 141               |   |   |   | 60     |   |   |   | 284 |   |
| Impairment recorded          |   |                            |   |   |                   |   |   |                                       |   |   | 16                |   |   |   |   |   |   |   | 16 |   |
| Disposals                    |   |                            |   |   |                   |   |   |                                       |   |   | 187               |   |   |   | 45     |   |   |   | 232 |   |
| Balance at December 31, 2010 |   |                            | 1,173  |   |                   |   | 13     |                                       |   |   | 40                |   |   |   | 280    |   |   |   | 1,506 |   |
|                         |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   |   |   |   |   |   |   |
| Carrying amounts, net        |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   |   |   |   |   |   |   |
|                         |   |                            |   |   |                   |   |   |                                       |   |   |              |   |   |   |   |   |   |   |   |   |
| At December 31, 2008         |   |                            | 1,087  |   |                   |   | 11     |                                       |   |   |              |   |   |   | 162    |   |   |   | 1,260 |   |
| At December 31, 2009         |   |                            | 999    |   |                   |   | 8      |                                       |   |   | 111               |   |   |   | 142    |   |   |   | 1,260 |   |
| At December 31, 2010         |   |                            | 912    |   |                   |   | 5      |                                       |   |   | 26                |   |   |   | 134    |   |   |   | 1,077 |   |

----

|                                      |   | New Israeli Shekels |   |
|-------------------------------------------|--------|---------------------|--------|
|                                      |   | December 31         |   |
|                                      |   | 2009                |   |   | 2010 |   |
|                                      |   | In millions         |   |
| Employees and employee institutions       |   |                | 137    |   |   |   | 149 |   |
| Liability for vacation and recreation pay |   |                | 21     |   |   |   | 15 |   |
| Government institutions                   |   |                | 61     |   |   |   | 59 |   |
| Interest payable                          |   |                | 2      |   |   |   | 18 |   |
| Sundry                                    |   |                | 17     |   |   |   | 23 |   |
|                                      |   |                | 238    |   |   |   | 264 |   |

|                            |   | Dismantling and restoring sites obligation |   |   | Legal claims** |   |   | Handset warranty |   |   | Total  |   |
|---------------------------------|--------|--------------------------------------------|--------|--------|----------------|--------|--------|------------------|--------|--------|--------|--------|
|                            |   | New Israeli Shekels In millions            |   |
|                            |   |                                       |   |   |           |   |   |             |   |   |   |   |
| Balance as at January 1, 2010   |   |                                       | 23     |   |           |   | 33     |             |   |   | 1      |   |   |   | 57 |   |
| Additions during the year       |   |                                       | 1      |   |           |   | 19     |             |   |   | 7      |   |   |   | 27 |   |
| Change in dismantling costs     |   |                                       | (2     | )      |           |   |   |             |   |   |   |   |   |   | (2 | ) |
| Reductions during the year      |   |                                       | *      |   |           |   | (30    | )                |   |   | (4     | )      |   |   | (34 | ) |
| Unwind of discount              |   |                                       | 1      |   |           |   |   |             |   |   |   |   |   |   | 1 |   |
| Balance as at December 31, 2010 |   |                                       | 23     |   |           |   | 22     |             |   |   | 4      |   |   |   | 49 |   |
| Non-current                     |   |                                       | 23     |   |           |   |   |             |   |   | -      |   |   |   | 23 |   |
| Current                         |   |                                       |   |   |           |   | 22     |             |   |   | 4      |   |   |   | 26 |   |
| Balance as at December 31, 2009 |   |                                       | 23     |   |           |   | 33     |             |   |   | 1      |   |   |   | 57 |   |
| Non-current                     |   |                                       | 23     |   |           |   | -      |             |   |   | -      |   |   |   | 23 |   |
| Current                         |   |                                       | -      |   |           |   | 33     |             |   |   | 1      |   |   |   | 34 |   |

----

|   | 1) | The Company had a senior credit facility with leading commercial banks. In 2008, the Company's senior credit facilities consisted of a USD 75 million long-term loan facility (Facility A) and a USD 75 million revolving loan facility (Facility B). On September 1, 2008, Facility A expired, with USD 6 million borrowed and repaid under Facility A in 2009. Facility B expired on September 1, 2009. During 2009 the Company used facility B to draw short term credits. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | On November 24, 2009, Facility D was received from a leading Israeli commercial bank in the amount of NIS 700 million for a maximum period of 3 years, in wholesale interest rate plus a margin of 0.85%, effective from January 1, 2010. The facility is used for short term financing. The wholesale interest rate of the bank as of December 31, 2009 and 2010 was 1.15% and 2.15% per year respectively. The Company is charged a commitment fee of 0.4% per year for undrawn amounts. As of December 31, 2010 no funds were drawn from this facility. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | On October 1, 2009, Facility C was received from a leading Israeli commercial bank. in the amount of NIS 250 million for a maximum period of 5 years, in wholesale interest rate plus a margin of 0.85%. The facility was used for short term financing. The wholesale interest rate of the bank as of December 31, 2009 was 1.1% and per year. The Company was charged a commitment fee of 0.4% per year for undrawn amounts. The facility was cancelled on November 11, 2010. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | On December 2, 2009, Facility E was received from a leading Israeli commercial bank in the amount of NIS 250 million for a maximum period of 3 years, in wholesale interest rate plus a margin of 0.85%, effective from January 1, 2010. The facility was used for short term financing. The wholesale interest rate of the bank as of December 31, 2009 was 1.1% per year. The Company was charged a commitment fee of 0.4% per year for undrawn amounts. The facility was cancelled on November 11, 2010. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | On November 11, 2010, a new long-term loan was established with a leading Israeli commercial bank in the amount of NIS 500 million. The loan is linked (principal and interest) to increases in the Israeli CPI. The principal amount is repayable in three equal annual installments between 2016 and 2018 and bear interest at an annual rate of 2.75%. The interest is payable on a semi-annual basis. This loan has canceled bank facilities C and E. The Company may, at its discretion, at any time, prepay the loan, in whole or in part, subject to the following conditions: the amount to be prepaid shall not be less than NIS 5 million; and the Company shall reimburse the bank for any loss sustained by the bank, if any, as a result of the prepayment in an amount based on the difference between the interest rate that the Company otherwise will have to pay through the end of the loan on its original due date, and the current market interest rate on the prepayment date. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4)  | On December 28, 2009, a loan was received from a leading Israeli commercial bank in the amount of NIS 300 million for a period of 4 years, bearing variable interest at the rate of the Israeli Prime interest rate minus a margin of 0.35%. The interest is payable quarterly. The principal is payable in one payment at the end of the loan period. The Israeli Prime interest rate as of December 31, 2009 and 2010 was 2.5% and 3.5% per year respectively. The Israeli Prime interest rate is determined by the Bank of Israel and updated on a monthly basis. The Company may, at its discretion, at any time, prepay the loan, in whole or in part, provided that the Company shall reimburse the bank for losses sustained by the bank, as a result of the prepayment in an amount based on the difference between the interest rate that the Company otherwise will have to pay through the end of the loan on its original due date, and the current market interest rate on the prepayment date. The loan contract requires that at any time the loan principal will not exceed 20% of all bank credits, loans, facilities (both utilized and committed facilities) and any other indebtedness of the company to the banks. |
|--------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| PARTNER COMMUNICATIONS COMPANY LTD. |
|-------------------------------------|

|   | 5) | On June 8, 2010, a new long-term loan was established with a leading Israeli commercial bank in the amount of NIS 250 million for a period of 10 years, bearing fixed interest at the rate of 5.7%. The principal and interest are payable annually. The Company may, at its discretion, at any time, prepay the loan, in whole or in part, subject to the following conditions: the amount to be prepaid shall not be less than NIS 5 million; and the Company shall reimburse the bank for any loss sustained by the bank, if any, as a result of the prepayment in an amount based on the difference between the interest rate that the Company otherwise will have to pay through the end of the loan on its original due date, and the current market interest rate on the prepayment date. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6) | On June 9, 2010, a new long-term loan was established with a leading Israeli commercial bank in the amount of NIS 250 million for a period of 10 years, bearing fixed interest at the rate of 5.7%. The principal and interest are payable annually. The Company may, at its discretion, at any time, prepay the loan, in whole or in part, provided that the Company shall reimburse the bank for any loss sustained by the bank, if any, as a result of the prepayment in an amount based on the difference between the interest rate that the Company otherwise will have to pay through the end of the loan on its original due date, and the current market interest rate on the prepayment date. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7) | Financial covenants: |
|--------|----|----------------------|

|   |   | With respect to Credit Facility D, and the long term bank loans the Company undertook to comply with financial covenants, which its main provisions are two ratios: |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (1) | The ratio of (a) the amount of all financial obligations of the Company including bank guarantees that the Company has undertaken ("Total Debt") to (b) Earnings Before Interest costs, Tax, Depreciation and Amortization expenses ("EBITDA") after deducting Capital Expenditures shall not exceed 6.5; and |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The ratio of (a) Total Debt to (b) the EBITDA of the Company shall not exceed 4. |
|--------|-----|----------------------------------------------------------------------------------|

|   |   | The covenants are measured every six months on an annualized basis of twelve months and are based on the financial results for the preceding period of twelve months. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | EBITDA is defined as the sum of (a) the net income before extraordinary items, (b) the amount of tax expenses set against the net profits including, without double counting,  any provisions for tax expenses, (c) and amortization and depreciation expenses, and (d) any finance costs net. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The Company was in compliance with all covenants stipulated for the years 2009 and 2010. |
|--------|--------|------------------------------------------------------------------------------------------|

|   |   | See note 6 regarding the Company's exposure to market risks and liquidity risk. |
|--------|--------|---------------------------------------------------------------------------------|

|   | 8) | Negative pledge: |
|--------|----|------------------|

|   |   | The Company provided a negative pledge undertaking (i.e., not to pledge any of its assets to a third party), except for a number of exceptions that were agreed upon, including pledge (other than by way of floating charge) in favor of a third party over specific assets or rights of the Company, securing obligations no greater than NIS 100 million in aggregate. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                |   | New Israeli Shekels |   |
|-------------------------------------|--------|---------------------|--------|
|                                |   | December 31         |   |
|                                |   | 2009                |   |   | 2010 |   |
|                                |   | In millions         |   |
| Year ending December 31:            |   |                |   |   |   |   |
| 2010                                |   |                | 750    |   |   |   | - |   |
| 2011                                |   |                | 563    |   |   |   | 575 |   |
| 2012                                |   |                | 374    |   |   |   | 383 |   |
|                                |   |                | 1,687  |   |   |   | 958 |   |
| Less - offering expenses            |   |                | 6      |   |   |   | 2 |   |
| Less - current maturities           |   |                | 750    |   |   |   | 575 |   |
| Included in non-current liabilities |   |                | 931    |   |   |   | 381 |   |

----

----

|                                |   | New Israeli Shekels |   |
|-------------------------------------|--------|---------------------|--------|
|                                |   | December 31         |   |
|                                |   | 2009                |   |   | 2010 |   |
|                                |   | In millions         |   |
| Year ending December 31:            |   |                |   |   |   |   |
| 2013                                |   |                | 112.25 |   |   |   | 115 |   |
| 2014                                |   |                | 112.25 |   |   |   | 115 |   |
| 2015                                |   |                | 112.25 |   |   |   | 115 |   |
| 2016                                |   |                | 112.25 |   |   |   | 115 |   |
|                                |   |                | 449    |   |   |   | 460 |   |
| Less - offering expenses            |   |                | 1      |   |   |   | 2 |   |
| Included in non-current liabilities |   |                | 448    |   |   |   | 458 |   |

|                                |   | New Israeli Shekels |   |
|-------------------------------------|--------|---------------------|--------|
|                                |   | December 31, 2010   |   |
| Year ending December 31:            |   | In millions         |   |
| 2016                                |   |                | 68.67  |   |
| 2017                                |   |                | 68.67  |   |
| 2018                                |   |                | 68.67  |   |
|                                |   |                | 206    |   |
| Less - offering expenses            |   |                | 2      |   |
| Included in non-current liabilities |   |                | 204    |   |

----

----

|   | · | From the issuance date to June 30, 2010: 3.4%. |
|--------|--------|------------------------------------------------|

|   | · | From July 1, 2010 to September 30, 2010: 3.288%. |
|--------|--------|--------------------------------------------------|

|   | · | From October 1, 2010 to December 31, 2010: 3.616%. |
|--------|--------|----------------------------------------------------|

|                                |   | New Israeli Shekels |   |
|-------------------------------------|--------|---------------------|--------|
|                                |   | December 31, 2010   |   |
| Year ending December 31:            |   | In millions         |   |
| 2017                                |   |                | 80     |   |
| 2018                                |   |                | 80     |   |
| 2019                                |   |                | 80     |   |
| 2020                                |   |                | 80     |   |
| 2021                                |   |                | 80     |   |
|                                |   |                | 400    |   |
| Less - offering expenses            |   |                | 4      |   |
| Included in non-current liabilities |   |                | 396    |   |

|                                |   | New Israeli Shekels |   |
|-------------------------------------|--------|---------------------|--------|
|                                |   | December 31, 2010   |   |
| Year ending December 31:            |   | In millions         |   |
| 2013                                |   |                | 80     |   |
| 2014                                |   |                | 80     |   |
| 2015                                |   |                | 80     |   |
| 2016                                |   |                | 80     |   |
| 2017                                |   |                | 80     |   |
|                                |   |                | 400    |   |
| Less - offering expenses            |   |                | 3      |   |
| Included in non-current liabilities |   |                | 397    |   |

----

|   | 1. | Non-current deferred revenues: |
|--------|----|--------------------------------|

|   | 2. | Finance lease: |
|--------|----|----------------|

|                              |   |           |   |   | New Israeli Shekels |   |
|-----------------------------------|--------|----------------|--------|--------|---------------------|--------|
|                              |   | December 31    |   |   | December 31         |   |
|                              |   | 2010           |   |   | 2009                |   |   | 2010 |   |
|                              |   | Weighted       |   |   |                |   |
|                              |   | average        |   |   |                |   |
|                              |   | interest rates |   |   | Amount              |   |
|                              |   |           |   |   | In millions         |   |
| Total commitment**                |   |           | 4.6    | %      |                |   | 4 |   |   |   | 3 |   |
| Less - deferred interest expenses |   |           |   |   |                |   | * |   |   |   | * |   |
|                              |   |           |   |   |                |   | 4 |   |   |   | 3 |   |
| Less - current maturities         |   |           |   |   |                |   | 2 |   |   |   | 3 |   |
| Non-current lease commitment      |   |           |   |   |                |   | 2 |   |   |   | - |   |

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

|   | ** | Linked to the CPI |
|--------|----|-------------------|

----

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

|   | Some of the Company's obligation for severance pay to its employees is in regulated by section 14 of the Israeli Severance Compensation Act and is covered mainly by monthly contributions to trusts and foundations, this liability is treated as a defined contribution plan. The Company had contributed NIS 1 million, NIS 5 million for the years 2009 and 2010 respectively, in accordance with section 14. The contributions in accordance with the aforementioned section 14 commenced in 2009, therefore no contributions were made in 2008. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Most of the Company's obligation for severance pay to its employees is based upon length of service and the latest monthly salary (one monthly salary for each year worked). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | This liability is treated as a defined benefit plan for which the Company has plan assets held in trusts and foundations. The liability is presented net of the plan assets in the statement of financial position under the "liability for employee rights upon retirement, net". |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                            |   | New Israeli Shekels |   |
|-------------------------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                                            |   | December 31         |   |
|                                                                                            |   | 2009                |   |   | 2010 |   |
|                                                                                            |   | In millions         |   |
| Present value of funded obligations                                                             |   |                | 151    |   |   |   | 178 |   |
| Less: fair value of plan assets                                                                 |   |                | 113    |   |   |   | 124 |   |
| Liability in the statement of financial position, net– presented as non-current liability |   |                | 38     |   |   |   | 54 |   |

----

|                        |   | New Israeli Shekels |
|-----------------------------|--------|---------------------|
|                        |   | December 31         |
|                        |   | 2009                |   |   | 2010 |
|                        |   | In millions         |
| Balance at January 1        |   |                | 134 |   |   |   | 151 |   |
| Current service cost   |   |                | 32 |   |   |   | 41 |   |
| Interest cost          |   |                | 9 |   |   |   | 7 |   |
| Actuarial losses (gains)    |   |                | (7 | ) |   |   | 8 |   |
| Benefits paid               |   |                | (17 | ) |   |   | (29 | ) |
| Balance at December 31 |   |                | 151 |   |   |   | 178 |   |

|                                |   |  New Israeli Shekels |
|-------------------------------------|--------|---------------------------|
|                                |   | December 31               |   |
|                                |   | 2009                      |   |   | 2010 |
|                                |   | In millions               |   |
| Balance at January 1                |   |                      | 81 |   |   |   | 113 |   |
| Expected return on plan assets      |   |                      | 6 |   |   |   | 6 |   |
| Actuarial  gains (losses) |   |                      | 9 |   |   |   | * |   |
| Employer contributions              |   |                      | 27 |   |   |   | 26 |   |
| Benefits paid                       |   |                      | (10 | ) |   |   | (21 | ) |
| Balance at December 31         |   |                      | 113 |   |   |   | 124 |   |

----

|                                                                                      |   | New Israeli Shekels    |   |
|-------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                      |   | Year ended December 31 |   |
|                                                                                      |   | 2009                   |   |   | 2010 |   |
|                                                                                      |   | In millions            |   |
| Current service cost                                                                 |   |                   | 32     |   |   |   | 41 |   |
| Interest cost                                                                        |   |                   | 9      |   |   |   | 7 |   |
| Expected return on plan assets                                                            |   |                   | (6     | ) |   |   | (6 | ) |
| Total expenses recognized in the income statement                                         |   |                   | 35     |   |   |   | 42 |   |
| Charged to the statement of income as follows:                                            |   |                   |   |   |   |   |   |   |
|          Cost of revenues                    |   |                   | 21     |   |   |   | 25 |   |
|          Selling and marketing expenses      |   |                   | 7      |   |   |   | 10 |   |
|          General and administrative expenses |   |                   | 4      |   |   |   | 6 |   |
|          Finance costs, net                  |   |                   | 3      |   |   |   | 1 |   |
|                                                                                      |   |                   | 35     |   |   |   | 42 |   |
| Actuarial losses (gains) recognized in the statement of comprehensive income, before tax  |   |                   | (16    | ) |   |   | 8 |   |
| Actual return on plan assets                                                              |   |                   | 15     |   |   |   | 6 |   |

|                           |   | December 31 |    |
|--------------------------------|--------|-------------|---------|
|                           |   | 2009        |    |   | 2010 |   |
|                           |   | %           |    |   | % |   |
|                           |   |        |    |   |   |   |
| Interest rate                  |   |        | 5.70    | % |   |   | 5.23 | % |
| Inflation rate                 |   |        | 2.73    | % |   |   | 3.02 | % |
| Expected return on plan assets |   |        | 5.70    | % |   |   | 3.23 | % |
| Expected turnover rate         |   |        | 8% - 32 | % |   |   | 8% - 32 | % |
| Future salary increases        |   |        | 4.92    | % |   |   | 1% - 6 | % |

----

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

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

|   | (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 59 million, for the years 2008, 2009 and 2010 respectively. In addition, during 2010, the company paid an amount of approximately 30 million in respect of previous years. See also note 18 (d). |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | At December 31, 2010, the Company is committed to acquire property and equipment for approximately NIS 326 million, including future payments in respect of the Ericsson contract, (see note 2(f)), that are cancellable provided compensation would be paid to the supplier. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | At December 31, 2010, the Company is committed to acquire handsets for approximately NIS 642 million including an estimation of the following. On June 15, 2009 the Company announced that it has entered into an agreement with Apple Sales International for the purchase and resale of iPhone handsets in Israel. The term of the agreement is three years during which the Company has agreed to purchase a minimum quantity of iPhone handsets per year which quantity will represent a significant portion of the Company's expected handset purchases over that period. The total cost of the purchases will depend on the prices of the handsets at the time of purchase. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | See note 14(7) regarding financial covenants and note 14 (8) regarding negative pledge. |
|--------|-----|-----------------------------------------------------------------------------------------|

|   | (6) | See note 26 in respect of acquisition of 012 Smile. |
|--------|-----|-----------------------------------------------------|

----

|   | b. | Operating leases: |
|--------|----|-------------------|

| The Company has entered into operating lease agreements as follows: |
|---------------------------------------------------------------------|

|   | (1) | In the beginning of 2010 an amendment to the lease agreements for its headquarters facility in Rosh Ha'ayin was signed. According to which the lease term is until the end of 2016, and the Company has an option to shorten the lease period to end in 2014. The rental payments are linked to the Israeli CPI. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Lease agreements for service centers and retail stores for a period of two to five years. The Company has options to extend the some lease contract periods for up to twenty years (including the original lease periods). The rental payments are linked to the dollar or to the Israeli CPI. Some of the extension options include an increase of the lease payment in a range of 2%-10%. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | (4) | As of December 31, 2010 operating lease agreements in respect of vehicles are for periods of up to three years. The rental payments are linked to the Israeli CPI. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                       |   | New Israeli Shekels |   |
|----------------------------|--------|---------------------|--------|
|                       |   | December 31, 2010   |   |
|                       |   | In millions         |   |
| Less than one year         |   |                | 240    |   |
| Between one and five years |   |                | 758    |   |
| More than five years       |   |                | 439    |   |
|                       |   |                | 1,437  |   |

|   | (6) | The rental expenses for the years ended December 31, 2010 and 2009 were approximately NIS 268 million, and NIS 247 million, respectively. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | c. | Lawsuits and litigations: |
|--------|----|---------------------------|

|   | (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, if the claim was recognized as a class action, was 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). On January 19, 2011, the court decided to dismiss the claim and the request. The plaintiff has the right to appeal during 45 days. On March 2nd, 2011, the plaintiff announced of an agreement according to which the plaintiff will not submit and appeal and the court's decision will become final and conclusive. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (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, if the claim was recognized as a class action, was estimated at approximately NIS 100 million for the seven year period leading up to the filing of the claim. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | On November 11, 2006, a claim and a motion to certify the claim as a class action were filed against the Company in the Tel-Aviv District Court. The claim alleges that the Company unlawfully charged subscribers for incoming short messages (SMS( for a dating service ("Pupik service"), while they did not agree to get nor to pay 5 NIS for each short message. The plaintiffs demanded the sum they paid for the service and in addition they demanded a compensation of 1000 NIS for each group member for mental anguish. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | (4) | 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. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | On December 16, 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. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | 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. During a preliminary hearing that took place on June 22, 2009, the court asked the plaintiff to consider the continuation of his legal procedure. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7) | 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 misled its customers who purchased a particular model of handset by not highlighting the fact that there were faults with certain functions of that model and not offering replacement models free of additional obligation. If the claim was recognized as a class action, the total amount claimed from the Company was estimated by the plaintiffs to be approximately NIS 70 million. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (8) | On April 22, 2009, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company charges certain subscribers for certain calls not according to their rate plan. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 187 million. The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (9) | On August 17, 2009, a claim and a motion to certify the claim as a class action were filed against the Company, another cellular operator and two content providers and integrators. The claim alleges that the Company charged subscribers for certain content services, without their consent. If the claim was recognized as a class action, the total amount claimed from the Company would be estimated by the plaintiff to be approximately NIS 228 million. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (10) | On March 15, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company charges its subscribers for certain content services without their consent. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 175 million. The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (11) | On April 12, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company charges its subscribers for certain content services without their consent. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 343 million. The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (12) | On May 23, 2010, a claim and a motion to certify the claim as a class action were filed against the Company and the other cellular operators. The claim alleges that the Company, as well as the other defendants, is breaching its contractual and/or legal obligation to erect cellular sites in the appropriate scope, quantity and coverage in order to provide cellular services in the required and appropriate quality. The plaintiffs claimed that this omission also causes, inter alia, monetary damages caused to consumers as a result of lack of sufficient coverage, including call disconnections, insufficient voice quality etc., as well as a significant increase in the non-ionized radiation that the public is exposed to mainly from the cellular telephone handset. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (13) | On July 14, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company is breaching its contractual and/or legal obligation and/or is acting negligently by charging V.A.T for roaming services that are consumed abroad (inter alia incoming calls, Call back calls, outgoing short text messages).  If the claim is recognized as a class action, the plaintiff demands to return the total amount of V.A.T that was charged by the Company for roaming services that were consumed abroad (total amount is not specified, nor estimation of that amount). The plaintiff also pursues an injunction that will order the Company to stop charging VA.T for roaming services that are consumed abroad. On December 5, 2010 the court decided that the State of Israel shall be added as a defendant in the claim and as a respondent in the motion to certify the claim as a class action. The claim is still in the preliminary stage of the motion to certify it as a class action. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (14) | On July 14, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that during the period between September 3, 2007 to December 31, 2008 the Company charged some of its subscribers for a time unit which is longer than 12 seconds while this charge was inconsistent with the Company’s license. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be more than the minimum amount for the authority of the District Court in Israel, which is NIS 2.5 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (15) | On July 28, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company overcharged its subscribers who were registered to a certain voice discount package, as a result of miscalculating the discount. 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 106 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (16) | On September 5, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company illegally charges its customers for cellular data usage abroad and that the bills and call details presented to the customers do not meet the regulatory requirements. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to reach hundreds of millions of NIS. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (17) | On September 7, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company unlawfully charges its customers for services of various content providers, which are sent through text messages (sms). If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 405 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (18) | On September 14, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company has not complied with legal obligations that apply to handset repairs during the manufacturer's warranty period. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiff to be approximately NIS 100 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (19) | On September 21, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that the Company did not comply with the requirements of the Israeli Consumer Protection Law regarding continuous transactions. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiff to be approximately NIS 98 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (20) | On November 8, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner did not grant its subscribers certain benefits that they were entitled to according to Partner's license. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiff to be approximately NIS 80 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (21) | On November 30, 2010, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner does not comply with the requirements set by Law and in the Company's license regarding the subscriber's right to review the subscriber agreement and to receive a copy of it. The claim further alleges that the subscriber agreement includes unduly disadvantageous conditions in a standard contract and therefore the court has the right to declare them void. . If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiff to be approximately NIS 150 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (22) | On February 1, 2011, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner did not comply with the requirements set by the Israeli Communications Law (telecommunications and broadcast) (amendment 40), 2008, regarding transmission of advertisements through telecommunication means (also known as "the spam 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 560 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (23) | On February 20, 2011, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner subscriber agreement includes unduly disadvantageous conditions in a standard contract and therefore the court has the right to declare them void and/or to change them. The claim further alleges that Partner did not comply with the requirements set by Law with respect to the subscriber's right to review the subscriber agreement in advance and to receive a copy of it and with respect to the subscriber's signature on the agreement by an electronic pad. If the claim is recognized as a class action, the total amount claimed is estimated by the plaintiff to be approximately NIS 600 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (24)  | On March 2, 2011, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner The claim alleges that Partner overcharges its pre-paid subscribers for interconnect fees for calls to other operators' networks.. 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 200 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (25)  | On March 2, 2011, a claim and a motion to certify the claim as a class action were filed against the Company. The claim alleges that Partner increased tariffs for its business subscribers not in accordance with their agreements. If the claim is recognized as a class action, the total amount claimed from the Company is estimated by the plaintiffs to be approximately NIS 140 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (26) | Additional 18 claims were filed against the Company, together with a request to recognize these claims as class actions. The total amount of these claims against the Company, if the claims are recognized as a class action, is estimated at approximately NIS 479 million. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (27) | In addition to all the above mentioned claims the Company is a party to various claims arising in the ordinary course of its operations. |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | (1) | On May 20, 2008, the 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 one of the frequency bands which the Company is using on a shared basis with another operator and claiming payment for its past use (which according to the MOC's claim is approximately NIS 42.5 million). |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On February 2010 an agreement with the MOC was reached, according to which the allocation of the frequency bands was completed, and the sum that the Company is required to pay for the use of the frequency band was agreed. Accordingly, the Company recognized a provision of NIS 31 million as of December 31, 2009 in respect of the above issue. The Company paid the agreed amount during February and March 2010, see also note 18 a (1). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Under the Telegraph Regulations the Company is committed to pay an annual fixed fee for each frequency used. Under the above Regulations should the Company choose to return a frequency, such payment is no longer due. See note 18 a (1). Cost of revenue was reduced by approximately NIS 50 million in Q4 2010 following a Supreme Court decision in December 2010 to fully accept the Company's petition against the Ministry of Communications regarding the amount of frequency fees that the Company should have paid for frequencies allocated to the Company. And other income was increased by NIS 10 million, representing interest In addition an amount of approximately NIS 10 million was recorded in other income in the financial statement. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | 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. Between January 3, 2006 and December 31, 2010 the Company provided the local authorities with 398 indemnification letters as a pre-condition for obtaining building permits. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In case 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. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | According to the company’s management estimation and based on its legal counsel, a provision in the financial statement was not included. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 its sites. These changes in the deployment of the sites might have an adverse effect on the extent, quality and capacity of the network coverage. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|   | b. | Share based compensation to employees – share options: |
|--------|----|--------------------------------------------------------------|

|   | (1) a. | In October 2000, the Company's Board of Directors approved an employee share 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 grant date, provided that the employee  continues in the  employ of Company. The option holder may exercise all or part of his options at any time after the vesting date but no later than the date of expiration of the exercise period, which is determined by the Employee Stock Option Committee and will not exceed ten years from the grant date. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | During November 2003, 419,930 options under this plan were transferred to the 2003 amendment Plan (see b below). |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   |   | Through December 31, 2010 - 5,317,555 options were granted pursuant to the 2000 Plan, of which 3,802,472 options have been exercised, 1,395,333 options were forfeited and 111,000 expired, and 8,750 outstanding (options forfeited and expired were available for subsequent grants). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (1) b. | 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 who held 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. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | On March 26, 2008, the Board of Directors of the Company approved the termination of the 2000 Plan and 2003 Amended Plan.  Since then, no further share options were granted under these plans, and all outstanding share options thereunder will remain valid and bear all terms and conditions of the relevant option plans. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (1)c. | In July 2004, the Company's Board of Directors approved a share 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 to employees, directors and officers of the Company without consideration. The option holder may exercise all or part of his options at any time after the vesting date but no later than the expiration date of the exercise period, which is determined by the Compensation Committee and will not exceed ten years from the grant date. |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | For grants made after December 31, 2008 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. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

| (1)d. | 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 of business 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 that 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, 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 the Company's shareholders. The amendment of the 2004 plan on February 2009 did not have an effect on the Company's financial results regarding the grants made before that date. |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (1) e. | The option plans described above 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: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (1) f. | The expenses recognized in respect of the fair value of the options granted in the years ended December 31, 2008, 2009 and 2010 are NIS 9 million, NIS 22 million, and NIS 23 million respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                               |   |                   |      |
|------------------------------------|--------|------------------------|-----------|
|                               |   | Year ended December 31 |      |
|                               |   | 2008                   |      |   | 2009 |   |   | 2010 |   |
|                               |   | Number                 |      |   | Weighted averageexercise price |   |   | Number |   |   | Weighted averageexercise price |   |   | Number |   |   | Weighted averageexercise price |   |
|                               |   |                   |      |   | NIS |   |   |   |   |   | NIS |   |   |   |   |   | NIS |   |
| Balance outstanding at beginning   |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of year                            |   |                   | 2,863,818 |   |   |   | 36.06 |   |   |   | 2,231,187 |   |   |   | 39.21 |   |   |   | 5,315,945 |   |   |   | 56.47 |   |
| Changes during the year:           |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Granted                            |   |                   | 76,000    |   |   |   | 66.05 |   |   |   | 4,185,500 |   |   |   | *60.42 |   |   |   | 3,310,500 |   |   |   | **62.40 |   |
| Exercised ***                      |   |                   | (566,614  | ) |   |   | 29.38 |   |   |   | (1,020,742 | ) |   |   | 37.28 |   |   |   | (1,529,795 | ) |   |   | 44.82 |   |
| Forfeited                          |   |                   | (142,014  | ) |   |   | 29.62 |   |   |   | (71,250 | ) |   |   | 29.1 |   |   |   | (270,375 | ) |   |   | 58.48 |   |
| Expired                            |   |                   | (3        | ) |   |   | 1.72 |   |   |   | (8,750 | ) |   |   | 27.35 |   |   |   |   |   |   |   |   |   |
| Balance outstanding at end of year |   |                   | 2,231,187 |   |   |   | 39.21 |   |   |   | 5,315,945 |   |   |   | *56.47 |   |   |   | 6,826,275 |   |   |   | **55.88 |   |
| Balance exercisable at end of year |   |                   | 1,031,312 |   |   |   | 33.64 |   |   |   | 928,945 |   |   |   | *45.25 |   |   |   | 2,243,022 |   |   |   | **47.91 |   |

|   | (2) | Following is a summary of the status of the plans as of December 31, 2008, 2009 and 2010 and the changes therein during the years ended on those dates: |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | *  | After taking into account the dividend benefit. |
|--------|---------|-------------------------------------------------|

|   | ** | After taking into account the dividend benefit and the exercise price amendment on July 2010, see (1)(d) above. |
|--------|----|-----------------------------------------------------------------------------------------------------------------|

|   | *** | The number of shares issued as a result of options exercised during 2010 is 809,040 due to the Cashless mechanism. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------|

----

|  Expire in |   | Number of options |      |   | Weighted average exercise price in NIS** |   |
|-----------------|--------|-------------------|-----------|--------|------------------------------------------|--------|
| 2011            |   |              | 8,750     |   |                                     |   | 21.72 |   |
| 2014            |   |              | 403,316   |   |                                     |   | 49.95 |   |
| 2015            |   |              | 283,542   |   |                                     |   | 61.90 |   |
| 2016            |   |              | 299,167   |   |                                     |   | 60.39 |   |
| 2017            |   |              | 133,250   |   |                                     |   | 55.07 |   |
| 2018            |   |              | 12,500    |   |                                     |   | 61.53 |   |
| 2019            |   |              | 3,317,750 |   |                                     |   | 51.44 |   |
| 2020            |   |              | 2,368,000 |   |                                     |   | 61.95 |   |
|            |   |              | 6,826,275 |   |                                     |   | 55.88 |   |

|  Expire in |   | Number of options |      |   | Weighted average exercise price in NIS* |   |
|-----------------|--------|-------------------|-----------|--------|-----------------------------------------|--------|
| 2010            |   |              | 17,750    |   |                                    |   | 17.49 |   |
| 2011            |   |              | 18,750    |   |                                    |   | 21.72 |   |
| 2014            |   |              | 294,600   |   |                                    |   | 26.74 |   |
| 2015            |   |              | 29,325    |   |                                    |   | 30.73 |   |
| 2016            |   |              | 170,500   |   |                                    |   | 33.12 |   |
| 2017            |   |              | 635,250   |   |                                    |   | 53.08 |   |
| 2018            |   |              | 68,770    |   |                                    |   | 66.05 |   |
| 2019            |   |              | 4,081,000 |   |                                    |   | 60.47 |   |
|            |   |              | 5,315,945 |   |                                    |   | 56.47 |   |

|  Expire in |   | Number of options |      |   | Weighted average exercise price in NIS |   |
|-----------------|--------|-------------------|-----------|--------|----------------------------------------|--------|
| 2009            |   |              | 115,300   |   |                                   |   | 27.29 |   |
| 2010            |   |              | 20,250    |   |                                   |   | 17.46 |   |
| 2011            |   |              | 21,250    |   |                                   |   | 21.72 |   |
| 2014            |   |              | 636,779   |   |                                   |   | 26.74 |   |
| 2015            |   |              | 191,901   |   |                                   |   | 33.13 |   |
| 2016            |   |              | 353,707   |   |                                   |   | 33.14 |   |
| 2017            |   |              | 816,000   |   |                                   |   | 53.19 |   |
| 2018            |   |              | 76,000    |   |                                   |   | 66.05 |   |
|            |   |              | 2,231,187 |   |                                   |   | 39.21 |   |

----

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

|                                                  |   | For the year ended December 31, |   |
|-------------------------------------------------------|--------|---------------------------------|--------|
|                                                  |   | 2008                            |   |   | 2009 |   |   | 2010 |   |
|                                                  |   | Per sharein NIS                 |   |   | NIS in millions |   |   | Per sharein NIS |   |   | NIS in millions |   |   | Per sharein NIS |   |   | NIS in millions |   |
| Cash dividends declared during the year               |   |                            | 6.06   |   |   |   | 942 |   |   |   | 6.38 |   |   |   | 982 |   |   |   | 7.82 |   |   |   | 1,212 |   |
| Tax withheld                                          |   |                            |   |   |   |   | (18 | ) |   |   |   |   |   |   | (14 | ) |   |   |   |   |   |   | (17 | ) |
| Previously withheld tax - paid during the year        |   |                            |   |   |   |   | 6 |   |   |   |   |   |   |   | 18 |   |   |   |   |   |   |   | 14 |   |
| Net Cash flow in respect of dividends during the year |   |                            |   |   |   |   | 930 |   |   |   |   |   |   |   | 986 |   |   |   |   |   |   |   | 1,209 |   |

|           |   | Dividends Declared for the periods of the year |   |
|----------------|--------|------------------------------------------------|--------|
|           |   | 2008                                           |   |   | 2009 |   |   | 2010 |   |
|           |   | Per sharein NIS                                |   |   | NIS in millions |   |   | Per sharein NIS |   |   | NIS in millions |   |   | Per sharein NIS |   |   | NIS in millions |   |
| First quarter  |   |                                           | 1.24   |   |   |   | 194 |   |   |   | 1.54 |   |   |   | 237 |   |   |   | 2.13 |   |   |   | 330 |   |
| Second quarter |   |                                           | 1.26   |   |   |   | 194 |   |   |   | 1.49 |   |   |   | 230 |   |   |   | 1.87 |   |   |   | 290 |   |
| Third quarter  |   |                                           | 1.54   |   |   |   | 236 |   |   |   | 1.94 |   |   |   | 299 |   |   |   | 1.93 |   |   |   | 299 |   |
| Forth quarter  |   |                                           | 1.41   |   |   |   | 216 |   |   |   | 1.89 |   |   |   | 293 |   |   |   | 1.92 |   |   |   | 298 |   |
|           |   |                                           | 5.45   |   |   |   | 840 |   |   |   | 6.86 |   |   |   | 1,059 |   |   |   | 7.85 |   |   |   | 1,217 |   |

|   | d.  | Capital reduction |
|--------|----------|-------------------|

----

| a. Cost of revenues                                                |   | New Israeli Shekels     |   |
|--------------------------------------------------------------------|--------|-------------------------|--------|
|                                                               |   | Year ended December 31, |   |
|                                                               |   | 2008                    |   |   | 2009 |   |   | 2010 |   |
|                                                               |   | In millions             |   |
| Payments to transmission, communication and content providers      |   |                    | 1,306  |   |   |   | 1,238 |   |   |   | 1,342 |   |
| Cost of handsets, accessories and ISP related  equipment |   |                    | 843    |   |   |   | 564 |   |   |   | 746 |   |
| Wages and employee benefits expenses plus car maintenance          |   |                    | 471    |   |   |   | 557 |   |   |   | 575 |   |
| Depreciation and amortization                                      |   |                    | 432    |   |   |   | 558 |   |   |   | 663 |   |
| Costs of replacing or repairing damaged handsets                   |   |                    | 213    |   |   |   | 212 |   |   |   | 199 |   |
| Operating lease, rent and overhead expenses                        |   |                    | 279    |   |   |   | 293 |   |   |   | 328 |   |
| Network maintenance                                                |   |                    | 135    |   |   |   | 147 |   |   |   | 63 |   |
| Carkit installation, IT support, and other operating expenses      |   |                    | 89     |   |   |   | 93 |   |   |   | 86 |   |
| Royalties expenses                                                 |   |                    | 68     |   |   |   | 65 |   |   |   | 43 |   |
| Other                                                              |   |                    | 32     |   |   |   | 43 |   |   |   | 48 |   |
| Total Cost of revenues                                             |   |                    | 3,868  |   |   |   | 3,770 |   |   |   | 4,093 |   |

| b. Selling and marketing expenses                         |   | New Israeli Shekels     |   |
|-----------------------------------------------------------|--------|-------------------------|--------|
|                                                      |   | Year ended December 31, |   |
|                                                      |   | 2008                    |   |   | 2009 |   |   | 2010 |   |
|                                                      |   | In millions             |   |
| Wages and employee benefits expenses plus car maintenance |   |                    | 170    |   |   |   | 184 |   |   |   | 228 |   |
| Advertising and marketing                                 |   |                    | 103    |   |   |   | 118 |   |   |   | 142 |   |
| Selling commissions, net                                  |   |                    | 32     |   |   |   | 8 |   |   |   | 25 |   |
| Depreciation                                              |   |                    | 12     |   |   |   | 7 |   |   |   | 10 |   |
| Other                                                     |   |                    | 71     |   |   |   | 70 |   |   |   | 74 |   |
| Total selling and marketing expenses                      |   |                    | 388    |   |   |   | 387 |   |   |   | 479 |   |

| c. General and administrative expenses                    |   | New Israeli Shekels     |   |
|-----------------------------------------------------------|--------|-------------------------|--------|
|                                                      |   | Year ended December 31, |   |
|                                                      |   | 2008                    |   |   | 2009 |   |   | 2010 |   |
|                                                      |   | In millions             |   |
| Bad debts and allowance for doubtful accounts             |   |                    | 96     |   |   |   | 78 |   |   |   | 50 |   |
| Wages and employee benefits expenses plus car maintenance |   |                    | 66     |   |   |   | 87 |   |   |   | 122 |   |
| Professional fees                                         |   |                    | 33     |   |   |   | 40 |   |   |   | 45 |   |
| Credit card commissions                                   |   |                    | 29     |   |   |   | 32 |   |   |   | 33 |   |
| Depreciation                                              |   |                    | 19     |   |   |   | 12 |   |   |   | 12 |   |
| Other                                                     |   |                    | 41     |   |   |   | 41 |   |   |   | 44 |   |
| Total general and administrative expenses                 |   |                    | 284    |   |   |   | 290 |   |   |   | 306 |   |

----

| d. Employee benefit expense                                                                                                                                               |   | New Israeli Shekels     |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                                                      |   | Year ended December 31, |   |
|                                                                                                                                                                      |   | 2008                    |   |   | 2009 |   |   | 2010 |   |
|                                                                                                                                                                      |   | In millions             |   |
| Wages and salaries including social benefits, social security costs and pension      costs, defined contribution plans and defined benefit plans |   |                    | 642    |   |   |   | 745 |   |   |   | 823 |   |
| Expenses in respect of share options that were granted to employees                                                                                                       |   |                    | 9      |   |   |   | 22 |   |   |   | 23 |   |
|                                                                                                                                                                      |   |                    | 651    |   |   |   | 767 |   |   |   | 846 |   |

|                                     |   | New Israeli Shekels     |   |
|------------------------------------------|--------|-------------------------|--------|
|                                     |   | Year ended December 31, |   |
|                                     |   | 2008                    |   |   | 2009 |   |   | 2010 |   |
|                                     |   | In millions             |   |
| Unwinding of trade receivables           |   |                    | 65     |   |   |   | 60 |   |   |   | 63 |   |
| Other income                             |   |                    | -      |   |   |   | 12 |   |   |   | 4 |   |
| Capital loss from property and equipment |   |                    | (1     | ) |   |   | (3 | ) |   |   | (3 | ) |
|                                     |   |                    | 64     |   |   |   | 69 |   |   |   | 64 |   |

|                                                                        |   | New Israeli Shekels     |   |
|-----------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                        |   | Year ended December 31, |   |
|                                                                        |   | 2008                    |   |   | 2009 |   |   | 2010 |   |
|                                                                        |   | In millions             |   |
| Fair value gain from derivative financial instruments, net                  |   |                    | 11     |   |   |   | 18 |   |   |   |   |
| Net foreign exchange gains                                                  |   |                    | 10     |   |   |   | - |   |   |   | 16 |   |
| Interest income from cash equivalents                                       |   |                    | 4      |   |   |   | 1 |   |   |   | 3 |   |
| Expected return on plan assets                                              |   |                    | 3      |   |   |   | 6 |   |   |   | 6 |   |
| Other                                                                       |   |                    | 2      |   |   |   | 3 |   |   |   | 3 |   |
| Finance income                                                              |   |                    | 30     |   |   |   | 28 |   |   |   | 28 |   |
|                                                                        |   |                    |   |   |   |   |   |   |   |   |   |   |
| Interest expenses                                                           |   |                    | 94     |   |   |   | 86 |   |   |   | 127 |   |
| Linkage expenses to CPI                                                     |   |                    | 102    |   |   |   | 88 |   |   |   | 54 |   |
| Interest costs in respect of liability for employees rights upon retirement |   |                    | 7      |   |   |   | 9 |   |   |   | 7 |   |
| Fair value loss from derivative financial instruments, net                  |   |                    |   |   |   |   |   |   |   |   | 6 |   |
| Net foreign exchange rate losses                                            |   |                    | -      |   |   |   | 9 |   |   |   |   |   |
| Factoring costs, net                                                        |   |                    | 11     |   |   |   | 4 |   |   |   | 1 |   |
| Other finance costs                                                         |   |                    | -      |   |   |   | 8 |   |   |   | 14 |   |
| Finance expense                                                             |   |                    | 214    |   |   |   | 204 |   |   |   | 209 |   |
|                                                                        |   |                    | 184    |   |   |   | 176 |   |   |   | 181 |   |

----

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

|   | b. | Tax rates applicable to income of the Company and its subsidiary |
|--------|----|------------------------------------------------------------------|

|   | c. | Losses carried forward to future years |
|--------|----|----------------------------------------|

----

|   | d. | Deferred income taxes |
|--------|----|-----------------------|

|   Balance of deferred tax asset (liability) in respect of |   |   | As at January 1, 2008 |    |   |   | Charged to the income statement |    |   | Charged to other comprehensive income |   |   |   | As at December 31, 2008 |   |    |    | Charged to the income statement |    |    |   Effect of change in corporate tax rate |   |   | Charged  to other comprehensive income |   |   |    | As at December 31, 2009 |   |   |   | Charged to the income statement |    |   | Charged  to other comprehensive income |    |   |   | As at December 31, 2010 |   |
|----------------------------------------------------------------|--------|--------|-----------------------|---------|--------|--------|---------------------------------|---------|--------|---------------------------------------|--------|--------|--------|-------------------------|--------|---------|---------|---------------------------------|---------|---------|-----------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------|-------------------------|--------|--------|--------|---------------------------------|---------|--------|--------------------------------------------------|---------|--------|--------|-------------------------|--------|
| New Israeli Shekels In millions                                |
| Allowance for doubtful accounts                                |   |   | 43                    |    |   |   | 23                              |    |   |                                  |   |   |   | 66                      |   |    |    | (3                              | )  |    |  (2                                      | )      |   |                                             |   |   |    | 61                      |   |   |   | (1                              | )  |   |                                             |    |   |   | 60                      |   |
|                                                           |   |   |                  |    |   |   |                            |    |   |                                  |   |   |   |                    |   |    |    |                            |    |    |                                          |   |   |                                             |   |   |    |                    |   |   |   |                            |    |   |                                             |    |   |   |                    |   |   |
| Provisions for employee rights                                 |   |   | 14                    |    |   |   | 1                               |    |   |  5                               |   |   |   | 20                      |   |    |    | (1                              | )  |    |                                          |   |   |                                             |   | (4     | )  |                    |   | 14     |   |                            |    | 1      |                                             |    |   | 2      |                    |   |   | 17 |   |
|                                                           |   |   |                  |    |   |   |                            |    |   |                                  |   |   |   |                    |   |    |    |                            |    |    |                                          |   | (1     | )                                           |   |   |    |                    |   |   |   |                            |    |   |                                             |    |   |   |                    |   |   |   |   |   |
| Subscriber acquisition costs                                   |   |   | 42                    |    |   |   | (1                              | )  |   |                                  |   |   |   |                    | 41     |    |    |                            | (30     | )  |                                          |   | (1     | )                                           |   |   |    |                    |   |   | 10     |                            |    |   | (10                                              | )  |   |   |                    |   |   |   |   |   |
|                                                           |   |   |                  |    |   |   |                            |    |   |                                  |   |   |   |                    |   |    |    |                            |    |    |                                          |   |   |                                             |   |   |    |                    |   |   |   |                            |    |   |                                             |    |   |   |                    |   |   |   |   |   |
| Depreciable fixed assetsand software                           |   |   | (46                   | )  |   |   | (44                             | )  |   |                                  |   |   |   |                    | (90    | )  |    |                            | (35     | )  |                                          |   | 26     |                                             |   |   |    |                    |   |   | (99    | )                               |    |   | (6                                               | )  |   |   |                    |   |   |   | (105 | )  |
|                                                           |   |   |                  |    |   |   |                            |    |   |                                  |   |   |   |                    |   |    |    |                            |    |    |                                          |   |   |                                             |   |   |    |                    |   |   |   |                            |    |   |                                             |    |   |
| Amortized licenses                                             |   |   | 11                    |    |   |   |                            |    |   |                                  |   |   |   |                    | 11     |    |    |                            | 8       |    |                                          |   | (4     | )                                           |   |   |    |                    |   |   | 15     |                            |    |   | (2                                               | )  |   |   |                    |   |   |   | 13 |   |
| Options granted to employees                              |   |   | 22                    |    |   |   |                            |    |   |                                  |   |   |   |                    | 22     |    |    |                            | (18     | )  |                                          |   |   |                                             |   |   |    |                    |   |   | 4      |                            |    |   | (2                                               | )  |   |   |                    |   |   |   | 2 |   |
| Financial instruments                                          |   |   |                  | 9       |   |   |                            |    |   |                                  |   | 9      |   |                    |   | (5      | )  |                            |    |    |                                          |   |   |                                             |   |   |    | 4                       |   |   |   | (4                              | )       |   |                                             |    |   |   |                    | *      |   |
| Other                                                          |   |   | (1                    | )       |   |   | 3                               |    |   |                                  |   |   |   |                    | 2      |    |    |                            | 3       |    |                                          |   |   |                                             |   |   |    |                    |   |   | 5      |                            |    |   | 6                                                |    |   |   |                    |   |   |   | 11 |   |
| Total                                                          |   |   | 85                    |    |   |   | (9                              | )  |   |                                  | 5      |   |   |                    | 81     |    |    |                            | (81     | )  |                                          |   | 18     |                                             |   |   | (4      | )                  |   |   | 14     |                            |    |   | (18                                              | )  |   |   | 2                       |   |   |   | (2 | ) |

----

|                                                               |   | New Israeli Shekels |   |
|--------------------------------------------------------------------|--------|---------------------|--------|
|                                                               |   | December 31,        |   |
|                                                               |   | 2008                |   |   | 2009 |   |   | 2010 |   |
|                                                               |   | In millions         |   |
| Deferred tax assets                                                |   |                |   |   |   |   |   |   |   |
| Deferred tax assets to be recovered after more than 12 months      |   |                | 76     |   |   |   | 57 |   |   |   | 59 |   |
| Deferred tax assets to be recovered within 12 months               |   |                | 95     |   |   |   | 56 |   |   |   | 44 |   |
|                                                               |   |                | 171    |   |   |   | 113 |   |   |   | 103 |   |
| Deferred tax liabilities                                           |   |                |   |   |   |   |   |   |   |   |   |   |
|                                                               |   |                |   |   |   |   |   |   |   |   |   |   |
| Deferred tax liabilities to be recovered after more than 12 months |   |                | 90     |   |   |   | 99 |   |   |   | 105 |   |
| Deferred tax liabilities to be recovered within 12 months          |   |                |   |   |   |   |   |   |   |   | * |   |
|                                                               |   |                | 90     |   |   |   | 99 |   |   |   | 105 |   |
| Deferred tax assets (liability), net                               |   |                | 81     |   |   |   | 14 |   |   |   | (2 | ) |

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

|                                                                                  |   | New Israeli Shekels    |   |
|---------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                  |   | Year ended December 31 |   |
|                                                                                  |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
|                                                                                  |   | In millions            |   |
| Profit before taxes on income,                                                        |   |                   |   |   |   |   |   |   |   |
| as reported in the income statements                                                  |   |                   | 1,642  |   |   |   | 1,525 |   |   |   | 1,679 |   |
| Theoretical tax expense                                                               |   |                   | 443    |   |   |   | 396 |   |   |   | 420 |   |
| Increase in tax resulting from disallowable deductions:                               |   |                   |   |   |   |   |   |   |   |   |   |   |
|      In respect of previous years                            |   |                   | 2      |   |   |   |   |   |   |   |   |   |
|      For the current year                                    |   |                   | 5      |   |   |   | 3 |   |   |   | 8 |   |
| Decrease in tax resulting from deferred taxes calculated based on different tax rates |   |                   |   |   |   |   |   |   |   |   | (3 | ) |
| Taxes on income in respect of previous years                                          |   |                   |   |   |   |   |   |   |   |   | 5 |   |
| Expenses deductible according to different tax rates                                  |   |                   |   |   |   |   |   |   |   |   | 1 |   |
| Change in the estimated utilization period of the tax assets                          |   |                   | (4     | ) |   |   |   |   |   |   |   |   |
| Change in corporate tax rate, see b above                                             |   |                   |   |   |   |   | (18 | ) |   |   |   |   |
| Other                                                                                 |   |                   | (2     | ) |   |   | 3 |   |   |   | 5 |   |
| Income tax expenses                                                                   |   |                   | 444    |   |   |   | 384 |   |   |   | 436 |   |

----

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

|   | 1) | As follows: |
|--------|----|-------------|

|                                                     |   | New Israeli Shekels    |   |
|----------------------------------------------------------|--------|------------------------|--------|
|                                                     |   | Year ended December 31 |   |
|                                                     |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
|                                                     |   | In millions            |   |
| For the reported year:                                   |   |                   |   |   |   |   |   |   |   |
| Current                                                  |   |                   | 423    |   |   |   | 321 |   |   |   | 413 |   |
| Deferred, see d above                                    |   |                   | 20     |   |   |   | 76 |   |   |   | 14 |   |
| Effect of change in corporate tax rate on deferred taxes |   |                   |   |   |   |   | (18 | ) |   |   |   |   |
| In respect of previous year:                             |   |                   |   |   |   |   |   |   |   |   |   |   |
| Current                                                  |   |                   | 12     |   |   |   | - |   |   |   | 5 |   |
| Deferred, see d above                                    |   |                   | (11    | ) |   |   | 5 |   |   |   | 4 |   |
|                                                     |   |                   | 444    |   |   |   | 384 |   |   |   | 436 |   |

|   | g. | Tax assessments: |
|--------|----|------------------|

|   | 1) | The Company has received final corporate tax assessments through the year ended December 31, 2006. |
|--------|----|----------------------------------------------------------------------------------------------------|

|   | 2) | As general rule, tax self-assessments filed by a subsidiary through the year ended December 31, 2006 are, by law, now regarded as final. However, the manager of the tax authority may direct that the 2006 tax self assessment will not be regarded as final until December 31, 2011. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | All income before taxes and income tax expenses for all of the reporting periods are local in Israel.  |
|--------|----|-------------------------------------------------------------------------------------------------------------|

----

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

|   |   | On October 28, 2009 Scailex became the Company's principal shareholder. |
|--------|--------|-------------------------------------------------------------------------|

|   |   | On 2009 and 2010, the Company's organs approved and ratified the existing perennial agreement with Scailex for the purchase of cellular handsets, accessories and spare parts which are manufactured by Samsung electronics Ltd. and imported into Israel by Scailex ("the Agreement"). The main terms of the Agreement are as follows: the term of the Agreement shall be for a period of two years commencing October 28, 2009; the total volume of the transactions under the Agreement shall not exceed NIS 200 million, on an annual basis, which may be increased by an additional amount of up to NIS 50 million, subject to the approval of the Audit Committee and Board of Directors of each of the companies; the prices of the Samsung products shall be determined by negotiations between Scailex and the Company; however, Scailex’s total and accumulative annual gross profit margin from transactions with the Company regarding each group of products  (purchase of handsets, accessories or spare parts) ("Annual Gross Profit Margin") shall not exceed Scailex's average gross profit margin from the same group of products with its customers in Israel during the same calendar year (the "Average Gross Profit Margin"). If the Annual Gross Profit Margin of any group of products, exceeds Scailex's Average Gross Profit Margin, from the same group of Products, by more than 10% of the Average Gross Profit Margin, Scailex shall credit the difference to the Company. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | In addition, in 2010 The Company's Audit Committee approved an agreement for the purchase of laptop computers which are manufactured by Samsung electronics Ltd. and imported into Israel by Scailex (the "Second Agreement"). The main terms of the Second Agreement are as follows: the total volume of the transactions under the Second Agreement shall not exceed NIS 4.4 million on an annual basis and  shall not exceed 30% of the total volume of the Company's laptop purchases in the netbook category (any deviation from this sum shall require prior approval of the Company's Audit Committee);  the term of the agreement shall be for a period of one year; prior to the execution of each order under the agreement the Company will assure that the prices set forth in the Second Agreement continue to reflect the market prices and if not, the Company shall negotiate with Scailex in order to adjust the product prices before executing an order. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                |   | New Israeli Shekels                                    |   |
|-----------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                |   | Period from October 28, 2009 to December 31, 2009 |   |   | Year ended December 31, 2010 |   |
| Transactions with Scailex group                     |   | In millions                                            |   |
| Service revenues                                    |   |                                                   | 0.9    |   |   |   | 1.5 |   |
| Acquisition of handsets                             |   |                                                   | 14     |   |   |   | 143 |   |
| Selling commissions, maintenance and other expenses |   |                                                   | 2      |   |   |   | 3.8 |   |

|                                                  |   | New Israeli Shekels |   |
|-------------------------------------------------------|--------|---------------------|--------|
|                                                  |   | December 31,        |   |
|                                                  |   | 2009                |   |   | 2010 |   |
| Statement of financial position items - Scailex group |   | In millions         |   |
| Current liabilities: Scailex group                    |   |                | 34     |   |   |   | 72 |   |

----

|   | b. | Transactions with Hutchison group |
|--------|----|-----------------------------------|

|   | Based on information provided to the Company by Advent, a wholly-owned subsidiary of Hutchison Telecom, Advent granted a one-time cash payment to selected employees of the Company, shortly following Advent’s sale of its controlling interest, in recognition of the contribution made by such employees to the value of the Company.  According to Advent, the aggregate value of such one-time payment to the Company’s executive officers was NIS 18.4 million.  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                |   | New Israeli Shekels         |   |
|-----------------------------------------------------|--------|-----------------------------|--------|
|                                                |   | Year ended December31, 2008 |   |   | Period from January 1, 2009 to October 28, 2009 |   |
| Transactions with Hutchison group                   |   | In millions                 |   |
| Acquisition of handsets from related parties        |   |                        | 9      |   |   |   | 11 |   |
|                                                |   |                        |   |   |   |   |   |   |
| Selling commissions, maintenance and other expenses |   |                        | 4      |   |   |   | 5 |   |

----

|   | c. | Key management compensation |
|--------|----|-----------------------------|

|                                           |   | New Israeli Shekels    |   |
|------------------------------------------------|--------|------------------------|--------|
|                                           |   | Year ended December 31 |   |
|                                           |   | 2008                   |   |   | 2009 |   |   | 2010 |   |
| Key management compensation expenses comprised |   | In millions            |   |
| Salaries and short-term employee benefits      |   |                   | 29     |   |   |   | 28 |   |   |   |  31 |   |
| Long term employment benefits                  |   |                   | 4      |   |   |   | 5 |   |   |   | 37 |   |
| Employee share-based compensation expenses     |   |                   | 4      |   |   |   | 16 |   |   |   | 16 |   |
|                                           |   |                   | 37     |   |   |   | 49 |   |   |   | 84 |   |

|                                                   |   | New Israeli Shekels |   |
|--------------------------------------------------------|--------|---------------------|--------|
|                                                   |   | December 31,        |   |
|                                                   |   | 2009                |   |   | 2010 |   |
| Statement of financial position items - key management |   | In millions         |   |
| Current liabilities:                                   |   |                | 16     |   |   |   | 20 |   |
| Non-current liabilities:                               |   |                | 12     |   |   |   | 24 |   |

|   | Furthermore, an amount of USD 1 million was paid in 2010 to the Company's former CEO based on a retention plan that the Company adopted in February 2009. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | d. | During 2009 the Company purchased a substantial portion of Nokia handsets from Eurocom Communications Ltd. On November 19, 2009, Eurocom sold shares of the Company it previously held to Suny Electronics Ltd. The Company believes that the purchase transactions of the handsets from Eurocom were done at arms length and on market terms. If need be, Nokia handsets can be purchased from both Israeli and  international suppliers and thereby reduce the dependency on Eurocom. These purchase prices may be higher than the purchase prices from Eurocom. As part of the Hutchison group, the Company benefited from conditions and prices of Nokia handset purchases, that were agreed upon between Hutchison and Nokia. Since the Company was acquired by Scailex and is no longer part of the Hutchison group, the purchase conditions from Eurocom may be updated. Additional conditions and agreements between the Company and Eurocom are set from time to time. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                   |   | New Israeli Shekels    |    |
|--------------------------------------------------------|--------|------------------------|---------|
|                                                   |   | Year ended December 31 |    |
|                                                   |   | 2008                   |    |   | 2009 |   |   | 2010 |   |
| Profit used for the computation of                |   |                   |    |   |   |   |   |   |   |
| basic and diluted EPS:                                 |   |                   |    |   |   |   |   |   |   |
| Profit (in millions)                                   |   |                   | 1,198   |   |   |   | 1,141 |   |   |   | 1,243 |   |
| Weighted average number of shares used            |   |                   |    |   |   |   |   |   |   |   |   |   |
| in computation of basic EPS (in thousands)        |   |                   | 155,350 |   |   |   | 153,809 |   |   |   | 154,866 |   |
| Add - net additional shares from assumed          |   |                   |    |   |   |   |   |   |   |   |   |   |
| exercise of employee stock options (in thousands) |   |                   | 1,170   |   |   |   | 1,008 |   |   |   | 1,430 |   |
| Weighted average number of shares used in         |   |                   |    |   |   |   |   |   |   |   |   |   |
| computation of diluted EPS (in thousands)              |   |                   | 156,520 |   |   |   | 154,817 |   |   |   | 156,296 |   |

----

|   | On March 3, 2011 the Company completed the acquisition of all of the issued and outstanding shares of 012 Smile Telecom Ltd. ("012 Smile"), from Merhav-Ampal Energy Ltd. (the "Seller"). 012 Smile is an Israeli private company, which provides international long distance services, internet services and local telecommunication fixed-line services (including telephony services using VOB). The Company has acquired control in 012 Smile to allow it to become a leading comprehensive communications group, expanding its services and products. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The purchase price for the acquisition of 012 Smile is NIS 650 million which includes the acquiring of all of the outstanding shares of 012 Smile and a loan from the previous shareholder to 012 Smile. As part of the acquisition, Partner also guaranteed for the bank loans and other bank guarantees, which were provided to 012 Smile, in a total amount of approximately NIS 800 million. According to the purchase agreement, 012 Smile assigned to the Seller the right to receive payments due from a third party in an amount of approximately NIS 40 million. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The acquisition was approved by all required third parties on March 3, 2011, including the Israeli Ministry of Communications which required structural separation among Partner and 012 Smile for a period of time depended on certain elements. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The acquisition will be accounted for using the acquisition method. |
|--------|---------------------------------------------------------------------|

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

|   | As the acquisition was completed subsequent to December 31, 2010, the consolidated financial statements do not include the results or the financial position of 012 Smile. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under the disclosure requirements of IFRS 3R (Business Combinations) the Company is required to provide information regarding the effect of the business combination. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Due to the following limitations, the initial accounting for the business combination is incomplete at the time the financial statements are authorized for issue. Therefore, the Company did not include the above mentioned information as permitted by paragraph B66 of IFRS 3R. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1.  | As described above, the acquisition was completed as of March 3, 2011 (closing date), while the date of the approval of the annual financial statements of the Company is March, 17 2011, which is dictated by the fact that the Company and its parent and ultimate parent are both public companies that are required to provide financial reports on schedules mandatory by law. |
|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2.  | Until the closing date there were regulatory restrictions which prohibited both the Company and 012 Smile to co-operate and provide business information to the Company to start preparing IFRS financial information. |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.  | Prior the acquisition, 012 Smile being a newly incorporated company, has never issued a full set of financial statements, 012 Smile does not have full financial statement for 2010 under IFRS. |
|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.  | The Company hasn’t completed the work of the purchase price allocation needed under IFRS 3R disclosure. |
|--------|----------|---------------------------------------------------------------------------------------------------------------|

----

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

|   | 1. | On January 2, 2005, a claim was made against 012 and three other companies regarding alleged infringement of Israeli Patent No. 76993 of November 10, 1985, unjust enrichment, breach of statutory duties and conversion (the “2005 Claim”). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The plaintiffs’ demands include payment of amounts of income generated from exploitation of the patent, payment of reasonable royalties for exploitation of the patent, punitive damages, litigation costs and attorneys’ fees, and payment of linkage differentials and interest from the date of creation of the debt until the date of actual payment. The 2005 Claim states that the monetary amount cannot be determined at this stage and that it has been assessed for the purpose of court fees only at NIS 10 million (approximately $2.72 million), against all defendants collectively and separately. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | On July 17, 2005, a statement of defense was filed against plaintiffs and a third party notice was filed against the providers of the telecommunications systems allegedly infringing on the patent (the “Third Party Defendants”), seeking indemnification and compensation for any liability that may be imposed in the context of the 2005 Claim (the “Third Party Proceedings”). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The plaintiffs have also initiated similar proceedings against other telecommunications companies in other countries, including the United Kingdom and the United States. Some telecommunications companies, including one of the initial defendants named in this 2005 Claim, have settled with the plaintiffs and obtained a license, whereas other telecommunications companies have refused to settle. For example, the corresponding English patent was declared invalid following a legal action and appeals. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The 2005 Claim and the Third Party Proceedings are currently at the Preliminary Proceedings stage and the court ordered the parties to complete all preliminary proceedings by no later than May 1, 2011. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 2. | During 2008, several claims and motions to certify the claims as class actions were filed with various District Courts in Israel against several international telephony companies including 012. The plaintiffs allege that with respect to prepaid calling card services the defendants mislead the consumers in certain issues, charged consumers in excess, and formed a cartel that arranged and raised the prices of calling cards. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.  | On November 20, 2008, a claim and a motion to certify the claim as a class action were filed against 012 in its former name Internet Gold Golden Lines Ltd. to the Tel Aviv District Court in Israel. The claim alleges that 012 unlawfully raised the monthly tariffs for its internet services. If the claim is recognized as a class action, the total amount claimed from 012 is estimated by plaintiff to be approximately NIS 81.5 million. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 4.   On November 4, 2009, a claim and a motion to certify the claim as a class action were filed against 012 to the Central District Court in Israel. The claim alleges that 012 has violated the Israeli "anti spam" law by sending advertising materials to its customers.  The amount of the plaintiff's personal claim is set at NIS 10,000 (approximately $2,700). The estimated amount of the entire claim is yet to be known. On November 29, 2009, the court granted a temporary order preventing 012 from deleting or changing data relating to specific messages which the plaintiff claims he sent to 012. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5.   On July 2010, a claim and a motion to certify the claim as a class action were filed against 012 Smile to the Central District Court in Israel. The claim alleges that 012 Smile's advertisements regarding certain tariffs did not include complete information as to possible additional tariffs charged of third parties. The amount of the personal claim is set by the plaintiff at NIS 397. As the plaintiff has not yet determined the size of the group, the estimated amount of the entire claim is not yet known. The claim is still in its preliminary stage of the motion to be certified as a class action. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6.  Additional 7 claims were filed against 012 and 012 Smile, together with a request to recognize these claims as class actions. The total amount of these claims against 012 and 012 Smile together, if the claims are recognized as a class action, is estimated at approximately NIS 170 million. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7.   In addition to all the above mentioned claims, 012 and 012 Smile is a party to various claims arising in the ordinary course of its operations. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8.  These claims will be presented at fair values, calculated as part of the purchase price allocation as of the acquisition date. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

----

----